2024 (12) TMI 708 - HC - Income Tax

TP Adjustment - AO made adjustment by denying the 8% markup charged by the AE on the supply of capital goods and disallowed the depreciation also to that extent - assessee contested that the purchase of capital goods cannot be benchmarked separately and main argument was the depreciation do form a component of operating cost and hence cannot be given separate treatment. HELD THAT - As would be manifest from the principal contentions which were urged before the Tribunal, it was the consistent stand of the appellants that since the purchase of capital goods had already been taken into consideration while benchmarking the transactions pertaining to the CSD Segment as a whole, there was no occasion for any separate benchmarking exercise being undertaken. It was also pointed out to us from the Transfer Pricing Report that the depreciation of fixed assets as well as payments made to the group employees formed part of the cost base and had been duly benchmarked. Tribunal, however, sought to rest its opinion on the decision rendered by a Coordinate Bench in Honda Motorcycle Scooters India Pvt. Ltd. 2015 (4) TMI 502 - ITAT DELHI wherein was principally concerned with transactions which were not closely linked. It was in the aforesaid context that the aforenoted observations had come to be rendered. We note that it was never the case of the assessee that it had been denied an opportunity either by the Transfer Pricing Officer TPO or the Dispute Resolution Panel DRP. Bearing in mind the disclosures which were contained in the Transfer Pricing Report and the consistent stand which was taken by the appellant in respect of the purchase of capital goods and depreciation having already been factored in, in our consideration opinion, there was no justification for the matter being remitted to the DRP. We, accordingly, allow the instant appeal and set aside the order of the Tribunal insofar as Ground Nos. 3 to 3.9 of the appeal before the Tribunal are concerned.

Summary

Issues:
1. Interpretation of Rule 10B(1)(e) of Income-tax Rules, 1962 in TNMM method.
2. Remand of the matter back to the DRP based on the genuineness of the transaction.
3. Benchmarking international transaction of purchase of capital goods separately.
4. Determination of arm's length price of the international transaction.
5. Remanding an issue held to be revenue neutral by the co-ordinate benches.
6. Violation of principles of judicial discipline by the Tribunal.
7. Perversity of the ITAT order in the case.

Detailed Analysis:

Issue 1:
The appellant raised concerns regarding the application of Rule 10B(1)(e) in the TNMM method, arguing that no TP addition can be made without the cost base being affected. The Tribunal considered the appellant's contentions, including the denial of markup and depreciation on capital goods, lack of evidence submission, and the issue of opportunity provided by the TPO. The appellant emphasized that the purchase of capital goods had already been factored into the benchmarking of transactions related to the CSD Segment.

Issue 2:
The Tribunal remanded the matter to the DRP based on the genuineness of the transaction and the need for further examination of the ALP as per approved methods. However, the appellant argued that there was no denial of opportunity by the TPO or DRP, and the Transfer Pricing Report contained relevant disclosures. The appellant maintained that the matter should not have been sent back to the DRP.

Issue 3:
Regarding the benchmarking of the international transaction of purchasing capital goods separately, the Tribunal referred to a previous decision involving transactions that were not closely linked. The Tribunal emphasized the need to determine the ALP as per approved methods and directed the appellant to provide complete details and substantiate their case.

Issue 4:
The Tribunal's decision on determining the arm's length price of the international transaction was questioned by the appellant, arguing that no income accrued from the purchase of capital goods. The appellant contended that there was no basis for determining the arm's length price under section 92(1) of the Income-tax Act, 1961.

Issue 5:
The appellant challenged the Tribunal's decision to remand an issue deemed revenue neutral by co-ordinate benches without distinguishing such decisions. The appellant raised concerns about the lack of justification for remitting the matter to the DRP, given the disclosures in the Transfer Pricing Report and the consistent stance on the purchase of capital goods and depreciation.

Issue 6:
Allegations of the Tribunal violating principles of judicial discipline were raised by the appellant, citing the failure to follow orders passed by co-ordinate benches on benchmarking transactions of purchasing capital goods from AEs. The appellant questioned the Tribunal's decision-making process in this regard.

Issue 7:
The appellant argued that the ITAT order was perverse in the facts and circumstances of the case. The appellant sought to set aside the Tribunal's order concerning specific grounds of appeal and requested a fresh consideration by the Tribunal. The appellant's contentions were centered on the consistency of their stance regarding the benchmarking of transactions and the lack of justification for remanding the matter to the DRP.