2017 (12) TMI 1627 - AT - Income Tax

Transfer pricing adjustment - MAM selection - assessee has entered into Advance Pricing Agreement (APA) with CBDT - application of internal CUP as well as computation of ALP under internal Cost Plus Method - Held that - In the light of fact that assessee has entered into APA, the Coordinate Bench of the Tribunal in the assessment year 2009-10 has directed Assessing Officer to decide the issue in accordance with the terms and conditions of APA as nature of transactions are similar. We are of considered opinion that it would be just and proper to restore these issues to the file of Assessing Officer with similar directions as above by the Tribunal in asssessee s appeal for assessment year 2009-10. We further find forces in the submission of ld. DR that before deciding the issues raised in appeals under consideration, it would be relevant to ascertain the nature of international transactions that have been carried out during assessment years 2005-06 to 2007-08. If they are of similar nature, the same can be decided afresh in line with the terms and conditions of APA.

Summary

Issues:
Assessment years 2005-06 to 2007-08 - Transfer Pricing Adjustment - Application of Advance Pricing Agreement (APA) - Arm's Length Price (ALP) computation - Most appropriate method for TP adjustment.

Analysis:

1. Application of Advance Pricing Agreement (APA):
The assessee entered into an APA with the Central Board of Direct Taxes (CBDT) covering nine assessment years. The APA includes "rollback years" from 2010-11 to 2013-14, extending the agreement from 2010-11 to 2018-19. The assessee argued that the international transactions in the assessment years under consideration align with those covered in the APA. The Tribunal had previously remitted a similar issue back to the Transfer Pricing Officer (TPO) for reconsideration based on the APA terms and conditions.

2. Transfer Pricing Adjustment and ALP Computation:
The Transfer Pricing Officer (TPO) rejected the Cost Plus Method (CPM) applied by the assessee and computed the Arm's Length Prices (ALP) using CPM with internal comparables. The TPO deemed the Comparable Uncontrolled Price (CUP) method as the most appropriate for TP adjustment. The Dispute Resolution Panel (DRP) upheld the TPO's actions, directing the Assessing Officer to make adjustments for the respective assessment years. The assessee challenged the application of internal CUP and ALP computation under CPM.

3. Tribunal's Decision and Directions:
Considering the APA in place, the Tribunal referred to its previous decision regarding the assessee's APA for the assessment year 2009-10. The Tribunal directed the Assessing Officer to decide the TP adjustment issue in line with the APA terms due to the similarity in international transactions. The Tribunal allowed the assessee's appeal, restoring the issues to the Assessing Officer with specific directions for reconsideration based on the APA terms. The Tribunal emphasized the need to verify the nature of international transactions from 2005-06 to 2007-08 and decide afresh if they align with the APA conditions.

4. Conclusion:
The Tribunal allowed the assessee's appeals for statistical purposes, directing a reconsideration of the TP adjustment issues in accordance with the APA terms. The decision aimed to ensure a fair and proper assessment based on the agreed terms between the assessee and the tax authorities under the APA.