2024 (12) TMI 482 - AT - Income Tax

TP Adjustment - MAP Resolution for international transactions - Scope of transactions of the assessee with non-Korean AEs (not covered by the MAP) and Korean AEs - assessee company had filed an application invoking Mutual Agreement Proceedings (MAP) provisions under Article 25 of the India Korea Double Taxation Avoidance Agreement in respect of the international transactions under taken by the company with its AEs in Korea. HELD THAT - After the MAP resolution as discussed supra, we note from the chart that 89.78% of the total adjustment made by the TPO is covered by the MAP resolution. The balance international transactions with non-Korean AEs worked out to Rs. 43,10,66,281/- which is only 10.22% of the total adjustment made by the TPO. Therefore, the plea of the assessee is that similar methodology adopted for Korean transactions under MAP resolution may be made for the balance international transactions with non-Korean AEs, since there is a similarity in nature of functions performed, asset employed and risk assumed by the assessee, for both Korean and non-Korean transactions; and being of similar nature, the same approach may be carried out by the TPO/AO while computing the ALP Thus, we are inclined to set aside the issue regarding adjustment made by the TPO in respect of international transactions of the assessee with non-Korean AEs (not covered by the MAP) which is restored back to the file of the TPO for consideration as to whether the international transactions of the assessee with non-Korean AEs are similar in the nature as contented by the assessee and if it is found to be correct, then the TPO may consider the same treatment be given to the transaction as adopted by MAP (supra) in the case of Korean AE s. And the TPO after giving proper opportunity to assessee pass order on the limited issue in accordance to law. Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues:
Transfer Pricing Adjustment under MAP Resolution for international transactions with Korean and non-Korean entities.

Analysis:
The appeal was filed by the assessee company against the AO's order concerning Transfer Pricing Adjustment (TPA) under the Income Tax Act, 1961. The TPO had made a significant TPA amounting to Rs. 1,06,37,66,707 for international transactions with related entities. The assessee invoked Mutual Agreement Proceedings (MAP) provisions under the India Korea Double Taxation Avoidance Agreement for transactions with Korean entities. The Competent Authorities of India and Korea agreed to resolve the issue for FYs 2012-13 & 2013-14. The MAP resolution covered 89.78% of the total adjustment, resulting in a relief of Rs. 69,12,99,327. The assessee sought similar treatment for non-Korean transactions, citing similarities in functions, assets, and risks. The Tribunal considered precedents where MAP resolutions influenced TP adjustments for similar transactions, directing the TPO to reevaluate non-Korean transactions.

The contention was raised that the MAP resolution is specific to the assessee and AY, not applicable to other AEs in different countries. The Tribunal noted that 89.78% of the TPA was covered by MAP for Korean transactions. The remaining 10.22% related to non-Korean AEs, prompting the assessee to request similar methodology for these transactions. Citing precedents, the Tribunal directed the TPO to consider the similarities between Korean and non-Korean transactions in determining the Arm's Length Price (ALP). The Tribunal emphasized the need for consistency in TP adjustments for similar transactions across different jurisdictions.

The Tribunal allowed the appeal for statistical purposes, instructing the TPO to reassess non-Korean transactions considering the similarities highlighted by the assessee. The decision was based on ensuring uniformity in TP adjustments for transactions with related entities in different countries. The TPO was directed to evaluate non-Korean transactions in line with the approach adopted for Korean transactions under the MAP resolution. The judgment aimed to maintain consistency and fairness in determining the ALP for international transactions with related entities.