2020 (12) TMI 87 - HC - Income Tax

TP Adjustment - Selection of MAM - Whether ITAT justification in holding that Berry Ratio is the MAM for computation of ALP, when the Appellant as a trader of UPS, sells the same without any value addition? - HELD THAT - While dealing with the complex issue of Transfer Pricing and the method to be adopted in the Arms Length Price (ALP), firstly the final fact finding Body is expected to give its own reasons for the method to be adopted for ALP and if the Transfer Pricing given by the Assessee is not acceptable to the Revenue Authorities, cogent reasons have to be clearly spelt in the order. Secondly, if the Tribunal directs the Revenue Authorities for adopting any one of the methods as prescribed under Rule 10B of the IT Rules, the reasons therefor have to be clearly spelt by the learned Tribunal in its order. Perusal of para 5 of the order giving alleged reasons by the learned Tribunal leaves more confusion than clarity. We are also satisfied that the learned Tribunal has not dealt with all the grounds of Appeal raised by the Assessee in a proper perspective and after detailed discussion a cogent findings have not been returned by the learned Tribunal insofar as the method of determining the Arms Length Price is concerned. Matter restored back to the ITAT.

Summary

Issues:
- Appeal against ITAT order regarding Transfer Pricing Adjustments

Analysis:
1. The Appeals were filed by the Assessee against the ITAT order of the 'D' Bench Chennai, which partly allowed the Appeals for statistical purposes and addressed Transfer Pricing Adjustments.

2. The Assessee raised substantial questions of law, including the justification of Berry Ratio as the Most Appropriate Method (MAM) for ALP computation, the alleged perversity of the ITAT order, failure to adjudicate on issues like wrongful rejection of CUP as MAM, selection of incomparable comparables, and computation of Berry Ratio, among others.

3. The Assessee's counsel argued that the Tribunal did not address all 17 grounds raised, leading to a cryptic order lacking detailed reasoning.

4. The Tribunal's order highlighted the TPO's stance on the unsuitability of CUP method due to product variations, advocating for Berry Ratio as the appropriate method considering the Assessee's value addition services.

5. The Tribunal's order was critiqued for lacking clarity in reasons for method adoption, especially regarding ALP determination and failure to address all grounds of Appeal comprehensively.

6. The Court emphasized the need for clear reasoning in determining ALP methods and directing Revenue Authorities, expressing dissatisfaction with the Tribunal's order's lack of detailed findings.

7. Consequently, the Court remanded the case back to the Tribunal for a fresh decision, instructing a detailed reevaluation of the Appeal with proper reasoning and factual findings, ensuring all grounds are adequately addressed.

8. The Appeals were disposed of without addressing the questions of law, with no costs imposed, and related Miscellaneous Petitions were closed accordingly.