TP adjustment fails where the TPO uses "other method" without comparables (ITAT Pune)

Order: ITA No. 749/PUN/2022 (ITAT Pune), Assessment Year 2013-14, Revenue appeal against the CIT(A)-13 Pune order dated 05.08.2022, pronounced 08.07.2025.

Facts

The assessee paid management fee of Rs.3,32,21,272 to its associated enterprise, remunerated on allocable cost plus a 5% markup, and benchmarked the transaction using TNMM.
The Transfer Pricing Officer rejected the TNMM analysis and proposed the arm's length price at nil under "any other method", on the ground that the assessee had not furnished reliable evidence of receipt of services, benefit derived, basis of payment and justification for the markup.
The TPO proposed the adjustment of Rs.3,32,21,272 by order dated 18.10.2016 under section 92CA(3), which the Assessing Officer confirmed in the final assessment order dated 30.12.2016 under section 143(3) read with section 144C(3).
The Commissioner (Appeals) deleted the entire transfer-pricing adjustment.

Issue

Whether an arm's length price fixed at nil under "any other method", without reference to an uncontrolled comparable, can sustain a transfer-pricing adjustment.

Holding

The Tribunal held that the TPO had not complied with Rule 10AB while adopting "other method", having applied it without any reference to an actual uncontrolled comparable transaction and the price charged therein, and that ad-hoc determination of arm's length price dehors section 92C read with the applicable Rule cannot be sustained.
On receipt of services, the Tribunal recorded the service agreement, cost-allocation workings, employee roles, sample invoices and email correspondence evidencing rendition, with no adverse material from the Revenue, and reiterated that the TPO's role is confined to determining the arm's length price and not to assessing business necessity or benefit.
It was also noticed that no adjustment had been made on the same transaction in AY 2014-15 to 2020-21, that tax had been withheld and deposited on the payment, and that the associated enterprise had filed its India return reflecting the same receipt.
Finding no infirmity in the Commissioner (Appeals)'s order, the Tribunal upheld it, dismissed the Revenue's grounds, and dismissed the appeal.

Why a client would care

A transfer-pricing adjustment that prices an intra-group service at nil must still pass through a prescribed method with comparables — "other method" without an uncontrolled comparable is ad-hoc and unsustainable on this reasoning.

Questions clients ask

Q1. The TPO fixed an arm’s length price of nil for an intra-group service under “other method”. Did that survive?

No — the Tribunal held Rule 10AB had not been complied with and that an ad-hoc price fixed dehors section 92C could not be sustained.

Q2. What evidence supported that the service was actually rendered?

The service agreement, cost-allocation workings, employee roles, sample invoices and email correspondence, with no adverse material from the Revenue.

Q3. Does the TPO decide whether the service was commercially necessary?

The Tribunal reiterated that the TPO’s role is confined to determining the arm’s length price, not to assessing business necessity or benefit.

Disclaimer

This note summarises a Tribunal order for general information. It is not professional advice and does not predict the outcome of any other case. Tax and company-law positions depend on facts and dates; take a written opinion before you act. Harun Raaj & Associates is a Chartered Accountants firm in Visakhapatnam.

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