EWAC ALLOYS LIMITED,MUMBAI V. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 2(1)(1), MUMBAI

ITTPA 6677/MUM/2024

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EWAC Alloys Limited appealed against the assessment order which added INR 88,000,000 to its income, based on the Transfer Pricing Officer's (TPO) adjustment. The TPO had determined the arm's length price (ALP) of management support services received from its AE at NIL, citing lack of evidence of benefit and proper benchmarking. The Tribunal examined the extensive documentation provided by the assessee, including the management services agreement, cost allocation workings, and supplementary benchmarking analysis, which demonstrated that the services were rendered and beneficial. The Tribunal noted that the TPO's approach of applying the 'Other Method' without comparable data was inconsistent with the OECD Transfer Pricing Guidelines and Indian law.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 787596 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 29 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 17-11-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: misc
• Appeal Filed On: 19-12-2024
• Other Referred Cases: DCIT(IT) vs. ESAB Holdings Ltd, Merk Ltd vs. Hon'ble Bombay High Court, Lever India Exports Ltd vs. Hon'ble Bombay High Court, Unilever India Exports Ltd vs. ITA number 04/03/2001/MU/2024, M/s.Sulzer Tech India Pvt.Ltd vs. ITA number 633/MU/2021
• Laws Referred To: Income-tax Act, 1961, Income Tax Rules, 1962
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KRISHNA KUMAR
• Assessee Lawyers: DARPAN KIRPALANI
• Keywords: Transfer pricing; International transaction; Question of law; Commercial expediency
• Section: 92; 92C; 92D

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “K” BENCH, MUMBAI BEFORE SMT. BEENA PILLAI (JUDICIAL MEMBER) AND SMT. RENU JAUHRI (ACCOUNTANT MEMBER) I.T.A. No. 6677/Mum/2024 Assessment Year: 2021-22 EWAC Alloys Limited 6th Floor, Awfis Vaman Techno Center, Makwana Road, Marol, Mumbai Suburban, Maharashtra-400059 PAN:AAACE2470R Vs. The Deputy Commissioner of Income-Tax, Circle 2(1)(1) National e- Assessment Centre Delhi (Appellant) (Respondent) Appellant by Shri Darpan Kirpalani, Adv Respondent by Shri Krishna Kumar SR. A.R. Date of Hearing 22.08.2025 Date of Pronouncement 17.11.2025 ORDER Per: Smt. Beena Pillai, J.M.: The Present appeal filed by the assessee arise out of the assessment order dated 09/10/2024 passed by the Assessment Unit for assessment year 2021-22 on following grounds of appeal: “The grounds of appeal stated hereunder are independent and without prejudice to one another: Printed from counselvise.com 2 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited 1. On the facts and in the circumstances of the case and in law, the Learned Transfer Pricing Officer (TPO) and the Honourable Dispute Resolution Pariel ('DRP') erred in making an addition to the Appellant's total income of INR 88,000,000 based on the provisions of Chapter X of the Income-tax Act, 1961 ('the Act')). 2.1. The Hon'ble DRP and the Learned TPO erred in law and on facts in disregarding the Transactional Net Margin Method adopted by the Appellant in its Transfer Pricing documentation maintained under section 920 of the Act read with Rule 100 of the Income Tax Rules, 1962 ('Rules') for determining the arm's length nature of International transaction pertaining to payment towards management support services in the nature of Human Resources ('HR'), Information Technology ('IT'), Legal, and Finance, Tax & Admin support services received from its Associated Enterprises ('AEs'). Further, the Learned TPO erred in concluding that no proper benchmarking analysis was furnished by the Appellant in relation to management fees without appreciating the fact that the same has been submitted during the assessment proceedings. 2.2. The Hon'ble DRP and the Learned TPO erred in law and on facts in adopting the \"Other Method\" as per Rule 10AB, without bringing on record any comparable transaction / data to justify the methodology adopted. 2.3. The Hon'ble DRP and Learned TPO erred on facts in not understanding the business of the Appellant and failed to appreciate the need for Management services from AEs which are critical for its operations in India. Printed from counselvise.com 3 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited 24. The Hon'ble DRP and Learned TPO erred in and on facts in not appreciating that the Management Support services received from the AE are closely linked to the operations of the Appellant and erred in rejecting the aggregated TNMM approach of the Appellant. 2.5. The Hon'ble DRP and Learned TPO erred in law and on facts by arbitrarily alleging that the Management Support services received by the Appellant, as in the nature of 'shareholding activity and concluding that these services received did not confer any benefit to the Appellant. 2.6. The Hon'ble DRP and Learned TPO failed to appreciate the fact that the Appellant has received services from its AEs and questioning the genuineness of the transaction disregarding the submissions made by the Appellant establishing the receipt of services. The Hon'ble DRP/Learned TPO erred in not taking Into consideration the detailed and voluminous evidences filed by the Appellant and erred in stating that that the need-benefit test was not substantiated. Further, the Learned TPO erred in stating that the evidences submitted are generic mails/documents and that the exercise of evaluating these evidences in order to arrive at the ALP seemed to be futile. 