TaxTMI 
TaxTMI 
2026 (6) TMI 540
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....e assessee to its AE by determining the Arms Length Price (ALP) as 'nil'. For the assessment year 2020-21, three issues are raised namely:- i. Transfer pricing adjustment with respect to the payment of managerial, testing, engineering service fees for Rs. 15,55,89,516/-. ii. Imputation of notional interest of Rs. 3,94,046/- for the outstanding receivables. iii. Disallowance of Rs. 43,09,815/- disregarding the allowance claimed u/s. 43B of the Act on payment basis 3. We shall first adjudicate IT(TP)A No.51/CHNY/2022, concerning assessment year 2018-19. 4. Brief facts of the case are as follows: The assessee, BorgWarner Cooling Systems (India) Private Limited ("BCSIPL"), is a wholly owned subsidiary of BorgWarner Thermal Systems Inc., USA. It is engaged in the business of manufacturing, assembling, and sale of automotive viscous and Visctronics fan drives and plastic fans. During the year under consideration namely AY 2018-19, the assessee had entered into various international transactions with its Associated Enterprises ("AEs"), including payment of management fees, testing and validation charges, royalty, and other related transactions. In the TP s....
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....g analysis undertaken by the Assessee were prepared in good faith and in accordance with law, without any intention to avoid taxes. The assessee has maintained all necessary information and documents as prescribed under the Rules and has duly benchmarked its transactions to justify that the same are at arm's length. It was contended that the TPO has failed to demonstrate how the conditions laid down under section 92C(3) of the Act have been satisfied so as to reject the Assessee's analysis. On the issue of commercial expediency, the Ld. AR submitted that it is the prerogative of the Assessee to incur expenditure for the smooth conduct of its business and the tax authorities cannot question the necessity of such expenditure. It was argued that the determination of business needs and the value of services lies within the domain of the businessman, and the benefit derived from such services cannot always be quantified in precise monetary terms. 8. The Ld. AR further submitted that the assessee had furnished detailed need-benefit documentation before the DRP, evidencing the necessity of availing management and testing & validation services, the nature of activities performed by the ....
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....red in questioning the commercial expediency of the expenditure and in disregarding the evidences furnished by the Assessee without proper examination. It is a settled principle that the Revenue cannot sit in judgment over the business decisions of the assessee. Further, considering that the services availed are closely linked with the manufacturing and operational activities of the assessee, the aggregation approach adopted under TNMM cannot be faulted. 12. We also find that an identical issue has been considered by the coordinate Bench of this Tribunal in the assessee's own case for Assessment Year 2021-22 in IT(TP)A No.129/CHNY/2024, order dated 23.12.2025, wherein under similar facts, the Tribunal held that determination of ALP of intra-group services at Nil without applying one of the prescribed methods and without proper benchmarking is unsustainable. The Tribunal further held that once the assessee demonstrates receipt of services and business purpose, the ALP cannot be determined at Nil merely on conjectures. 13. In the absence of any distinguishing facts brought on record by the Revenue, we respectfully follow the aforesaid decision of the coordinate Bench in the ass....
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....gth price of specific intra-group services, particularly where comparable companies may not have incurred similar expenditure. Accordingly, relying on Rules 10B and 10C, the TPO adopted the "Other Method" as the most appropriate method and determined the Arm's Length Price ("ALP") of the intra-group services at Nil. The TPO further held that the Assessee failed to substantiate the actual receipt of services from its Associated Enterprises ("AEs"). It was observed that the Assessee did not furnish evidence regarding the expenditure incurred by the AEs, nor details of the quantum of costs involved in rendering such services. The TPO also noted that the Assessee merely described the nature of services without demonstrating their actual rendition, arm's length value, or tangible commercial benefit. It was further observed that certain services, such as training through standard materials, did not justify payment of management fees. Accordingly, the TPO concluded that the Assessee failed to establish the arm's length nature of such payments. 17. The Dispute Resolution Panel ("DRP") upheld the action of the TPO. The DRP observed that the Assessee had not adequately demonstrated the na....
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....d.AR placed reliance on the order of the coordinate Bench of the Tribunal in the assessee's own case for AY 2021-22. 19. The Ld. DR relied on the orders of the TPO and DRP and submitted that the assessee failed to substantiate the actual receipt of services from its AEs with credible evidence. It was contended that the assessee merely described the nature of services without demonstrating their actual rendition, cost incurred by the AEs, or the tangible benefit derived therefrom. The Ld. DR submitted that no independent entity would pay for such services in the absence of demonstrable benefit, and therefore, the TPO was justified in determining the ALP at Nil. It was further argued that certain services, including standard training and support, do not warrant separate compensation. It was also contended that the aggregation approach under TNMM is not appropriate for benchmarking intragroup services, which ought to be evaluated on a transaction-by-transaction basis. The Ld. DR supported the adoption of the "Other Method" and submitted that the TPO's approach is in accordance with the provisions of the Act and Rules. Accordingly, it was prayed that the adjustment made by the TPO a....
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....ding to the TPO, the delay in realization of such receivables resulted in funds being made available to the AEs, which is in the nature of financing or funding extended by the Assessee. The TPO held that such extended credit period goes beyond normal business practices and effectively constitutes a separate international transaction in the nature of a loan/advance. It was further noted that the Assessee had not charged any interest on such delayed receivables. Placing reliance on the provisions of Chapter X of the Income-tax Act, 1961, the TPO concluded that any income arising from an international transaction, including uncharged or notional income, is required to be computed having regard to the Arm's Length Price (ALP). Accordingly, the TPO proceeded to determine the ALP by imputing notional interest on the outstanding receivables from AEs and proposed an adjustment. 24. The DRP upheld the approach adopted by the TPO. The Panel referred to the Explanation to Section 92B of the Act, which clarifies that the term "international transaction" includes deferred payment, receivables, or any other debt arising during the course of business. Relying on the aforesaid provision, the DR....
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....tal adjustment under a combined transaction approach adequately captures the effect of receivables, including any implicit interest element. Therefore, making a separate adjustment towards notional interest on receivables would amount to double counting, which is impermissible. 26. Without prejudice, the AR also submitted that the Assessee is a debt-free company, having neither availed any borrowings nor incurred any interest expenditure for its working capital requirements. Accordingly, there is no actual cost incurred on account of funds blocked in receivables, and hence, no basis for imputing notional interest. 27. Further, the AR placed reliance on the decision of the Hon'ble Chennai Tribunal in the Assessee's own case for AY 2021- 22 in IT(TP)A No.129/Chny/2024 (order dated 23.12.2025), wherein this issue was decided in favour of the Assessee. 28. We have considered the rival submissions and perused the material on record. We find that the issue of adjustment on account of notional interest on outstanding receivables from AEs is squarely covered in favour of the assessee by the order of the Coordinate Bench in the assessee's own case for AY 2021-22 in IT(TP)A No.129/C....