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2021 (4) TMI 452 - AT - Income TaxTP Adjustment - Comparable selection - most appropriate method as well as computation of margins etc. using TNMM method - HELD THAT - The dispute as to adoption of most appropriate method as well as computation of margins etc. using TNMM method was the subject matter of revenue s appeals as well as assessee s cross-objections before this Tribunal in AYs 2005-06 to 2007-08 2016 (6) TMI 100 - ITAT MUMBAI and 2019 (6) TMI 1529 - BOMBAY HIGH COURT - We find that the issue of adoption of TNMM and the issue of manner of TP adjustment which is to be done, as of now, has attained finality and the aforesaid decision is binding upon us. Proceeding further, straightway going to the alternative plea of Ld. AR that even if TNMM method is accepted, the assessee s margin, after providing benefit of tolerance range of 5%, would be within Arm s Length Price. The working of the same has been placed in the paper-book. Keeping in view the earlier decision of Tribunal the bench is inclined to accept this plea. Therefore, without delving much deeper into the issue, we direct Ld. TPO to apply TNMM but restrict the adjustments only to the extent of international transactions carried out by the assessee and not to entire segment of manufacturing activity. TPO is directed to verify the computations made by the assessee and decide accordingly. The benefit of tolerance range of 5%, as provided in law, would be available to the assessee. Consequently, the revenue s ground, to that extent, stands allowed which would render assessee s cross-objection infructuous. So far as the issue of market research expenses is concerned, we find that this issue is squarely covered in assessee s favor by the decision of this Tribunal for AYs 2005-06 to 2007-08 2016 (6) TMI 100 - ITAT MUMBAI . In view of this uncontroverted fact, this ground stand dismissed.
Issues Involved:
1. Deletion of disallowance under Section 92CA of the Income Tax Act, 1961. 2. Treatment of market research expenses as revenue expenditure versus capital expenditure. 3. Application of Comparable Uncontrolled Price (CUP) method versus Transactional Net Margin Method (TNMM) for benchmarking international transactions. 4. Benefit of tolerance range of +/- 5% under the Proviso to Section 92C(2) of the Income Tax Act, 1961. Detailed Analysis: 1. Deletion of Disallowance under Section 92CA: The primary issue was the deletion of a disallowance amounting to ?10,81,45,504/- out of ?11,41,76,586/- made by the Transfer Pricing Officer (TPO) under Section 92CA of the Income Tax Act, 1961. The TPO had applied the TNMM method to benchmark international transactions of the assessee with its Associated Enterprises (AEs). The assessee argued that the CUP method was more appropriate, which had been accepted by the Commissioner of Income-Tax (Appeals) [CIT(A)] in previous years. The Tribunal upheld the CIT(A)'s decision to use the CUP method for certain transactions, confirming partial additions of ?59.33 Lacs, ?0.90 Lacs, and ?60.31 Lacs for different categories of transactions. 2. Treatment of Market Research Expenses: Another issue was whether market research expenses of ?58.03 Lacs should be treated as revenue expenditure or capital expenditure. The Assessing Officer (AO) had treated these expenses as capital in nature, while the CIT(A) had treated them as revenue expenditure based on appellate orders for previous years. The Tribunal upheld the CIT(A)'s decision, confirming that these expenses were revenue in nature. 3. Application of CUP vs. TNMM: The dispute also revolved around the appropriate method for benchmarking international transactions. The TPO had used TNMM, while the assessee advocated for the CUP method. The Tribunal noted that the issue was recurring and had been adjudicated in the assessee's favor in earlier years. The Tribunal directed the TPO to apply TNMM but restrict adjustments only to the extent of international transactions carried out by the assessee, not the entire segment of manufacturing activity. This approach was consistent with the Tribunal's previous decisions and upheld by the Bombay High Court. 4. Benefit of Tolerance Range of +/- 5%: The assessee sought the benefit of the tolerance range of +/- 5% under the Proviso to Section 92C(2) for its international transactions. The Tribunal accepted the assessee's plea, directing the TPO to verify the computations and apply the tolerance range, thereby aligning with the Tribunal's earlier decisions. Conclusion: The Tribunal's judgment partly allowed the revenue's appeals and dismissed the assessee's cross-objections as infructuous. The Tribunal upheld the CIT(A)'s decision to use the CUP method for certain transactions, confirmed the treatment of market research expenses as revenue expenditure, and directed the TPO to apply TNMM with adjustments restricted to international transactions. The benefit of the tolerance range of +/- 5% was also granted to the assessee. The findings and adjudications for Assessment Year 2008-09 were applied mutatis mutandis to Assessment Year 2009-10.
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