TaxTMI 
TaxTMI 
2026 (9) TMI 109
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....of the case and in law, the Learned Transfer Pricing Officer ('TΡΟ') and the Honourable Dispute Resolution Panel ('DRP') erred in making an addition to the Appellant's total income of INR 20,49,05,661 based on the provisions of Chapter X of the Income-tax Act, 1961 ('the Act')). 2.1. The Hon'ble DRP and the Learned TPO erred in law and on facts in disregarding the Transactional Net Margin Method adopted by the Appellant in its Transfer Pricing documentation maintained under section 92D of the Act read with Rule 10D of the Income Tax Rules, 1962 ('Rules') for determining the arm's length nature of International transaction pertaining to payment towards management support services received from its Associated Enterprises ('AEs'). 2.2. The Hon'ble DRP and the Learned TPO erred in law and on facts in adopting the "Other Method" as per Rule 10AB, without bringing on record any comparable transaction / data to justify the methodology adopted. 2.3. The Hon'ble DRP and Learned TPO erred on facts in not understanding the business of the Appellant and failed to appreciate the need for Managemen....
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....etermination of the Arm's Length Price ("ALP") of the international transactions reported in Form No. 3CEB. 2.1 Upon examination, the learned TPO scrutinised, inter alia, the international transactions relating to payment of trademark licence fee, receipt of management support services, and corporate guarantee. The principal dispute in the present appeal concerns the payment made by the assessee towards management support services received from its holding company. The learned TPO was of the view that the aforesaid intra-group service transaction required to be examined with reference to the tests of need, benefit and actual rendition of services by the Associated Enterprise. In paragraph 9.3 of the order passed under Section 92CA(3) of the Act, the learned TPO recorded a finding that the assessee had failed to furnish adequate documentary evidence demonstrating the actual rendition of services by the Associated Enterprise. According to the learned TPO, the assessee had also failed to substantiate the basis of incurrence of costs by the service provider, the methodology adopted for allocation of such costs amongst the group entities, and the manner in which the proportion....
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....gement support services from its Associated Enterprise, namely ESAB Holdings Ltd., U.K. ("ESAB UK"), under the Management Support Services Agreement dated 01.01.2018. The services were rendered on a centralized basis by the Associated Enterprise to various group entities and the corresponding costs were allocated amongst the beneficiary entities, including the assessee, on scientifically determined allocation keys. 4.1 It was submitted that during the transfer pricing proceedings, the learned Transfer Pricing Officer determined the Arm's Length Price ("ALP") of the said international transaction at 'Nil' and consequently proposed an adjustment of Rs. 20.49 crores on the premise that the assessee had failed to establish the actual rendition of services and the benefits derived therefrom. The Dispute Resolution Panel affirmed the adjustment. 4.2 The learned Senior Counsel contended that the issue is no longer res integra and stands concluded in favour of the assessee by the decision of the Coordinate Bench of this Tribunal in the assessee's own case for Assessment Year 2021-22, vide order dated 17.11.2025, rendered on identical facts and under the very same Mana....
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....cribed under the Indian transfer pricing provisions. 4.6 The learned Counsel further submitted that the Tribunal, while deciding the assessee's own case for Assessment Year 2021-22, after an elaborate examination of the documentary evidence, categorically accepted the assessee's claim regarding actual rendition of management support services and the commercial benefits accruing therefrom. The Tribunal recorded a categorical finding that the assessee had substantiated the receipt of services through extensive documentary evidence including inter-company agreements, cost allocation workings and contemporaneous correspondence. The Tribunal further observed that strategic and managerial services rendered within a multinational group cannot always be correlated with immediate or quantifiable financial benefits and that insistence upon a one-to-one demonstration of benefit is commercially unrealistic. 4.7 The learned Counsel particularly relied upon the findings recorded by the Coordinate Bench to the effect that, in view of the service agreement, cost allocation workings, supplementary benchmarking analysis and documentary evidence evidencing group-level functional support....
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....has failed, during the year under consideration, to substantiate by cogent documentary evidence the actual rendition of management support services, the commercial necessity thereof, and the benefits allegedly derived therefrom. According to him, in the absence of such primary evidence, the assessee has failed to discharge the statutory burden cast upon it under the transfer pricing provisions and, consequently, the determination of the Arm's Length Price ("ALP") at 'Nil' is fully justified. 5.1 The learned Departmental Representative contended that the decision of the Coordinate Bench in the assessee's own case for Assessment Year 2021-22 cannot be mechanically applied to the present year, as the relief granted therein was founded upon the documentary evidence available on record for that assessment year. According to him, the factual foundation in the present year is materially different, inasmuch as the assessee has failed to establish, by contemporaneous evidence, the actual rendition of services by the Associated Enterprise ("AE"). 5.2 It was further submitted that despite repeated requisitions made by the Transfer Pricing Officer, the assessee failed to ....