2.7. The Learned TPO erred in law and on facts in stating that the Appellant had not provided any evidences in relation to costs incurred, basis of cost allocation, etc. without appreciating the fact that the same had already been submitted before during the course of TP assessment/DRP proceedings. 2.8. The Hon'ble DRP and the Learned TPO erred in facts in mentioning that the Appellant has been incurring consistent Printed from counselvise.com 4 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited losses without reference to the actual high profits earned by the Appellant during the year. 2.9. The Hon'ble DRP and the Learned TPO erred in law and on facts in disregarding the commercial agreement entered by the Appellant and questioning the commercial expediency of the taxpayer, which is entirely the prerogative of the Appellant to avail such Management services and take such decisions that favour the advancements of its business. 3. Erroneous proposal of Penalty proceedings u/s 270A of the Act 3.1. The Ld. AO erred in proposing penalty proceedings u/s 270A for under-reporting of income amounting to INR 88,000,000 as per order u/s 92CA(3) and INR 39,513 u/s 36(1)(va) of the Act, considering the abovesaid adjustments as under-reporting of income. The Appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal herein above and to submit such statements, documents and papers as may be considered necessary either at or before the hearing of this appeal as per the law. The Appellant therefore prays that the aforesaid additions to the returned income of the Appellant be deleted.” Brief facts of the case are as under: 2. The assessee is engaged in the business of manufacture of special welding electrodes, gas brazing rods and fluxes, atomized metal powder alloys, flux-cored continuous wires, polymer compounds and wear resistant plates. The assessee offers state- of-the-art welding products in manual and semi-automatic range for joining (ferrous & non-ferrous metals), wear facing, brazing, Printed from counselvise.com 5 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited and soldering. The assessee also offers total solution for all repair needs through a scientific and time-tested approach to process industries across segments The assessee’s products include flux cored wire, wear plates, pas manifold systems welding equipment's, arc, and gas consumables. The assessee deals with product portfolio of welding equipment's, gas manifold systems, arc and gas consumables, flux cored wires and wear plates etc. 2.1 For the year under consideration, the assessee filed its return of income on 13/03/2022 declaring total income of Rs.34,83,64,840/-. Subsequently the case was selected for scrutiny under CASS to verify large International transaction(s) in the nature of Technical Service Fee(T.P.Risk Parameter) 2.2 As there were international transactions that were undertaken by the assessee, exceeding the threshold limit, a reference was made to the transfer pricing officer to determine the arms length price of the international transaction undertaken by the assessee with its Associated Enterprise(AE). 2.3 Upon receipt of the reference, the Ld.TPO called upon the assessee to furnish the details of the international transaction undertaken by the assessee in Form 3CEB. 2.4 From the details filed by the assessee the Ld.TPO noted that the assessee undertook following international transactions with its AE: No. Nature of International Transaction Value of Transactions (INR), MAM 1. Sale of finished goods 4,81,14,050 TNMM 2. Purchase of finished goods 1,05,277 TNMM 3. Payment of management fees 16,04,14,024 TNMM 4. Payment of Royalty /trademark 3,12,65,203 CUP Printed from counselvise.com 6 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited 2.5 The Ld.TPO noted that the assessee had entered into a Management Service Agreement dated 01/01/2018 with ESAB Holdings Limited, UK for advice and assistance in the areas of management, sales, logistic/warehouse and distribution, production management and marketing, after sales services, accounting, finance, information technology, quality assurance, manufacturing, procurement, insurance, risk management, health and safety, treasury, tax, legal, trade compliance, business development and human resource. The Ld.TPO noted that, during year under consideration, the assessee received management support services for INR 16,04,14,024/- from ESAB Holdings Limited, UK. 2.6 Accordingly, the Ld.TPO vide notice dated 09/10/2023 called upon the assessee to furnish relevant information and evidences in support of the rendition of the services, cost allocation key etc. the assessee in response on 17/10/2023 submitted the details as required in the table provided in the show cause notice, the management support agreement, evidence of receipt of services, copies of management fee invoices and copies of the tedious challan. The assessee had submitted that in the transit study report it used DNA and aggregated international transaction pertaining to the payment of management support charges which was inextricably linked to its manufacturing functions. It was submitted that the net profit margin earned by the associate derived from its manufacturing activity which when compared with the net profit margin achieved by independent companies that perform similar function assessee was at arms length. It was submitted that assessee had earned a net profit Printed from counselvise.com 7 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited margin of 14.83% after including the management fees while the margins earned by the comparable companies ranged between 2.45% to 4.49% with a median of 3.11%. The assess either submitted that the margin order by the assessee was above the arms length range of the weighted average of the independent comparables. 