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2019 (12) TMI 1238 - AT - Income TaxTP Adjustment - TPO rejected the TNMM in respect of management fees paid/payable by the assessee to its AE - HELD THAT - TPO should not have summarily rejected the TNMM in respect of management fees paid/payable by the assessee to its AE and proposed an adjustment under the CUP method, without benchmarking with comparable uncontrolled transactions. TPO has resorted to an ad-hoc unilateral pricing of management fees, disregarding the facts and circumstances of the case. In the instant case, the TPO has summarily rejected the TNMM followed by the assessee in respect of management fees paid/payable by it to its AE and proposing an adjustment under CUP without benchmarking with comparable uncontrolled transactions. Also the TPO has resorted to an ad-hoc unilateral pricing of management fees, disregarding the facts of the case. In view of the above factual scenario and position of law, we delete the addition made by the AO as adjustment on account of transfer pricing. - Decided in favour of assessee.
Issues involved:
Transfer pricing adjustment on management fees paid to Associated Enterprises (AEs) without proper benchmarking under TNMM method. Detailed Analysis: 1. Background: The appeal is against the order passed by the Deputy Commissioner of Income Tax regarding the assessment year 2012-13 under the Income Tax Act 1961. The assessee, a part of Brink's Global Services, paid management fees to its AEs for the first time during the relevant year. 2. TPO's Observations: The Transfer Pricing Officer (TPO) raised concerns as the assessee did not separately benchmark the management fees transaction, relying on a global report and agreement. The TPO emphasized the need for separate benchmarking for each international transaction and found the explanation provided by the assessee insufficient. 3. Adjustment by TPO: The TPO estimated the value of services rendered by the AEs based on man-hours and hourly rates, making an adjustment of INR 3,83,75,622 to the international transaction. The TPO's approach was criticized for lack of detailed evidence and justification for the estimates made. 4. DRP's Decision: The Dispute Resolution Panel upheld the TPO's adjustment, leading to the AO incorporating the adjustment in the final order. 5. Assessee's Arguments: The assessee contended that TNMM was consistently used for benchmarking transactions with AEs, providing detailed working and rationality for the management fees. The assessee argued against the unilateral pricing by the TPO under the CUP method without proper benchmarking. 6. Tribunal's Decision: The Tribunal noted the assessee's consistent use of TNMM and criticized the TPO's unilateral pricing approach. Citing precedents, the Tribunal emphasized the need for proper benchmarking and rejected the adjustment made by the AO, deleting the addition of INR 3,83,75,622. Conclusion: The Tribunal allowed the appeal, highlighting the importance of proper benchmarking under TNMM for international transactions, and criticized the TPO's unilateral pricing approach without adequate justification. The decision emphasized adherence to statutory provisions and factual assessment in transfer pricing adjustments.
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