2016 (9) TMI 244 - HC - Income Tax

Transfer pricing adjustment - determination of the Arms Length Price ( ALP ) - Assessee adopted the Transactional Net Margin Method ( TNMM ) and had taken Operating Profit/Total Cost as the profit level indicator ( PLI ) - TPO, however, applied the CUP method and proceeded to make adjustment on the basis of which the AO framed the assessment on 1st February 2011 - whether it was not within the purview of the TPO to determine if some of the services resulted in any actual benefit to the Assessee or not? Held that - Having heard learned counsel for the Revenue at length and having perused the orders of the TPO, CIT(A) and the ITAT, the Court is of the view that the view taken by the ITAT is plausible one and does not warrant any interference. ITAT appears to have agreed with the contention of the Assessee on viewing the agreement as a whole. It was not within the purview of the TPO to determine if some of the services resulted in any actual benefit to the Assessee or not.

Summary

Issues:
Determination of Arms Length Price (ALP) by Transfer Pricing Officer (TPO) in international transactions involving the Assessee and its Associated Enterprise (AE).

Analysis:
The High Court of Delhi heard appeals by the Revenue challenging an order passed by the Income Tax Appellate Tribunal (ITAT) regarding the determination of the Arms Length Price (ALP) by the Transfer Pricing Officer (TPO) in international transactions. The Assessee had adopted the Transactional Net Margin Method (TNMM) using Operating Profit/Total Cost as the profit level indicator (PLI). However, the TPO applied the Comparable Uncontrolled Price (CUP) method and made adjustments, leading to the assessment by the Assessing Officer (AO) on 1st February 2011.

The Commissioner of Income Tax (Appeals) restricted the transfer pricing adjustment, but the Assessee contended that the agreement with its Associated Enterprise was composite and could not be split for determining arm's length services. The ITAT agreed with the Assessee's contention, viewing the agreement as a whole and stating that it was not the TPO's purview to assess the actual benefit of services to the Assessee.

After considering the submissions, the Court found the ITAT's view plausible and declined to interfere. It was concluded that no substantial question of law arose for determination, leading to the dismissal of the appeals by the Revenue.