2.7 The assessee had also provided a supplementary benchmarking approach wherein it had undertaken an independent benchmarking analysis with regard to the management charges paid by us is the AE. The assessee had compared the mark-up charged by the similar service providers in Europe region with the 5% on the indirect cost charged by the AE to the assessee. It was submitted that during the year assessee had paid a mark-up of 5% on the indirect costs incurred by the AE and the three-year weighted average mark-up earned by broadly comparable independent companies ranged from 25th percentile of 3.39% to 75th percentile of 9.57% with a median of 5.37%. The assessee thus submitted that, even by independently analysing the transaction, the management fee paid by the assessee to its AE, is at arms length. 2.8 The assessee further submitted that, it does not have necessary resource to perform the strategic functions and support from the group is required at each level of production process. It was submitted that the underlying factor towards the receipt of centralised services is to achieve consistency in quality and reducing the cost of overall business operations. The assessee submitted that use of central services also results in avoiding duplication of efforts at each entity level. It was Printed from counselvise.com 8 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited emphasised by the assessee that local employees are only involved in day-to-day operations and executive of instructions whereas the group provides advice and support in relation to stratagic technical planning and aids in decision-making. It was submitted that the employees of the assessee are in production/administrative staff at executive and manager level and does not have any functional heads like managing director chief finance officer purchase or sales director et cetera to provide the strategic leadership, guidance and direction. 2.9 The assessee had serviced submitted that the service contributed to the increase in the business and shop profitability of the associate apart from resulting in improved corporate governance, transparency and reporting system of assessee. It is submitted that based on the inputs provided by the group on developing new products and strategic support on marketing and initiatives, assessee successfully launched certain new products for sale in both domestic and export market. 2.10 The Ld.TPO after considering the submissions of the assessee filed on various dates, observed and held as under: “15. The various evidences/documents/presentations produced do not demonstrate the rendering of any service by the AE to the assessee for which any payment would be made by an independent party in an arm's-length scenario. The nature of services as claimed by these documents reveal that they are general correspondences between the assessee and its AE. On perusal of the contents of these documents, it is clear that these are general notes and exchange of information. The nature of communication in these documents is of the nature which would be entered into between the group entities of any group. They are not of the nature to show any specific services rendered by the AE, for Printed from counselvise.com 9 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited which any separate charge needs to be paid by the assessee to its AE. In fact, if one closely observes the nature of services from the documents produced, it is clear that the purported services for which payment is claimed are in the nature of shareholder/duplicative/incidental services only. Further, the details placed on record are general comments which do not demonstrate any specific benefit received by it from the services rendered for which the payment is claimed. Further, even if for argument's sake, it is taken that these documents show that some services have been rendered, whether these had some value and if yes, the cost incurred for that and the benefit for which such cost was incurred, has not been proved by the assessee. This is clear from the financial results of the assessee herein the assessee is incurring consistent losses and, in such scenario, any prudent businessman would like to curtail on payment of such high management service by looking for avenues where such services could be obtained from other parties at a lower cost. The assessee has also not demonstrated that the price paid was such that an independent entity would have paid for such services for the benefits (if any) received by it. 16. In this background and in view of the judicial precedents as well as the facts on record, it is held that that the assessee has failed to adequately demonstrate that it has received services or that it benefited from such services as claimed. Further, the