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2022 (12) TMI 570 - AT - Income TaxTP Adjustment - adjustment made towards international transactions of the assessee with its associated enterprises - Most appropriate method - benchmarking of transaction - adjustment towards few transactions by adopting CUP as most appropriate method and few as TNMM - TPO has never disputed TNMM method adopted by the assessee and has accepted the fact that the TNMM as most appropriate method in respect of 100% of transactions, except few transactions of export of threads - HELD THAT - It is incorrect to adopt two methods for one class of transactions and bench mark such transactions by cherry picking few transactions out of a lot of transactions undertaken by the assessee with its AEs and this principle is supported by the decision of ITAT Pune Bench in the case of Amphenol Interconnect India Pvt. Ltd. 2014 (5) TMI 1066 - ITAT PUNE where an identical issue has been decided by the Tribunal and after considering relevant facts held that when the TPO has accepted 90% of export to the AEs are at ALP, there is no reason to apply CUP method for remaining part of the exports. Also held that when the TPO has accepted TNMM as most appropriate method for an overwhelming majority of exports to AEs, then there is no reason why for the balance of exports of goods, TNMM method should be not be applied. In this case, the TPO has accepted 99.95% of export of threads to AEs under TNMM method, but he had cherry picked 0.05% of transactions and applied CUP method without there being any valid reason. Therefore, we are of the considered view that the TPO is erred in adopting CUP method for few transactions when he has accepted overwhelming majority of transactions under TNMM method. The DRP without appreciating the above facts, simply sustained TP adjustment suggested by the TPO. Hence, we direct the AO/TPO to delete TP adjustment made towards few transactions by adopting CUP as most appropriate method. Appeal of assessee allowed.
Issues:
- Transfer pricing adjustment towards international transactions with associated enterprises (AEs) under TNMM and CUP methods. Analysis: Issue 1: Transfer Pricing Adjustment - The appeals were filed against orders of Dispute Resolution Panel-2 and Commissioner of Income Tax (Appeals) for different assessment years, but with common grounds related to transfer pricing adjustments for international transactions with AEs. - The key issue was the transfer pricing adjustment made using the Comparable Uncontrolled Price (CUP) method by the Transfer Pricing Officer (TPO) for a small percentage of transactions, despite accepting the Transactional Net Margin Method (TNMM) for the majority of transactions. - The TPO's adjustment was challenged by the assessee before the DRP, arguing that applying CUP method for a minimal portion of transactions was unjustified. - The DRP upheld the TPO's adjustment, citing a previous ITAT decision for the AY 2009-10 where external comparables were furnished for CUP method, leading to the rejection of the assessee's arguments. - The matter was further appealed, with the High Court remanding it back to the Tribunal to decide the appropriate benchmarking method without sending it back to the TPO. - The Tribunal considered the arguments of both parties, emphasizing that applying two methods for the same class of transactions and cherry-picking transactions for adjustment was incorrect. - Citing precedents, including the ITAT Pune Bench and Bombay High Court decisions, the Tribunal concluded that the TPO erred in applying the CUP method for a few transactions while accepting TNMM for the majority. - Consequently, the Tribunal directed the AO/TPO to delete the transfer pricing adjustments made using the CUP method, as it was not the most appropriate method for the transactions. Issue 2: Appeal for AY 2002-03 - The facts and issues in the appeal for AY 2002-03 mirrored those in the appeal for AY 2011-12, leading to a similar decision to delete the transfer pricing adjustments made using the CUP method. - The Tribunal pronounced the order in Chennai, allowing the appeals for both assessment years on 12th August 2022. This detailed analysis outlines the key issues, arguments, decisions, and legal principles involved in the judgment regarding transfer pricing adjustments for international transactions with associated enterprises under TNMM and CUP methods.
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