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2021 (5) TMI 1054 - AT - Income TaxTP Adjustment - MAM selection - TPO rejected RPM and applied Transactional Net Margin Method (TNMM) as the most appropriate method to determine Arm s Length Price (ALP) - HELD THAT - We find no cogent reason to reject assessee s RPM as the most appropriate method to benchmark ALP in the impugned assessment year when the same was accepted in the earlier and later assessment years by the TPO. The assessee succeeds on rule of consistency. The ground no.1 of CO is thus allowed. Sale price of goods exported by the assessee to AE is more than or equal to the sale price of goods charged by AE from third parties - DRP deleted adjustment - DRP recorded this finding on the basis of documents submitted by the assessee and the report of TPO on same. The assessee could reconcile price of 80% of the goods exported to AE vis-a-vis the price charged by AE from third parties. The Department has not been able to controvert factual findings of the DRP based on the report of TPO. Under such circumstances no adjustment is warranted. We find no infirmity in the impugned findings of DRP. The appeal of Revenue is devoid of merit hence dismissed.
Issues:
1. Dispute over the rejection of TNMM method by the Dispute Resolution Panel. 2. Assessee's objection to the rejection of Resale Price method and Cost plus method. 3. Consistency in applying the most appropriate method for benchmarking international transactions. 4. Assessment of Arm's Length Price (ALP) for export transactions with Associated Enterprises (AEs). 5. Reconciliation of prices between goods exported to AE and prices charged by AE from third parties. Issue 1: Dispute over TNMM method rejection The Revenue appealed against the assessment order under section 143(3) r.w.s. 144C(13) for the assessment year 2009-10, challenging the Dispute Resolution Panel's rejection of the TNMM method. The Revenue contended that the DRP erred in deleting adjustments for export transactions based on the gross margins earned by the AEs compared to the assessee's margins. Issue 2: Assessee's objection to method rejection The assessee raised Cross Objections (CO) against the rejection of Resale Price method and Cost plus method for determining the Arm's Length Price (ALP) of international transactions. The assessee argued that the TPO's deviation from the RPM, which was consistently accepted in previous years, lacked justification due to no material change in transactions. Issue 3: Consistency in method application The assessee emphasized the need for consistency in applying the most appropriate method for benchmarking international transactions. Citing previous TPO orders accepting RPM, the assessee argued that the TPO's shift to TNMM lacked substantiation and violated the principle of consistency without any material change in facts. Issue 4: Assessment of Arm's Length Price The case involved the assessment of ALP for export transactions of knitted socks with AEs, where the TPO rejected the RPM applied by the assessee and introduced TNMM, resulting in a significant adjustment in ALP. The DRP upheld the TPO's decision but deleted the adjustment based on the assessee's ability to reconcile prices with third-party sales. Issue 5: Reconciliation of prices The DRP found that the prices of goods exported to AEs were equal to or higher than prices charged by AEs from third parties, based on the assessee's submissions and TPO's report. The reconciliation of 80% of exported goods' prices supported the DRP's decision to delete the adjustment, which the Revenue failed to challenge effectively. In conclusion, the Tribunal dismissed the Revenue's appeal, partly allowed the assessee's Cross Objections, and upheld the DRP's decision to delete the adjustment. The judgment highlighted the significance of consistency in applying the most appropriate method for transfer pricing analysis and the importance of reconciling prices in international transactions.
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