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TMI Blog2025 (2) TMI 226X X X X Extracts X X X X X X X X Extracts X X X X ..... ng management support services is separate and independent to the other international transactions of the assessee, therefore the same cannot be aggregated with other transaction for working out the ALP. Most Appropriate Method (MAM) - Whether the TPO was justified in rejecting the TNMM as the Most Appropriate Method (MAM) and adopting the CUP method? - We note that the assessee was to demonstrate the actual services received before making claim in the profit and loss account. Simply filing the Master agreement, statement of work, invoice of the AE and few emails by the assessee do not ipso facto establish the fact of receiving of services from the AE. It has been held by the lower authorities that the impugned business support charges represent the allocation of the cost which is nothing but the shareholders services. There is lack of supporting documents to draw the conclusion whether the impugned cost is an allocation of cost or represents the services availed by the assessee. In this backdrop, we are inclined to restore the issue to the file of the TPO for fresh/ de-novo adjudication as per the provisions law without getting from influenced from the above discussion. Hence, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services provided confer a direct and substantial economic or commercial benefit to the recipient, as an independent entity in similar circumstances that the parties would only be willing to pay for such services if they derive a tangible advantage. 5.2 The taxpayer must establish that the services were actually rendered and that the benefits obtained are commensurate with the payments made. Merely describing the services does not suffice; proper documentation and evidence must substantiate the claim. If no benefit is derived or expected to be derived, the payment of service charge cannot be justified. Additionally, if the entity receiving the services could have performed them internally or would not have paid to an independent entity for the same, then the charge is deemed unjustified. 5.3 The TPO also noted that the determination of an ALP charge should consider not only the cost of providing the service but also the recipient's willingness to pay for such services. When expenditure is incurred for the benefit of the group as a whole, the cost should not be allocated to a single entity unless a direct benefit is demonstrated. Expenses related to stewardship or shareholder acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessary. 5.7 The TPO further observed that each class of transaction must be analyzed separately rather than applying a broad-based TNMM at the enterprise level. While TNMM is suitable for certain cases, it does not automatically mean that all transactions within an enterprise are at arm's length. Instead, specific transactions such as management fees, intragroup fees, and professional expenses must be analysed separately using appropriate methods like the Comparable Uncontrolled Price (CUP) method. Accordingly, the TPO rejected the assessee argument that the intra group services fees transaction is at ALP as the same is aggregated under TNMM. The TPO in holding so referred the various decision of ITAT specifically, the ITAT Delhi bench ruling in case of Knorr Bremse India Pvt. Ltd. vs. ACIT (reported in 27 taxmann.com 16) and reinforced that each international transaction with an associated enterprise should be benchmarked separately, and cross-subsidization of high and low-priced transactions is not allowed. Thus, the TPO held that the fee for intra group services require a distinct analysis under the CUP method. 5.8 In view of the above observation, the TPO finally concluded t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... management. 2. Information Technology (IT) Services - The integration of IT infrastructure enhanced efficiency, reliability, security compliance, and minimized operational disruptions through global support. 3. Legal Support Services - The centralized legal team helped in contract drafting, litigation strategy, compliance with RBI and taxation laws, and ensured adherence to ethical business practices. 4. Accounting & Finance Services - The appellant benefitted from budget monitoring, financial modelling, credit analysis, and SOP implementation, reducing duplication of efforts across business units. 5. Overall Commercial Benefits - The appellant successfully achieved cost savings, improved service execution, operational efficiency, and access to specialized expertise through the centralized service model. 10. Besides the above the assessee also provided key financial indicators demonstrating the impact of business support services on revenue growth, profitability, and loan portfolio expansion, as illustrated below: Parameter FY 2019-20 FY 2020-21 FY 2021-22 Revenue from Operations (₹ in '000) 69,442 4,30,183 7,88,947 Growth YoY (%) - 519.49% 83.40% Profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its own and requires separate benchmarking analysis. The TNMM method is not the MAM for benchmarking this transaction. As per rule 10B(1)(e) the TNMM is applied in the cases where the net profit margin realised by the enterprise from an international transaction entered into with an Associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base. The net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base. 2.2.5 The TPO has rightly selected comparable uncontrolled price method (CUP) under rule 10B(1)(a). Under CUP method the price charged or paid for services provided in a comparable uncontrolled transaction or a number of such transactions is identified. Such price is adjusted to account for difference if any between the international transaction and the comparable uncontrolled transaction which would materially affect the price in the open market. The adjusted price arrived at is taken to be an Arm's Length Price in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O was justified in making adjustment of ALP holding that ALP of the said transaction is 'Nil'. 2.2.8 Again, in the case of Herbalife international India (P.) Ltd. [2017] 81 taxmann.com 178 (Bangalore - Trib.), the Hon'ble Tribunal held that where assessee had only described nature of technical know-how and administrative services received but did not conclusively prove that it actually received same, Assessing Officer was justified in adopting ALP in respect of payment of administrative services and royalty at Nil. 2.2.9 In view of the above discussion, the Panel finds that the TPO has rightly rejected the TNMM as Most Appropriate Method and selected Comparable Uncontrolled Price Method. Further, as the assessee failed to prove the rendition of alleged services to it by the AE, the tangible benefits that accrued to the assessee from the so-called services and in view of the judicial pronouncements discussed above, we uphold the decision of the TPO to consider the ALP at NIL for the concerned International Transaction. Accordingly, this ground of objection is hereby rejected. 15. Being aggrieved by the direction of Ld. DRP and assessment order, the assessee is in appeal bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction in dispute can be aggregated with other transactions for computing the ALP in the given facts and circumstances. 2. Whether the TPO was justified in rejecting the TNMM as the Most Appropriate Method (MAM) and adopting the CUP method. 3. Whether the TPO was correct in determining "Nil" ALP for the management charges. 4. Whether the appellant sufficiently demonstrated the receipt of services and their benefits against the actual services. . 18.1 While determining the Arm's Length Price (ALP) of international transactions under transfer pricing regulations, aggregation of transactions is often necessary provided transactions are closely linked functionally or economically. Likewise, transactions of similar type (e.g., sale of goods, services, intangibles) can be aggregated. 18.2 However, unconnected transactions refer to international transactions between associated enterprises (AEs) that lack economic, functional, or contractual interdependence. These transactions do not influence each other and, therefore, cannot be aggregated for determining the Arm's Length Price (ALP). In the case on hand, the transaction being management support services is separate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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