assessee has not provided the details of the cost incurred for various services rendered by its AE, the basis of allocation of the cost to the assessee. It has not demonstrated that the services rendered (on a without prejudice basis) has any value. It has not provided any comparable instance to demonstrate the ALP of these transactions. On the facts of this case the assessee has not been able to establish the identification of the cost incurred by the group entity in providing services to the assessee. In the facts of instant case, the assessee has not been able to adequately Printed from counselvise.com 10 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited substantiate that services have been rendered by the AE or that the assessee has availed any service from the AE. In this case the assessee company has failed to prove evidence in respect of the followings, - a) The benefits received by the Assessee b) When and how such services were rendered by the AE and c) At what rate these services were available in the open market. 17. Conclusion: Hence, in light of the of the discussion, the arm's length price of fee paid for availing Management Support Services- HR support services, IT support services, Legal support services and finance and tax administration services is treated as Rs.NIL under Other Method due to inadequacy of the taxpayer's argument. No independent party would make any payments for services where no benefits or rendition is done. Further out of the quantum of Rs. 3.1 crore of the payment for IT support services, an amount of Rs. 1.8 crore are towards third party costs which are paid at cost-to-cost basis. Thus, the remaining payment of Rs. 8,80,00,000/-paid by the assessee towards services from its AE is treated as an adjustment to ALP to the international transaction on account of receipt of management support service. Hence total adjustments on International Transaction of assessee is proposed as under- S. No. Transaction Adjustment proposed 1 Payment of Management Rs. fees Rs. 8,80,00,000/- Total Rs.8,80,00,000/- Assessing officer is requested to initiate the penalty for concealment of income under relevant sections of Act. Printed from counselvise.com 11 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited 3. On receipt of transfer pricing order under section 92 CA (3), the Ld.AO passed draft assessment order on 26/12/2023, by incorporating proposed adjustment by Ld.TPO. The Ld.AO further made disallowance of Rs.39,513/- under section 36(1)(va) of the act. 4. On receipt of the draft assessment order, associated objections before the DRP’s. 4.1 The DRP after considering the submissions of the assessee observed and held as under: “8.3.6 Not completely a Question of Law only: The Panel has examined the documents and evidences put forth by the applicant assessee. The Panel observes that such claim of expenditures unsupported with relevant evidence of rendition and receipts/use is not a question of law, but that of Fact that has been examined from document, evidences and Arm's Length Price determination. Therefore, the Applicant in this case has failed to fulfil its fundamental responsibility of benchmarking the transaction. It has not demonstrated that an independent party, in an uncontrolled scenario, would be willing to pay the same amount as the Applicant has disbursed. Without the crucial evidences regarding the delivery of services by the AE and receipt of services by the assessee, benchmarking these transactions becomes impracticable. Consequently, the \"Other Method\" is employed to benchmark this transaction, resulting in a value of NIL. The TNMM method is not apt in this case as transactions are to be analysed individually on a segregated basis as is the mandate of the provisions. Only when they are closely interlinked the TNMM method is applied. Global TP guidelines enunciate that the intra group services should be delineated and proper FAR analysis conducted to benchmark the transaction using the appropriate methods. The basic principles emanating from the various judicial decisions regarding IGS are as follows: Printed from counselvise.com 12 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited Unless the transactions are closely linked to each other and the same belong to a particular class of transactions, aggregation approach (under TNMM) could be discarded, and the transactions could be benchmarked separately. The fact that the assessee was avalling the intra-group services in the past as well without making any payment indicates that payments are not for actual services rendered nor for any additional benefit to be derived. The quality of evidences weighs importantly as mere email correspondences produced by the assessee to substantiate the receipt of services do not substantiate the separate payments. The complete onus was on the assessee to establish receipt of the intra- group service. The TPO can conclude based on the evidences whether any independent party would make payment in the absence of any need, benefit or rendering of services and if the decision is in the negative, then benchmarking at nil can be considered as a form of CUP or other method as no independent party would be willing to make the payment in same conditions. 