2018 (1) TMI 1155 - AT - Income Tax

ALP determination - TPA - comparable selection - Held that - We find that the issue before the ITAT was the average margin of the comparables and it had been confirmed at 29.51%. The Tribunal has, thereafter, directed only for re-computing the ALP after allowing the marketing expenses. Therefore, there was no discretion left to the authorities below for re-computing the ALP. The remand was only for the calculation of the ALP and not for verification of the expenses which have already been accepted and quantified by the TPO in the earlier proceedings. Therefore, the AO/TPO are directed to calculate the ALP exactly in the way directed by the ITAT. - Decided in favour of assessee

Summary

Issues:
Transfer pricing adjustment, Compliance with tribunal directions, Application of Rule 10B(1)(b) of IT Rules, Rejection of comparables, Interest imposition under sections 234B and 234D.

Transfer Pricing Adjustment:
The assessee appealed against the assessment order for the A.Y 2006-07, contesting the Transfer Pricing Officer's determination of Arm's Length Price (ALP) for international transactions. The TPO rejected the T.P study conducted by the assessee and proposed adjustments based on Resale Price Method and TNMM. The DRP upheld the use of RPM, resulting in reduced adjustments. The ITAT directed the re-determination of ALP, leading to subsequent adjustments proposed by the TPO. The assessee argued that the TPO's re-verification of expenses beyond the ITAT's directions was erroneous. The ITAT clarified that the remand was solely for ALP calculation, not expense verification, directing strict compliance with its instructions.

Compliance with Tribunal Directions:
The ITAT's orders emphasized the need to calculate ALP after considering specific factors and deductions, instructing the authorities to adhere strictly to its directions. The ITAT's directive focused on re-computing ALP after allowing for marketing expenses, limiting the authorities' discretion to verify expenses already accepted and quantified in prior proceedings. Consequently, the AO/TPO were mandated to calculate ALP precisely as directed by the ITAT, without deviating from the specified methodology.

Application of Rule 10B(1)(b) of IT Rules:
The ITAT's decision highlighted the application of Rule 10B(1)(b) of the Income Tax Rules 1962 in determining ALP for international transactions. The ITAT directed the authorities to adhere to the provisions of Rule 10B(1)(b) while computing ALP and emphasized the importance of following the prescribed methodology without introducing additional verifications or adjustments beyond the specified scope.

Rejection of Comparables:
The assessee contested the rejection of a comparable selected in accordance with the Act and Rules. The ITAT allowed the grounds of appeal related to the rejection of comparables, indicating a discrepancy in the authorities' assessment of comparable entities. The ITAT's decision underscored the necessity of a comprehensive and accurate selection process for comparables in transfer pricing evaluations to ensure fairness and compliance with regulatory requirements.

Interest Imposition under Sections 234B and 234D:
The imposition of interest under sections 234B and 234D was a consequential issue addressed in the judgment. The AO was directed to provide any necessary relief to the assessee concerning interest levied under these sections, emphasizing the importance of procedural compliance and fair application of interest provisions in tax assessments.

This detailed analysis of the judgment provides insights into the key issues addressed, including transfer pricing adjustments, compliance with tribunal directions, application of relevant IT rules, treatment of comparables, and interest imposition under specific sections. The ITAT's meticulous instructions and clarifications aimed to ensure procedural correctness, adherence to legal provisions, and fair treatment of the assessee in the assessment process.