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2023 (1) TMI 1271 - HC - Income TaxTP Adjustment - selection of MAM - HELD THAT - As decided in assessee own case 2018 (10) TMI 1785 - ITAT DELHI TNMM is most appropriate method under such circumstances instead of CUP. Considering fact that assessee is a low risk service provider and that there is no change in FAR from assessment year 2003-04 to 2018-19 as has been observed by this Tribunal in preceding assessment year, we do not find any reason to deviate by adopting any other method other than TNMM. Respectfully following view taken by this Tribunal in preceding years, we remand the issue back to file of Ld. TPO to examine and benchmark international transaction by adopting TNMM as most appropriate method by taking Berry ratio as PLI, as has been approved by Hon‟ble High Court. The record does not seem to suggest to us that there is any diametric change in circumstances and facts, as recorded by the Tribunal in its order dated 22.10.2018 supra . At this stage, we may also note that Respondent says that insofar as AY 2012-13 is concerned, there is an upward adjustment, therefore, according to him, if this adjustment is taken into account, the tax impact would be less than the prescribed monetary threshold limit. Appellant however, says that the fate of the said appeal will not be determined on the basis of tax impact since this is not an appeal that pertains to deletion of the adjustment made. This aspect of the matter will be examined on the next date of hearing.
Issues Involved:
1. Delay in filing and re-filing of appeals. 2. Determination of Arm's Length Price (ALP) for international transactions. 3. Application of Transaction Net Margin Method (TNMM) and Berry ratio method. 4. Bilateral Advance Pricing Agreement (BAPA) between respondent/assessee and CBDT. Detailed Analysis: 1. Delay in Filing and Re-filing of Appeals: The appeals challenge a common order dated 21.05.2019 by the Income Tax Appellate Tribunal. The appellant/revenue received the order on 06.06.2019, but the appeals were sworn on 17.08.2020, indicating a delay. Applications for condonation of delay in re-filing were also dated 17.08.2020 but filed only on 07.01.2023. The court noted a lack of clarity on whether the appellant/revenue sought condonation for filing or re-filing the appeals. Despite considering the Covid-19 disruption, the court observed a considerable delay. 2. Determination of Arm's Length Price (ALP) for International Transactions: The core issue concerns the commission earned by the respondent/assessee from international transactions with its Associated Enterprises (AEs), referred to as "indenting transactions." The Tribunal had previously remitted the matter for fresh examination of transfer pricing issues. The Tribunal concluded that the Transaction Net Margin Method (TNMM) was the most suitable method for determining ALP for these transactions. 3. Application of Transaction Net Margin Method (TNMM) and Berry Ratio Method: The Tribunal's analysis, detailed in paragraphs 15 to 19 of its order dated 22.10.2018, found significant differences between transactions with AEs and non-AEs in terms of volume, value, products, and geographical locations. Consequently, the Tribunal rejected the Comparable Uncontrolled Price (CUP) method and endorsed TNMM with the Berry ratio method for calculating the Profit Level Indicator (PLI). The Tribunal remanded the matter to the Transfer Pricing Officer (TPO) to benchmark the international transactions using TNMM and Berry ratio, emphasizing the need for the assessee to substantiate its margin with comparable uncontrolled transactions. 4. Bilateral Advance Pricing Agreement (BAPA) between Respondent/Assessee and CBDT: Mr. C.S. Aggarwal highlighted that a BAPA was executed between the respondent/assessee and the Central Board of Direct Taxes (CBDT) on 02.08.2016, which should govern the parties. The court noted this agreement's relevance and its potential impact on the case. Additional Observations: The appellant/revenue argued that the Tribunal did not conduct an independent exercise for AYs 2013-14 and 2012-13 but merely followed a coordinate bench's judgment. The court was not convinced by this argument, noting no evidence suggesting the Tribunal's analysis was faulty or that circumstances had changed significantly since the Tribunal's 2018 order. The court also acknowledged an upward adjustment for AY 2012-13, which might affect the appeal's admissibility based on the prescribed monetary threshold limit. Further examination of this aspect was deferred to the next hearing. Conclusion: The court deferred the matters to 03.03.2023 to allow the appellant/revenue to ascertain whether any appeal was preferred against the Tribunal's order dated 22.10.2018. The court emphasized the need for clarity on the delay in filing and re-filing appeals and the relevance of the BAPA in governing the parties' transactions.
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