Charges towards Management Support Services are allowable as Business Expenditure: ITAT [Read Order]

The Kolkata bench of the Income Tax Appellate Tribunal (ITAT) charges towards management support services are allowable as business expenditure

The assessee, Cargo Partner Logistics India Private Limited engaged in the business of providing freight and other cargo forwarding services managed organizationally as a single unit headquartered in Vienna, Austria. The company has expertise in supply chain management. The assessee avails management services from various enterprises including its Associated Enterprise (AE) Cargo Partner Austria (CPA).

The Transfer Pricing Adjustment of Rs. 5,92,76,125/- was made on account of the sale and purchase of services at Rs. 2,69,70,409/- and payment of management/technical services fee at Rs. 3,23,05,716/-. The DRP partly upheld the ALP determined by the TPO and allowed the service charges booked on account of IT-related functions at ALP given the specialised nature of such expenses and a local need for a standardized operating system requirement. 

The assessee received management support services from its AE-CPA and the sum of Rs. 3,23,05,716/- have been disallowed and for transfer pricing, the said disallowance was framed as transfer pricing adjustment but without applying any method of calculating the ALP. The DRP has held that the assessee failed the benefits test in respect of such management services paid to its AE-CPA.

It was observed that the alleged management services are merely 2% of the total revenue of the company which was even less than 2% of the revenue of the company and the said sum paid by the assessee has also been offered to tax by AE-CPA.

Further observed that the observation of the Revenue authorities was not specific but general that the assessee has failed on the benefits test but nowhere any specific instances have been given to show that the so-called services taken by the assessee company from its AE under various agreements are not related to the nature of business carried on by the assessee.

Shri Manish Borad, accountant member & Shri Sonjoy Sarma, judicial member viewed that the alleged management charges at Rs. 2,47,69,939/- paid towards management support services to the AE-CPA are allowable as business expenditure incurred for the business of carrying out freight and other cargo forwarding services and by paying the alleged charges the assessee has been able to run the business smoothly and effectively and deleted the transfer pricing adjustment made at Rs. 2,47,69,939/-.

The appeal filed by the assessee was partly allowed for statistical purposes. Sh. Rahul Shah & Sh. Mukesh Agarwal appeared on behalf of the Assessee and Sh. Tushar Dhawal Singh appeared on behalf of the Revenue.

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