Business purpose of transaction cannot be questioned by Transfer Pricing Officer

Business purpose of transaction cannot be questioned by ITATEricsson India Pvt. Ltd vs. DCIT (ITAT Delhi)

Payment made by the assessee amounting to Rs. 31.34 crores to its associated enterprise for “Second Line Support” services. The Transfer Pricing Officer (TPO) & DRP held that the assessee had not benefited from the expenditure and that it was not “necessary to be incurred” and that its ALP was Nil. On appeal by the assessee HELD:

As reported by ITAT.ORG:  There is no force in the Revenue’s claim that the assessee was not required to make any payment to its AE for resolving warranty claims. The assessee has the right to enter into an arrangement according to which its business interests are protected. It is the prerogative of the assessee to decide the business expediency. Rule 10B(1)(a) does not authorize disallowance of any expendtture on the ground that it was not necessary or prudent for the assessee to have incurred the same or that in view of the expenditure was unremunerative or that in view of the continued losses suffered by the assessee in his business, he could have fared better had he not incurred such expenditure. However, the reasonableness of an expenditure has not been excluded from determination and the TPO has to determine the ALP of the transaction (CIT vs. EKL Appliances Ltd & Dresser Rand followed).

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