2021 (4) TMI 756 - AT - Income Tax

TP Adjustment - MAM selection - adjustments to the total income of the Appellant under Section 92CA(3) of the Act on account of adjustment in the arm's length price of the international transaction, using Comparable Uncontrolled Price ('CUP') as the most appropriate method - rejecting the economic analysis undertaken by the Appellant using the Transactional Net Margin Method (TNMM), in accordance with the provisions of the Act read with the Income-tax Rules, 1962 ('the Rules'), and instead using CUP as the most appropriate method for the determination of the arm's length price of the international transaction of export of finished goods, without providing any cogent reason - HELD THAT - Tribunal in assessee s own case in 2020 (10) TMI 1240 - ITAT MUMBAI wherein the identical issue has been restored to the file of the AO to decide the same after taking into account certain observations made by the Bench. Transfer Pricing Officer has adopted a very selective approach while applying CUP. Even, while applying CUP, the Transfer Pricing Officer has not properly looked into assessee's claim of various adjustments on account of geographical location, volume and timing difference. The Transfer Pricing Officer has only allowed volume adjustment on purely ad-hoc basis, that too, only in respect of a single product while ignoring various other products wherein volume difference between AE and non-AE transaction is substantial.assessee's contention that the price of products insofar as sales made to the AE and non-AE would vary due to timing difference has not been properly considered. The various adjustments which are required to be made have been demonstrated before us by the learned counsel for the assessee by furnishing charts. In our view, all these factors have to be taken into consideration, even, while applying CUP method. One more submission of the assessee is that the DRP has allowed adjustment on account of marketing/allied cost. However, while computing such adjustment, the Assessing Officer has not taken note of marketing personnel cost. Since the facts before us are materially same, We are, therefore, respectfully following the decision of the co-ordinate bench of the Tribunal restore this matter to the file of the AO to decide the same afresh . Adjustment on account of payment made towards intra group services in respect of marketing, administrative, logistic support and information technology services - HELD THAT - As relying on own case 2020 (10) TMI 1240 - ITAT MUMBAI inescapable conclusion would be that the adjustment made by the Transfer Pricing Officer to the arm's length price of payment made towards Intra-group services is unsustainable. In view of the aforesaid, we have no hesitation in deleting the addition made by the Assessing Officer on account of the aforesaid adjustment.

Summary

Issues Involved:
1. Assessment of total income.
2. Transfer pricing adjustments for export of finished goods to Associated Enterprises (AEs).
3. Transfer pricing adjustments for payment towards intra-group services for marketing, administrative, logistic support, and information technology services.

Detailed Analysis:

1. Assessment of Total Income:
The primary issue is the assessment of the total income at ?28,42,18,200 as against the returned income of ?23,12,12,830 by the assessee. The Tribunal noted that this issue was already covered in the assessee's own case for the assessment year 2011-12, where the matter was restored to the file of the Assessing Officer (AO) for fresh adjudication. The Tribunal directed the AO to decide the issue afresh, considering the observations made in the earlier order and providing a reasonable opportunity of hearing to the assessee. Consequently, the ground was allowed for statistical purposes.

2. Transfer Pricing Adjustments for Export of Finished Goods to AEs:
The Tribunal addressed the rejection of the economic analysis undertaken by the assessee using the Transactional Net Margin Method (TNMM) and the use of the Comparable Uncontrolled Price (CUP) method by the Transfer Pricing Officer (TPO) without providing cogent reasons. The Tribunal reiterated the observations from the earlier year's decision, emphasizing that the CUP method requires strict comparability and that domestic sales cannot be directly compared with export sales due to geographical and other differences. The Tribunal noted that the TPO had adopted a selective approach and had not properly considered various adjustments claimed by the assessee, such as geographical location, volume, and timing differences. The Tribunal restored the matter to the AO for fresh examination, directing the AO to consider all relevant factors and provide due opportunity to the assessee.

3. Transfer Pricing Adjustments for Payment Towards Intra-Group Services:
The Tribunal examined the adjustment made on account of payment for marketing, administrative, logistic support, and information technology services availed from AEs. It noted that the identical issue had been decided in the assessee's favor for the assessment year 2011-12. The Tribunal observed that the TPO had not followed any of the prescribed methods under section 92C of the Income-tax Act and had instead estimated the arm's length price on an ad-hoc basis. The Tribunal emphasized that the determination of the arm's length price must be done using one of the approved methods and that the TPO had failed to bring any comparable uncontrolled transactions on record. Consequently, the Tribunal set aside the DRP's order on this issue and directed the AO to delete the disallowance.

Conclusion:
The appeal was partly allowed for statistical purposes, with the Tribunal restoring certain matters to the AO for fresh adjudication and directing the deletion of disallowances related to intra-group service payments. The Tribunal's decision emphasized adherence to prescribed methods for transfer pricing adjustments and the need for proper consideration of all relevant factors.