DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE - 1(1), PUNE V. M/S. IAC INTERNATIONAL AUTOMOTIVE INDIA PVT.LTD, PUNE

ITA 749/PUN/2022

AI Insights

The case involves the Deputy Commissioner of Income Tax, Circle-1(1), Pune as the appellant and M/s. IAC International Automotive India Private Limited as the respondent. The dispute centered on the transfer pricing adjustment made by the TPO concerning management fees paid by the assessee to its AE, IAC Shanghai. The TPO had rejected the assessee's benchmarking analysis using the Transactional Net Margin Method (TNMM) and adopted the 'Other Method', determining the ALP of the transaction at nil. The CIT(A) reversed this adjustment, leading to the Revenue's appeal before the Tribunal. The Tribunal found that the TPO's application of the 'Other Method' was not in accordance with the law as it lacked a proper comparability analysis and did not identify any comparable uncontrolled transactions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 707033 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 17-10-2022
• Other Referred Cases: Lear Automotive India (P) Ltd vs. DCIT, Sulzer Tech India Pvt. Ltd vs. Addl./Jt./Dy./Asstt. Commissioner of Income Tax, Rehau Polymers Private Limited vs. ACIT, The Boston Consulting Group (India) Pvt. Ltd vs. The Assistant Commissioner of Income Tax, INA Bearings India Pvt. Ltd vs. ACIT, Johnson & Johnson Ltd. vs. ACIT, Merck Ltd. vs. ACIT, Kodak India Pvt. Ltd vs. ACIT, Yanfeng India Automotive Interior Systems (P.) Ltd vs. JCIT(OSD)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MADHUKAR ANAND
• Assessee Lawyers: DARPAN KIRPALANI
• Keywords: Set aside; Transfer pricing; International transaction; Question of law; Corroborative evidences; Commercial expediency; TDS; Wholly owned subsidiary; Related party transaction; FORM 26AS
• Section: 143(3); 37; 10B; 92C

Judgement Text

" आयकर अपीलीय अधिकरण “सी” न्यायपीठ पुणे में । IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, PUNE BEFORE MS. ASTHA CHANDRA, JUDICIAL MEMBER AND SHREE DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No.749/PUN/2022 धििाारण वर्ा / Assessment Year : 2013-14 Dy. Commissioner of Income Tax, Circle – 1(1), Pune Vs. M/s. IAC International Automotive India Private Limited, Gat No. 140, Village-Mahalunge, Chakan Telegaon Road, Taluka-Khed, Chakan, Pune-410501 PAN : AABCI8434J अपीलार्थी / Appellant प्रत्यर्थी / Respondent Assessee by : Shri Darpan Kirpalani Department by : Shri Madhukar Anand Date of hearing : 15-04-2025 Date of Pronouncement : 08-07-2025 आदेश / ORDER PER ASTHA CHANDRA, JM : The appeal filed by the Revenue is directed against the order dated 05.08.2022 of the Ld. Commissioner of Income Tax (Appeals)-13, Pune [“CIT(A)”] pertaining to Assessment Years (“AYs”) 2013-14. 2. Facts of the case in brief, are that the assessee, IAC International Automotive Private Limited, a company incorporated on 11.03.2008, is a wholly owned subsidiary of IACNA Mauritius Limited. The assessee is engaged in designing, development and manufacturing of automotive interior systems for various automotive industry customers. It also provides engineering, manufacturing and supplying interior and exterior components for passenger vehicles and heavy-duty truck applications viz. instrument panels/cockpits, door panels, headlines, carpet and acoustic systems, bumpers, centre consoles, pillars and interior trim parts etc. For 2 ITA No.749/PUN/2022, AY 2013-14 AY 2013-14, the assessee fled its return of income on 26.11.2013 declaring a total income at Rs. Nil along with Form 3CEB. The case of the assessee was selected for scrutiny under CASS. Accordingly, statutory notice(s) u/s 143(2)/142(1) of the Income Tax Act, 1961 (the “Act”) along with questionnaire were issued and served on the assessee. In response thereto, the assessee furnished the necessary details/information/ explanation as called for from time to time. 2.1 Since, the assessee entered into certain international transactions with its foreign Associated Enterprises (“AEs”) during the relevant AY, the case was referred to the Ld. Transfer Pricing Officer (“TPO”) under the provisions of section 92CA(1) of the Act in order to determine the Arm‟s Length Price (“ALP”) in respect of such international transactions. 2.2 The assessee undertook the following international transactions with its AEs during AY 2013-14 and benchmarked each transaction by selecting the Most Appropriate Method (“MAM”) mentioned in the table below: Sr. No. Nature of International Transaction Amount (in INR) Most Appropriate Method 1. Rendering of offshore engineering services 134,764,629 Transactional Net Margin Method („TNMM‟) 2. Management fee payable (Availing Business Support Services) 33,221,272 TNMM 3. Interest paid on ECB 7,067,816 Other Method 4. ECB loan taken 132,130,000 Other Method 5. Issue of equity shares 86,301,400 Other Method 6. Issue of preference shares 28,660,990 Other Method 7. Recovery of expenses 1,354,357 Other Method 8. Recovery of expenses – Withholding Tax paid on Employee stock option („ESOP‟) perquisite 5,301,196 Other Method 9 Reimbursement of expenses for testing material 35,016 Other Method 3 ITA No.749/PUN/2022, AY 2013-14 2.3 From the Transfer Pricing study report submitted by the assessee, the Ld. TPO noted that during the relevant AY, the assessee has availed certain business support services from its AE, IAC (Shanghai) Management Company Limited (“IAC Shanghai”) for the purpose of optimization of the assessee‟s corporate operations and management. IAC Shanghai was remunerated for these services on the basis of all allocable cost along with a 5% markup. Accordingly, the assessee paid management fee of Rs. 33,221,272 to (“IAC Shanghai”). The assessee selected TNMM for benchmarking the said international transactions of management fee with IAC Shanghai which was not acceptable to the Ld. TPO. The Ld. TPO therefore issued a show cause notice to the assessee proposing to make an adjustment to the value of international transaction pertaining to payment of management fees amounting to Rs.3,32,21,272/-. The Ld. TPO proposed to determine the ALP of the said international transaction using any other method as „Nil‟ on the ground that the assessee failed to furnish the reliable supporting evidences for receipt of services, benefits derived from such services, basis for making such payment and justification for markup. In response to the show cause notice, the assessee filed its detailed submissions raising various contentions/objections as to why the proposed adjustment should not be made. The Ld. TPO, however, rejected the contentions/objections raised by the assessee and proposed to make an adjustment of Rs. 3,32,21,272/- in respect of the assessee‟s international transaction of management fees with IAC Shanghai, vide his order dated 18.10.2016 passed u/s 92CA(3) of the Act for the reasons cited in para 8.1 to 8.6 and para 10 of his TP order. The gist of the reasons cited by the Ld. TPO are as under : (A) Rejecting the economic analysis documented by the assessee in its TP study report of considering TNMM as the MAM by selecting AE as the tested party by concluding that there are following issues:- (i) Financial statement of the AE is for the accounting year ended December 2012 and there is no linkage between the amounts appearing in the TP study report vis-à-vis financial statement of the AE. (ii) Comparable companies identified in the TP study report are not functionally comparable to the AE. 4 ITA No.749/PUN/2022, AY 2013-14 (iii) Comparable data pertains to the financial year 2012-13 as against the year ending of the tested party which is December 2012. (Refer para 8.1 of the TP order) (B) Concluding that the mark-up earned by the AE is more than 5% as the TDS liability has been borne by the assessee. (Refer para 8.2. of the TP order) (C) Rejecting the cost allocation working submitted by the assessee stating that the financial statement of the AE has no relevance with the benchmarking analysis. (Refer para 8.3 of the TP order) (D) Concluding that under the „Other Method‟ the receipt of services, computation of payment and quantification of the benefits derived from the management services are the relevant factors for computing the ALP. (Refer para 8.4 to 8.6 of the TP order) (E) Concluding that the assessee has failed to demonstrate the following: (i) Services received do not fall under shareholder's activity; (ii) Actual receipt of the services and benefits derived from such services. (Refer para 10 of the TP order). 2.4 Pursuant to the Ld. TPO‟s order, the Ld. Assessing Officer (“AO”) vide final assessment order dated 30.12.2016 passed u/s 143(3) r.w.s. 144C(3) of the Act confirmed the addition of Rs.3,32,21,272/- in respect of the payment of management fee by the assessee to IAC Shanghai. 