2022 (3) TMI 1491 - AT - Income Tax

TP adjustment - Purchase of finished goods and payment of Technical Administrative Fees to its Associated Enterprise - CIT(A) directing the AO/TPO to do the exercise of fresh benchmarking by treating the assessee as Trader - HELD THAT - In the present case, it is not disputed that the relevant assessment year is the first year of operation of the assessee. From the financial statements, forming part of the paper book, it is evident that the assessee only earned Rs.9,16,35,833, from sale of traded goods and Rs.4,16,78,419 from commission income during the relevant financial year. The manufacturing license dated 16.07.2014, taken note by the CIT(A), also justifies the claim of the assessee as the trader during the relevant assessment year. In the present case, it is also not being denied by the Revenue that the TPO has accepted the assessee as a trader for assessment year 2013 14 and 2014 15. Thus, we are of the view that the assessee has rightly been characterized as a trader by the CIT(A). Accordingly, we deem it appropriate to restore the matter to the TPO/AO to undertake fresh benchmarking of the international transaction pertaining to purchase of finished goods by considering assessee as a trader and to this extent we endorse the findings of the CIT(A). Since we are remanding the issue to the TPO/AO for conducting a fresh benchmarking of aforesaid international transaction, which causes no prejudice to the interest of the Revenue, the infirmities pointed out by the learned D.R. in the order passed by the CIT(A), during the course of hearing, becomes academic in nature in the present case. Appeal by the Revenue is dismissed.

Issues:
- Transfer Pricing Adjustment
- Power of CIT(A) to Set Aside Issues
- Acceptance of Additional Documents
- Characterization of Assessee as Trader
- Benchmarking of International Transactions
- Opportunity to TPO
- Remand Report from TPO
- Consideration of Additional Evidence
- Power of CIT(A) under Section 251(1)(a)

Transfer Pricing Adjustment:
The Revenue challenged an order under section 250 of the Income Tax Act regarding Transfer Pricing adjustments made by the TPO. The TPO determined the assessee as a manufacturer and applied TNMM for benchmarking, proposing an adjustment of Rs. 11,04,73,914. The CIT(A) held the assessee was in trading activity, deleted the adjustment, and directed fresh benchmarking by considering the assessee as a trader. The Tribunal endorsed the CIT(A)'s decision, remanding the matter for fresh benchmarking of the international transaction of purchase of finished goods.

Power of CIT(A) to Set Aside Issues:
The Revenue contested the CIT(A)'s authority to set aside issues to the TPO/AO under section 251(1)(a) of the Act. The CIT(A) directed fresh benchmarking after characterizing the assessee as a trader, which was upheld by the Tribunal. The Tribunal found the CIT(A) acted within his jurisdiction in setting aside the matter for fresh benchmarking, dismissing the Revenue's appeal.

Acceptance of Additional Documents:
The CIT(A) accepted additional documents under rule 46A(4) without calling for a remand report from the TPO/AO. The Revenue argued against considering the manufacturing license as additional evidence. The Tribunal, however, found the CIT(A)'s consideration of the manufacturing license justified based on the assessee's characterization as a trader, leading to the dismissal of the Revenue's appeal.

Characterization of Assessee as Trader:
The TPO initially determined the assessee as a manufacturer, leading to Transfer Pricing adjustments. The CIT(A) reversed this characterization, considering the assessee as a trader based on the financial statements and the manufacturing license. The Tribunal agreed with the CIT(A)'s characterization, endorsing the assessee's status as a trader during the relevant assessment year.

Benchmarking of International Transactions:
The TPO applied TNMM for benchmarking the international transactions, proposing adjustments. The CIT(A) directed fresh benchmarking by treating the assessee as a trader. The Tribunal upheld this decision, remanding the matter for fresh benchmarking of the international transactions, specifically the purchase of finished goods.

Opportunity to TPO and Remand Report:
The Revenue raised concerns about the CIT(A) not providing an opportunity to the TPO and not calling for a remand report. The Tribunal found the CIT(A)'s actions justified, as the matter was remanded for fresh benchmarking, which did not prejudice the Revenue's interests. The Tribunal dismissed the Revenue's grounds of appeal related to this issue.

Consideration of Additional Evidence:
The CIT(A) considered a manufacturing license as additional evidence without calling for a remand report. The Tribunal found this consideration valid based on the assessee's characterization as a trader, leading to the dismissal of the Revenue's appeal on this ground.

Power of CIT(A) under Section 251(1)(a):
The Revenue questioned the CIT(A)'s power to set aside matters to the TPO/AO under section 251(1)(a) of the Act. The Tribunal upheld the CIT(A)'s authority in setting aside the matter for fresh benchmarking, considering the assessee as a trader. As no other grounds were pressed during the hearing, the Tribunal dismissed the Revenue's appeal.

This detailed analysis covers the various issues involved in the legal judgment delivered by the Appellate Tribunal ITAT MUMBAI, providing a comprehensive overview of the Transfer Pricing adjustments, characterization of the assessee, benchmarking of international transactions, and the powers of the CIT(A) under relevant sections of the Income Tax Act.

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