Elgi Rubber Co. Ltd., the assessee, engaged in manufacturing tyre retreading machinery and rubber products, was subjected to a TP assessment for AY 2022–23. The Ld. TPO proposed a TP adjustment of ₹2.72 crore by determining the ALP of commission paid to overseas AEs at Nil. The assessee benchmarked the commission payment by aggregating it with other international transactions under TNMM, contending that the AEs rendered genuine marketing and sales support services. However, the Ld. TPO/DRP rejected the benchmarking, holding that the assessee failed to establish the actual rendition of services and the benefit derived therefrom.
Assessee’s Contentions | Revenue’s Contentions | Tribunal’s Judgment |
The assessee submitted that the overseas AEs rendered genuine marketing and sales support services, substantiated by agreements, emails, invoices and export documents. | The Ld. TPO held that the assessee failed to establish the actual rendition of services and therefore determined the ALP of the commission payment at Nil. | The ITAT held that the documentary evidence sufficiently established the services rendered by the AEs and that the TPO could not determine the ALP at Nil merely for alleging lack of benefit. |
The commission payment was closely linked with other international transactions and was appropriately benchmarked under TNMM on an aggregated basis. | The Revenue contended that the commission transaction required separate benchmarking and that aggregation under TNMM was not justified. | The ITAT accepted the aggregation approach under TNMM, held that the TPO cannot question the commercial expediency of the expenditure, and deleted the TP adjustment of ₹2.72 crore. |
Ruling Summary -
Chennai ITAT held that the ALP of commission paid to AEs cannot be determined at Nil where the assessee substantiates the actual rendition of services through contemporaneous documentary evidence.
The Tribunal accepted the aggregation of commission with other closely linked international transactions under TNMM and deleted the TP adjustment, holding that the TPO cannot question the commercial expediency of the expenditure.