3. Aggrieved, the assessee filed an appeal before the Ld. CIT(A) who deleted the entire transfer pricing adjustment of Rs.3,32,21,272/- made by 5 ITA No.749/PUN/2022, AY 2013-14 the Ld. AO/TPO for the reasons provided in para 3.4 & 3.5 of his appellate order observing as under : “3.4 I have carefully considered the facts of the case, transfer pricing order and submission filed by the appellant. The issue is regarding upward adjustment done by the AO/TPO to the international transaction of payment of management fee (for availing business support services) of Rs. 3.32,21,272/- by the appellant to its AE, IAC (Shanghai) Management Company Ltd. (IAC Shanghai). As per the submissions, the appellant had made the payment to its AE towards receipt of the following services:  Commercial support  Operational support  Human resource (including employee, health and safety) support  Finance related support There is a service agreement dtd. 01.01.2012 between the appellant and its AE and the appendix i to this agreement has elaborated details of various services under the head Commercial support, operational support, human resource support and finance related support. Appendix 2 of this agreement describes the basis of service fee calculation. The appellant in its transfer pricing documentation, has taken its AE (IAC Shanghai) as the tested party and benchmarked the management services using TNMM. The comparable companies in the Asia pacific region earned a mean PLI of 7.14%. The AE earned a PLI of 5% from provision of business support services to the appellant. At the end of transfer pricing proceedings, the Learned TPO undertook the TP adjustment by rejecting the choice of tested party. One of the reasons given by the TPO for rejecting the tested party is the different Financial Year adopted by the AE. It is seen from the details that the AE in China like many countries have adopted the calendar year as financial year rather than 1st April to 31st March, in practice in India. The appellant furnished the financial statements for both 2012 and 2013 and also given the calculation of its PLI as follows: Particulars 2013 2012 Operating Income 34,408,096 23,867,040 Non-operating income 145,953 72,714 Total Revenue (A) 34,554,049 23,939,754 Operating Cost 32,769,892 18,947,811 Business taxes and surcharges 73,408 39,454 General and administrative - 2,195,320 Financial expenses 295,495 1,628,366 Non-operating expenses 9,115 4,249 Total Cost (B) 33,147,910 22,815,200 Profit [C = (A-B)] 1,406,139 1,124,554 Profit/Cost [D=C/B] 4.24% 4.93% The PLI calculations approximates to the stated mark-up of 5% on assigned cost incurred by the AE as per the service agreement between the appellant and the AE. The learned TPO stated that the PL.I calculations in the TP study report is not matching with the amounts appearing in the financial statements of the AE. The appellant had stated that the AE is into the business of providing management services to various group companies in the region including the appellant. Hence, the amount allocated to the appellant could not directly match from the overall financial statements of the AE. Secondly, the AE is only engaged in providing management services to its various group concerns in the region and has no other business. This has been corroborated from the disclosure under transaction with related parties in the financials of AE as extracted above in page 16. The learned 6 ITA No.749/PUN/2022, AY 2013-14 TPO has also held that the tested party is engaged in mainly investment services in page 21 of his order. However, it is seen that the same paragraph quoted by the learned TPO and extracted from the financial statement of the AE states that it is providing consulting services, marketing services, personnel training and management services and technical support services. The business descriptions of the comparables broadly matches the services rendered by AE to the appellant. The learned TPO has also stated that though the AE has received the mark-up of 5%, the TDS 10.5% is paid to the Government of India by the appellant and not by the AE. So the mark-up on the assigned cost after including out of pocket expenses and grossing up of taxes, comes to more than 15%. However, it is seen that these taxes is received by Government of India and the actual mark-up earned by the AE is only 5%. This is also corroborated by the portions of the financials of the AE as extracted in previous page. The appellant also had given the details of cost allocation workings which has given the process note on allocation of cost, name of the employees of the AE rendering various services to different group companies in Asia pacific region, backup working of the cost allocated to the assessee, hourly rates working and the invoices for the services. The learned TPO simply brushed aside all these and rejected the benchmarking by the appellant. While recomputing the ALP of payment of management fee to nil, he has not done any comparability analysis other than quoting other method as per Rule 10AB. The learned TPO did not conduct any comparability analysis to determine the ALP and also not followed any method. This has been frowned upon by many ITAT decisions quoted by the appellant including the jurisdictional ITAT, Pune. 3.5 The learned TPO has also concluded that the services received by the appellant are routine services and hence fall under shareholder activity. This is against the concept of shareholder activity as per Para 7.10 of the OECD guidelines extracted by the appellant above in page 24. I agree with the appellant's submission that management services received enable the appellant to leverage on the vast knowledge and experience of the AE and to operate in an efficient and effective manner. Therefore, the payment of management fees cannot be regarded as 'shareholder's activity'. The learned TPO has also concluded that the appellant has failed to demonstrate the actual receipt of services and the benefit derived from such services. He is also not satisfied with the production of emails as evidence for receipt of services. However, the service agreement dated 01.01.2012 Clause 2 states that under this agreement, all services provided shall be in written form (email, facsimile, etc.) or in oral form (teleconference call, video conferencing, etc.). Services through email is a common feature in all multinational organizations. However, it is also seen that in addition to the copy of the agreement, sample invoices, process note of allocation of cost and back-up working of the cost allocated to the appellant along with the working of hourly rates, the appellant also has furnished various mail communication with respect to commercial support, operational support, HR support and finance support. This cannot be brushed aside stating that these are not evidences for receipt of services. The appellant has also submitted various case laws including the Hon'ble Jurisdictional Pune Tribunal on the issue in hand as extracted above in pgs. 30-31. I agree with the appellant in its argument that quantification of benefits is not required under the Indian TP Regulations. The assessee is in the competitive field of manufacturing of automotive components. This was the second year of manufacturing and the services received by the appellant provides guidance to the appellant as regards to efficient and effective manner of achieving business objectives, management guidance, framing overall strategy, capital planning, best practices, etc. The appellant has also provided the details of management fees paid to its AE in the subsequent years as extracted above in pg.32. It is seen that the payment of management fees and its ratio to the operating income has been reduced in the subsequent years. This shows the growth on the part of the appellant and its reduced dependence on AE with time. The 7 ITA No.749/PUN/2022, AY 2013-14 appellant has also brought attention to the fact that in the latest transfer pricing proceedings for AY 2018-19 completed on 20.07.2021, there has been no disturbance to the ALP of the same international transaction. It is also seen that the AE, IAC (Shanghai) has filed the return of Income for the relevant AY 2013-14 under the Indian Income Tax jurisdiction reflecting the taxable income of Rs.3,32,21,272/-, same amount the appellant has paid to its AE. In view of the discussion above, the appeal is allowed on these grounds of appeal filed by the Appellant.” 4. Dissatisfied by such order of the Ld. CIT(A), the Revenue is in appeal before this Tribunal raising the following grounds of appeal : “1) Whether in the facts and circumstances of the case, the Ld CIT(A) is correct in accepting the transfer pricing analysis conducted by the Assessee and for computing the arm's length price of the Assessee's international transaction pertaining to payment of management fees at Rs. 3,32,21,272/ taking AE as tested party with TNMM selected as most appropriate method to compute arm's length price without appreciating the facts that: a. The comparable companies considered by the assessee ore functionally different from the tested party. b. The accounting year of the tested party is different from that of the comparables considered by the assessee. c. The PLI is computed for tested party for accounting year ending with March 2013 whereas annual financial statements pertain to accounting year ending with December 2012. 