ITAT Delhi Deletes Transfer Pricing Adjustment, Rejects Ad-Hoc Benchmarking by TPO
Tribunal Says Commission Payments Must Be Judged on Evidence
Landmark Ruling Strengthens Fairness in Transfer Pricing
By Legal Reporter
New Delhi: February 09, 2026:
In a landmark decision, the Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has struck down a transfer pricing adjustment imposed on commission payments made by an Indian company to its overseas agents. The tribunal also rejected the ad-hoc benchmarking approach adopted by the Transfer Pricing Officer (TPO), ruling that transfer pricing assessments must be based on reliable data and established methods.
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This judgment is expected to have wide implications for multinational corporations and Indian businesses engaged in cross-border transactions, as it emphasizes the need for fairness and consistency in transfer pricing regulations.
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Background of the Case
The case involved an Indian company that had paid commission to overseas agents for facilitating export sales. The TPO questioned the commission payments and made an adjustment, arguing that the rates were excessive compared to industry standards. However, instead of using proper benchmarking methods, the TPO relied on ad-hoc assumptions.
The company challenged the adjustment before the ITAT, arguing that the commission payments were genuine business expenses, supported by agreements and evidence of services rendered.
Key Observations by ITAT
- Ad-Hoc Benchmarking Not Acceptable: The tribunal ruled that transfer pricing adjustments cannot be made on arbitrary assumptions. Proper benchmarking methods must be used.
- Evidence of Services Rendered: The ITAT noted that the company had provided agreements, invoices, and proof of services, which established the genuineness of the commission payments.
- Arm’s Length Principle: The tribunal emphasized that transactions must be judged on the arm’s length principle, comparing them with similar transactions in the market.
- Relief to Taxpayer: The ITAT deleted the adjustment, providing relief to the company and setting a precedent against arbitrary transfer pricing practices.
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Legal Significance
This ruling is significant for businesses engaged in international trade and cross-border transactions. It clarifies that:
- Transfer pricing officers cannot rely on ad-hoc benchmarking.
- Genuine business expenses supported by evidence must be respected.
- The arm’s length principle remains the cornerstone of transfer pricing assessments.
Legal experts believe this judgment will strengthen taxpayer confidence and reduce litigation in transfer pricing cases.
Public and Professional Reactions
- Tax Professionals: Many welcomed the ruling, saying it reinforces the importance of evidence-based assessments.
- Businesses: Exporters and multinational companies see this as a positive development, ensuring that genuine commission payments are not unfairly penalized.
- Academics: Scholars of taxation law noted that the ruling aligns with international best practices in transfer pricing.
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Conclusion
The ITAT Delhi ruling is a landmark in transfer pricing law. By rejecting ad-hoc benchmarking and deleting the adjustment on commission payments, the tribunal has reinforced the principle that tax assessments must be fair, evidence-based, and consistent with the arm’s length principle.
This judgment is expected to influence future transfer pricing cases, reduce arbitrary adjustments, and provide greater certainty to businesses engaged in cross-border transactions.
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