2024 (10) TMI 426 - HC - Income Tax

TP Adjustment - selection of MAM - international transaction(s) of sale of Paclitaxel, Disodium Pamidronate and purchase of Methelene Chloride Soluble ( MCS ) by relying upon Transitional Net Margin Method ( TNMM ) instead of Comparable Uncontrolled Price Method ( CUP ), as the 'Most Appropriate Method' - HELD THAT - Insofar as Paclitaxel and Disodium Pamidronate are concerned, we note that the ITAT has taken into consideration the fact that the TPO while rejecting the price as proposed had merely relied upon prices prevailing in different markets and regions. It is on the aforesaid basis that the CIT(A) came to conclude that the TPO had clearly failed to bear in mind the factors which imbue Rule 10B(2) of the Income Tax Rules, 1962 Rules . It was also found by the CIT(A) that the net margins earned from sale of Paclitaxel and Disodium Pamidronate is higher at 14.10% as against other sales at 10.90%. Ultimately and on due consideration of the view taken by the CIT(A), ITAT came to conclude that in the absence of the appellant having produced any material which could have cast a shadow of infirmity on the findings recorded, there appeared to be no justification to interfere with the CIT(A) s order. TP adjustment which was made in respect of Methylene Chloride Soluble extract from the associated enterprise of the assessee - Dabur Nepal - Here too, the assessee had adopted the TNMM as the most appropriate method and which was rejected by the TPO who proceeded to invoke the CUP method for determining the ALP. TPO had ultimately come to conclude that the cost price per kg for the purposes of computing proposed adjustment was liable to be determined as being Rs. 32 per kg. Before the CIT(A), the assessee had filed cost certificate and other material in support of its case that the cost price per kg was liable to be determined at Rs. 4648 per kg. Although the cost certificate was introduced before the CIT(A) as additional evidence, and the TPO had doubted the veracity and correctness thereof, the appellant ultimately does not appear to have drawn the attention of the CIT(A) to any material which may have cast a doubt on the claimed cost being Rs. 4648 per kg. We further note that the veracity of the cost certificate is also not a question which appears to have been urged before the ITAT by the appellant. Thus, we find that the issues essentially remain findings of fact which could have been plausibly rendered bearing in mind the evidence which was submitted for the consideration of the CIT(A). No substantial question of law arises.

Summary

Issues:
1. Correctness of judgment by Income Tax Appellate Tribunal
2. Most appropriate method for determining Arm's Length Price
3. Transfer pricing adjustment for Methylene Chloride Soluble extract

Analysis:
1. The Department challenged the judgment of the Income Tax Appellate Tribunal (ITAT) regarding the Transfer Pricing Officer's (TPO) orders on international transactions. The main issue was whether the TNMM or CUP method should be used to determine the Arm's Length Price (ALP) under Section 92C of the Income Tax Act, 1961.

2. The ITAT considered the TPO's rejection of the proposed pricing based on TNMM for Paclitaxel and Disodium Pamidronate. The ITAT observed that the TPO relied on market prices without considering Rule 10B(2) of the Income Tax Rules, 1962. The CIT(A) found that the TPO did not adequately justify the use of CUP method due to various factors like customer profile, pricing terms, geographic impact, and product quality. The appellant demonstrated through net margin analysis that TNMM was more appropriate, leading to the deletion of the transfer pricing adjustment.

3. The CIT(A) also noted higher net margins from the sale of Paclitaxel and Disodium Pamidronate compared to other sales. The ITAT upheld the CIT(A)'s decision as the appellant provided sufficient evidence supporting the TNMM method. Therefore, no interference with the CIT(A)'s order was warranted.

4. Regarding the transfer pricing adjustment for Methylene Chloride Soluble extract, the TPO rejected TNMM in favor of CUP method. The TPO determined the cost price per kg at Rs. 32, while the appellant claimed Rs. 4648 per kg. The CIT(A) considered additional evidence but found no material to doubt the claimed cost. The appellant did not challenge the veracity of the cost certificate before the ITAT, leading to factual findings that did not warrant interference.

5. Ultimately, no substantial question of law arose, and the High Court dismissed the appeal, upholding the ITAT's decision.