TNMM appropriate method for determining Arm’s Length Price of management fees

Schaeffler India Ltd. Vs ACIT (ITAT Ahmedabad)

ITAT Ahmedabad held that that the activities / services do not qualify as stewardship / shareholder activity. Further, assessee correctly determined Arm’s Length Price in respect of management fees by using Transaction Net Margin Method i.e. TNMM.

Facts- The assessee company had paid management fees to Schaeffler Holding China Company (“Associated Enterprise”) and bench-marked the transaction by using TNMM. The Transfer Pricing Officer determined ALP of the transaction at Rs. NIL by treating the services performed by the Associated Enterprise at stewardship / shareholder activity.

In appeal, the assessee provided details regarding the nature of services, service level agreement, break-up of amount paid for services, relevant invoices and email communications in support of services rendered by the AE to the assessee company. The Ld. CIT(A) deleted the adjustment made by the TPO.

Conclusion- Held that Ld. CIT(A) has not erred in facts and in law in holding the determination of Management Fees to be at Arm’s Length Price. In our considered view, Ld. CIT(A) has correctly observed that the aforesaid activities / services do not qualify as stewardship / shareholder activity. Notably, in assessee’s own case for A.Ys. 2013-14 and 2014-15, the TPO has not made any Transfer Pricing Adjustment in respect of aforesaid services and accepted the payment of Management Fees to be at Arm’s Length Price. Further, we also observe that Ld. CIT(A) has made a detailed comparison between the decision rendered by ITAT, Pune Bench in the case of a group company (INA Bearings) in respect of management services and after a detailed comparison and looking into the facts of the assessee’s case, has held that the assessee has correctly determined the Arm’s Length Price in respect of the aforesaid Management Fees by using TNMM method.