INA Bearings India Pvt. Ltd. Vs DCIT (ITAT Pune)
The appeals before the Income Tax Appellate Tribunal (ITAT), Pune, comprised cross appeals by the assessee and the Revenue arising from the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2011-12. The dispute was confined to the transfer pricing treatment of payment of management support service fees made by the assessee to its Associated Enterprise (AE).
Background of the case: The assessee, a wholly owned subsidiary of a German group company, was engaged in the manufacture, development, marketing and distribution of roller bearings, linear bearing systems and engine components. It reported several international transactions, including payment of management service fees amounting to Rs.5.65 crore. The assessee aggregated this transaction with its manufacturing and trading segments and benchmarked it under the Transactional Net Margin Method (TNMM). The Transfer Pricing Officer (TPO), however, rejected the aggregation approach, held that the management service transaction required separate benchmarking, and determined its Arm’s Length Price (ALP) at Nil, treating the services as stewardship/shareholder activities. The Commissioner (Appeals) partly modified the adjustment, leading both parties to file appeals.
Issue regarding aggregation of transactions: The Tribunal first considered whether the payment for management support services could be aggregated with other international transactions. Referring to the statutory provisions governing transfer pricing and judicial precedents, the Tribunal held that ALP is ordinarily required to be determined transaction-wise, unless transactions are closely linked or inextricably connected. It observed that the management service transaction and the import transactions were entered into with different Associated Enterprises and were not shown to form part of any composite arrangement. Accordingly, the Tribunal upheld the TPO’s view that the management service transaction had to be benchmarked separately and could not be clubbed with unrelated international transactions under TNMM.
