2015 (2) TMI 1321 - AT - Income Tax

TP Adjustment - assessee had adopted TNMM method as the most appropriate method for bench marking the international transactions entered with its AE - whether purchase price of the goods exported cannot be applied as CUP for sale price charged to the AE? - HELD THAT - As decided in own case 2015 (1) TMI 1430 - ITAT MUMBAI assessee is providing the services to the AE and receiving the remuneration and in turn getting part of the job done through sub agent GESA and remunerating it by paying the commission as per sub agency agreement. Out of the total services provided by the assessee a part is performed through sub-agent and the remaining is performed by the assessee itself. It is like export of goods partly manufactured by the assessee and partly purchased from third party. However, purchase price of the goods exported cannot be applied as CUP for sale price charged to the AE. Accordingly considering the price received by GESA as CUP is contrary to the transfer pricing regulation. We do not rule out the CUP as most appropriate method for determination of ALP of international transaction in question. However, the comparable uncontrolled price must be a proper uncontrolled price in compliance of provisions of transfer pricing. There is one more fallacy in the TPO's order regarding bifurcating the international transactions into two segments for determining the ALP. The TPO accepted the price charged by the assessee in respect of services provided through sub- agency, but while computing the ALP it had ignored the CUP and took the price charged by the assessee as ALP. Further, the services provided by the assessee on its own were compared with CUP. Therefore, two separate ALP were determined by the TPO for the same service provided by the assessee to AE. Even if the CUP is adopted as most appropriate method ALP cannot be more than price received by GESA. Whereas the TPO has taken into consideration the price charged by the assessee with 10% mark-up. Hence, the computation of ALP is otherwise not based on correct uncontrolled price. We may clarify that the international transaction in question should be considered as one and price received by the assessee in total has to be compared with the ALP. The assessee received the price for providing the service as per the agency agreement. Therefore, the service provided by the assessee to the AE are closely interlinked and price of one part is dependent on the price of the other part. Therefore, the entire services provided by the assessee has to be treated as one international transaction for the purpose of determining the ALP - Consistent with the view taken in AY 2008-09, we set aside the order of Ld DRP on this issue and restore the same to the file of TPO/AO with the direction to decide the same afresh in the light of directions issued in the above said order.

Summary

Issues:
Stay of collection of outstanding demand related to Transfer Pricing adjustment made by the TPO for the assessment year 2010-11.

Analysis:
The appellant filed a stay petition seeking to halt the collection of an outstanding demand of 11.46 crores, which arose due to a Transfer Pricing adjustment made by the TPO. The appellant provided business support services to its parent company, and the TPO adopted the CUP method for bench marking international transactions, proposing a TP adjustment of &8377; 22.36 crores. The AO and DRP confirmed this adjustment. However, the Tribunal had previously rejected the adoption of past years' data for bench marking in AY 2008-09 and 2009-10, directing fresh consideration. The appellant argued that the method used by the TPO had been rejected by the Tribunal in previous years, requesting a stay on the demand until the appeal's disposal.

The respondent objected to the stay, citing the continued validity of the DRP's order. The bench decided to hear the appeal since the issue had been adjudicated by the Tribunal in the appellant's case for AY 2008-09 and 2009-10. The Tribunal had set aside the DRP's order in those years, directing the TPO/AO to reconsider the issue based on specific observations and previous decisions. Consequently, the Tribunal dismissed the stay application and treated the appeal as allowed for statistical purposes, following the precedent set in AY 2008-09.

In conclusion, the Tribunal denied the stay application for the outstanding demand related to Transfer Pricing adjustment for AY 2010-11. The decision was based on the rejection of the TPO's method in previous years and the direction to reconsider the issue in light of specific observations and previous Tribunal decisions. The appeal was treated as allowed for statistical purposes, in line with the decision for AY 2008-09, emphasizing the need for fresh consideration by the TPO/AO.