Determination of ALP of Professional Fee should not be carried out by AO in a case where reference is not made to TPO: ITAT Deletes Addition towards transfer pricing adjustment [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) held that the determination of Arms Length Price (ALP) of professional fee should not be carried out by the Assessing Officer (AO) in a case where the reference made to the Transfer Pricing Officer (TPO). 

DAM Capital Advisors Limited, the appellant assessee was a company engaged in the business of share broking and was a member of the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) the activities of the assessee include providing equity research and stock broking services to institutional clients. 

The assessee appealed against the order passed by the Commissioner of Income Tax (Appeals) for confirming the disallowance of Rs. 56,50,7527- under section 36(1)(iii) of the Income Tax Act and for the addition made towards the business loss and also for confirming the addition made by the Assessing Officer (AO) towards transfer pricing adjustments. 

Hiro Rai / Ritu Punjabi, the counsels for the assessee contended that the provision was made towards professional fees paid to the International Development Finance Club (IDFC) (USA) which had already been considered for TP adjustment, and accordingly, no separate addition can be made for the provision. 

Also submitted that the entire TP adjustment was made without proper examination of the assessee and the ALP was considered at Nil without any benchmarking by the assessing officer. 

Abhishek Kumar Singh, the counsel for the department contended that the assessee had not met the basic requirement of transfer pricing documentation and compliance as per the Indian Transfer Pricing Regulations, despite having international transactions with IDFC (USA). 

The Bench observed that the Central Board of Direct Taxes, vide instruction no.3/2016 dated 10th March 2016 had issued Guidelines for Implementation of Transfer Pricing Provisions and the assessing officer does not have the jurisdiction to propose any transfer pricing adjustment in case where he had not made any reference to the TPO. Therefore the additional made by the assessing officer to the tune of Rs.2,87,62,981 towards transfer pricing adjustment was not legally sustainable. 

The two-member bench comprising Amith Shukla (Judicial) and Padmavathy (Technical) quashed the addition made by the AO towards the transfer pricing adjustment. 

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