2) Whether the transaction would be considered at Arm's Length Price, when the Ld CIT(A) has also agreed that the cost has been allocated arbitrarily (para 3.4). 3) Whether in the facts and circumstances of the case, the Ld CITIA) is justified in concluding that the services received by the assessee are not routine services and hence, do not fall under shareholder's activity. 4) Whether in the facts and circumstances of the case, the Ld CIT(A) is justified in concluding that the services, as stated in the agreement signed between the assessee and the AE, have been received in actual and benefit has been derived by the assessee from such services. 5) Whether in the facts and circumstances of the case, the Ld CIT(A) is justified in concluding that the mark-up on the assigned cost paid by the assessee to the AE for receipt of services should not include the TDS @ 10.51%, which has been borne by the assessee on behalf of the AE. 6) Whether Ld CIT(A) was correct in deciding the issues in favour of the assessee, even though the assessee has failed to maintain the requisite documents and failed to produce evidence in support of receipt of services and has kept reliance only on the clauses of agreements, sample e-mails and sample invoices.” 8 ITA No.749/PUN/2022, AY 2013-14 5. The Ld. DR strongly supported the order of the Ld. TPO 5.1 As regards the issue pertaining to selection of AE as a tested party, the Ld. DR submitted that in the benchmarking analysis carried out by the assessee, the assessee has adopted TNMM as MAM and the assessee has used AE as a tested. However, the contention of the assessee of selecting AE as a tested party is not correct. Drawing support from the decision of the Pune Tribunal in the case of Lear Automotive India (P) Ltd vs. DCIT, ITA No. 213(PUN) of 2021 reported in 133 taxmann.com 502 (Pune-Trib.), dated 04.08.2021 and the relevant paras from the TP study report, the Ld. DR argued that the AE, IAC Shanghai, is not a least complex entity and therefore the benchmarking done by the assessee using AE as a tested party is erroneous. 5.2 With regard to the mark-up charged by the assessee, the Ld. DR submitted that though the assessee claims that 5% mark-up has been charged for payment made towards management fee, as the assessee (Indian entity) has borne the TDS liability, the mark-up charged by the assessee need to be considered by including the TDS liability borne by the assessee, keeping in view the provisions of section 195A of the Act. 5.3 Referring to the Ld. TPO‟s findings and observations in para 8.6 of the TP order as regards the receipt of services by the assessee from IAC Shanghai, the Ld. DR submitted that the assessee has failed to prove with sufficient and reliable documentation and evidence, the actual rendition of services by the AE and the benefit derived by the assessee from receipt of such services. The assessee has simply given the description of services rendered by the AE via exchange of emails. However, these are not sufficient to justify the price charged by the AEs. Since the assessee has not proved with proper documentation and credible evidence that the services were actually rendered by IAC Shanghai to the assessee and the payment is commensurate with the benefits derived therefrom, the Ld. TPO was very well justified in determining the ALP to be „Nil‟. In support thereof, the Ld. DR placed reliance in the case of - (i) Gemplus India (P.) Ltd. Vs. ACIT, (2010) 3 taxmann.com 755 (Bangalore-Trib.); and (ii) Yanfeng India Automotive Interior Systems (P.) Ltd. Vs. JCIT(OSD), (2023) 148 taxmann.com 332 (Ahmedabad-Trib.). 9 ITA No.749/PUN/2022, AY 2013-14 5.4 Accordingly, the Ld. DR prayed that the Ld. TPO‟s order may be confirmed. Alternatively, the matter may be set aside to the file of the Ld. TPO, to re-compute the adjustment, as the PLI of the assessee is falling outside the comparable margin; or the matter may be set aside to the file of the TPO, for computing the ALP of the management fees considering assessee as a tested party. 6. The Ld. AR, on the other hand, strongly supported the order of the Ld. CIT(A). Referring to para 3.4 and 3.5 of the appellate order, the Ld. AR submitted that the Ld. CIT(A) has passed a detailed speaking order on each and every issue raised by the Ld. TPO. He submitted that the Ld. TPO has arbitrarily held that the ALP of the international transaction of management fee paid by the assessee is „Nil‟ by merely making a mention of “other method” without bringing on record any comparable uncontrolled transaction. 6.1 The Ld. AR submitted that while applying “other method” comparable should have been brought on record by the Ld. TPO which has not been done. There are various decisions favorable to the assessee wherein foreign AEs are taken as a tested party. The Ld. AR placed reliance on the following decisions wherein transfer pricing adjustments were deleted on the ground that the prescribed transfer pricing method has not been appropriately applied: i. M/s. Sulzer Tech India Pvt. Ltd. Vs. Addl./Jt./Dy./Asstt. Commissioner of Income Tax in ITA No. 633/Mum/2021 for AY 2016-17, dated 25.07.2022; ii. Rehau Polymers Private Limited Vs. ACIT in ITA No. 658/PUN/2022 for AY 2018-19, dated 04.03.2025; and iii. The Boston Consulting Group (India) Pvt. Ltd. Vs. The Assistant Commissioner of Income Tax for AY 2008-09, dated 31.07.2020. 6.2 Referring to pages 608 to 611 of the paper book containing the summary of mail communication relating to commercial support, operational support, HR and EHS support and finance support provided by the AEs to the assessee during the relevant AY 2013-14, the Ld. AR submitted that the assessee has sufficiently proved with adequate evidence 10 ITA No.749/PUN/2022, AY 2013-14 the receipt of services as well as the benefits derived by the assessee therefrom. The relevant extract of the same is reproduced below: 11 ITA No.749/PUN/2022, AY 2013-14 6.3 So far as the benefits derived from the services are concerned, the Ld. AR demonstrated the same by showing the trend of increasing revenue and decreasing management fees in subsequent years. 6.4 Referring to page 40 of the paper book containing the litigation history in assessee‟s case before the lower authorities, the Ld. AR submitted that the impugned issue i.e. management fees paid by the assessee to its AE, IAC Shanghai is a recurring issue every year and in 12 ITA No.749/PUN/2022, AY 2013-14 none of the subsequent AYs, any TP adjustment on this account has been made. He submitted that it is only in the relevant AY 2013-14 under consideration where the TP adjustment has been made. However, in the subsequent AYs where the assessee‟s case has been picked up for scrutiny, no such TP adjustment has been made by the Ld. TPO including the latest AY 2020-21. The relevant extract of the litigation history provided on page 40 of the paper book is as under : 6.5 The Ld. AR further submitted that the AE (IAC Shanghai) has filed its return of income in India and the assessee has withheld the required withholding tax/TDS on the payment(s) made to IAC Shanghai for the support services received and the same has been duly deposited into the Government‟s account which is evidenced from the copy of ITR and Form 26AS of IAC Shanghai available on records. 6.6 The Ld. AR also filed a brief summary note on the above contentions raised by him including the relevant extract of the judicial precendents relied upon by him, which is reproduced below : “1. At the very outset, the Appellant respectfully submits that the findings of the learned Commissioner of Income Tax (Appeals) [\"CIT(A)\"] are legally sound, reasoned, and consistent with both statutory provisions and judicial precedents. The CIT(A), in its detailed findings, has correctly noted that the Transfer Pricing Officer (TPO), while purporting to apply the \"Other Method\" under Rule 10AB of the Income-tax Rules, 1962, has failed to undertake any comparability analysis or identify a single comparable uncontrolled transaction to substantiate the Arm's Length Price (ALP) of NIL. 2. The TPO's approach is fundamentally flawed, as the mere reference to the \"Other Method\"-without adherence to the procedure laid down under Rule 13 ITA No.749/PUN/2022, AY 2013-14 10AB-cannot justify a deviation from statutorily prescribed transfer pricing principles. As per Rule 10AB, any method applied must be based on \"price charged or paid, or cost incurred or profit derived or loss incurred, or any other measurable benchmark, all of which must be derived from comparable uncontrolled transactions. The TPO has demonstrably failed to do this. 3. It is further submitted that the TPO has exceeded his statutory jurisdiction by delving into the question of whether services were actually received or whether any benefit accrued therefrom. This constitutes a clear usurpation of the role of the Assessing Officer (AO). The Hon'ble Delhi High Court in CIT e. EKL Appliances Ltd. ((2012) 345 ITR 241 (Del)) has unequivocally held that the TPO's role is confined to determining the ALP and not to assess the necessity or benefit of an expense from a business perspective. 