Inter-group services and marketing support transfer pricing: ITAT accepts TNMM, rejects CUP, deletes TP additions, allows 80G deduction.

Transfer pricing adjustment on inter-group services was examined. The ITAT held that the AE's IGS/ITSS services were not stewardship or shareholder activities; on evidence and precedent the payment, including markup on third-party costs, was at arm's length, so the TP addition was deleted. On marketing support services, the ITAT applied the rule of consistency as TNMM had been accepted in earlier years and held CUP was unsuitable due to stringent comparability requirements not being met; the TP addition was directed to be deleted. On employees' PF contribution, a one-day delay due to technical difficulty required rectification; the AO was directed to pass a rectification order after hearing, allowing the ground for statistical purposes. On CSR-linked donation, Section 37 disallowance did not bar Section 80G relief for eligible donations (other than specified funds); deduction under Section 80G was directed to be allowed.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether the transfer pricing adjustment relating to payments for intra-group services (including markup on third-party cost for IT support/services) could be sustained despite consistent acceptance of the same arrangement in earlier years and co-ordinate bench decisions holding such charges to be at arm's length.

(ii) Whether the transfer pricing adjustment on marketing support services was justified where the assessee benchmarked the transaction under TNMM (consistently accepted in earlier years), but the authorities applied CUP using agreements found not to meet stringent functional/product/market comparability.

(iii) Whether disallowance for delayed deposit of employees' contribution to provident fund should stand where the record showed deposit within prescribed due dates except for a one-day delay, and where the Tribunal directed rectification pursuant to prior directions, with opportunity of hearing.

(iv) Whether deduction under section 80G is allowable for donations forming part of CSR expenditure, where the entire CSR spend was already disallowed under Explanation 2 to section 37(1), and where section 80G restriction (as discussed by the Court) is limited to specified funds.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Transfer pricing-Intra-group services (IGS) payments (including markup on third-party ITSS cost)

Legal framework (as applied in the decision): The Tribunal applied the rule of consistency in income-tax proceedings, relying on the principle that where a fundamental aspect has been accepted and not challenged across years, it should not be disturbed in a subsequent year on identical facts.

Interpretation and reasoning: The Tribunal found that the same IGS arrangement and agreements had already been examined in earlier assessment years, where the co-ordinate bench had directed deletion of the adjustment and held the charges paid for IGS to be at arm's length. The Tribunal also noted that the department had not challenged those earlier decisions further, and therefore changing the position in the year under appeal was not appropriate on identical facts.

Conclusion: The Tribunal set aside the DRP's order on this issue and directed the AO/TPO to delete the transfer pricing addition relating to IGS and accept the payments as being at arm's length.

Issue (ii): Transfer pricing-Marketing support services; TNMM vs CUP and consistency

Legal framework (as discussed/applied): The Tribunal applied the rule of consistency to the selection of the most appropriate method, and assessed whether CUP could be applied given the requirement of stringent comparability.

Interpretation and reasoning: The Tribunal observed that in multiple earlier years the authorities had accepted TNMM for benchmarking marketing support services. It held that the authorities erred in selecting CUP in the present year because the agreements relied upon did not satisfy strict comparability requirements, including absence of an agreement copy for one selected comparable and material differences in functions, geography, product scope, and remuneration model. Since TNMM had been consistently accepted and no cogent reason was shown for its rejection on identical facts, the Tribunal held that consistency should prevail and CUP could not be sustained on the chosen comparables.

Conclusion: The Tribunal set aside the DRP's order and directed the AO/TPO to delete the marketing support services transfer pricing addition.

Issue (iii): Employees' contribution to provident fund-minor delay and rectification direction

Legal framework (as discussed in the decision): The Tribunal proceeded on the factual finding from the tax audit report and addressed the DRP's direction to resolve the matter by final order or rectification, requiring opportunity of hearing.

Interpretation and reasoning: The Tribunal recorded that employees' contribution to PF was deposited on or before prescribed due dates for all months except one month where there was a one-day delay attributed to technical difficulty. It noted that the DRP had directed the AO to address the issue either in the final assessment order or by rectification, but rectification had not been carried out. The Tribunal therefore required compliance with the DRP's direction through rectification after granting a hearing.

Conclusion: The Tribunal directed the AO to pass a necessary rectification order in compliance with the DRP's direction after providing an opportunity of hearing; the ground was allowed for statistical purposes.

Issue (iv): Deduction under section 80G for CSR-linked donations already disallowed under section 37

Legal framework (as discussed/applied): The Tribunal applied Explanation 2 to section 37(1) (CSR expenditure disallowance for business income computation) and the availability of deduction under Chapter VI-A, including section 80G, subject to the restriction noted by the Tribunal for specified funds (Swachh Bharat Kosh and Clean Ganga Fund) when made as part of CSR.

Interpretation and reasoning: The Tribunal found that the assessee had already disallowed the entire CSR expenditure in computing business income. It further found that part of that CSR spend comprised donations to institutions eligible under section 80G. The Tribunal held that disallowance of CSR expenditure under section 37 does not extend to denying deductions otherwise permissible under Chapter VI-A. It accepted the assessee's contention (as adopted by the Tribunal) that section 80G restriction applies only to donations to specified funds if made as part of CSR, and that there is no bar on claiming section 80G deduction for donations to other eligible institutions even if made to meet CSR obligations.

Conclusion: The Tribunal directed the AO to allow deduction under section 80G for the eligible donations; the disallowance on this count was deleted.

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