2017 (6) TMI 1385 - AT - Income Tax

TP Adjustment - MAM - adopting TNMM at entity level - assessee contended that the assessee-company submitted that TP study report adopting TNMM at entity level and this was accepted by the TPO and therefore there was no need of separate bench marking in respect of transactions of royalty and technical fee as the same formed part of operating expenditure - HELD THAT - In the present case the TP study submitted by the assessee was accepted by the TPO. However the TPO had chosen to make a separate bench marking in respect of transaction of royalty and management fees. There is no dispute that there was a close nexus between these transactions and other transactions. Therefore it requires aggregation of these transactions with other transactions and the most appropriate method is to adopt TNMM at entity level for the purpose of the bench marking the transactions. Accordingly we remand the matter back to the file of the TPO/AO to aggregate transaction of royalty and management fee with other transactions and bench mark the same with other transactions by adopting TNMM at entity level.

Summary

Issues Involved:
Transfer pricing adjustment on technical and management fee payments.

Detailed Analysis:
The appeal was filed by the assessee against the order of the CIT(A) for the assessment year 2008-09. The Assessing Officer (AO) observed various international transactions reported by the assessee, which were referred to the Transfer Pricing Officer (TPO) for benchmarking. The TPO found the royalty and reimbursement transactions to be at arm's length but questioned the mark-up percentages on technical and management fees. The TPO suggested a transfer pricing adjustment due to the lack of basis for the mark-up percentages.

The CIT(A) upheld the TPO's decision, leading to the assessee filing an appeal before the Appellate Tribunal. The assessee argued that the TP study report adopting TNMM at the entity level was accepted by the TPO, negating the need for separate benchmarking of royalty and technical fee transactions. The departmental representative had no objection to remitting the matter back to the TPO for adopting TNMM at the entity level.

After hearing both sides, the Tribunal noted that the TP study submitted by the assessee was accepted by the TPO. However, the TPO conducted separate benchmarking for royalty and management fees. Given the close nexus between these transactions and others, the Tribunal determined that aggregation of these transactions with others was necessary. The most appropriate method identified was adopting TNMM at the entity level for benchmarking purposes. Consequently, the matter was remanded back to the TPO/AO to aggregate the transactions of royalty and management fees with others and benchmark them using TNMM at the entity level.

As a result, the appeal filed by the assessee was partly allowed for statistical purposes. The decision was pronounced in an open court on 21st June 2017.