Danisco Pvt Ltd vs Dy. CIT
The issue raised in the appeal is against the TP adjustment made on account of payment of management charges. The assessee company was incorporated in India for manufacturing and marketing of food and non-food ingredients. The assessee was a closely held company; majority shares of which were held by Danisco A/s Denmark. The assessee entered into several international transactions with its Associated Enterprises (‘AE’). The Assessing Officer made reference for benchmarking the Arm’s Length Price (‘ALP’) of the international transactions undertaken by the assessee. The assessee was issued show-cause notice by the TPO and various queries were raised in respect of Intra Group services (‘IGS’). The assessee had applied Transactional Net Margin Method (‘TNMM’) and transaction was at arm’s length. The TPO was of the view that payment made on account of management services had to be separately analyzed to see whether the transaction was at ALP or not. TPO held that the TNMM method applied by the assessee was not been able to benchmark the international transactions relating to payment of IGS. The TPO thus applying Comparable Uncontrolled Price method determined the ALP at nil and proposed an upward adjustment. The CIT(A) upheld the order of Assessing Officer/TPO against which the assessee is in appeal.
The Ld.AR for the assessee stressed that where the expenses were intrinsically on the part of trading and manufacturing segments; the same has to be aggregated with other international transactions. The TPO exceeded his jurisdiction in holding the value of the said international transaction at nil. The Hon’ble Delhi High Court in CIT v. EKL Appliances Ltd. had held that benchmarking of cost to cost reimbursement of expenses was not within the jurisdiction of the TPO while computing the arm’s length price of the international transaction. Delhi ITAT directs the Assessing Officer/TPO to allow the claim of the assessee in entirety.