4. The TPO's conclusion that the services received by the Appellant constitute \"routine shareholder activities\" is a finding based on conjecture, devoid of any objective economic analysis or functional examination. This not only contravenes the settled principles of transfer pricing but also reflects a fundamental misunderstanding of the scope of the TPO's authority. 5. The Appellant had furnished voluminous and credible evidence in support of the receipt and allocation of intra-group services, including: o Detailed cost allocation workings and process note; o Names and roles of employees of the Associated Enterprise (AE) involved in rendering services to the Appellant and other Asia Pacific group entities; o Back-up workings substantiating the cost allocation; o Hourly rate computations; o Invoices corresponding to services rendered; o Over 200 pages of email communications evidencing the actual rendition of services. 7. In the absence of any comparable uncontrolled transaction, method-based benchmarking, or reliable data analysis, the determination of the ALP at NIL amounts to an assertion rather than a reasoned conclusion. 8. The failure to apply any prescribed method under Rule 10B or justify invocation of Rule 10AB with suitable benchmarks results in a fundamental breach of the transfer pricing framework. The ALP so determined is therefore vitiated by legal infirmity. 9. The Appellant seeks to rely on the following judicial precedents in which transfer pricing (TP) adjustments were deleted on the grounds that the prescribed TP method had not been appropriately applied.:- M/s. Sulzer Tech India Pvt. Ltd (ITA 633/MUM/2021)- 21. Further, the lower authorities claimed to have adopted 'other method by applying need, benefit and evidence test for considering the arm's length price of this transaction to be NII.. In this regard it is pertinent to note that the provisions of Rule 10AB of the Income Tax Rules, 1962, which provides as under: \"10AB. For the purposes of clause (f) of sub-section (1) of section 92C, the other method for determination of the arm's length price in relation to an international transaction or a specified domestic transaction shall be any method which takes into account the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between non-associated enterprises, under similar circumstances, considering all the relevant facts.\" 14 ITA No.749/PUN/2022, AY 2013-14 22. Thus, as per the provisions of aforesaid Rule, the 'other method' shall be the method which takes into account the price which has been or would have been charged or paid for the same or similar uncontrolled transaction between non-associated enterprises. However, in the present case, the lower authorities without searching for similar uncontrolled transaction between non-associated enterprises, straightaway treated the value of the international transaction to be at NIL. In this regard, it is relevant to note following observations of Hon'ble Delhi High Court in Cushman and Wakefield (India) Put. Ltd., [2014] 367 ITR 730 (Del.): 35. The TPO's Report is, subsequent to the Finance Act 2007. binding on the AO. Thus, it becomes all the more important to clarify the extent of the TPO's authority in this case, which is to determining the ALP for international transactions referred to him or her by the AO, rather than determining whether such services exist or benefits have accrued. That exercise of factual verification is retained by the AO under Section 37 in this case. Indeed, this is not to say that the TPO cannot-after a consideration of the facts-state that the ALP is 'nil' given that an independent entity in a comparable transaction would not pay any amount. However, this is different from the TPO stating that the assessee did not benefit from these services, which amounts to disallowing expenditure.\" 23. As noted above, in the present case, no search was conducted to find out the independent entity in a comparable transaction and the arm's length price of the international transaction was treated to be NIL.. In the present case, no doubts about payments made by the assessee have been raised by the Assessing Officer under section 37 of the Act. Further, accrual of benefit to assessee or the commercial expediency of any expenditure incurred by the assessee cannot be the basis for disallowing the same, as held by Hon'ble Delhi High Court in the case of EKL Appliances Ltd. (2012) 345 ITR 241 (Del.). 24. We further find that Hon'ble jurisdictional High Court in CIT v/s Lever India Exports Ltd. [2017] 246 Taxmann 133 (Bom.), observed as under: 7. We note that the Tribunal has recorded the fact that the respondent assessee has launched new products which involved huge advertisement expenditure. The sharing of such expenditure by the respondent assessee is a strates to develop its business. This results in improving the brand image of the products, resulting in higher profit to the respondent assessee due to higher sales Further, it must be emphasized that the TPO's jurisdiction was to only determine the ALP of an International Transaction. In the above view, the TPO has to examine whether or not the method adopted to determine the ALP is the most appropriate and also whether the comparables selected are appropriate or not. It is not part of the TPO's jurisdiction to consider whether or not the expenditure which has been incurred by the respondent assessee passed the test of Section 37 of the Act and/or genuineness of the expenditure. This exercise has to be done, if at all, by the Assessing Officer in exercise of his jurisdiction to determine the income of the assessee in accordance with the Act. In the present case, the Assessing Officer has not disallowed the expenditure but only adopted the TPO's determination of ALP of the advertisement expenses. Therefore, the issue for examination in this appeal is only the issue of ALP as determined by the TPO in respect of advertisement expenses. The jurisdiction of the TP) is specific. And limited le. to determine the ALP of an International Transaction in terms of Chapter X of the Act read with Rule 10A to 10E of the Income Tax Rules. The determination of the ALP by the respondent assessee of its advertisement expenses has not been disputed on the parameters set out in Chapter X of the Act and the relevant Rules. In fact, as found both by the CIT (A) as well as the Tribunal that neither the method selected as the most appropriate method to determine the ALP is challenged nor the comparables taken by the 15 ITA No.749/PUN/2022, AY 2013-14 respondent assessee is challenged by the TPO. Therefore, the ad-hoc determination of ALP by the TPO dehors Section 92C of the Act cannot be sustained.\" 25. In view of the above, we are of the considered opinion that TPO as well as learned DRP were not justified in treating the value of international transaction of Payment of Corporate IT Support Services' to be NIL, in the present case. Accordingly, ground No. 2, including grounds no. 2.1 to 2.3, raised in assessee's appeal are allowed. Rehau Polymers Private Limited (ITA 658/PUN/2022) – 23. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer/TPO/DRP and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case has paid an amount of Rs.6,71,58,603/- to its AEs for the cost sharing charges. We find the TPO following his order for assessment years 2012-13 and 2013-14 has held that the assessee has not demonstrated the receipt of services and tangible benefit derived from such services for which he considered the ALP of the international transactions related to the said services as Nil and accordingly made an upward adjustment of Rs.6,71,58,603/-. We find when the assessee approached the DRP, the DRP rejected the contention of the assessee and the Assessing Officer in the final order made the addition of Rs.6,71,58,603/-. It is the submission of the Ld. Counsel for the assessee that although the TPO in his order at para 32, page 23 made a reference of CUP method, however, the TPO has not carried out any such exercise and therefore, simply referring to CUP method without any reference to the actual uncontrolled transaction and the price charged therein clearly indicates that no CUP method is adopted by him. Further, it is also his submission that in absence of any such reference in the order passed by the TPO for the year under consideration, the DRP is not justified in holding that the TPΟ has used Other Method as the most appropriate method especially when the TPO in the order for assessment year 2020-21 has clearly stated that the Other Method was being considered as the most appropriate method. 