2023 (9) TMI 1081 - AT - Income Tax

TP Adjustment - MAM - DRP denied the adjustment to operating cost claimed by the assessee on the ground that claim lacks concrete evidence to support the claim of extraordinary events/expenses, which are peculiar to this assessment year, which actually affected margins earned in rejecting the adoption of Resale Price Method (RPM) as the Most Appropriate Method (MAM) on incorrect assumptions and presumptions - AR confined his arguments to the addition, contending that such an adjustment should be allowed under Transactional Net Margin Method (TNMM) and in the alternative, RPM should be taken as the MAM - Assessee desired to issue additional evidences like copy of agreement reached between AE and the assessee, with respect to loss suffered by assessee, copy of credit notes, mail communications for shortage of supply and computation of adjustment of import related expenses HELD THAT - We are of the considered opinion that receiving additional evidence does not prejudice the case of the Revenue and on the other hand, promotes the determination of the tax liability of the assessee in a just way. With this view of the matter, we receive the additional evidence and restore the issue to the file of learned Assessing Officer/learned TPO for verification of the additional evidence in the light of the attendant facts and circumstances. In that process, AO/TPO will re-visit the suitability of the RPM as the MOM and take a view according to law. Insofar as the notional interest on money advances to AE, it is submitted by the assessee before us that Ceekay Seeds and Seedlings Pvt. Ltd., to whom the money was advanced is a resident entity situated at Secunderabad, India. Learned AR accordingly submits that for that reason, the transaction is outside the purview of the TP regulations. Assessee will produce the relevant material before AO/TPO to establish its contention - This issue also therefore, restore to the file of learned Assessing Officer/learned TPO. Grounds are accordingly treated as allowed for statistical purposes.

Summary

Issues involved:
The appeal challenges the final assessment order passed based on the directions of the Dispute Resolution Panel for the assessment year 2012-13 under the Income Tax Act, 1961.

Transfer Pricing and Adjustment Disputes:
The assessee, a trader of vegetable seeds, made international transactions with Associated Enterprises (AEs), leading to determination of Arm's Length Price (ALP) by the Transfer Pricing Officer (TPO). Disputes arose regarding adjustments suggested by the TPO, leading to objections by the assessee before the Dispute Resolution Panel (DRP). The final assessment order was passed by the Assessing Officer, assessing the income of the assessee at a different figure, prompting the appeal before the Tribunal.

Challenges and Contentions:
The assessee challenged the rejection of TP documentation, selection of comparables, adjustments on various grounds including exceptional items, working capital, and interest on advances to group companies. The arguments focused on the denial of operating cost adjustment by the DRP, the adoption of Resale Price Method (RPM), and the suitability of RPM as the Most Appropriate Method (MOM) based on the functions performed by the assessee.

Additional Evidence and Restoration:
The assessee sought to introduce additional evidence to support its claims, including agreements, credit notes, and import-related expenses. The Tribunal allowed the additional evidence, directing the Assessing Officer/TPO to verify the new material and reconsider the application of RPM as the MOM. The issue of notional interest on money advanced to AE was also referred back for further examination based on the location of the recipient entity.

Conclusion:
The appeal was treated as allowed for statistical purposes, with the Tribunal directing a review of the assessment in light of the additional evidence and specific issues raised by the assessee. The order was pronounced in June 2023.