The Income Tax Appellate Tribunal (ITAT), Bangalore bench comprising Shri George George K, JM, and Ms. Padmavathy S, AM has held that Transactional Net Margin Method is the Most Appropriate Method for benchmarking the license fees and management fees in the absence of proper benchmarking under Comparable Uncontrolled Price.
The appellant assessee company is a subsidiary of Bostik Australia Pvt. Ltd. which is part of the `Bostik International Group’. The assessee is engaged in the manufacture of industrial adhesives, more particularly, applications used in the footwear industry, hotmelts, and nonwoven products consisting of hygiene products like diapers. It was stated that the assessee has only one Indian employee director and the company has directly employed about 150 persons engaged mainly in production and marketing functions. It is stated that additional management support, assistance in decision making, strategic planning, etc. are received from the Bostik International Group. The assessee procures the material as required, carries out the manufacturing function, markets, and sells the same to that parties situated mainly within India.
Under provisions of section 92CA (1) of the IT Act, the Transfer Pricing Officer (TPO) decided the Arm’s Length Price (ALP) passed an order considering the CUP at `Nil’ and recommended the TP addition for all three years. It was contended that the taxpayer failed to provide any documentary proof of tangible benefit received on account of these alleged services. It was observed that TNMM would be the most appropriate method for benchmarking license fees and management fees, in the absence of proper benchmarking being available in the public domain for the CUP method, the management fee and technology license fee are interlinked and interconnected with the business of manufacture.
The Tribunal observed that the TPO and the DRP rejected the evidence and submissions of the assessee on the ‘benefits test’ without bringing on record any contrary material. Further held that orders passed by the lower authorities as non-sustained and the TPO failed to explain the basis or reasoning in support of his impugned conclusion that no third party would make payment for services in a hypothetical CUP.
The Tribunal directed the TPO to allow appropriate relief after considering the evidence. The appeal was allowed for statistical purposes. The Appellant was represented by Sri C J Brito and the Respondent was by Sri Pradeep Kumar.
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