2024 (3) TMI 1068 - AT - Income Tax

TP Adjustment - MAM - other method used by the assessee for carrying out the arms length analysis for purchase of traded goods rejected - TPO proceeded by applying TNMM as the most appropriate method for bench marking assessee s international transactions by doing fresh search for comparables - assessee is engaged in trading of edible oils whereas all the comparables mentioned here in above are in manufacturing of edible/ non edible oils. HELD THAT - Since the market quotes were available on corresponding dates and when corresponding dates data was not available on the date of contract entered between the assessee and its AE therefore in our considered view the other method has been rightly applied by the assessee. As given a thoughtful consideration to the orders of the TPO we are of the considered view that the TPO has failed to analyze the TP documentation prepared by the assessee. We find that the assessee has appropriately compared the prices of third party brokerage houses / associations/ exchanges where ever available during the time of preparation of the TP documentation. Assessee has considered all the market quotations available while maintaining the transfer pricing report and considering the contemporaneous nature of documentation process as provided under the relevant provision of the Act. Thus if any third party rate is not considered for a particular date of contract due to non availability of the data would not give right to the TPO to reject the method adopted by the assessee. We find that the assessee has considered the rates based on the average of available third party market quotations of Murgi Meghan Sunvin Group Malaysian Palm Oil and Solvent Extractors and not specifically to any single broker rate. The objective of applying of any transfer pricing method is to determine the arm s length price for a given transaction and not to justify any transfer price at which the transaction may have been under taken - If there is a difference between arm s length price determined by a particular method and the transfer price adopted by the assessee it may warrant the transfer pricing adjustment in case such variation is not within the permissible tolerance range specified in the Act. However such variations cannot be the basis of questioning appropriateness of the method. A perusal of the order of the TPO show that he has mentioned a difference of Rs. 97, 36, 699/- and rejected the applicability of other method . In our humble opinion this difference is miniscule when considered with the total value of international transaction of Rs. 729 crores. - Decided in favour of assessee. Enhancing the income of the Appellant pertaining to the purchase of traded goods that allegedly do not satisfy the arm s length principle envisaged under the Act - HELD THAT - Documentation of arm s length price by the assessee by adopting quotations from various brokerage houses/ associations/ exchanges cannot be faulted with and therefore all the decisions relied upon by the DR are distinguishable on facts. Decided in favour of assessee.

Summary

Issues Involved:
The judgment involves issues related to transfer pricing adjustments, application of the arm's length principle, selection of appropriate benchmarking methods, rejection of economic analysis, selection of comparables, charging of interest under various sections, and initiation of penalty proceedings.

Transfer Pricing Adjustments:
The assessee challenged the additions made by the Assessing Officer (AO) and Transfer Pricing Officer (TPO) in the assessment order u/s 143(3) r.w.s. 144C(13) of the Act. The TPO confirmed the action to assess the income of the appellant at a higher amount than declared. The TPO applied the Transactional Net Margin Method (TNMM) as the most appropriate method for benchmarking the international transactions, rejecting the economic analysis and other methods used by the appellant. The TPO's adjustments were based on fresh comparability analysis and selection of comparables engaged in manufacturing activities, which was deemed inappropriate by the Tribunal.

Application of Arm's Length Principle:
The Tribunal noted that the comparables used by the TPO were not functionally similar to the appellant, who was engaged in trading of edible oils, unlike the selected comparables involved in manufacturing activities. The Tribunal emphasized the importance of authentic documentation and contemporaneous nature of data while determining the arm's length price.

Selection of Benchmarking Methods:
The Tribunal disagreed with the TPO's rejection of the appellant's method and upheld the use of the "other method" applied by the appellant for determining the arm's length price. The Tribunal highlighted that the objective of any transfer pricing method is to establish the arm's length price for a transaction, not to justify the transfer price adopted. It further emphasized that minor differences in pricing should not invalidate the chosen method if within permissible tolerance ranges.

Charging of Interest and Penalty Proceedings:
The Tribunal found errors in the charging of interest under Sections 234B, 234C, and 234D of the Act by the AO. Additionally, the initiation of penalty proceedings under Section 270A was deemed mechanical by the appellant. The Tribunal directed the AO to delete the addition made by the TPO and dismissed the grounds related to interest and penalty, ultimately allowing the appeal of the assessee.

Conclusion:
In conclusion, the Tribunal ruled in favor of the assessee, directing the deletion of the addition made by the TPO and dismissing the grounds related to interest and penalty. The judgment emphasized the importance of proper comparables, authentic documentation, and adherence to the arm's length principle in transfer pricing assessments.