24. We find some force in the arguments of the Ld. Counsel for the assessee. A perusal of the order for assessment year 2020-21 of the TPO, copy of which is filed separately, shows that at para 21 of the order the TPO has observed as under: \"Assessee has failed to substantiate that transaction of cost sharing arrangement/intra group services is intrinsically linked to manufacturing activity by way of a package deal. Therefore, aggregation approach taken by assessee was found to be not reliable and considering facts of the case and nature of transaction, 'Other Method' is taken as MAM by the TPO.\" 25. However, in the instant case, although the TPO has made a reference of CUP method in para 32, page 23 of his order which was selected in the earlier year, however, the TPO has not carried out any such exercise for the price charged or paid for the property transferred or the services provided in a comparable uncontrolled transaction. As per Rule 10B of the Income Tax Rules, CUP method is a method, wherein the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction is identified. Thereafter, the said price is adjusted to account for differences, if any and the said price is taken to be the Arm's Length Price. Thus, as per the said rule, for applying CUP method, the price charged for property transferred or services provided is required to be identified. However, in the present case, the TPO has not carried out any such exercise. Therefore, simply referring to CUP method without any reference to the actual uncontrolled transaction and the price charged therein clearly 16 ITA No.749/PUN/2022, AY 2013-14 indicates that no CUP method is adopted by him. Under these circumstances, we agree with the contention of the Ld. Counsel for the assessee that no method has been adopted by the TPO for determining the ALP. The observations of the DRP that the TPO has adopted the Other method as the most appropriate method in our opinion is incorrect since there is no reference to any such method as the TPO has not specifically mentioned the Other method as the most appropriate method. Thus, the question that is to be answered is as to whether any adjustment of ALP is in accordance with law if no method has been adopted by the TPO for determination of the ALP. 26. We find the Hon'ble Bombay High Court in the case of CTT v. Johnson & Johnson Ltd. (supra) has held that the action of the TPO in determination of ALP without following any of the prescribed methods is incorrect and the addition made is to be deleted on the said reason. 27. We find the Hon'ble Bombay High Court in the case of CIT v. Merck Ltd. (supra) has held as under: \"On further appeal, the impugned order of the Tribunal upheld the submission of Respondent-Assessee that in terms of the Agreement, the AE was obliged to provide technical assistance in the 12 areas listed in the Agreement. There was no obligation upon the Respondent-Assessee to obtain technical assistance in all the 12 areas listed in the Agreement The Respondent-Assessee could ask for assistance in the areas required and the AE was obliged to give it. It is for the availability of the assistance in all twelve areas that the consideration was paid. Thus, no adjustment was required. It further held that the entire Transfer Price Adjustment was done by the Revenue without having been applied any of the methods prescribed under Section 92C of the Act to determine at the ALP. Consequently, the determination of ALP done by the Assessing Officer/TPO could not be justified. It further recorded the fact that no transfer pricing exercise was done by the Assessing Officer/TPO to determine the value of the services received by the Respondent-Assessee in respect of the three services which it had availed of from its AE before holding that the ALP in this case is Rs. 40 lakhs. This was became no exercise to benchmark it with comparable cases was done. Therefore, the consideration payable for the services availed of by the Respondent-Assessee to determine the ALP was not carried out. In the above view, the Tribunal allowed Respondent-Assessee's appeal on the above issue.\" 28. We find the Hon'ble Bombay High Court in the case of Kodak India Pvt. Ltd. (supra) has observed as under: \"10. We must also record the fact that the ALP was arrived at by the Transfer Pricing Officer (TPO) by not adopting any of the methods prescribed under Section 92C of the Act. The method to determine the ALP adopted was not one of the prescribed methods for computing the ALP. It was not even any method prescribed by the Board. At the relevant time, i.e. for A.Y. 2008-09 Section 92C of the Act did not provide for other method as provided in Section 92C(1) (f) of the Act. The impugned order of the Tribunal holds that the method adopted by the Revenue to determine the ALP was alien to the methods prescribed under Section 92C of the Act. In the above circumstances, the Tribunal declined to restore the issue to the Assessing Officer for re-determining the ALP by adopting one of the methods as listed out in Section 92C of the Act. This finding of the Tribunal has also not been challenged by the Revenue.\" 29. We find the Pune Bench of the Tribunal in the case of INA Bearings India Pvt. Ltd. (supra) has held as under: 17 ITA No.749/PUN/2022, AY 2013-14 \"27. Now we turn to the second issue by which the TPO determined Nil ALP of the international transaction without applying any specific method. In this regard, section 92(1) of the Act provides that \"Any income arising from an international transaction shall be computed having regard to the arm's length price\". Section 92C of the Act deals with the computation of ALP. Sub-section (1) of 92C, at the material time, provides that: \"The arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe, namely:- (a) Comparable uncontrolled price method; (b) resale price method; (c) cost plus method; (d) profit split method; (e) transactional net margin method; (f) such other method as may be prescribed by the Board.\" 28. A perusal of the provision divulges that the ALP in relation to an international transaction \"shall\" be determined by any one of the prescribed methods, which is most appropriate method for the transaction under consideration. The term 'shall' used in the provision gives it a status of mandatory character and it cannot be construed here as directory so as to empower the TPO to determine the ALP of an international transaction in an arbitrary manner. He has to confine himself to one of the prescribed methods for determination of the ALP of international transaction, for which mechanism has been prescribed in Rule 10B of the Income-tax Rules, 1962. Thus, it is evident that the ALP of an international transaction can be determined only by applying one of the prescribed methods given under section 92C(1) of the Act. If the ALP is determined by TPO by not applying any method at all or by choosing a method which is not prescribed u/s.92C(1) of the Act, then such a determination of ALP frustrates the transfer pricing addition. Since the methods prescribed for determining the ALP are statutory prescription, it is absolutely essential for the TPO to compute the ALP by adhering strictly to one of such methods. 29. The Hon'ble jurisdictional High Court in CIT (Large Tax Payer Unit) us. Johnson & Johnson Ltd. (2017) 247 Taxman 136 (Bom) vide its judgment dated 3rd April, 2017 has held that transfer pricing adjustment is refuted if the TPO does not follow any of the prescribed method. Similar view has been taken by the Hon'ble Bombay High Court in CIT Vs. Johnson & Johnson Ltd. (2017) 297 CTR 480 (Bom) vide its judgment dated 07.03.2017. On going through the above two judgments of the Hon'ble jurisdictional High Court it becomes patent and the ratio decidendi squarely applies to the instant case as well since the TPO did not follow any of the prescribed methods for determining the ALP. He simply held that: \"Based on the above, arm's length price of the services provided to the assessee by AE is held to be NIL.. The transfer pricing addition deserves to be deleted on this count as well. 30. Notwithstanding the above, we now proceed to examine if the ALP of the international transaction of payment of 'Management support services fees', is at ALP? 31. The assessee has placed on record a benchmarking analysis for provision of Management services by Ernst & Young (China) advisory limited, China for the financial year ending on 31st December, 2009. There is another Cost Verification Procedure Report by Ernst & Young for the financial years ending 31 December, 2009 to 2011, a copy of which is available at page 1326 onwards of the paper book. This Cost Verification Procedure Report also covers the year under consideration. It has been mentioned in this report that the services fee charged to INA India is determined based on 18 ITA No.749/PUN/2022, AY 2013-14 hourly rates and time taken for the services. It further provides total invoices amount includes service fees calculated above as well as business tax and surcharges. It has been mentioned in the Cost Verification Procedure Report, that \"the invoices issued to INA India were determined based on the actual hours incurred and consistent with the pricing policy of the service fee charges which for the year is 5%.