2021 (2) TMI 1321 - AT - Income Tax

TP Adjustment - most appropriate method to benchmark the transaction with the AE - applicability of internal TNMM as opposed to external TNMM - HELD THAT - Tribunal in assessee s own case for Assessment Year 2011-12 2017 (5) TMI 1795 - ITAT MUMBAI has held that internal TNMM as adopted by the assessee is the most appropriate method to benchmark the transaction with the AE. Following the aforesaid decision,while deciding assessee s appeal for AY 2012-13 in 2019 (11) TMI 1774 - ITAT MUMBAI has reiterated that internal TNMM is the most appropriate method to benchmark the transaction with AE. Thus, following the consistent view of the Tribunal in assessee s own case, as referred to above, we hold that the international transaction with the AE has to be benchmarked by applying internal TNMM as adopted by the assessee. Accordingly, we restore the issue back to the AO for examining assessee s benchmarking under internal TNMM and in case the assessee is able to justify its own benchmarking, then it has to be accepted. Of course, the AO while deciding the issue must provide due opportunity of hearing to the assessee.

Summary

Issues involved:
Delay in filing the appeal, Applicability of internal transactional net margin method (TNMM) in transfer pricing analysis.

Delay in filing the appeal:
The appeal by the assessee against the final assessment order was delayed by 121 days, for which the assessee sought condonation of delay citing reasons related to hospitalization and personal events. The Tribunal, after examining the cause of delay, found it reasonable and decided to condone the delay, admitting the appeal for adjudication on merits.

Applicability of internal TNMM in transfer pricing analysis:
The primary issue raised by the assessee pertained to the applicability of internal TNMM as opposed to external TNMM selected by the Transfer Pricing Officer (TPO) for determining the arm's length price (ALP). The Tribunal noted that the assessee, a resident company engaged in importing raw materials from Associated Enterprises (AE), applied internal TNMM to determine ALP. The TPO rejected the internal TNMM and applied external TNMM, proposing an adjustment to the income of the assessee. However, the Tribunal, based on its previous decisions in the assessee's own case for assessment years 2011-12 and 2012-13, held that internal TNMM was the most appropriate method for benchmarking transactions with AE. Consequently, the Tribunal directed the issue to be re-examined by the Assessing Officer under internal TNMM, providing the assessee with a fair opportunity to justify its benchmarking.

Conclusion:
The Tribunal partially allowed the appeal for statistical purposes, as the decision on the applicability of internal TNMM rendered other grounds raised by the assessee academic. The Tribunal emphasized the need for the Assessing Officer to re-evaluate the benchmarking under internal TNMM, in line with the consistent view taken in the assessee's previous cases.