2012 (5) TMI 343 - AT - Income Tax

Transfer pricing - Arm s Length Price (ALP) - Most Appropriate Method (MAM) - held that - there is no fault in the reasoning of the TPO in adopting the cost plus method (CPM) as the MAM. In this background and in view of the facts of the case we are of the considered view that the CPM is the MAM as adopted by the TPO for arriving at the value of international transactions and the ALP and interference in her action is required by the Panel. - Decided against the assessee. Restriction on deduction u/s 10B - held that - The DRP has not dealt with each of the objections of the assessee by passing a speaking order there against and by ascribing cogent reasons for not accepting the objections of the assessee. - matter remanded for fresh decision.

Summary

Issues:
1. Challenge against the direction of the DRP for adding a sum to the total income based on the TPO's order.
2. Challenge regarding the exclusion of telecommunication charges from export turnover for deduction u/s 10B of the Act.
3. Lack of detailed reasoning in the order passed by the DRP.

Analysis:

Issue 1:
The appeal filed by the assessee contested the DRP's direction to add a specific sum to the total income based on the Transfer Pricing Officer's order. The TPO recommended an upward adjustment, which the DRP upheld, stating that the assessee's insistence on adopting TNMM as the Most Appropriate Method (MAM) was not proper due to a specific cost plus clause in the agreement with the AE. The DRP affirmed the TPO's recommendation, rejecting the assessee's arguments and confirming the adjustment. The Tribunal allowed the appeal, setting aside the lower authorities' orders and remanding the matter back to the DRP for a detailed, reasoned decision.

Issue 2:
The second challenge involved the exclusion of telecommunication charges from the export turnover for deduction u/s 10B of the Act. The Assessing Officer reduced the internet charges from the Export Turnover (ETO) for deduction u/s 10B, which the DRP confirmed as per the law. The Tribunal did not provide a detailed analysis of this issue but mentioned that the DRP's decision was in line with the law.

Issue 3:
A significant aspect highlighted was the lack of detailed reasoning in the DRP's order, which failed to address the objections raised by the assessee adequately. Citing a similar case, the Tribunal emphasized the importance of a speaking order and directed the matter to be restored to the DRP for a comprehensive decision, ensuring all objections are considered with cogent reasons provided. The Tribunal allowed the appeal for statistical purposes, emphasizing the need for a detailed, reasoned order from the DRP.

In conclusion, the Tribunal's judgment addressed the challenges raised by the assessee against the DRP's directions, emphasizing the necessity of detailed reasoning in such decisions and ensuring a fair opportunity for the assessee to present their case. The matter was remanded back to the DRP for a comprehensive adjudication, underscoring the importance of a speaking order in tax disputes.