2021 (2) TMI 353 - AT - Income Tax

TP Adjustment - applicability of TNMM at entity level for computing the margin - assessee has raised objections against the comparables selected by the TPO - HELD THAT - As decided in own case 2013 (8) TMI 735 - ITAT MUMBAI 2013 (8) TMI 735 - ITAT MUMBAI Considering the various discrepancies as well as infirmities in the approach adopted by both the parties we consider it appropriate that a fresh transfer pricing study be undertaken for selecting proper comparables after careful study of functional profile of the assessee so as to arrive at proper TP adjustment. There is no difference in the factual position in the impugned assessment year. Therefore, respectfully following the aforesaid decision of the co-ordinate bench, we restore the issue to the Assessing Officer for fresh adjudication keeping in view the observations of the co-ordinate bench reproduced hereinabove. Appeal filed by the assessee is allowed, for statistical purpose.

Summary

Issues:
Single issue involved: Addition of ?26,33,69,103/- on account of transfer pricing adjustment.

Analysis:
The case involved an appeal by the assessee against the final assessment order for the assessment year 2008-09 related to a transfer pricing adjustment. The assessee, a resident company engaged in trading consumer electronic products, imported goods from its associate enterprise for resale in India. The Transfer Pricing Officer (TPO) proposed an adjustment of ?26,33,69,103/- due to differences in margin calculation. The Dispute Resolution Panel (DRP) upheld the TPO's decision, leading to the final assessment. The assessee sought restoration of the issue based on a similar case in a previous assessment year.

The main contention was the applicability of the Transactional Net Margin Method (TNMM) at the entity level for margin computation and the selection of comparables by the TPO. The Tribunal noted discrepancies in the TPO's approach, including rejecting comparables solely based on being loss-making companies without further examination. The Tribunal also highlighted errors in applying TNMM at the entity level and the necessity for a fresh transfer pricing study to select appropriate comparables based on functional profiles. Consequently, the Tribunal decided to restore the issue to the Assessing Officer for reevaluation, emphasizing the importance of providing the assessee with a reasonable opportunity to present their case.

The Tribunal's decision was influenced by the need for a meticulous examination of functional profiles and comparables in transfer pricing assessments. By following the precedent set in a previous case with similar circumstances, the Tribunal emphasized the importance of correct application of transfer pricing methods and comparables selection. The decision aimed to ensure a fair and accurate determination of transfer pricing adjustments, highlighting the significance of a thorough analysis and providing the assessee with a fair opportunity to present their case.