Transfer Pricing

ITAT Delhi in the case of Knorr Bremse India Pvt. Ltd. versus ACIT in ITA No. 5886/Del/2012 dated 23.08.2016


  1. The appellant assessee made payment to its AE for the services on account of professional management fee for support services. The TPO proposed adjustment on account of arm’s length price in professional consultancy and management fee.

  2. The claim of the appellant assessee was that the service charges were paid in respect of services availed from the AE which were the actual expenditure incurred by the AE and no element of profit was involved in the said payment. Assessee company, in this regard, furnished various details relating to segmental account, details of recovery of expenses, valuation of capital assets purchased from the AE, justification of technical assistance service, management and other service and professional consultancy services.

  3. The Hon’ble Tribunal considered the fact that the export of the assessee increased by 59% during the year under consideration. The Tribunal further observed the fact that the ratio of increase in the export was much higher than the amount of services availed by the assessee from its AE.

  4. The Tribunal further held that the transfer pricing provisions can be inferred only if there is a related party payment, but in the present case, the expenses incurred by the assessee were paid to the third party employees, although those employees were the employees of the AE. In the instant case, the assessee was in need of employees which were provided by its AEs, without any charge of profit accruing to the AE itself.In the present case, the TPO was unable to provide any cogent reason for the determination of arm’s length value of professional consultancy at Nil. On the contrary, the assessee explained the benefits received by it on account of the services received from AE.

  5. As regards the applicability of TNMM, the Tribunal observed that the assessee rightly applied the TNMM method as most appropriate method because it was difficult to apply the CUP method or the cost plus method. Therefore, the TNMM was the most appropriate method in the absence of a CUP which is applicable where the nature of the activities involved, assets used, and risk assumed are comparable to those undertaken by an independent enterprise.

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  Further Reading
Posted on: 27-08-2016