8.3.7 Hence the the assessee should be in a position to provide documentation which is also the mandate of section 92D of the Act, in respect of the international transactions. This would enable the TPO to not only determine the nature of services but would also enable him to correctly apply the Function, Asset and Risk (\"FAR\") test and determine the correct comparables for benchmarking the ALP of such international transactions. 8.3.8 Here in this case, the assessee has only tried to benchmark the transaction by TNMM by which a margin will be applied, but the very base of cost has been questioned by the TPO in order to satisfy the above principals as laid down. Hence the rejection of TNMM and adoption of other method' by the Id TPO is found to be correct. Printed from counselvise.com 13 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited 8.3.9 We find that the Id TPO has rightly required the assessee to prove the need benefit of the transactions and since the same could not be satisfactorily explained by the assessee, treating the transactions as nil using other method is found to be correct. 5. On receipt of the DRP directions, the Ld.AR past the final assessment order on 09/10/2024 making addition in the hands of the assess at ₹8,80,00,000/- by treating the international transaction of management fee to be at nil. Aggrieved by the order of the Ld.AO, the assessee is on appeal before this Tribunal. 6. The Ld.AR submitted assessee entered into Management Service Agreement with its AE for advice and assistance in the areas of management, sales, logistics/warehouse and distribution, production management and marketing, after sales service, accounting and finance, information technology, quality assurance, manufacturing, procurement, insurance, risk management, health and safety, treasury, tax, legal, trade compliance, business development and human resources. It was submitted that, detailed note on various services availed by the assessee under the terms of the agreement were furnished before the Ld.TPO as well as the DRP. The assessee submitted that AE provides range of services to their members in order to benefit from economics of scale, quality of service, expertise of the senior management personnel available with the group and to avoid application of services. It was submitted that, the services were rendered by AE to maintain uniformity in the working of all the group entities. Printed from counselvise.com 14 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited 6.1 The Ld.AR submitted that assessee furnished global cost allocation workings before the authorities below that formed part of the submission dated 21/09/2023 pleased at page 2324 and 263-264 of the paper book. The Ld.AR submitted that for assessment year 2021-22 this Tribunal accepted in the case of the AE that, the management services were rendered to the assessee’s. He submitted that the revenue made addition in the hands of the AE by treating the management services fee rendered from assessee to be fees for technical services(FTS). He submitted that, by doing so the revenue accepted rendition of the services by the AE to the assessee while considering the AE’s assessment. In support the Ld.AR placed reliance on the decision of this Tribunal in the case of the AE in DCIT(IT) vs. ESAB Holdings Ltd in ITA No.2443/Mum/2024 vide order dated 24/10/2024. 6.2 The Ld.AR submitted that, the revenue is therefore estopped from denying the assessee’s claim by questioning the rendition of services by the AE. It was contended that, the Revenue cannot approbate and reprobate in respect of the same transaction, having accepted the income in the hands of the AE, it cannot simultaneously disallow corresponding expenditure in the hands of the assessee. 6.3 The Ld.AR submitted that, the transfer pricing officer invoked “other method” as defined under Rule 10 AB of the Income tax Rules to benchmark the ALP of the transaction relating to management services. He submitted that, the Ld.TPO did not bring on record a single comparable uncontrolled transaction that reflect a similar service arrangement and price. Printed from counselvise.com 15 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited Instead the Ld.TPO arbitrarily concluded the ALP of the services received at nil and justified the same without any reference to actual comparable data. 6.4 The Ld.AR submitted that this approach is in violation of Rule 10 AB and is also contrary to the settled principles of law that require any adjustment to be based on cogent data and analysis. The Ld.AR placed reliance on the decision of coordinate bench of this Tribunal as well as a jurisdictional High Court in following cases: 1. decision of Hono’ble Bombay High Court in case of Merk Ltd reported in (2016) 73 taxmann.com 23 2. decision of Hon’ble Bombay High Court in case of lever India exports Ltd reported in (2017) 246 taxman 133 3. court need of this Tribunal in case of Unilever India exports Ltd in ITA number 04/03/2001/MU/2024 4. court need of this Tribunal in case of M/s.Sulzer Tech India Pvt.Ltd in ITA number 633/MU/2021 6.5 The Ld.AR submitted that, in TP study report, the assessee adopted transactional net margin method(TNMM) as the most appropriate method for benchmarking international transactions including sale of finished goods, purchase of finished goods, management service fee paid to the AE. It was submitted that, the assessee’s results were significantly above the arm’s-length threshold, as the management fee was already included in the cost base for the computation of margin under TNMM. The Ld.AR submitted that, the assessee has an overall profitability which was higher than the independent comparable. 