ALP of Intra-group Services cannot be Determined at 'Nil' Merely on Subjective Perception of Benefit: ITAT rules in favour of Roquette India Pvt. Ltd
The Tribunal held that the Transfer Pricing Officer (TPO) was not justified in determining the Arm's Length Price (ALP) of intra-group services at 'Nil' despite the assessee providing detailed agreements and contemporaneous documentation
The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, ruled in favor of Roquette India Pvt. Ltd., deleting a substantial transfer pricing adjustment of approximately Rs. 24.37 crores for AY 2017-18 (and a similar amount for AY 2018-19). The Tribunal held that the Transfer Pricing Officer (TPO) was not justified in determining the Arm's Length Price (ALP) of intra-group...
The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, ruled in favor of Roquette India Pvt. Ltd., deleting a substantial transfer pricing adjustment of approximately Rs. 24.37 crores for AY 2017-18 (and a similar amount for AY 2018-19). The Tribunal held that the Transfer Pricing Officer (TPO) was not justified in determining the Arm's Length Price (ALP) of intra-group services at 'Nil' despite the assessee providing detailed agreements and contemporaneous documentation.
The assessee, a wholly owned subsidiary of Roquette Freres S.A., France, had received Central Corporate and Area (CCA) services, Global Business Unit (GBU) services, and Information Technology (IT) services from its Associated Enterprises (AEs). The TPO proposed an adjustment by determining the ALP of these services at 'Nil', contending that the assessee failed to demonstrate tangible benefits.
The Department challenged the validity of the service agreements, arguing that they were "void agreements" because they were executed on retrospective dates. It was submitted that the Central Corporate Service Agreement was executed in December 2016 but made effective from January 2016, rendering it unenforceable. The Revenue also contended that the evidence furnished was general in nature and lacked specific details of service rendition.
The Coram, comprising Dr. B.R.R. Kumar, Vice-President, and T.R. Senthil Kumar, Judicial Member, observed that the assessee had placed on record comprehensive documentation, including service agreements, allocation keys, cost pool workings, emails, presentations, and independent audit certificates spanning over hundreds of pages in the paper book.
The Tribunal noted:
“Once the existence of services and their receipt is demonstrated, the ALP cannot be determined at NIL merely on subjective perception of benefit. We further note that the DRP has also accepted that services were rendered... In absence of any cogent material brought by the Revenue to disprove the rendering of services, we are of the considered view that the approach adopted by the TPO in determining ALP at NIL cannot be sustained.”
Consequently, the Tribunal directed the deletion of the transfer pricing adjustment and the consequential disallowance under Section 37(1) of the Income Tax Act. The Assessing Officer was also directed to verify and grant interest under Section 244A as per law.
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