Standards which are normally applicable to deductibility of expenditure cannot be applicable to enterprises governed by transfer pricing provisions, rules ITAT

The Income Tax Appellate Tribunal (ITAT) has ruled that standard rules for deducting expenditure do not apply to companies operating under transfer pricing regulations. This decision stems from an appeal concerning management fees paid by Spicer India Pvt. Ltd. The Assessing Officer (AO) disallowed a significant portion of these fees, deeming them shareholder services with no real benefit. However, the Commissioner of Income Tax (Appeals) deleted this adjustment, a decision upheld by the ITAT, which found reliance on previous tribunal rulings in the assessee's own case.

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, PUNE
(Through Virtual Court)

BEFORE SHRI R.S. SYAL, VICE PRESIDENT
AND
SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER

ITA No.580/PUN/2020
Assessment Year : 2015-16

Dy. Commissioner of Income Tax,
Circle – 8, Pune
Appellant

V/s.

Spicer India Pvt. Ltd.,
29, Milestone, Pune-Nashik Road,
Village-Kuruli, Tal.-Khed,
Pune – 410501
PAN : AAECS1869C
Respondent

Assessee by : Shri R.D. Onkar
Revenue by : Shri Kalika Singh

Date of Hearing : 27-05-2021
Date of Pronouncement : 03-06-2021

ORDER

PER S.S. VISWANETHRA RAVI, JM :

This appeal by the Revenue against the order dated 06-03-2020 passed by the Commissioner of Income Tax (Appeals)-6, Pune [„CIT(A)‟] for assessment year 2015-16.

2. This appeal was filed with a delay of 177 days. The assessee filed an affidavit explaining the reasons for delay. After hearing both the parties,we find that the reasons stated by the assessee are bonafide which really prevented the assessee to file the present appeal in time. Therefore, the delay of 177 days are condoned.

3. The Revenue raised as many as 6 grounds amongst which the only issue emanates for our consideration is as to whether the CIT(A) is justified in deleting the adjustment of Rs.14,71,41,219/- made by the AO/TPO on account of management services fees in the facts and circumstances of the case.

4. We note that the assessee is a Joint Venture between Anand Automotive Systems and Dana Corporation, USA. The assessee is engaged in the business of manufacturing and sale of drive train components. During the year under consideration the assessee entered into domestic transaction with M/s. Asia Investment Pvt. Ltd. and incurred management fees of Rs.14,71,41,219/- by applying CUP method for computation of Arm‟s Length Price. The AO show caused the assessee to demonstrate with facts and figures that any benefit derived towards receipt of such services from M/s. Asia Investment Pvt. Ltd. The assessee submitted its response which was discussed by the AO/TPO in its order at Page No. 4. The AO/TPO held no evidences have been submitted by the assessee to establish that the services were rendered by its AE. No invoice nor details of specific services filed. The AO further observed that the details filed does not show rendering of any real services and accordingly, the services rendered by the AE are treated as shareholder services requiring no payment of fees under management and held the arm‟s length price of such domestic transaction treated as Nil. The CIT(A) in the impugned order at Page No. 3 in Para No. 7 deleted the said adjustment by placing reliance on the order of this Tribunal in assessee‟s own case for A.Ys. 2009-10 to 2014-15. 

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