\" From the above report, it is overwhelmingly manifest, which also emanates from the Agreement between the assessee and Schaeffler China under which such services were provided, that the service fee is actual cost incurred by Schaeffler China plus a mark-up of 5%. The authorities below have not disputed the correctness of the invoices raised by Schaeffler China. Though no separate ALP determination of the international transaction of payment of Management services fees is available for the year under consideration, but one thing which is clear is that the payment of Rs.5,65.53,971/- and odd to Schaeffler China is towards actual expenses incurred plus 5% mark-up, which is in the nature of Cost plus method prescribed under rule 108(1)(c) of the I.T. Rules. Even if, we proceed with the assumption that the mark up of 5% is not at ALP, which should be as low as 1% or even less than that, still the difference arising on account of such mark-up going even up to 0% in a comparable uncontrolled situation, would be within +/-5% range, not requiring any transfer pricing adjustment. 32. To sum up, it is held that the assessee entered into an agreement with Schaeffler Holding (China) Co., Ltd for receipt of \"Management support Services\", for which separate benchmarking was required to be done. Such services were actually rendered. These services are not in the nature of stewardship or shareholder activity. The payment to Schaeffler Holding (China) Co. Ltd. at the actual costs incurred in providing such services plus 5% mark-up is at ALP, which does not require any transfer pricing addition. We, therefore, set aside the impugned order by holding that the international transaction of payment of Fees for Management services at Rs.5,65.53,971/- is at ALP, which does not require any transfer pricing addition. The addition so sustained in part by the Id. CIT(A), is directed to be deleted in full.\" 30. We find the Pune Bench of the Tribunal in the case of East West Seeds India Pvt. Ltd. (supra) while deleting the addition on account of TP adjustment on account of adoption of any of the prescribed methods has observed as under: \"8. Heard both parties and perused the material available on record. We note that the TPO discussed the issue of Management Service Fees in its page 9 at para 10 and a show cause notice issued to the assessee as to why payment made towards management fees should not be treated as Nil. As pointed out by the ld. AR the assessee submitted that the details of services were furnished to the TPO vide Point No. 9 to 15 vide letter dated 29-10-2014 but however we note that the AO/TPO made upward adjustment regarding the segment management service fees of Rs.5,08,05,398/- mainly basing on the issue arose for A.Ys. 2009-10 and 2010-11. Further, we note that the above said adjustment was made without following any prescribed method contemplated under the provisions of section 92C of the Act. We note that at Point No. 7 vide its reply the assessee is stated that the appeals for A.Ys. 2009-10 and 2010-11 were pending before the CIT(A). Therefore, it is clear that the TPO made the said adjustment without following the due procedure contemplated under law and the adjustment made thereon is liable to be deleted. 9. Coming to the decision of Hon'ble High Court of Bombay in the case of Johnson & Johnson Ltd. (supra) we find that the TPO had made transfer pricing adjustment on account of sales promotion and publicity expenses being payable by the assessee to its parent company M/s. Johnson & Johnson, USA. The TPO did not follow any method prescribed u/s. 920(1) of 19 ITA No.749/PUN/2022, AY 2013-14 the Act r.w.s. 10B made adjustment. The Hon'ble High Court of Bombay was pleased to hold that the TPO is obliged under the law to determine the ALP by following any one of the prescribed methods of determining the ALP as detailed in section 92C(1) of the Act and upheld the order of Tribunal in allowing assessee's appeal by deleting the addition made on account of sales promotion and publicity expenses. 10. Further, the Hon'ble High Court of Bombay in the case of Merck Ltd. (supra), the Hon'ble High Court of Bombay was pleased to hold the entire transfer pricing agreement becomes unsustainable in law in not adopting one of the mandatorily prescribed methods to determine the ALP in respect of fees of technical services payable by the assessee therein to its AE. The Hon'ble High Court of Bombay held the view taken by the Tribunal in deleting the adjustment made by the TPO without applying any of the method prescribed u/s. 92C to determine ALP is a possible view. 11. Further, this Tribunal in the case of INA Bearings India (P.) Ltd. (supra) by placing reliance in the case of Johnson & Johnson Ltd. (supra) discussed in length the provisions of section 92C(1) of the Act in its order at para 27 and held the term shall used in the provision gives it a status of mandatory character and it cannot be construed here as directory so as to empower the TPO to determine the ALP of an international transaction in an arbitrary manner. The TPO has to confine himself to one of the prescribed methods for determination of the ALP of international transaction, for which mechanism has been prescribed in Rule 10B of the Income-tax Rules, 1962. Further, it held the ALP of an international transaction can be determined only by applying one of the prescribed methods given under section 92C(1) of the Act and the ALP is determined by TPO by not applying any method at all or by choosing a method which is not prescribed u/s.92C(1) of the Act, then such a determination of ALP frustrates the transfer pricing addition and deleted the transfer pricing addition made thereon by holding the methods prescribed for determining the ALP are statutory prescription, it is absolutely essential for the TPO to compute the ALP by adhering strictly to one of such methods. Thus, adjustment made in Research and Development fees and Management fees without following prescribed method under law is deleted. Therefore, ground Nos. 1 to 2.5 raised by the assessee are allowed.\" 31. The various other decisions relied on by the Ld. Counsel for the assessee also supports his case to the proposition that in absence of any of the prescribed methods for the determination of the ALP, such TP adjustment is not sustainable in law. Since the TPO in the instant case has not adopted any of the prescribed methods for determination of the ALP, therefore, respectfully following the decisions cited (supra), we hold that the addition made by the Assessing Officer/TPO/DRP is not in accordance with law for which the same has to be deleted. We accordingly set aside the order of the Assessing Officer and direct him to delete the adjustment of Rs.6,71,58,603/-. The grounds raised by the assessee are accordingly allowed. The Boston Consulting Group(India) Pvt. Ltd (ITA 7600/MUM/2012) – 7. