2019 (4) TMI 1881 - AT - Income Tax

TP Adjustment - ALP benchmarking - selection of MAM - international transaction relating to availing of services from the AEs - assessee has benchmarked the arm's length price of the payment made towards services availed from the AE by applying CUP method - HELD THAT - TPO has not provided any valid reason why the benchmarking done by the assessee is not acceptable. Transfer Pricing Officer while determining the arm's length price of the services availed from the AE at nil has apparently not followed any of the methods prescribed under the statute. It is also relevant to observe, the agreement under which the assessee is making payment for availing such services has continued from the preceding assessment years and is also continuing in the subsequent assessment years. It is worth mentioning, in the subsequent assessment years i.e., A.Y. 2009 10, 2010 11, 2011 12 and 2012 13, the Transfer Pricing Officer has accepted similar benchmarking of arm's length price of the services availed by the assessee from the AE on account of Lotus Note. As held by the Hon'ble Supreme Court in Kargill Food India Ltd. .CARGILL FOODS INDIA LTD. 2016 (10) TMI 1311 - SC ORDER even applying the rule of consistency the benchmarking done by the assessee under CUP method is to be accepted. If the Transfer Pricing Officer was not convinced with the benchmarking done by the assessee, he should have benchmarked the arm's length price of the services availed by following any one of the prescribed methods as provided under the statute. A perusal of the order passed by the TRP would reveal that while rejecting the benchmarking done by the assessee and determining the arm's length price at nil, he has not followed any prescribed method as provided under the statute. That being the case, the determination of arm's length price at nil by the Transfer Pricing Officer being contrary to the provisions of the Act is not acceptable. Transfer Pricing Officer having failed to point out any specific defect or invalidity in bench marking done by the assessee, the price paid by the assessee to the AE for the services availed has to be held to be at arm's length. In view of the aforesaid, we direct the AO to delete the addition. - Decided in favour of assessee.

Summary

Issues:
Addition of amount on account of transfer pricing adjustment.

Analysis:
The appeal was filed challenging the addition of an amount on account of transfer pricing adjustment for the assessment year 2008-09. The dispute revolved around the payment of an amount to an overseas AE for availing services related to Lotus Note. The Transfer Pricing Officer determined the arm's length price of the services availed at nil, proposing an adjustment of the amount paid. The first appellate authority upheld the decision of the Transfer Pricing Officer, leading to the appeal.

The assessee contended that detailed submissions and documentary evidence were provided to demonstrate the mechanism of cost allocation and services rendered. The modalities of cost allocation were explained, and it was highlighted that similar payments in subsequent assessment years were accepted by the Transfer Pricing Officer. The assessee argued that the Transfer Pricing Officer did not follow any prescribed method in determining the arm's length price at nil, contrary to the provisions of the Act. The rule of consistency was invoked, citing past acceptance of similar benchmarking in preceding and subsequent assessment years.

Upon considering the submissions and evidence, the tribunal found that the assessee had justified the payment made to the AE, benchmarking it using the Comparable Uncontrolled Price (CUP) method. The Transfer Pricing Officer's failure to provide valid reasons for rejecting the benchmarking and not following prescribed methods rendered the determination of arm's length price at nil unacceptable. The tribunal held that the price paid by the assessee to the AE for the services availed was at arm's length, directing the Assessing Officer to delete the addition amount. The appeal was allowed, emphasizing the importance of following prescribed methods in transfer pricing adjustments.

In conclusion, the tribunal's decision focused on the necessity of justifying transfer pricing adjustments with valid reasons and following prescribed methods under the statute. The rule of consistency and the requirement for Transfer Pricing Officers to benchmark arm's length prices appropriately were underscored, ensuring fair treatment and adherence to legal provisions in transfer pricing disputes.