2021 (1) TMI 1289 - AT - Income Tax

TP Adjustment - MAM Selection - AO rejecting the TNMM method applied by the assessee and used cup method for benchmarking the transaction of Intra Group Services (professional consultancy services and management fee for support services) - HELD THAT - Following the orders passed by the coordinate Bench of the Tribunal in taxpayer s own cases 2016 (8) TMI 950 - ITAT DELHI and 2020 (8) TMI 917 - ITAT DELHI and qua the controversy at hand in taxpayer s own case we are of the considered view that this issue is no longer res integra because time and again it has been held that TNMM is the MAM to benchmark the international transactions entered into by the taxpayer with its AE qua professional consultancy services (information technology) and fee for management support services but TPO for the reasons best known to him and to our mind to generate unnecessary litigation proceeded to apply the CUP method by applying same reasoning applied in the earlier years. So ld. CIT (A) has rightly deleted the additions by following the orders passed by the Tribunal and Hon ble Punjab Haryana High Court 2019 (12) TMI 1630 - PUNJAB AND HARYANA HIGH COURT passed in taxpayer s own case. Consequently the appeal filed by the Revenue is dismissed.

Summary

Issues:
- Whether the Commissioner of Income-tax (Appeals) erred in deleting the addition made by the Assessing Officer regarding the application of the TNMM method for benchmarking international transactions.
- Whether the CUP method was correctly applied for benchmarking the transaction of Intra Group Services.

Analysis:

Issue 1: Application of TNMM Method
The Appellant, DCIT, sought to set aside the order passed by the Commissioner of Income-tax (Appeals) regarding the addition of Rs.6,97,61,263 made by the Assessing Officer. The taxpayer, Knorr Bremse India Pvt. Ltd., engaged in international transactions with its Associated Enterprises (AEs), including professional consultancy services and management support services. The Tax Officer (TPO) questioned the transactions' Arm's Length Price (ALP) and determined their value as 'NIL'. The TPO rejected the TNMM method applied by the taxpayer and used the CUP method, resulting in an adjustment of Rs.6,97,61,263. The Assessing Officer assessed the total income of the taxpayer at Rs.50,83,94,553. The Commissioner of Income-tax (Appeals) deleted the additions made by the TPO/AO, leading to the Revenue's appeal before the Tribunal.

Issue 2: Application of CUP Method
The Revenue challenged the deletion of the addition based on the CUP method applied by the TPO/AO for benchmarking the international transactions. The Tribunal analyzed the method employed for determining the Arm's Length Price and observed that the CUP method was not the most appropriate in the absence of evidence showing comparable services provided to an independent enterprise. The Tribunal upheld the TNMM method as the most appropriate, considering the nature of activities, assets used, and risks assumed. It concluded that the expenses paid to the employees of the AE were reimbursement of salaries without any markup, indicating payments to third-party employees, not related parties for services rendered.

In conclusion, the Tribunal dismissed the Revenue's appeal, citing consistent application of the TNMM method in the taxpayer's own cases for various assessment years. The Tribunal and the Hon'ble Punjab & Haryana High Court had previously confirmed the use of TNMM as the most appropriate method for benchmarking international transactions. The Tribunal's decision was based on the Act and Rules, emphasizing the inapplicability of the CUP or Cost Plus Method in the specific circumstances of the case. The Tribunal's findings favored the taxpayer, leading to the dismissal of the Revenue's appeal based on the established precedents and legal interpretations.

This detailed analysis highlights the Tribunal's decision on the issues raised regarding the application of transfer pricing methods and the determination of Arm's Length Price for international transactions, providing a comprehensive understanding of the judgment.