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. An examination of the order of the TPO made u/s 92CA(3) dated 20.10.2011 clearly indicates that while making the adjustment of Rs.1,62,74,359/- (payment for time and billing software license), Rs.3.73,07,488/- (regional and worldwide training) and Rs.2,10,06,610/-(payment for information technology cost allocation), he has not adopted any of the prescribed method. In the case of M/s Lever India Exports Ltd. (supra), the Hon'ble Bombay High Court has held that the jurisdiction of the TPO is specific and limited i.e. to 20 ITA No.749/PUN/2022, AY 2013-14 determine the ALP of an international transaction in terms of Chapter X of the Act r.w. Rule 10A to 10E of the Income Tax Rules. It further held that the ad-hoc determination of ALP by the TPO dehors section 92C of the Act cannot be sustained. In M/s Merck Ltd. (supra), the respondent-assessee had entered into an agreement with its AE to provide technical knowhow/consultancy in 12 fields as indicated therein for a consideration of Rs.1.57 crores. The respondent- assessee availed services of its AE during the subject year (AY 2003-04) only in 3 out of 12 fields listed in the agreement. The TPO, therefore, proceeded to hold that the entire consideration of Rs.1.57 crore is attributable to the 3 technical services which the respondent-assessee availed of and held that no consideration was payable in respect of 9 services provided for in the agreement. Thus the entire payment of Rs.1.57 crore was attributable only to the 3 services availed out of the 12 listed out in the agreement. It further held that only Rs.40 lacs could be considered as ALP attributable to 3 services and made adjustment of Rs.1.17 crore resulting in its addition to the taxable income. In appeal, the CITIA) upheld addition of Rs.1.17 crores made and taxable income consequent to the adjustment made on account of technical knowhow/consultancy agreement. On further appeal, the Tribunal upheld the submissions of the respondent-assessee and recorded further the fact that no transfer pricing exercise was done by the AO/TPO to determine the value of the services received by the respondent-assessee in respect of the 3 services which it had availed from its AE before holding that the ALP in this case is Rs.40 lacs. The Tribunal further held that \"consideration payable for the services availed of by the respondent-assessee to determine the ALP was not carried out\". On appeal by the Revenue, the Hon'ble Bombay High Court held that: \"Consequently, the finding of the Assessing Officer attributing nil value to nine of the services listed in the agreement which were not availed of by the Respondent-Assessee in the present facts was not justified. Moreover, not adopting one of the mandatorily prescribed methods to determine the ALP in respect of fees of technical services payable by the Respondent-Assessee to its AE, make the entire Transfer pricing Agreement unsustainable in law.\" In M/s Johnson & Johnson Ltd. (supra), the Tribunal allowed the respondent-assessee's appeal before it by deleting the addition of Rs.200.82 lacs being the transfer pricing adjustment on account of sales promotion and publicity expenses being payable by the respondent-assessee's parent M/s Johnson & Johnson, USA. This on the ground that the TPO has, while holding that the parent company should share this expenditure on publicity and sales promotion as it benefits therefrom, as higher sales result in higher royalty, has not determined the ALP by following any of the methods prescribed u/s 92C(1) of the Act r.w. Rule 10B. On appeal by the revenue, the Hon'ble Bombay High Court held that: (ii) The TPO is obliged under the law to determine the ALP by following any one of the prescribed methods of determining the ALP as detailed in Section 92C(1) of the Act. In this case, there is nothing on record to indicate that the TPO had applied any one of the prescribed methods in Section 92C(1) of the Act to determine the ALP before disallowing the payment of Rs.200.82 lakhs incurred by the Respondent on account of publicity and sales management as being excessive and/or payable by its parent, M/s. Johnson & Johnson, USA. (iii) The impugned order holds that transfer pricing adjustment done by disallowing the payment, on the basis of an assumption that it is excessive, is an action completely dehors the provisions of transfer pricing adjustment found in chapter X of the Act. The determination of the ALP has to be done only by following one of the methods prescribed under the Act. 21 ITA No.749/PUN/2022, AY 2013-14 (iv) In view of the above, as the Revenue has not acted in accordance with the clear mandate of law, the questions as proposed does not give rise to any substantial question of law. Thus, not entertained.\" In M/s Kodak India Pvt. Ltd. (supra), the above position of law is reiterated by the Hon'ble Bombay High Court. As mentioned earlier, we notice that the TPO/AO has arrived at the ALP by not adopting any of the methods prescribed u/s 92C of the Act in respect of (i) payment of license fees for time and billing software, (ii) payment of regional administration and regional co-ordination cost allocation and (iii) payment of information technology cost allocation. In view of the above factual scenario, we are of the considered view that the ratio laid down by the Hon'ble Bombay High Court in Lever India Exports Ltd.; Merck Ltd.; Johnson & Johnson Ltd. and Kodak India Pvt.Ltd. mentioned hereinabove is squarely applicable to the facts of the case. Therefore, following the same, we allow the 1st, 2nd and 3rd ground of appeal.\" In view of the foregoing submissions, it is most respectfully prayed that this Hon'ble Tribunal may be pleased to uphold the order of the learned Commissioner of Income Tax (Appeals), wherein it has been rightly held that a mere assertion of the adoption of the \"Other Method\" under Rule 10AB of the Income-tax Rules, 1962, is not sufficient for a valid Transfer Pricing adjustment. The learned CIT(A) has correctly concluded that, in accordance with Rule 10AB, the assessee or the Transfer Pricing Officer is required to bring on record a comparable uncontrolled transaction to justify the applicability and reliability of the method employed. Accordingly, it is prayed that the appeal of the Revenue be dismissed and the well-reasoned order of the learned CIT(A) be sustained in the interest of justice and equity.” 7. We have heard the Ld. Representatives of the parties, perused the material available on records, paper book filed by the Ld. AR on behalf of the assessee as well as various judicial precedents relied upon by the Ld. AR and DR. The facts of the case are not in dispute. During the relevant AY under consideration, the issue pertaining to management fee paid by the assessee to its AE, IAC Shaghai amounting to Rs. 3,32,21,272, was referred to the Ld. TPO for determination of ALP. In its TP study, the assessee has benchmarked the said transaction by applying TNMM as the most appropriate method (MAM) and used its AE, IAC Shangi as a tested party. However, rejecting the benchmarking done by the assessee, the Ld. TPO determined the ALP of the said transaction at Rs. Nil by adopting the „other method‟ for the reasons stated in paragraph 2.3 above. Pursuant thereto, the Ld. AO confirmed the said addition proposed by the Ld. TPO. The assessee challenged the order of the Ld. AO before the Ld. CIT(A) who allowed the appeal of the assessee by deleting the entire TP adjustment made by the Ld. AO/TPO vide his impugned appellate order for the reasons 22 ITA No.749/PUN/2022, AY 2013-14 reproduced in preceding paragraph. Aggrieved by such order of the Ld. CIT(A), Revenue is in appeal before the Tribunal raising six grounds of appeal (reproduced above) which includes the ground related to the selection of tested party; mark-up charged by the assessee; and non- maintenance/furnishing of documents by the assessee. Although the Revenue has raised several grounds of appeal, the foremost issue arising from the arguments put forth from both the sides, for our consideration, is whether a foreign enterprise (IAC Shaghai, AE of the assessee in the present case) can be taken as a tested party for benchmarking the international transaction i.e. management services rendered by AE to the assessee. Whilst strongly supporting the order of the Ld. TPO, the Ld. DR by placing reliance on the decision of the Pune Tribunal in the case of Lear Automotive India Pvt. Ltd. (supra) has contended that the Ld. CIT(A) has erroneously upheld the benchmarking done by the assessee using AE as a tested party and therefore requested that the order of the Ld. TPO may be confirmed, else the matter may be set aside to the file of the Ld. TPO for computing the ALP of the management fees considering assessee as a tested party. The Revenue has also alleged that the assessee has failed to demonstrate the actual receipt of services and benefits derived therefrom by way of documentary evidences and that the services received by the assessee constitute „routine shareholder activities‟. The Ld. AR, on the other hand, vehemently supported the order of the Ld. CIT(A). 7.1 It has been the contention of the assessee all along that the assessee‟s selection of AE as a tested party is not incorrect. Perusal of the Ld. TPO‟s order reveals that the Ld. TPO, by merely making a mention of “other method” without bringing on record any comparable uncontrolled transaction, in an arbitrary manner, held the ALP of the international transaction of management fees paid by the assessee to its AE to be „Nil‟. We therefore find some force in the arguments put forth by the Ld. Counsel for the assessee that the approach of the Ld. TPO is fundamentally flawed in terms of adherence to the procedure laid down under Rule 10AB of the the Income-tax Rules, 1962 (the “Rules”) as he has failed to demonstrate the adoption of „other method‟ as against TNMM adopted by the assessee for benchmarking the impugned transaction without brining on record any comparable uncontrolled transaction to substantiate the ALP determined by him to be NIL. We find that the Ld. CIT(A) has passed a detailed 23 ITA No.749/PUN/2022, AY 2013-14 speaking order as per fact and law on each and every issue raised by the Ld. TPO. The Ld. CIT(A) has deleted the impugned addition by giving a very elaborate and reasoned finding consistent with both the statutory provisions under the Act/ Rules as well as judicial precedents on the impugned issue. In our considered view, the Ld. CIT(A) has rightly held that a mere assertion of the adoption of the “other method” under Rule 10AB of the Rules, is not sufficient for a valid transfer pricing adjustment. The Ld. CIT(A) has correctly concluded that, in accordance with Rule 10AB, the assessee or the transfer pricing officer is required to bring on record a comparable uncontrolled transaction to justify the applicability or reliability of the method employed. 