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2024 (12) TMI 550 - AT - Income TaxTP Adjustment - specified domestic transactions - AO has made a reference u/s. 92CA of the Act to the TPO for determination of the ALP - Selection of MAM - CUP or TNMM - HELD THAT - From detailed working of the CUP method had neither been provided by the assessee to the CIT(A) nor any such working was done at the end of the ld. CIT(A). It is surprising that without considering the ALP as per CUP method, how the ld. CIT(A) had reached to the conclusion that the adjustment made by the AO, towards specified domestic transaction is unreasonable/excessive. During the course of hearing, when a specific query was put forth by the Bench to the ld. AR, he was unable to point out any such calculation for determination of the ALP under CUP method which was submitted before ld. CIT(A). We are not able to comment as to whether the addition deleted by the ld. CIT(A) is correct. Further we find force in the argument of the ld. CIT-DR that the assessee has not executed any work for other party nor has awarded any sub- contract to any independent entity, so there no internal comparable available with the assessee for working the ALP under the CUP method. Admittedly, in the instant case, since the appellant-assessee itself has admitted that it is not providing services to any party other than MCL nor any work was got executed except from its AEs, the comparable uncontrolled transactions cannot be identified. Thus, how the working was done under CUP method is not explained at any stage. In the case of Calance Software Pvt. Ltd 2017 (6) TMI 129 - ITAT DELHI as relied upon by assessee and ld. CIT(A), it is seen that though it is a case where back to back contracts was given to the associate enterprises, which is similar to instant case of assessee, however, the ALP was computed by following the CUP method by assessee itself whereas in the present case, the assessee has initially worked out the ALP on the basis of any other method specifically as provided under the Section 92C(i) of the Act , which was not accepted and allegedly TNMM method was adopted by TPO and thereafter the assessee has changed its stand in the appellate proceedings and admitted the CUP method as the most appropriate method. But at no stage any precise working was provided for any of the two methods adopted by the assessee. Thus, we are left with no other alternative but to send back the matter to the file of AO to re-examine the issue and refer the matter back to the TPO for determination of ALP based on the best suitable method. Needless to say, while doing so, the assessee shall be provided reasonable opportunity of being heard. Appeal of the revenue allowed for statistical purposes.
Issues Involved:
1. Justification of the CIT(A) in deleting the addition made by the AO based on the TPO's determination of arm's length price (ALP). 2. Appropriateness of the method used for determining ALP (CUP vs. TNMM). 3. Admissibility of additional evidence by CIT(A) without following Rule 46A. 4. Classification of the assessee as an Association of Persons (AOP) and its tax implications. 5. Non-deposit of employees' contribution to Provident Fund (PF) within the due date. Issue-wise Detailed Analysis: 1. Justification of CIT(A) in Deleting the Addition: - The CIT(A) deleted the addition of Rs. 3,05,45,593/- made by the AO, which was based on the TPO's adjustment of domestic transactions. The CIT(A) held that the services rendered by the assessee to its associated enterprises were the same as those rendered to independent parties, thereby justifying the use of the Comparable Uncontrolled Price (CUP) method as the best input for determining ALP. The CIT(A) found the comparables used by the TPO to be mismatched with the profile of the assessee. 2. Appropriateness of the Method for Determining ALP: - The TPO applied the Transaction Net Margin Method (TNMM) to determine the ALP, resulting in an adjustment. However, the CIT(A) favored the CUP method, citing a similar case (Calance Software Pvt. Ltd.) where back-to-back transactions justified the CUP method. The Tribunal noted that the assessee did not provide detailed workings under the CUP method, and the CIT(A) did not perform such calculations either. The Tribunal found that without internal comparables, the CUP method could not be applied, leading to a remand for re-examination by the AO and TPO to determine the best suitable method for ALP. 3. Admissibility of Additional Evidence: - The CIT(A) admitted additional evidence without following the procedure under Rule 46A, which requires recording reasons for admission and allowing the AO to verify such evidence. The Tribunal highlighted the violation of principles of natural justice and remanded the issue back to the AO for proper verification and adjudication. 4. Classification as an Association of Persons (AOP): - The assessee argued that it should not be classified as an AOP and therefore not a taxable entity. The CIT(A) did not address this issue comprehensively. The Tribunal noted the lack of clarity on whether the assessee was an AOP and remanded the issue back to the AO for a fresh examination, considering the tax neutrality argument presented by the assessee. 5. Non-deposit of Employees' Contribution to PF: - The AO made an addition for the non-deposit of employees' PF contribution within the due date. The CIT(A) deleted this addition, relying on decisions applicable to employers' contributions, which was challenged by the revenue. The Tribunal remanded this issue for re-examination by the AO to ensure compliance with the relevant provisions and case laws. Conclusion: The Tribunal set aside the CIT(A)'s order and remanded the matter back to the AO for fresh adjudication on all issues, emphasizing the need for proper verification, adherence to procedural rules, and determination of the most appropriate method for ALP computation. The appeals were allowed for statistical purposes, and the cross-objection by the assessee was dismissed.
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