2017 (12) TMI 1622 - AT - Income Tax

TPA - wrong selection of MAM - Assessee had adopted an overall entity based Transactional Net Margin Method (TNMM) to determine ALP of its international transactions - TPO adopted a transaction-by-transaction approach considering segmental profitability as per AS 17 - According to assessee, it has appointed the new law firm who after analysis of the original T. P study has advised the assessee to adopt transaction by transaction method, in place of entity level bench marking approach and e, it should not be penalized for the error/mistake which occurred in the first place, because of wrong legal advice of erstwhile attorneys Held that - We note that the Hon ble Supreme Court in N. Balakrishnan Vs. M. Krishnamurthy (1998 (9) TMI 602 - SUPREME COURT OF INDIA) wherein a similar case where there was a delay of 883 days because of the mis-handling the case by the Advocate of the petitioner, the Hon ble Supreme Court condoned the delay taking note that the petitioner cannot be faulted due to the latches of the lawyer. Similarly, for substantial justice, the assessee should not suffer because of earlier legal advice which the assessee realizes to be wrong and ready to correct. Therefore, in the interest of justice and fair play, the transfer pricing adjustment ordered by the TPO is set aside with a direction to re-adjudicate only on the issue on which the TPO has found the assessee s transaction not at arms length, which is to be done afresh after taking into consideration, the aforesaid documents filed before us for A.Y 2011-12 and DRP for AY 2012-13 and after hearing the assessee.

Summary

Issues:
- Transfer pricing adjustments for AY 2011-12 and 2012-13
- Entity-based TNMM vs. transaction-by-transaction approach
- Additional evidence submission and consideration
- Legal advice impact on transfer pricing methodology
- Condonation of delay due to legal advice

Transfer Pricing Adjustments:
The appeals involved cross appeals by the assessee and revenue against the directions of the Dispute Resolution Panel for AYs 2011-12 and 2012-13. The Transfer Pricing Officer (TPO) proposed adjustments of ?35.41 cr for AY 2011-12 and ?68.13 cr for AY 2012-13, alleging certain international transactions were not at arm's length price. The Dispute Resolution Panel upheld the TPO's conclusions, leading to the appeals before the tribunal.

Entity-based TNMM vs. Transaction-by-Transaction Approach:
For AY 2011-12, the assessee used an entity-based Transactional Net Margin Method (TNMM) to determine arm's length prices. However, the TPO applied a transaction-by-transaction approach, alleging certain transactions were not at arm's length. The Dispute Resolution Panel supported the TPO's approach. In AY 2012-13, the TPO continued the analysis, proposing adjustments and alleging more transactions were not at arm's length. The assessee revised its approach to a transaction-by-transaction method for AY 2012-13.

Additional Evidence Submission and Consideration:
The assessee submitted additional evidence before the tribunal, including organization structures, agreements, benchmarking reports, and financial information. The tribunal noted the submission of new evidence and directed a re-adjudication of the issues based on the documents provided for both AYs.

Legal Advice Impact on Transfer Pricing Methodology:
The assessee appointed a new law firm that advised adopting a transaction-by-transaction method, realizing the error in the initial entity-based approach. Citing a Supreme Court case, the tribunal considered the impact of incorrect legal advice on the assessee's transfer pricing methodology. The tribunal set aside the TPO's adjustments and directed a fresh adjudication based on the revised approach.

Condonation of Delay Due to Legal Advice:
Drawing parallels with a Supreme Court case, the tribunal emphasized the importance of fair play and justice. It noted that the assessee should not be penalized for earlier incorrect legal advice and directed a re-adjudication of the transfer pricing issues in light of the revised methodology and additional evidence submitted.

In conclusion, the tribunal allowed both the assessee's appeals and the revenue's cross-appeal for statistical purposes, setting aside the TPO's adjustments and directing a fresh adjudication based on the revised transfer pricing approach and additional evidence provided.