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Tax Publishers Goodyear South Asia Tyres (P) Ltd. v. ACIT [ITA No. 1736/Pun/2018, ITA No. 1763/Pun/2019, dt. 22-10-2020] : 2020 TaxPub(DT) 4400 (Pune-Trib.) Benchmarking Management/Support fees as NIL under Transfer pricing provisions -- ALP computation and tolerance *Facts:* Assessee conglomerate of Goodyear group had reimbursed to Goodyear USA certain cost allocated regional service charges (management fee) at cost for Rs. 26.87 crores. They claimed the same to be at ALP on Comparable Uncontrolled Price (CUP) basis that the entire group was reimbursing the spends at cost to cost to the parent entity. The TPO read the cost as NIL alleging that these would have not been warranted/spent if they were rendered by an external party, was shareholder services with no real need of services and the services were more so duplicated costs of the entity itself. On appeal the DRP concurred with the views of the TPO. On higher appeal -- Held in favour of the assessee basing their earlier year verdict that the said regional service cost cannot be NIL and was read to be at Arm's Length Price (ALP) warranting no additions under TP provisions. *Editorial Note:* What is interesting in this verdict is the confirmation of the following takeaways by ITAT para 33 to be precise -- 1. The assessee cannot claim the allocated cost to be at ALP without attributing any comparable under CUP. 2. TPO reading it as NIL without controverting to any method of computation or any other method under the act is also incorrect. 3. Reading the assessee's contention that if other entities within the Goodyear group was charged at like basis as cost reimbursement without attributing to any computation when there is some mark ups seen within the Goodyear group it cannot be said that the prices were manifested to be at ALP. 4. ALP manifestation requires a benchmarking under a method invariably. 5. The benchmarking was here done using cost plus method with the tolerance limit prescribed by law @ +/- 3%. 6. As to how it was done -- the assessee was asked to tabulate the overall costs of the regional services which was levied across the world and at various cost plus margins at what they were levied. The average of those margins across the group was @ 2.22%. This 2.22% fell within the range of +/- 3% thus confirming the fact of the assessee's auditor confirmed allocated cost to be at ALP. The issue of management fee/service fee/support fee being read as NIL in TP provisions is a vexed/most litigated issue. Decisions such as these and Dresser Rand TS-510-ITAT-2011-Mum provide the much wanted relief.

Tax Publishers

Goodyear South Asia Tyres (P) Ltd. v. ACIT [ITA No. 1736/Pun/2018, ITA No. 1763/Pun/2019, dt. 22-10-2020] : 2020 TaxPub(DT) 4400 (Pune-Trib.)

Benchmarking Management/Support fees as NIL under Transfer pricing provisions -- ALP computation and tolerance

Facts:

Assessee conglomerate of Goodyear group had reimbursed to Goodyear USA certain cost allocated regional service charges (management fee) at cost for Rs. 26.87 crores. They claimed the same to be at ALP on Comparable Uncontrolled Price (CUP) basis that the entire group was reimbursing the spends at cost to cost to the parent entity. The TPO read the cost as NIL alleging that these would have not been warranted/spent if they were rendered by an external party, was shareholder services with no real need of services and the services were more so duplicated costs of the entity itself. On appeal the DRP concurred with the views of the TPO. On higher appeal --

Held in favour of the assessee basing their earlier year verdict that the said regional service cost cannot be NIL and was read to be at Arm's Length Price (ALP) warranting no additions under TP provisions.

Editorial Note: What is interesting in this verdict is the confirmation of the following takeaways by ITAT para 33 to be precise --

1. The assessee cannot claim the allocated cost to be at ALP without attributing any comparable under CUP.

2. TPO reading it as NIL without controverting to any method of computation or any other method under the act is also incorrect.

3. Reading the assessee's contention that if other entities within the Goodyear group was charged at like basis as cost reimbursement without attributing to any computation when there is some mark ups seen within the Goodyear group it cannot be said that the prices were manifested to be at ALP.

4. ALP manifestation requires a benchmarking under a method invariably.

5. The benchmarking was here done using cost plus method with the tolerance limit prescribed by law @ +/- 3%.

6. As to how it was done -- the assessee was asked to tabulate the overall costs of the regional services which was levied across the world and at various cost plus margins at what they were levied. The average of those margins across the group was @ 2.22%. This 2.22% fell within the range of +/- 3% thus confirming the fact of the assessee's auditor confirmed allocated cost to be at ALP.

The issue of management fee/service fee/support fee being read as NIL in TP provisions is a vexed/most litigated issue. Decisions such as these and Dresser Rand TS-510-ITAT-2011-Mum provide the much wanted relief.