6.6 The Ld.AR submitted that the Ld.TPO effectively double counted the same expenses as the management fee was already Printed from counselvise.com 16 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited included in the TNMM and was not removed from the cost base. He submitted that, as a result, it led to double taxation that defeats the purpose of the transfer pricing regulation. The Ld.AR in support of this submission placed reliance on the decision of Hon’ble Delhi Tribunal in case of Samsung India Electronics Pvt.Ltd. in ITA No.9482/Del/2019. 6.7 The Ld.AR submitted that in proceedings before the Ld.TPO and the DRP, the assessee submitted exhaustive documentation evidencing the nature, need, and benefit of the management services received from its AE. He submitted that the assessee placed on record the following materials: • Intra-group management services agreement dated 1/01/2018; • Detailed descriptions of services received across HR, IT, Legal, Finance, Tax, Admin, etc.; • Need-benefit analysis explaining commercial rationale and lack of in-house capacity; • Organizational charts and employee strength (highlighting only 11 managerial staff out of 247 employees); • Invoices and cost allocation workings, including mark-up applied by AE and exclusion of shareholder costs; • Email correspondences and internal communications evidencing services rendered; • Benchmarking analysis supporting the arm's length nature of the transaction under TNMM; • LinkedIn profiles and experience of senior management officials from ESAB Group involved in service delivery. 6.8 He submitted that, the DRP directed the Ld.TPO to review these evidences during the remand proceedings. The Ld.AR submitted that Ld.TPO, vide remand report, acknowledged receipt of these documents but reiterated his earlier conclusions. Printed from counselvise.com 17 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited 6.9 The Ld.AR submitted that, the Ld.TPO rejected assessee's benchmarking analysis without fulfilling any of the mandatory preconditions under Section 92C(3). He submitted that the Ld.TPO failed to demonstrate that: • the Assessee's method is not as per prescribed methods; or • the data used was unreliable; or • or the application of the method is incorrect; or • the assessee failed to maintain proper documentation. 6.10 The Ld.AR submitted that without such finding, the Ld.TPO cannot reject assessee's TP study to substitute his own. 7. On the contrary, the Ld.DR summarized his arguments in a written submission which is scanned and reproduced as under: Printed from counselvise.com 18 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited Printed from counselvise.com 19 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited Printed from counselvise.com 20 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited Printed from counselvise.com 21 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited Printed from counselvise.com 22 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited Printed from counselvise.com 23 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited Printed from counselvise.com 24 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited Printed from counselvise.com 25 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited Printed from counselvise.com 26 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited Printed from counselvise.com 27 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited Printed from counselvise.com 28 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited Printed from counselvise.com 29 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited Printed from counselvise.com 30 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited Printed from counselvise.com 31 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited Printed from counselvise.com 32 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited Printed from counselvise.com 33 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited Printed from counselvise.com 34 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited 8. In rejoinder to the above submissions of the revenue, the Ld.AR summarized his arguments in following manner. Printed from counselvise.com 35 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited Printed from counselvise.com 36 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited Printed from counselvise.com 37 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited Printed from counselvise.com 38 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited Printed from counselvise.com 39 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited Printed from counselvise.com 40 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited Printed from counselvise.com 41 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited Printed from counselvise.com 42 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited We have perused the submissions advanced by both sides in light of records placed before us. 9. During the Financial Year 2020–21, the assessee, availed management support services from its AE and made payments amounting to INR 16 crores for such services. The AE allocated the cost of these services among the benefitting group entities, including the assessee, on the basis of appropriate allocation keys reflecting the nature and extent of services received. 