ALP Of Intra-Group Services Cannot Be Fixed At Nil Once Receipt Of Services Is Proven: ITAT Ahmedabad

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) on 27 May held that tax authorities cannot determine the arm's length price (ALP) of intra-group services at nil merely on a subjective perception of benefit once the taxpayer proves receipt of services and substantiates them with evidence.

Vice-President Dr. B.R.R. Kumar and Judicial Member T.R. Senthil Kumar allowed an appeal by Roquette India Pvt. Ltd. and deleted transfer pricing adjustments for Assessment Years 2017–18 and 2018–19 arising from payments made towards Central Corporate and Area services, Global Business Unit services, and IT services received from associated enterprises. The Bench observed:

“Once the existence of services and their receipt is demonstrated, the ALP cannot be determined at NIL merely on subjective perception of benefit.”

The Transfer Pricing Officer fixed the ALP of the services at nil, resulting in additions of Rs 24.37 crore for AY 2017–18 and Rs 25.32 crore for AY 2018–19. The taxpayer submitted service agreements, emails, presentations, allocation keys, cost allocation certificates, and audit certificates to establish that it actually received and used the services.

The Tribunal held that the taxpayer produced extensive evidence showing the nature and utilisation of the services. It also noted that the Revenue failed to produce any material to disprove the rendering of services.

Accordingly, the ITAT set aside the nil ALP determination and directed deletion of the transfer pricing adjustments. It further deleted the consequential disallowance under Section 37(1) of the Income Tax Act and directed verification of the claim regarding interest on refund under Section 244A.