Income Tax, Issue Update

Payments for intra-group services: Transfer pricing implications

Case: BG India Energy Solutions Pvt Ltd vs Addl. CIT,Delhi ITAT

This case delves on the issue of payments for intra-group services and their transfer pricing implications.

Delhi ITAT observed that the agreements were not properly appreciated by the lower authorities and on perusal of profit and loss account it could be seen that without the aid of management support services the sales could not be achieved. Therefore, the upward adjustment on account of intra group services was to be deleted. See Facts & Key Points.

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Facts

  • During the year under consideration, the Assessee made payments to its Associated Enterprises of Rs.1.79 Crs for intra group services pertaining to management support services.
  • The Assessing Officer asked the Assessee to prove the actual receipt of intra-group services. In response to the same, Assessee filed all the agreements entered with the Associated Enterprises.
  • However, the Assessing Officer was of the view that there was no evidence that the services were actually received and the payment for intra-group services was not found to be existed fully and accordingly, made an upward adjustment of Rs. 1.79 Crs.

Key points

  • The Tribunal placed reliance on the decision in the Assessee’s own case, wherein the adjustment made on account of disallowance of payment of management services by the Assessee to its Associated Enterprise was deleted by the Tribunal.
  • It was observed that the agreements were not properly appreciated by the lower authorities and on perusal of profit and loss account it could be seen that without the aid of management support services the sales could not be achieved.
  • Therefore, following the said decision in the present facts of the case, the upward adjustment on account of intra group services was to be deleted.

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