The Bangalore Bench of the Income Tax Appellate Tribunal ( ITAT ), in the case of Bosch Automotive Electronics, held that the failure to prove benefit alone cannot be accepted as a grounds for transfer pricing disallowance of transfer pricing.
The assessee has challenged the additions made by the Transfer Pricing Officer (TPO) and the Assessing Officer (AO), which were upheld by the Dispute Resolution Panel (DRP) for the assessment year 2020-21.
It is to note that Bosch Automotive Electronics, a subsidiary of Robert Bosch Investment Nederland B.V., operates in the automotive electronics manufacturing sector in Bangalore. It filed its tax return electronically, declaring an income of Rs.156.54 crores.
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The tax authorities, scrutinized the transfer pricing adjustments linked to the company’s transactions with its associated enterprises (AEs). A Rs. 13.05 crore adjustment was proposed, primarily concerning services such as central procurement, professional training, and warranty costs. Additionally, Rs. 4.45 crore was disallowed, contending that payments to seconded employees were fees for technical services (FTS) requiring tax deduction under Section 195, rather than salary under Section 192 of the Income Tax Act, 1961.
It was contended by the assessee that the adjustments were unwarranted.
The company argued that the payments to its AEs were legitimate and submitted documentation, including financial statements, agreements, and tax audits. It also submitted that the payments to seconded employees were made as salaries and taxed accordingly.
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The DRP upheld the decision of tax authorities, stating Bosch failed to substantiate its claims of services rendered by its AEs or its position as the legal employer of the seconded employees. The DRP relied on gaps in evidence, including a lack of robust documentation demonstrating the economic benefits of the services received or the employer-employee relationship.
The ITAT observed that the “benefit test” alone cannot justify transfer pricing disallowances. The tribunal clarified that failure to prove direct benefits from services received does not automatically invalidate expenses if the services are genuine.
The ITAT remanded the case to the AO for a fresh assessment, instructing a detailed review and an opportunity for the assessee to present additional evidence.
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The ITAT comprising Laxmi Prasad Sahu ( Judicial Member) and Prakash Chand Yadav ( Account Member ) allowed the appeal filed by the assessee for statistical purposes.
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