2023 (8) TMI 79 - AT - Income Tax

TP Adjustment - selection of MAM - rejecting the RPM as the most appropriate method - HELD THAT - On a perusal of the order 2023 (4) TMI 1233 - ITAT HYDERABAD for the assessment year 2011-12 in assessee s own case (supra), a Co-ordinate Bench of the Tribunal dealt with this issue in detail and restored the issue to the file of the AO/TPO to consider the RPM as the MAM and take a view on the necessity of any adjustment towards ALP for distribution function, after hearing the assessee. The issue needs to be re-considered in view of the request of the learned AR. To maintain consistency, we deem it just and proper to follow the decision of the Co-ordinate Bench of the Tribunal and restore the issue to the file of AO/TPO to consider the RPM as the MAM and take a view on the necessity of any adjustment towards ALP for distribution function, after hearing the assessee Appeal of assessee is treated as allowed for statistical purposes.

Summary

Issues:
The judgment involves the determination of the Arms Length Price (ALP) for international transactions with Associated Enterprises (AE) by the assessee, specifically focusing on the appropriate method for benchmarking such transactions.

Summary:
The appellate tribunal, ITAT Hyderabad, addressed the appeal filed by the assessee against the final assessment order for the assessment year 2012-13, following directions from the Dispute Resolution Panel, Bengaluru. The assessee, engaged in Software Development Services & Unified Data Storage Solutions, had entered into international transactions with its AE, leading to a transfer pricing adjustment by the Transfer Pricing Officer (TPO). The DRP enhanced the addition to the income of the assessee based on the earlier assessment year's transfer pricing adjustment.

The Tribunal had previously remanded the issue back to the Assessing Officer/TPO to conduct a fresh Transfer Pricing (TP) analysis by treating the disputed transaction as a distribution agreement. Subsequently, the TPO considered the transaction as a distribution transaction and adopted the Transactional Net Margin Method (TNMM) for benchmarking, resulting in a proposed adjustment.

The assessee contended that the Resale Price Method (RPM) should be applied as the most appropriate method, highlighting that goods provided by the parent company were distributed in the Indian market at a maximum gross margin. The Revenue argued against the RPM, stating that since the goods were received for free, there was no purchase for resale, making RPM unsuitable. The learned DR emphasized that the agreement constituted a service without a profit element or margin due to the absence of a purchase price.

In a detailed analysis, the Tribunal referred to a previous decision in the assessee's case for the assessment year 2011-12, where the Co-ordinate Bench restored the issue to consider RPM as the Most Appropriate Method (MAM). Following this precedent for consistency, the Tribunal allowed the appeal for statistical purposes, directing a re-consideration of the ALP determination using RPM for the distribution function.

In conclusion, the appeal of the assessee was treated as allowed for statistical purposes, maintaining consistency with the previous decision for the assessment year 2011-12.