2023 (1) TMI 466 - AT - Income Tax

TP Adjustment - Receipt of royalty income from its associated enterprises - arm s-length price of the international transaction of receipt of royalty income from Vietnam associated enterprise - assessee selected the transactional net margin method as the most appropriate method for benchmarking of this transaction taking its associated enterprise in Vietnam as tested party - HELD THAT - We find that when the transfer pricing study report submitted by the assessee in the remand proceedings, which assessee could not submit in the TP assessment, if no defect is pointed out by the learned transfer-pricing officer, the arm s-length price determined by the assessee should have been accepted. TPO is also suggesting the same in his remand report. According to that the adjustment at the best could have been restricted - dispute resolution panel did not give any of his finding about the correct approach. Therefore, the learned AO repeated the same addition as it was suggested by the learned transfer-pricing officer. We find that when the approach adopted by the assessee is found to be acceptable, the adjustment determined by the learned transfer-pricing officer in the remand report deserves to be accepted. Accordingly we direct the learned AO to restrict the addition on account of arm s-length price of the international transaction of receipt of royalty income from Vietnam associated enterprise of the assessee - Accordingly, ground of the appeal of the assessee is allowed.

Summary

Issues:
Transfer pricing adjustment made by National faceless assessment Centre.

Detailed Analysis:
1. The appeal was filed by the assessee against the Assessment order passed by the National faceless assessment Centre under various sections of The Income Tax Act, primarily objecting to the transfer pricing adjustment made by the Centre. The assessee contended that the adjustment was higher than directed by the Dispute Resolution Panel.

2. The assessee, a manufacturer of elastic narrow fabrics in India, had entered into international transactions and was selected for scrutiny. The transfer pricing officer found discrepancies in the royalty income received from associated enterprises in Vietnam. The officer benchmarked the transaction using the Transactional Net Margin Method, resulting in a substantial adjustment.

3. Despite objections raised by the assessee and additional submissions made, the transfer pricing adjustment remained a point of contention. The Dispute Resolution Panel directed the transfer pricing officer to submit a remand report, which ultimately led to a reduced proposed adjustment of Rs. 4,470,673/- as opposed to the initial adjustment of Rs. 21,900,415/-.

4. The National faceless assessment Centre, however, repeated the higher adjustment of Rs. 21,900,415/- in its assessment order, leading to further dispute. The authorized representative argued that the Centre should have accepted the reduced adjustment proposed in the remand report.

5. After careful consideration, it was observed that the transfer pricing approach adopted by the assessee, as detailed in the remand report, was found to be acceptable by the transfer pricing officer. The officer suggested restricting the adjustment to Rs. 4,470,673/- based on the assessee's methodology. However, the Centre repeated the higher adjustment without clear justification.

6. Consequently, the Tribunal directed the Centre to restrict the addition on account of arm's-length price of the international transaction to Rs. 4,470,673/-, as proposed in the remand report. The appeal of the assessee was allowed on this ground, with other supportive grounds not adjudicated upon and dismissed.