9.1 During the Transfer Pricing assessment for the relevant year, the Ld. TPO disallowed a portion of the management service charges relating to Human Resources, Information Technology, Legal Support, and Finance & Treasury amounting to INR 8.8 Printed from counselvise.com 43 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited crores, and determined the ALP of the international transaction for these services at NIL. 9.2 A summary of the principal evidences furnished by the assessee before the lower authorities is provided below: Particulars Reference in Paper Book Copy of Management Support Services Agreement executed with AE Pages 180–194 Cost allocation methodology and workings Pages 263–264, 304–305, and 749 Supplementary benchmarking analysis for payment of management charges Pages 308–323 Summary of department-wise services availed from AE and benefits accrued (including employee profiles of leadership personnel rendering the services) Annexure 1 (Excel Sheet) 9.3 The assessee submitted that the above evidences substantiate the nature of services received, the business benefits derived, and the cost allocation methodology adopted by the AE. It was contended that the payment for management services formed part of an aggregated TNMM analysis, wherein the arm’s length range of comparable margins was 2.45% to 4.49% (median 3.11%), while the assessee earned a net profit margin of 14.83%, significantly above the arm’s length range. Hence, the transaction was claimed to be at arm’s length, and the adjustment unwarranted. The assessee further argued that the Ld. TPO did not fully consider the detailed email correspondence and supporting documentation demonstrating the rendition and benefit of the services. Printed from counselvise.com 44 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited 9.4 The primary issue for consideration is whether the management support services availed by the assessee from its AE satisfy the arm’s length principle as per Section 92C of the Act and the OECD Transfer Pricing Guidelines (2020), and whether the documentation provided adequately demonstrates the nature, need, and benefit of such services. 9.5 The assessee placed reliance on extensive documentation, including inter-company agreements, cost allocation workings, and internal communications, to substantiate its claim that the services were rendered and beneficial to its operations. The assessee’s position is that these services contributed to group- level efficiency, managerial guidance, and functional support across departments, and that inclusion of these costs within the TNMM cost base adequately captures their arm’s length character. 9.6 The assessee further submitted that, given the nature of the services received from the group, it is not feasible to establish a one-to-one correlation between each individual service and a corresponding quantifiable benefit. Many of these services, particularly those of a strategic and managerial nature, contribute to the assessee’s business outcomes over an extended period, with benefits potentially accruing in subsequent financial years rather than being confined to the year of receipt. Accordingly, precise quantification of benefit attributable to each service is commercially impractical. 9.7 A comparison of key financial indicators demonstrates improvement following receipt of such services: Printed from counselvise.com 45 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited Particulars FY 2020–21 FY 2021–22 Revenue from Operations Rs. 20,560.01 lakhs ₹23,888.59 lakhs Profit Before Tax (PBT) ₹1,861.20 lakhs ₹3,839.44 lakhs PBT % 9.05% 16.07% 9.8 From the above, it is evident that the company derived measurable business benefit during and after the year of receipt of management support services. 9.9 The Ld.AR submitted that the services received from the ESAB Group, spanning managerial, IT, HR, finance, tax, and legal functions, have been critical to the assessee’s operational success and strategic decision-making. Given the organizational structure and limited internal resources, the support from the group was necessary and beneficial in enhancing the assessee’s efficiency, compliance, and profitability. 9.10 It was further submitted that during the transfer pricing proceedings, a supplementary benchmarking analysis specific to management charges was also conducted. In this analysis, the assessee compared the mark-ups charged by similar service providers in the European region with the 5% mark-up on indirect costs applied by the AE. The comparable range of mark- ups was found to be 3.96% to 9.57%, with a median of 5.37%, indicating that the charges levied by the AE were well within the arm’s length range. 9.11 However, the Ld.TPO held that the evidences furnished were largely generic in nature, comprising routine emails, information exchanges, and internal presentations, which did not conclusively demonstrate the specific need or tangible benefit to Printed from counselvise.com 46 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited the assessee. The Ld.TPO therefore determined the ALP of the impugned payment at NIL. 10. Having examined both sides, it is noted that Chapter VII of the OECD Transfer Pricing Guidelines (2020) prescribes a two- step analysis for intra-group services: 1. Whether a service has in fact been rendered and has provided an economic or commercial benefit to the recipient (the benefit test); and 2. Whether the charge for such service is consistent with the arm’s length principle. 