June 2015
Section 92C, 37(1), the Act – authority of TPO is limited to determination of ALP and not determination of actual provision of services; such determination and deductibility of expenditure u/s. 37(1) is in exclusive domain of the AO.
By Geeta Jani, Dhishat B. Mehta Chartered Accountants
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Facts: The taxpayer was an Indian Company. The taxpayer had made certain commission payment to its AEs and had benchmarked the transactions under TNMM. The TPO rejected application of TNMM. Considering the transaction as intra-group service, TPO proceeded to determine the ALP under CUP method. After seeking and considering the details from the taxpayer, the TPO concluded that the taxpayer failed to provide any evidence of an independent transaction between unrelated parties, failed to explain the functions performed by the AE, and failed to provide documentary evidence for necessity of payment of such commission. Accordingly, TPO determined the ALP as Nil. Accordingly, the AO added entire commission paid by the taxpayer to its AEs. The DRP confirmed the action of the AO.
Held:
The TPO computed ALP at Nil and the AO made the addition without independently examining the deductibility or otherwise of commission in terms of section 37(1).
In CIT vs. Cushman & Wakefield (India) (P.) Ltd. [2014] 367 ITR 730, the Delhi High Court has held that the authority of the TPO is limited to conducting transfer pricing analysis for determining the ALP of an international transaction and not to decide if such services existed or benefits accrued to the taxpayer. Such determination is in exclusive domain of the AO.
Accordingly, assessment order was set aside and matter was remanded to the AO/TPO for deciding it in conformity with the law laid down by the jurisdictional High Court.
