TPO directed to delete transfer pricing adjustment on Global Corporate Client Management Fees for not following Section 92(1) prescribed method

ITAT Mumbai allowed the assessee's appeal regarding transfer pricing adjustment on Global Corporate Client Management Fees, directing TPO to delete the adjustment as no prescribed method under Section 92(1) was followed, making it adhoc. The tribunal remanded issues of travelling expenses disallowance (20% for alleged duplication) and miscellaneous expenses disallowance (20% for capital nature) back to AO for fresh examination with proper verification of supporting documents. TDS credit issue was also restored to AO for verification.

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Issues Involved:
1. Assessment of Total Income
2. Transfer Pricing Adjustment
3. Reference to Transfer Pricing Officer (TPO)
4. Benchmarking Analysis
5. Determination of Arm's Length Price (ALP)
6. Scope of TPO
7. Availing of Services/Benefit Test/Commercial Rational
8. Nature of Services
9. Method for Benchmarking International Transaction
10. Disallowance of Travelling Expenses
11. Disallowance of Miscellaneous Expenses
12. Invocation of Section 14A
13. Short Grant of TDS Credit Tax
14. Initiation of Penalty Proceedings

Summary:

Assessment of Total Income:
Ground No. 1 was dismissed as not pressed by the assessee.

Transfer Pricing Adjustment:
Grounds No. 2 to 10 pertained to the issue of payment of Global Corporate Client Management Fees (GCCM Fees) by the assessee to its associated enterprise (AE). The TPO disallowed part of the GCCM Fees, leading to an adjustment of Rs. 5,42,46,778. The ITAT directed the TPO to delete the transfer pricing adjustment as it was done on an ad-hoc basis without following any prescribed method under Section 92C(1) of the Act, following the decision of the coordinate bench for the assessment year 2013-14.

Reference to Transfer Pricing Officer (TPO):
The reference to the TPO under Section 92CA(1) was contested but ultimately the ITAT found that the adjustment was made without following the prescribed methods, leading to the deletion of the transfer pricing adjustment.

Benchmarking Analysis:
The ITAT found that the rejection of the benchmarking analysis and selection of the tested party by the TPO was not in accordance with the provisions of the Act and Rules.

Determination of Arm's Length Price (ALP):
The TPO's determination of ALP at 50% of the GCCM fees was found to be arbitrary and not based on any prescribed method, leading to the deletion of the adjustment.

Scope of TPO:
The TPO exceeded its jurisdiction by considering the benefit/availing of services as a condition for benchmarking the international transactions of GCCM services.

Availing of Services/Benefit Test/Commercial Rational:
The ITAT found that the TPO failed to appreciate the documentary evidence provided by the assessee to substantiate the receipt and benefit of GCCM services.

Nature of Services:
The TPO's finding that the GCCM services were in the nature of shareholder/duplicative/incidental services was not upheld by the ITAT.

Method for Benchmarking International Transaction:
The ITAT noted that the TPO did not select one of the prescribed methods under Rule 10B for benchmarking the international transactions.

Disallowance of Travelling Expenses:
Ground No. 11 concerned the disallowance of Rs. 54,18,179/- in travelling expenses. The ITAT directed the AO to verify and examine the specific supporting details maintained by the assessee and decide the issue afresh.

Disallowance of Miscellaneous Expenses:
Ground No. 12 involved the disallowance of Rs. 42,96,808/- in miscellaneous expenses. The ITAT restored the issue to the AO for verification and determination of the exact amount of capital expenditure.

Invocation of Section 14A:
Ground No. 13 was dismissed as not pressed by the assessee.

Short Grant of TDS Credit Tax:
Ground No. 14 was restored to the AO for verification of relevant supporting material.

Initiation of Penalty Proceedings:
Ground No. 15 was dismissed as not pressed by the assessee.

Conclusion:
The appeal of the assessee was partly allowed, with specific grounds being restored to the AO for fresh verification and decision. The ITAT directed the deletion of the transfer pricing adjustment made on an ad-hoc basis without following prescribed methods.

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