10.1 The OECD Guidelines clarify that shareholder or duplicative activities do not constitute chargeable services. However, they also recognise that routine managerial, administrative, and support services, even if not directly revenue-generating, can provide legitimate value to the recipient. For such low value- adding services, the Guidelines advocate a simplified cost-based approach with a reasonable mark-up, provided that the allocation keys are rational and the benefits reasonably demonstrable. 10.2 In the present case, while the Ld. TPO was justified in scrutinising the sufficiency of evidence, the blanket determination of ALP at NIL does not fully align with the OECD framework, particularly when the assessee has furnished documentation suggesting that certain managerial or coordination services were in fact rendered and cost-allocated consistently. The inclusion of management support fees within the TNMM cost base does not, by itself, prove benefit, but it is a Printed from counselvise.com 47 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited relevant corroborative factor indicating that these costs formed an integral part of the business operations. 10.3 It is also noted that the reliance placed by the assessee on the decision of the Hon’ble ITAT in the case of ESAB UK for AY 2021-22 (the AE in present fact) is also misplaced. That decision dealt with the characterisation of receipts in the hands of the non-resident AE under the Fee for Technical Services (FTS) provisions, and not with the arm’s-length determination of the corresponding payment in the hands of the payer. The finding that certain managerial services were not taxable as FTS cannot be equated with proof of rendition or benefit for transfer-pricing purposes. Each transaction must be benchmarked independently, based on the evidence and facts of the relevant year. 10.4 In the present case, it is pertinent to note that the Ld.TPO has accepted part of the management service payment as being at arm’s length, which implicitly acknowledges that the Associated Enterprise rendered certain managerial and support services to the assessee. This factual finding indicates that the benefit test is satisfied at least in part and that the assessee did derive value from the intra-group arrangements. 10.5 In this backdrop, a complete determination of the remaining portion of management charges at NIL appears inconsistent with the OECD’s balanced framework, which emphasises that intra- group services must be evaluated on their nature, necessity, and benefit, and not summarily disregarded in the absence of exact quantification. The OECD Transfer Pricing Guidelines (2020) recognise that routine or low value-adding services, such as Printed from counselvise.com 48 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited managerial, HR, IT, or legal coordination may not yield direct measurable outcomes, but nonetheless provide economic or operational advantages warranting appropriate compensation, provided that allocation keys are reasonable and documentation demonstrates the context of benefit. 10.6 Given the evidence placed on record such as the service agreement, cost allocation workings, supplementary benchmarking analysis, and correspondence showing group-level functional support it cannot be concluded that no services were rendered. At the same time, the benefit and need for certain elements (especially within HR, IT, and legal functions) may warrant closer scrutiny to ensure the absence of duplicative or shareholder-related activities. 10.7 Accordingly, while the TPO’s cautious approach in verifying the evidentiary sufficiency is justified, an outright disallowance of the disputed INR 8.8 crores is not fully aligned with the OECD framework or with the TPO’s own acceptance of partial services. 10.8 The assessee’s AE applied a mark-up of 5% on indirect costs in respect of the management support services rendered. This mark-up is consistent with the simplified approach prescribed under para 7.61 of the OECD Transfer Pricing Guidelines (2020) for low value-adding intra-group services. The supplementary benchmarking study placed on record (pages 308–323) further corroborates that the 5% mark-up lies well within the independent comparable range of 3.96% to 9.57%. The Ld.TPO has accepted part of the payment, thereby acknowledging that services were indeed rendered and conferred benefit. In these circumstances, a blanket ALP determination of NIL for the Printed from counselvise.com 49 ITA 6677/Mum/2024; A.Y. 2021-22 EWAC Alloys Limited balance amount is not sustainable. The pricing being fully aligned with the OECD framework, we deem it appropriate to direct the Ld.AO/TPO to delete the addition made. Accordingly the grounds raised by the assessee stands allowed. In the result, the appeal filed by the assessee stands allowed. Order pronounced in the open court on 17/11/2025 Sd/- Sd/- (RENU JAUHRI) (BEENA PILLAI) Accountant Member Judicial Member Mumbai: Dated: 17/11/2025 Poonam Mirashi, Stenographer Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T. True Copy By order (Asstt. Registrar) ITAT, Mumbai Printed from counselvise.com "