7.2 The relevant transfer pricing regulation relating to „any other method‟ provided under Rule 10AB is reproduced below: “Any other method as provided in rule 10AB In exercise of the powers conferred by Section 295 of the Act, the CBDT has notified vide notification number 18/2012 dated May 23, 2012 Rule 10AB for the purpose of clause (f) of sub-section (1) of Section 92C. The Rules prescribe that the other method for determination of the arms' length price in relation to an international transaction shall be any method which takes into account the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between non-associated enterprises, under similar circumstances. considering all the relevant facts. Further the Rules provide that the comparability of an international transaction with an uncontrolled transaction shall be judged with reference factors like specific characteristics of the property transferred or services provided; function, asset and risk profile of the respective parties to the transactions; contractual terms etc., conditions prevailing in the markets in which the respective parties to the transactions operate, such as geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets. overall economic development and level of competition and whether the markets are wholesale or retail. Also, an uncontrolled transaction shall be comparable to an international transaction if the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are not likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market or reasonably accurate adjustments can be made to eliminate the material effects of such differences. The data used in analysing the comparability of an uncontrolled transaction with an international transaction shall be the data relating to the financial year in which the international transaction has been entered into. However the Rules allow usage of data relating to maximum of two years prior to the financial year, if such data reveals facts which could have an influence on 24 ITA No.749/PUN/2022, AY 2013-14 the determination of transfer prices in relation to the transactions being compared.” 7.3 In view of the above statutory provisions, we find the Ld. TPO has not complied with the requirements enshrined in Rule 10AB while adopting „other method‟ and rejecting the ALP of the international transaction of managements fee in accordance with the TP analysis conducted by the assessee. The Ld. TPO has applied „other method‟ without any reference to the actual uncontrolled comparable transaction and the price charged therein. It is a settled position of law that ad-hoc determination of ALP by the TPO dehors section 92C of the Act read with the applicable Rule thereunder, cannot be sustained. 7.4 We have also perused the judicial precedents relied by the Ld. AR (supra) wherein the TP adjustments were deleted on the ground that the prescribed TP method has not been appropriately applied and find that the assessee‟s case is duly supported by the said decisions. On the other hand, we do not find much force in the argument of the Ld. DR that the assessee should be taken as tested party and not the AE under the present set of facts in assessee‟s case before us. In our considered view, the reliance paced by the Ld. DR in the case of Lear Automotive India (supra) in support of its claim is misplaced as the facts in this case are distinguishable from those of the assessee in the extant case in as much as the Ld. TPO simply brushed aside the assessee‟s submission on cost allocation and rejected the benchmarking done by the assessee without carrying out any comparability analysis other than quoting „other method‟ as per Rule 10AB. 7.5 As regards the questioning by the Revenue on the actual receipt of services and the benefits derived by the assessee therefrom, it is undisputed that the assessee received services from IAC Shanghai in the nature of commercial support, operational support, human resource support and financial related support during the relevant AY. The service agreement contains a detailed description of the aforesaid services. As regards the manner in which the services are to be provided, the assessee had explained before the Ld. TPO that while drafting an agreement, it is not feasible to describe in detail how each service shall be rendered as it would depend on the requirements of the service recipient, which may 25 ITA No.749/PUN/2022, AY 2013-14 change from time to time. Before us, the Ld. AR has adequately demonstrated the receipt of services and allocation of intra-group services by furnishing voluminous and credible evidence in support thereof, forming part of the Paper Book, which includes copy of service agreement, detailed cost allocation workings and process note along with working of hourly rate used for services received, names and roles of employees of the AE involved in rendition of services, sample copy of invoices corresponding to services rendered, sample copy of email correspondences evidencing the actual rendition of services (page 586 to 611 of the Paper Book refers). The Ld. Counsel for the assessee has also demonstrated the benefit derived by the assessee from receipt of such services in terms of reduction in payment of management fees and its ratio to the operative income in the subsequent years which shows the growth on the part of the assessee and its reduced dependence on AE with time which has also been rightly noted by the Ld. CIT(A) in his appellate order. No adverse material has been brought on record by the Revenue before us to substantiate its claim of non-receipt of impugned services by the assessee. Thus, in our considered view, the reliance placed by the Revenue on the decision of the Ahmedabad Tribunal in the case of Yanfeng India Automotive Interior Systems (P.) Ltd. (supra) and the decision of the Bangalore Tribunal in the case of Gemplus India (P.) Ltd. (supra) is misplaced. Further, the contention of the assessee also finds support by the decision of the Hon‟ble Delhi High Court in the case of ELK Appliances Ltd. (supra) wherein it has been held that the TPO‟s role is confined to determining the ALP and not to assess the necessity or benefit of an expense from a business perspective. We also tend to agree with the contention of the Ld. AR that the finding of the Ld. TPO that the impugned services constitute “routine shareholders activities” is not based on any objective economic analysis or functional examination but merely on conjecture which is not permissible in law. 7.6 It has also been brought to our notice that no transfer pricing adjustment has been made in subsequent AYs (AY 2014-15 to 2020-21) on account of the impugned transaction of management fee paid by the assessee to its AE. It is also a finding of fact that the assessee withheld the applicable tax on payment made to IAC Shingai and deposited the same into the Government‟s account as required under the provisions of the Act. IAC Shanghai has also filed its return of income in India for the relevant AY 26 ITA No.749/PUN/2022, AY 2013-14 2013-14 reflecting the taxable income of Rs.3,32,21,272/- i.e. management fees paid by the assessee to IAC Shanghai. 8. Based on the facts of the case and legal position enumerated above, we do not find any infirmity in the order of the Ld. CIT(A). The order of the Ld. CIT(A) is upheld. Ground Nos. 1 to 6 raised by the Revenue are accordingly dismissed. 9. In the result, the appeal of the Revenue is dismissed. Order pronounced in the open court on 08th July, 2025. Sd/- Sd/- (Dr. Dipak P. Ripote) (Astha Chandra) ACCOUNTANT MEMBER JUDICIAL MEMBER पुणे / Pune; दिन ांक / Dated : 08th July, 2025. रदि आदेश की प्रधिधलधप अग्रेधर्ि / Copy of the Order forwarded to : 1. अपील र्थी / The Appellant. 2. प्रत्यर्थी / The Respondent. 3. The Pr. CIT concerned. 4. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, “सी” बेंच, पुणे / DR, ITAT, “C” Bench, Pune. 5. ग र्ड फ़ इल / Guard File. //सत्य दपि प्रदि// True Copy// आिेश नुस र / BY ORDER, िररष्ठ दनजी सदचि / Sr. Private Secretary आयकर अपीलीय अदिकरण ,पुणे / ITAT, Pune "