2023 (2) TMI 1000 - AT - Income Tax

TP Adjustment - comparing the Appellant s margin at entity level with that of the comparable companies - whether TPO erred in comparing the Appellant s margin at entity level with that of the comparable companies margin - HELD THAT - It emerges during the course of hearing that it s sole endeavour is to get impugned arm s length price re-computed at transaction than entity level as per the provisions in Chapter X of the Act. Assessee submitted during the course of hearing that the issue as to whether the impugned arm s length price ought to be computed at transaction level or at entity level is not more res-integra in light of hon ble jurisdictional high court s decision in CIT vs. Alstom Projects India Ltd. 2016 (12) TMI 1408 - BOMBAY HIGH COURT rejecting the Revenue s arguments to this effect. We direct the TPO to ensure computation of assessee s arm s length price in issue involving sales in manufacturing segment at transactions level. Necessary computation at the TPO s level shall follow as per law. Certain items as non-operating in nature while computing the margin of the Appellant - DRP/Ld. TPO erred in considering foreign exchange earning/loss and provision for doubtful, debt/provisions written back as non-operating in nature - HELD THAT - Assessee sought to invite our attention to the assessee s segmental details in its audited books of accounts that the learned lower authorities have erred in law and on facts in computing the impugned arms length price in foregoing terms. Be that as it may, we are of the view that the TPO herein also needs to recalculate the assessee s arm s length price after taking into consideration the assessee s audited book results in its transfer pricing study report so as ensure that non-operating items are not included in its consequential computation. Ordered accordingly. Exclude income from provision of management services from AE sales in issue for computing arm s length price - HELD THAT - We primafacie find merit in the assessee s instant substantive ground subject to final computation since its sales involving Associated Enterprise AE and provision of management support services prime-facie form different segments. We have not expressed our opinion on merits since the issue is being restored back to the learned TPO for his final computation as per law.

Summary

Issues Involved:
1. Transfer Pricing Adjustment of INR 84,50,662 to the income of the Appellant.
2. Rejection of TP documentation maintained by the Appellant.
3. Fresh search for comparable companies and rejection of certain selected companies.
4. Comparison of the Appellant's margin with that of comparable companies.
5. Rejection of segmental profitability statement and considering certain items as non-operating.
6. Inclusion of income from provision of management support services in AE sales for TP adjustment.
7. Rejection of Cost-Plus Method and initiation of penalty proceedings.

Issue 1: Transfer Pricing Adjustment
The assessee contested the Transfer Pricing Adjustment made by the National Faceless Assessment Centre, Delhi, based on the directions of the Dispute Resolution Panel. The adjustment was related to the international transaction of Sale of goods in the Manufacturing segment. The Appellant argued that the adjustment did not satisfy the arm's length principle under the Income Tax Act, 1961. The Tribunal partly allowed the appeal for statistical purposes, directing the Transfer Pricing Officer to recompute the arm's length price at the transaction level.

Issue 2: Rejection of TP Documentation
The Appellant maintained Transfer Pricing documentation prepared in accordance with the relevant provisions of the Act and Income Tax Rules. However, the Dispute Resolution Panel and Transfer Pricing Officer rejected this documentation, leading to errors in determining the arm's length price. The Tribunal ordered a recalculation of the arm's length price, considering the audited book results to exclude non-operating items.

Issue 3: Comparable Companies and Margin Comparison
The Transfer Pricing Officer conducted a fresh search for comparable companies and erroneously rejected certain companies selected by the Appellant. Additionally, there were errors in comparing the Appellant's margin with that of comparable companies. The Tribunal directed the TPO to reconsider the selection of comparables and recalculate the Appellant's arm's length price.

Issue 4: Management Support Services Income
The inclusion of income from the provision of management support services in AE sales for computing the TP adjustment was contested by the Appellant. The Tribunal found merit in this argument and ordered further computation by the TPO to exclude this income for the final determination of the arm's length price.

Issue 5: Cost-Plus Method and Penalty Proceedings
The rejection of the Cost-Plus Method and the initiation of penalty proceedings were also raised as grounds of appeal. The Tribunal rejected the Appellant's plea regarding the Cost-Plus Method and did not press for the penalty proceedings. The Appellant's appeal was partly allowed for statistical purposes, focusing on specific issues related to the transfer pricing adjustment.