2018 (11) TMI 1580 - AT - Income Tax

ALP adjustment in respect of international transaction - main contention of the petitioner is that ALP adjustment should be restricted to international transaction with its AE - Held that - We find from the perusal of the orders of the lower authorities that this contention was not raised before the TPO, though this contention was raised before the Hon ble Hon ble DRP, we find no details of segments of AE and non- AE transactions. The assessee-company had not shown any authority that even under TNMM ALP adjustment should be restricted to AEs only nor the appellant contested the applicability of TNMM method. Thus, it cannot be said that there is a prima facie case in favour of the assessee-company. Moreover no financial statements had been filed before us establishing financial hardship to the assessee-company. In the absence of existence of prima facie case and financial hardship, we find no reason to stay the demand. Accordingly, the stay petition filed by the assessee is dismissed.

Summary

Issues involved:
Stay petition for outstanding demand based on ALP adjustment in international transactions for assessment year 2014-15.

Analysis:

1. Prima facie case for restricting ALP adjustment to international transactions with AEs:
The petitioner, an assessee-company, filed a stay petition seeking relief from an outstanding demand of &8377; 14,59,84,694/- due to ALP adjustment in international transactions amounting to &8377; 29,60,30,584/-. The contention was that ALP adjustment should only apply to international transactions with associated enterprises (AEs). However, the Tribunal noted that this argument was not raised before the Transfer Pricing Officer (TPO) and found no details of segments of AE and non-AE transactions in the records. Additionally, the petitioner failed to establish that under the TNMM method, ALP adjustment should be limited to AEs only. As a result, the Tribunal concluded that there was no prima facie case in favor of the assessee-company regarding the restriction of ALP adjustment to international transactions with AEs.

2. Financial hardship and absence of prima facie case:
The Tribunal further considered the absence of financial statements demonstrating financial hardship for the assessee-company. Without evidence of financial distress and in the absence of a prima facie case supporting the petitioner's argument, the Tribunal found no grounds to grant a stay on the outstanding demand. Consequently, the stay petition filed by the assessee was dismissed, and the demand for payment upheld.

3. Applicability of TNMM and entity-level adjustments:
The Departmental Representative argued that under the TNMM method, adjustments at the entity level are made, and verification of transactions with AEs and non-AEs is impermissible. The representative contended that the petitioner should be directed to pay at least 50% of the disputed tax demand. The Tribunal considered these arguments but ultimately found that the petitioner had not contested the applicability of the TNMM method or provided substantial evidence to support their case. As a result, the Tribunal did not find merit in the petitioner's arguments and dismissed the stay petition.

In conclusion, the Tribunal, comprising Vice President Shri N.V.Vasudevan and Accountant Member Shri Inturi Rama Rao, dismissed the stay petition of the assessee-company seeking relief from an outstanding demand arising from ALP adjustment in international transactions. The decision was based on the lack of a prima facie case, absence of financial hardship evidence, and the failure to establish restrictions on ALP adjustment to international transactions with AEs under the TNMM method. The order was pronounced on 2nd November 2018.