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2020 (10) TMI 1042 - AT - Income TaxTP Adjustment - assessee purchased fixed assets from its AE Tokheim UK Ltd - MAM Selection - rational for charging the markup by the AE - reconciliation between the invoices for raw materials being converted into fixed assets - HELD THAT - Assessee has imported these assets. Since it is an international transaction, without documentation the assessee would not have cleared these assets from customs. It also declared this transaction as international transaction. In our considered view there is supporting documents available for the cost of fixed assets supplied by its AE. If there is missing document, it is only for the markup charged by AE. Even though assessee has declared that it has followed other method, in fact not followed any method to arrive at the ALP. In our considered view, TPO should adopted one of the method prescribed in the income tax rules before rejecting the method adopted by the assessee and treating the ALP as nil. Benchmarking has to be done only for the markup charged by Tokhiem UK, whether it is appropriate. We notice that assessee has filed the reasons for charging 5% as markup that is for taking care of administration and fright cost. It is not submitted before us any document relating to prices i.e. whether it is FOB or C IF prices. Since the AE has supplied the assets on cost to cost with a markup of 5% and the Customs has accepted the transaction as reasonable we do not see any reason to disturb the transaction. In the similar situation TPO has treated the ALP as nil without following any method or parameters set out in chapter X of the act, in the case of Lever India Exports Ltd 2017 (2) TMI 120 - BOMBAY HIGH COURT deleted the impugned addition made by TPO. We are inclined to delete the addition made by the TPO in the present case. Accordingly, the appeal filed by the assessee is accordingly allowed.
Issues Involved:
1. Delay in filing the appeal. 2. Transfer pricing adjustment for the purchase of fixed assets from an associated enterprise (AE). 3. Methodology adopted for determining the Arm's Length Price (ALP). Detailed Analysis: 1. Delay in Filing the Appeal: The appeal was filed with a delay of 32 days. The assessee cited reasons such as the shifting of operations, finalization of new office and factory locations, and the engagement of the financial accounts team in upgrading the company's ERP software due to new GST requirements. The delay was attributed to these activities and the subsequent misplacement of the final assessment order. The tribunal found these reasons reasonable and condoned the delay, allowing the appeal to proceed. 2. Transfer Pricing Adjustment for the Purchase of Fixed Assets: The assessee, a subsidiary of Tokheim Group S.A.S, engaged in manufacturing fuel dispensers, purchased fixed assets worth ?23,20,989/- from its AE, Tokheim UK Ltd. The assessee declared the details of the international transactions and adopted the 'other method' for Transfer Pricing (TP) analysis. However, the Transfer Pricing Officer (TPO) observed discrepancies in the quantities mentioned in the invoices and concluded that the assessee failed to prove the arm's length nature of the transaction. Consequently, the TPO treated the transaction value as Nil and made an adjustment of ?23,20,989/-. 3. Methodology Adopted for Determining the Arm's Length Price: The assessee submitted detailed calculations of a 5% markup on cost and provided sample invoices for raw materials and fixed assets to the Dispute Resolution Panel (DRP). The DRP rejected the assessee's contentions, noting that the rationale for the markup was not adequately documented, and sustained the TPO's adjustment. Upon appeal, the assessee argued that the TPO did not apply any prescribed method to determine the ALP and relied on case laws to support their contention. The assessee also pointed out that the customs authorities had accepted the transaction value, indicating the reasonableness of the declared prices. The tribunal noted that while the assessee had declared the transaction as international and adopted the 'other method,' it did not follow any specific method to arrive at the ALP. The TPO, on the other hand, failed to apply any method prescribed under the income tax rules before treating the ALP as Nil. The tribunal emphasized that the benchmarking should be done for the markup charged by the AE and found the 5% markup reasonable given the circumstances. The tribunal referred to the Bombay High Court's decision in the case of Lever India Exports Ltd, which held that the TPO's jurisdiction is limited to determining the ALP of an international transaction and not to question the genuineness of the expenditure. The tribunal concluded that the TPO's ad-hoc determination of ALP without following the prescribed methods could not be sustained. Conclusion: The tribunal allowed the appeal, deleting the addition made by the TPO. The order was pronounced beyond the 90-day period due to the exceptional circumstances of the COVID-19 lockdown, following the guidelines laid down by higher judicial authorities.
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