2023 (6) TMI 348 - AT - Income Tax

TP adjustment - ALP determination - Selection or change in Most Appropriate Method (MAM) - Other Method v/s CUP Method - Option to resile / disagree with the Transfer Pricing Study Report (TPSR) - Special bench SB / Three Member Bench decision by Majority - international transaction of acquiring Bundle of Sport Broadcasting Rights - Is assessee entitled to switch over to a new method, different from the one taken in TPSR, as the most appropriate method? - HELD THAT - As decided by R.S. SYAL, VP assessee, in principle, can resile from the most appropriate method as was adopted in its transfer pricing study report. As decided by PRASHANT MAHARISHI, AM - It is always possible that during the journey of determining Arm s length price , MAM already considered is not appropriate , one can resile from the most appropriate method adopted in its transfer pricing study report with a caveat that provided the earlier method selected by the assessee or for that matter any assessing authority or appellate authority, does not fulfil the requirement of rule 10 C (2) of the rules and new MAM selected fulfils it. There is no bar to any of the parties in concluding the most appropriate method by reselling the earlier method selected by it, if it is confirming to the requirement of rule 10C (2) of The Income Tax Rules. Thus, to that extent agree with the view expressed of VP. As decided by Shri Aby T. Varkey (J.M.) - As find in agreement with both learned brothers VP and AM that the assessee, in principle, can resile from the most appropriate method as was adopted in the TPSR, provided that the new method confirms to the requirement of Rule 10C(2) of the Income tax Rules, 1962. Moreover, this Tribunal being the last fact finding authority is duty bound to ascertain the correct facts, nature class of transactions, the FAR analysis, reliability of data and thereafter arrive at the Most Appropriate Method to benchmark the impugned international transaction, which may resile from the Method adopted by the assessee in the TPSR. What is most appropriate MAM in the transaction under consideration? - other method v/s CUP method - As decided by R.S. SYAL, VP data required for the application of the CUP exists and is on record. We, ergo, hold that the CUP is the most appropriate method in the facts and circumstances of the case. As decided by PRASHANT MAHARISHI, AM - Most Appropriate Method to determine the arm s-length price of the international transaction of sale of bundle of rights is the other method , the ALP of this international transaction is to be determined applying other method . As decided by Shri Aby T. Varkey (J.M.) find in agreement with the Ld. AM that the MAM to benchmark the international transaction in question is the Other Method and not CUP Method . Before us, since no arguments were put forth regarding the manner of application of Other Method and the deficiencies in the valuation report as pointed out by Ld. TPO, the instant appeal may be placed before the Division Bench on the issue of determination of ALP of the international transaction in question by adopting Other Method . Conclusion - Assessee can resile from the most appropriate method as was adopted in its transfer pricing study report and determination of ALP of the international transaction in question by adopting Other Method confirmed. Matter restored back to Division Bench.

Summary

Issues Involved:
1. Whether the assessee can resile from the Most Appropriate Method (MAM) adopted in its Transfer Pricing Study Report (TPSR).
2. Which is the Most Appropriate Method for determining the Arm's Length Price (ALP) of the international transaction of acquiring Bundle of Sport Broadcasting Rights.
3. Whether the ALP determined by the assessee is correct.

Issue-wise Comprehensive Details:

I. Can Assessee Resile from the Most Appropriate Method Adopted in its T.P.S.R.?

The Tribunal held that an assessee can resile from the most appropriate method adopted in its TPSR, provided the new method is actually the most appropriate having regard to the nature of the transaction. The Tribunal emphasized that the ultimate aim is to determine the correct ALP, and technicalities should not obstruct this objective. The Tribunal cited the judgment of the Hon'ble Delhi High Court in Pr. CIT Vs. Matrix Cellular International Services Pvt. Ltd., which supports the view that appellate authorities can adopt a different method if it is found to be the most appropriate.

II. Which is the Most Appropriate Method in the Transaction Under Consideration?

The Tribunal compared the Comparable Uncontrolled Price (CUP) method and the 'Other method'. The CUP method requires a high degree of comparability and uses the price of an actual transaction in a comparable uncontrolled situation. The 'Other method' allows for the price that would have been charged or paid in a comparable uncontrolled situation, considering all relevant facts. The Tribunal concluded that the CUP method is more precise but found that the data required for its application was not available in this case. The Tribunal held that the 'Other method' was the most appropriate method for determining the ALP in this transaction due to the lack of comparable uncontrolled transactions.

III. Whether the ALP Determined by the Assessee is Correct?

The Tribunal found that the assessee's method of determining the ALP was correct under the CUP method. The assessee had acquired the broadcasting rights at a discounted price of 90.5% of what ESS would have paid to third parties, which was considered to be at ALP. The Tribunal rejected the Revenue's argument that the discount was not at ALP and found that the valuation report and expert opinions submitted by the assessee supported the ALP determination. The Tribunal held that the transfer pricing adjustment made by the TPO based on deficiencies in the valuation report was not justified.

Separate Judgement by Prashant Maharishi, AM:

Prashant Maharishi, AM, disagreed with the majority view that the CUP method was the most appropriate method. He opined that the 'Other method' was the most appropriate method due to the unique nature of the transaction and the lack of comparable uncontrolled transactions. He emphasized that the valuation reports and expert opinions supported the use of the 'Other method' and highlighted the significant changes in market conditions that affected the value of the broadcasting rights.

Conclusion:

The Tribunal held that the assessee can resile from the MAM adopted in its TPSR, and the 'Other method' was the most appropriate method for determining the ALP of the international transaction. The ALP determined by the assessee was found to be correct under the CUP method, and the transfer pricing adjustment made by the TPO was deleted. However, Prashant Maharishi, AM, provided a separate judgement, favoring the 'Other method' as the MAM.