ALP Adjustment Falls Within Tolerance Band Of +/- of 5%: ITAT Deletes TP-Adjustment On Payment For Consultancy, Professional Fees

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has deleted the TP adjustment on payment for consultancy and professional fees and other services by the assessee to its Associated Enterprises (AEs).

The bench of Anubhav Sharma (Judicial Member) and M. Balaganesh (Accountant Member) has observed that ALP adjustment falls within the tolerance band of +/- of 5% as per the second proviso to section 92C(2) of the Income Tax Act, 1961.

One of the viable solutions for regulating Transfer Pricing is Arm's Length Pricing (ALP). ALP is the regulated price at which enterprises deal in commodities and services and the price of such deals is truly determined by the market forces.

Transfer pricing (TP) is a term used to describe intercompany pricing arrangements relating to transactions between related entities. These can include transfers of intellectual property, tangible goods, services, and loans or other financing transactions.

The Transfer Pricing Officer (TPO) had proposed an adjustment of Rs. 2,81,01,754 as the difference in Arm’s Length Price in respect of payment for consultancy and professional fees and other services by the assessee company to its AEs.

The adjustment figure was adopted by the AO in the draft assessment order against which the assessee preferred objections before the DRP.

The DRP directed the AO to give the benefit of tolerance band +/- 5% to the adjustment made. The TPO in pursuance to the direction of the DRP submitted a report to the AO proposing the adjustment of Rs. 2,09,91,628 which was adopted by the AO in the final assessment order.

The assessee preferred appeal against the final assessment order. The Tribunal granted partial relief to the assessee. The AO passed an appeal effect order, in which the addition made by the AO was reduced by the amount of Rs. 1,57,63,955 as against the addition of Rs. 2,09,91,628.

Hence, the ultimate addition pursuant to the Tribunal order is only Rs. 52,27,673 in respect of ALP adjustment.

The ITAT found that the value of international transactions of Rs. 22,18,04,073 which is mentioned in the order of TPO under section 92CA(3) dated 16.01.2015. 5% of the price charged in international transactions thereon works out to Rs. 1,10,90,204. The ultimate addition towards ALP adjustment that is sustained pursuant to the direction of the Tribunal order is only Rs. 52,27,673.

The ITAT held that there was no need of making any TP adjustment at all.

Counsel For Appellant: Ved Jain

Counsel For Respondent: Rajesh Kumar

Case Title: M/s. STEAG Energy Services Versus ACIT

Case No.: ITA No. 835/Del/2016

Click Here To Read The Order