2023 (6) TMI 761 - AT - Income Tax

Addition of Transfer Pricing Issue - selection of MAM - CUP v/s RPM - CIT(A) adopting the CUP method for benchmarking the purchase of 8K SIM cards by the assessee from its AEs and rejecting the RPM method adopted by the TPO - HELD THAT - As for the purpose of benchmarking international transactions pertaining to imports- the purchases of E- Cards, Pay Phone Cards and POS Component cannot be aggregated together as they are not inextricably linked, and they are required to benchmarked separately. Apart from adopted CUP based on incomplete data and ignoring geographical differences, further also committed an error by giving benefit of 5% on the average rate to USD 1.90 per card and calculated the rate per card to USD 1.99 and held that the transaction could be at Arm s Length. The said approach of the CIT(A) is found to be erroneous. CIT(A) has incorrectly applied the CUP method based on incomplete data, ignoring geographical differences and contrary to the Assessee s own TP Analysis and contrary to TP Auditor s Report. CIT(A) has also erroneously aggregated the transactions despite judicial pronouncements on the issue. The order of CIT (A) deserves to be set aside and the order of the TPO/A.O. shall be upheld by allowing the Ground No. 1 of the Revenue. Violation of Rule 46A - Revenue is aggrieved by the acceptance of additional evidence by CIT-A - HELD THAT - Considering additional evidence admitted by the CIT(A) has not been helped the assessee in making the decision by the CIT(A), the Ground No. 2 urged by the Revenue has become only academic. Further, considering the fact that the ld. CIT(A) has recorded its reasons while admitting the additional evidence submitted by the Assessee and also considering the fact that the Ld. CIT(A) has provided opportunity to the TPO to examine the evidence submitted by the assessee, we find no violation of Rule 46A of the Income Tax Rules.

Summary

Issues Involved:
1. Deletion of addition of Rs. 11,33,95,067/- made by the AO on account of Transfer Pricing Issue.
2. Acceptance of additional evidence by the CIT(A) contrary to Rule 46A (1) of the Income Tax Rules 1962.

Summary:

Issue 1: Deletion of Addition by CIT(A) on Transfer Pricing Issue

The case involves the deletion of an addition by the CIT(A) of Rs. 11,33,95,067/- made by the AO on account of transfer pricing issues. The assessee, a subsidiary of Schlumberger B.V., Netherlands, engaged in international transactions including repurchase of traded goods and purchase of fixed assets. The Transfer Pricing Officer (TPO) noted discrepancies in the purchase rates of 8K SIM cards from different associated enterprises (AEs) and calculated an adjustment using the Resale Price Method (RPM) to be Rs. 11,83,33,940/-. The CIT(A) deleted the addition, reasoning that the 8K SIM cards were becoming outdated and the prices should be benchmarked using the Comparable Uncontrolled Price (CUP) method rather than RPM. The CIT(A) considered sales data from the Hong Kong AE to unrelated parties as a more appropriate CUP and determined the total adjustments to be Rs. 1,87,93,367/-, rejecting the rest of the additions.

The Tribunal found that the CIT(A) erred in adopting the CUP method based on incomplete data and ignoring geographical differences. The Tribunal upheld the TPO's use of the RPM method, noting that the assessee itself had chosen RPM as the Most Appropriate Method in its TP analysis and that the CIT(A) had incorrectly aggregated transactions that should have been benchmarked separately.

Issue 2: Acceptance of Additional Evidence Contrary to Rule 46A

The Revenue contended that the CIT(A) erred in accepting additional evidence without satisfying the conditions laid down in Rule 46A (1). The CIT(A) admitted the additional evidence but noted that it did not influence the decision as the data was outdated and irrelevant to the assessment year in question. The Tribunal found no violation of Rule 46A, as the CIT(A) provided an opportunity for the TPO to examine the additional evidence and recorded reasons for its admission. Consequently, the ground of the Revenue regarding the acceptance of additional evidence was dismissed.

Conclusion

The Tribunal set aside the order of the CIT(A) dated 22/09/2011 and restored the assessment order dated 31/12/2004, partly allowing the Revenue's appeal. The Tribunal upheld the TPO's use of the RPM method and found that the CIT(A) had incorrectly applied the CUP method and aggregated transactions despite judicial pronouncements on the issue.