In one of the cases the assessee had been showing the payment of management fees to its associated Enterprises outside country and for three years in continuation the transfer pricing officer made an adjustment on account of payment of management fees which was determined at a basic minimum as it was discussed by TPO in the order that such huge amount of payment fees is not required to be made. Further it was ascertained by the transfer pricing officer that this payment of management fees falls under the category of shareholder activity.
Subsequently for two assessment years it was seen that there was no transfer pricing reference made in the case under section 92CA(1). During the course of transfer pricing audit it was noticed that the assessee has shown various expenditure heads in its form 3CEB. These expenditure heads appeared to be dubious as they all fell into the category of intra group services. Hence in order to investigate this transaction further form 3CEB was called for for the previous five assessment years and the transactions reflected in the year under consideration were compared with the transactions reflected in the previous five assessment years. The detailed investigation revealed that the assessee in order to avoid the TP adjustment under the head payment of management fees had shown this excess payments under various different heads falling into the category of intra group services. Interestingly payment of management fees was not shown in the year under consideration. So the assessee had cleverly disguised the payment of management fees into various different other kinds of payments made in the year which were all new transactions occurring for the first time. The important point to note here is that there has been no significant change in the FAR analysis of the assessee.
Hence it is important for the transfer pricing officers to keep their eyes and ears open while concluding the transfer pricing audits.
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