2024 (12) TMI 489 - AT - Income Tax

TP Adjustment - MAM selection - CIT(A) rejecting the CUP as the most appropriate method by the TPO - CIT(A) deleting the adjustment made on account of Arm s Length Price of commission payment to the AE - HELD THAT - We find that Ld. CIT(A) has followed earlier years orders of the CIT(A). He has also given a finding that facts are similar. Nothing has been produced before us, that earlier CIT(A)s orders have been reversed by higher authorities. Accordingly, we hold that Ld. CIT(A) has passed a well reasoned order, which does not need any interference on our part. Hence, we uphold the same. Appeal by the Revenue is dismissed.

Summary

Issues:
1. Rejection of CUP as the most appropriate method by the TPO.
2. Deletion of adjustment made on account of Arm's Length Price of commission payment to the AE.
3. Lack of documentary evidence to support the claim of services rendered by the AE for commission payment.

Analysis:
1. The case involved an appeal by the Revenue against the order of the Ld. CIT(A) regarding the assessment year 2012-13. The primary issue was the rejection of the Comparable Uncontrolled Price (CUP) method by the Transfer Pricing Officer (TPO) for determining arm's length pricing of international transactions. The Ld. CIT(A) upheld the taxpayer's application of the Transactional Net Margin Method (TNMM) as the most appropriate method, considering the higher operating profit to sales ratio of the taxpayer compared to comparable companies.

2. Another key issue was the deletion of the adjustment made on account of the Arm's Length Price (ALP) of commission payment to the Associated Enterprise (AE). The taxpayer had entered into marketing agreements with the AE for export services, leading to a dispute over the commission payment. The Ld. CIT(A) relied on past decisions and held that the functions performed by the AE warranted compensation in the form of commission. The CIT(A) directed the AO/TPO to delete the ALP adjustment for commission payment.

3. The third issue revolved around the lack of documentary evidence to support the claim that the AE had performed services justifying the commission payment. The Ld. CIT(A) considered the functions performed by the AE, such as coordinating with manufacturers and handling rejections, as essential for which compensation was justified. The CIT(A) highlighted the absence of a comparability analysis for the commission rate and directed the deletion of the ALP adjustment for commission payment based on the terms of the agreement and the TNMM benchmarking.

In conclusion, the Appellate Tribunal upheld the Ld. CIT(A)'s decision, emphasizing consistency with past orders and the similarity of facts across assessment years. The Tribunal found no grounds for interference, affirming the well-reasoned order of the Ld. CIT(A) and dismissing the Revenue's appeal.