2023 (2) TMI 1209 - AT - Income Tax

TP Adjustment - MAM selection - analysing the transactions under the provisions of the TP - HELD THAT - Insofar as the functions performed assets deployed and risks undertaken by the assessee are concerned there is no change in this assessment year. Adoption of the MAM was considered by a Coordinate Bench of this Tribunal in assessee s own case for the assessment year 2009-10 2015 (5) TMI 861 - ITAT HYDERABAD and the bench directed the learned Assessing Officer to consider the entire gamut of the issue relating to the selection of MAM and analyse it afresh first by determining the MAM and then analysing the transactions under the provisions of the TP. We are of the considered opinion that it would be in the fitness of things to set aside the impugned order for this year also with a direction to the learned Assessing Officer to determine the MAM first and to analyse the transaction under the TP provisions. Needless to say that in view of the decision of Gemplus India (P) Ltd 2010 (10) TMI 184 - ITAT BANGALORE the assessee has to prove the actual rendition of various services by the AEs. We direct the learned Assessing Officer accordingly.

Summary

Issues Involved:
1. Aggregation of transactions for Transfer Pricing (TP) analysis.
2. Adoption of the Most Appropriate Method (MAM) for TP analysis.
3. Application of Comparable Uncontrolled Price (CUP) method.
4. Determination of Arm's Length Price (ALP) for various international transactions.
5. Benefit test for intra-group services.
6. Adjustments made by the Transfer Pricing Officer (TPO) and upheld by the Dispute Resolution Panel (DRP).

Detailed Analysis:

1. Aggregation of Transactions for TP Analysis:
The assessee aggregated various international transactions, including the purchase of raw materials, sales of clinker and cement, receipt of technical knowhow, sub-license fee, procurement commission, IT services fee, e-procurement consultancy services fee, sales commission, trade payables, and trade receivables under the manufacturing function. The assessee used the Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM) and claimed its Profit Level Indicator (PLI) was within the Arm's Length Price (ALP).

2. Adoption of the Most Appropriate Method (MAM) for TP Analysis:
The Assessing Officer (AO) and Transfer Pricing Officer (TPO) rejected the aggregation approach, stating that the transactions of purchase of raw materials, sale of finished goods, and payment of consultancy services fees to the AEs are not closely linked. The AO and TPO adopted the Comparable Uncontrolled Price (CUP) method for certain transactions and other methods for others. The tribunal had previously directed the AO to reconsider the MAM and analyze the transactions afresh.

3. Application of Comparable Uncontrolled Price (CUP) Method:
The TPO applied the CUP method to determine the ALP for technical knowhow received and outstanding receivables/payables. The TPO concluded that the determination of ALP required an upward adjustment, which was added to the income of the assessee by way of a Draft Assessment order.

4. Determination of Arm's Length Price (ALP) for Various International Transactions:
The TPO made adjustments to the ALP for various transactions, including technical knowhow, sub-license fee, procurement commission, IT services fee, e-procurement consultancy services fee, and sales commission. The DRP upheld these adjustments, stating that such transactions cannot be interlinked with the manufacturing activity.

5. Benefit Test for Intra-Group Services:
The DR argued that the expenses claimed by the assessee for technical knowhow, sub-license fee, procurement commission, IT services, e-procurement consultancy, and consultancy services towards sales commission are independent transactions. According to the OECD guidelines, such transactions need to be benchmarked separately. The DR emphasized that the benefit test must be applied to various payments made by the assessee and that the assessee must prove the actual rendition of services by the AEs.

6. Adjustments Made by the Transfer Pricing Officer (TPO) and Upheld by the Dispute Resolution Panel (DRP):
The tribunal noted that the TPO's approach was not correct and that the transactions are interlinked to the manufacturing and trading of cement by the assessee. The tribunal directed the AO to reconsider the entire assessment order by determining the MAM first and then analyzing the transactions under the TP provisions. The tribunal also noted that the subsequent action of the AO, pursuant to the tribunal's direction, resulted in the acceptance of the TNMM as the MAM, thereby proposing no TP adjustment.

Conclusion:
The tribunal set aside the impugned order with a direction to the AO to determine the MAM first and analyze the transactions under the TP provisions. The tribunal emphasized the need for the assessee to prove the actual rendition of various services by the AEs. All other grounds raised in the appeal were considered academic and not specifically adjudicated. The appeals were allowed for statistical purposes.