Transfer pricing on management fees cannot be fixed at nil when services are documented, business-linked, and consistently accepted earlier.

Transfer pricing adjustment for management support services cannot be sustained at nil where the services are supported by the service arrangement, debit notes and correspondence, and are shown to be integral to business operations. The arm's length mark-up of 5% was treated as reasonable, especially since the expenditure was not separately booked in the financials and similar payments had been accepted in earlier years. The Tribunal noted that the Revenue had taken an inconsistent approach without distinguishing earlier assessment years where relief had already been granted. On that basis, the nil valuation was rejected and the upward adjustment was deleted.

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Issues: (i) Whether the upward transfer pricing adjustment on account of management service charges could be sustained by treating the arm's length price of those services as nil.

Analysis: The management support services were held to be integral to the assessee's business operations and supported by the service arrangement, debit notes, and related correspondence. The arm's length mark-up of 5% was found to be reasonable, and the record showed that the assessee had not separately booked such expenditure in its financials. The Tribunal also noted that similar payments had been accepted in earlier years and that the Revenue had followed an inconsistent approach without distinguishing the facts from earlier assessment years where relief had already been granted by co-ordinate Benches. In these circumstances, the nil valuation adopted by the transfer pricing authorities was not approved.

Conclusion: The upward adjustment was deleted and the issue was decided in favour of the assessee.

Final Conclusion: The transfer pricing addition relating to management fees was set aside, and the assessee's appeal succeeded in full.

Ratio Decidendi: Transfer pricing adjustment cannot be sustained at nil merely on a subjective view of business necessity or alleged insufficiency of evidence where the services are supported by the record, are linked to the business, and past consistent acceptance of similar transactions exists; the determination must follow the prescribed arm's length framework and principled consistency.

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