Management Fee TP Adjustment Cannot Be Made Without Justifying CUP Over TNMM: ITAT Mumbai

NTT India Pvt. Ltd. Vs Addl/JT/Dy./ACIT/Tax/ITO NFAC (ITAT Mumbai)

Summary: ITAT Mumbai allowed NTT India Pvt. Ltd.’s appeal for AY 2017-18 and deleted a transfer pricing adjustment of Rs.119,52,99,430/- relating to management fees paid to its associated enterprise, NTT Asia Pacific Holding Pvt. Ltd. The assessee, formerly known as Dimension Data India Pvt. Ltd., had benchmarked the management services along with its international transactions under the Transactional Net Margin Method (TNMM). The TPO rejected this approach, applied the Comparable Uncontrolled Price (CUP) method and determined the arm’s length price of the services at nil, principally questioning the evidence of services, allocation of costs and benefits received.

The Tribunal followed its decision in the assessee’s own case for AY 2011-12, which in turn had considered Merck Ltd. and Nielsen (India) Pvt. Ltd. It reiterated that where an umbrella agreement gives an assessee the right to avail a bundle of services, the TP study cannot be rejected merely because only some of those services were actually availed. The TPO’s function is to determine whether the international transaction is at arm’s length and not to substitute his commercial judgment regarding the necessity or benefit of the expenditure.

The Tribunal also found that the TPO/AO had given no justification for rejecting TNMM and adopting CUP as the most appropriate method. Accordingly, Ground No.1 concerning the management fee adjustment was allowed and the transaction was held to be at ALP. Ground No.2 became academic. The issue of short TDS credit of Rs.1,44,58,550/- was remanded to the AO for factual verification and allowance on merits, while the penalty ground required no separate adjudication. The appeal was allowed.