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....he payment. 5.6 The learned Departmental Representative also relied upon the decision of the Bangalore Bench of the Tribunal in Gemplus India Pvt. Ltd. v. ACIT [(2010) 8 ITR (Trib.) 95 (Bang.)], wherein it was held that the assessee must establish that the payments made are commensurate with the nature, volume and quality of the services received and that, in the absence of evidence demonstrating corresponding commercial benefit, the Transfer Pricing Officer is justified in making an adjustment. 5.7 Reliance was further placed upon the decision of the Mumbai Bench of the Tribunal in Deloitte Consulting India Pvt. Ltd. v. DCIT [(2011) 137 TTJ 21 (Mum.)], wherein, following the decision in Gemplus India Pvt. Ltd., it was observed that where the taxpayer fails to demonstrate commensurate benefit from the intra-group services, determination of the Arm's Length Price at 'Nil' is legally permissible. 5.8 The learned Departmental Representative also referred to the decision of the Bangalore Bench in Crane Software International Ltd. v. ACIT [(2014) 52 taxmann.com 19 (Bang. - Trib.)], wherein it was held that where the assessee is unable to establish by contemporaneous....
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....t was further submitted that the voluminous paper book produced by the assessee does not materially advance its case, since a substantial part thereof consists of generic group-level manuals, policy documents, software user guides, training material and internal communications which neither establish the actual rendition of services to the assessee nor demonstrate any commercial benefit arising therefrom. According to the Revenue, had the services genuinely been rendered, the assessee, being an auditable corporate entity, would necessarily possess contemporaneous records such as internal requisitions, approvals, work orders, deliverables, timesheets, service reports, utilisation records, invoices, accounting support documents and payment approvals. The absence of such primary evidence, according to the learned Departmental Representative, is fatal to the assessee's claim. 5.14 The learned Departmental Representative lastly submitted that each assessment year constitutes a separate unit of assessment and, therefore, the decision rendered in Assessment Year 2021-22 cannot automatically govern the present year, particularly when the factual matrix and evidentiary record materia....
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....% 9.05% 16.07% 9.8 From the above, it is evident that the company derived measurable business benefit during and after the year of receipt of management support services. 9.9 The Ld.AR submitted that the services received from the ESAB Group, spanning managerial, IT, HR, finance, tax, and legal functions, have been critical to the assessee's operational success and strategic decision-making. Given the organizational structure and limited internal resources, the support from the group was necessary and beneficial in enhancing the assessee's efficiency, compliance, and profitability. 9.10 It was further submitted that during the transfer pricing proceedings, a supplementary benchmarking analysis specific to management charges was also conducted. In this analysis, the assessee compared the mark-ups charged by similar service providers in the European region with the 5% mark-up on indirect costs applied by the AE. The comparable range of mark-ups was found to be 3.96% to 9.57%, with a median of 5.37%, indicating that the charges levied by the AE were well within the arm's length range. 9.11 However, the Ld.TPO held that the evidence....
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....for transfer-pricing purposes. Each transaction must be benchmarked independently, based on the evidence and facts of the relevant year. 10.4 In the present case, it is pertinent to note that the Ld.TPO has accepted part of the management service payment as being at arm's length, which implicitly acknowledges that the Associated Enterprise rendered certain managerial and support services to the assessee. This factual finding indicates that the benefit test is satisfied at least in part and that the assessee did derive value from the intra-group arrangements. 10.5 In this backdrop, a complete determination of the remaining portion of management charges at NIL appears inconsistent with the OECD's balanced framework, which emphasises that intra-group services must be evaluated on their nature, necessity, and benefit, and not summarily disregarded in the absence of exact quantification. The OECD Transfer Pricing Guidelines (2020) recognise that routine or low value-adding services, such as managerial, HR, IT, or legal coordination may not yield direct measurable outcomes, but nonetheless provide economic or operational advantages warranting appropriate compens....
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....nd rendition test. Since the factual verification of these documents forms the very foundation for determination of the Arm's Length Price, we are of the considered opinion that the issue cannot be conclusively adjudicated at the appellate stage without such examination by the Transfer Pricing Officer. 6.3 Accordingly, while setting aside the impugned adjustment, we restore the matter to the file of the Assessing Officer/Transfer Pricing Officer for de novo adjudication. The assessee shall produce before the Transfer Pricing Officer all relevant contemporaneous documentary evidence, including but not limited to the Management Support Services Agreement, evidence demonstrating the actual rendition of services, documents establishing the commercial necessity and benefits derived from such services, cost allocation workings, supporting documents evidencing the costs incurred by the Associated Enterprise, the basis of allocation amongst the group entities, benchmarking analysis and such other material as may be necessary to substantiate its claim. 6.4 The Transfer Pricing Officer shall examine the aforesaid material objectively, afford adequate opportunity of hearing to the a....