TPO Cannot Value Management Fees at Nil Without Rejecting Evidence of Services Rendered

Gates India Private Limited Vs Assessment Unit (ITAT Delhi)

The ITAT Delhi considered the assessee’s appeal against the assessment order passed under Sections 143(3), 144C(13) and 144B of the Income-tax Act for Assessment Year 2020-21, arising from the directions of the Dispute Resolution Panel (DRP). The appeal challenged multiple transfer pricing (TP) adjustments relating to management charges, royalty payments, interest on outstanding receivables, and employees’ contribution to PF and ESI.

The assessee, engaged in the manufacturing, trading and marketing of rubber hoses and hose assemblies, faced TP adjustments aggregating over Rs.11.97 crore. The adjustments comprised Rs.6.89 crore towards intra-group management services, Rs.3.81 crore towards royalty on sales to Associated Enterprises (AEs), Rs.72.08 lakh towards royalty on sales to third parties, and Rs.55.19 lakh towards interest on outstanding receivables. The assessee had benchmarked these transactions using the Transactional Net Margin Method (TNMM) under an aggregation approach, whereas the Transfer Pricing Officer (TPO) applied the CUP Method and other methods for separate benchmarking.

On the issue of intra-group management services, the Tribunal followed its earlier decision in the assessee’s own case for Assessment Year 2018-19 and decided the issue in favour of the assessee. It noted that the earlier Coordinate Bench had held that determining the arm’s length price of management services at ‘Nil’ by applying the CUP Method was contrary to both the factual matrix and settled legal principles. The Tribunal observed that the assessee had produced agreements, email correspondence, invoices, payment details and other evidence demonstrating that management services had in fact been rendered and that the TNMM adopted by the assessee should be accepted.