Tuesday, February 3, 2015

TPO can’t decide about deductibility of an exp. as his jurisdiction is limited to determination of ALP


Facts:

a)The international transaction which was disputed in the instant case was commission payment by the assessee to its AEs.

b)The TPO held that ALP of this transaction was Nil because the assessee failed to provide any evidence of an independent transaction between unrelated parties and further the assessee could not explain with any documentary evidence about the functions performed by the AE necessitating the payment of such commission.

c)The assessee remained unsuccessful before the DRP and the Assessing Officer, accordingly, made addition of entire commission paid by the assessee to its AEs. The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)The Delhi High Court in the case CIT v. Cushman and Wakefield India Pvt. Ltd.[2014] 46 taxmann.com 317 (Delhi),held that the authority of the TPO was limited to conducting transfer pricing analysis for determining the ALP of an international transaction and not to decide if such services exist or benefits did accrue to the assessee. Such later aspects have been held to be falling in the exclusive domain of the AO.

2)Applying the ratio decidendi ofCushman and Wakefield India Pvt. Ltd. (supra)to the facts of the instant case, it was to be held that the TPO was required to simply determine the ALP of this transaction unconcerned with the fact, if any benefit accrued to the assessee and thereafter, it was for the AO to decide the deductibility of this amount under Section 37(1). 3)Therefore, case was remanded to AO with an instruction to decide the deductibility of the commission paid to foreign AE.- ITW INDIA LTD. V. ACIT[2015] 53 taxmann.com 531 (Delhi - Trib.)
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