L&L Product India Private Limited Vs Assessment Unit (ITAT Pune)
Pune ITAT Deletes ₹5.67 Crore TP Adjustment; TPO Cannot Cherry-Pick One Transaction While Accepting TNMM for Others
On the issue of royalty payment, the Tribunal observed that the assessee had incurred R&D expenses of ₹2.52 crore and had already recovered ₹2.77 crore from its Associated Enterprises with a markup of about 10%. Since the assessee had already been compensated for the R&D services rendered, the additional TP adjustment of ₹23.26 lakh made by the TPO was found to be unjustified and was deleted.
Regarding management support services, the TPO had rejected the Transactional Net Margin Method (TNMM) adopted by the assessee, applied the “Other Method”, and determined the ALP of the services at virtually nil, resulting in an adjustment of ₹5.43 crore. The Tribunal held that when the assessee had benchmarked all its international transactions under a common TNMM analysis and the TPO had accepted TNMM for all other transactions, it was not permissible to isolate only one transaction and subject it to a different method. Relying on the Bombay High Court decision in Cummins India Ltd., the Tribunal held that such selective benchmarking was impermissible.
The Tribunal further noted that the assessee had furnished detailed agreements, allocation workings, executive roles, email correspondences and cost-sharing data demonstrating actual receipt of services and the basis of cost allocation. It also found that the management support costs had been consistently accepted in earlier years and that the services were neither duplicative nor unsupported. Accordingly, the entire adjustment relating to management support services was deleted.
The appeal of the assessee was therefore allowed in full, resulting in deletion of the entire transfer pricing adjustment of about ₹5.67 crore.
FULL TEXT OF THE ORDER OF ITAT PUNE
The captioned appeal at the instance of assessee pertaining to A.Y. 2021-22 is directed against the order dated 20.09.2024 passed by the Assessing Officer u/s.143(3) r.w.s.144C(13) r.w.s.144B of the Income Tax Act, 1961 (in short ‘the Act’).
