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2024 (12) TMI 628 - AT - Income TaxTP Adjustment - MAM selection - applying the Transactional Net Margin Method ( TNMM ) or Comparable Uncontrolled Price ( CUP ) method for computation of ALP - comparable selection - HELD THAT - The assessee has successfully demonstrated that the Ld.CIT(A) committed an error in retaining M/s. Jai Hind Projects Ltd. as one of the comparables as it operated in different field. However considering the fact that the Revenue itself has accepted CUP method as most appropriate method in Financial Years 2010-11 and 2019-20. There is no substantial change into facts and circumstances in this year. The contention of the Revenue that CUP method would not be applicable in respect of hypothetical quotation prices but same should be applicable in respect of real transaction is negated by the binding precedent rendered in the case of PCIT vs Toll Global Forwarding (P.) Ltd. 2015 (12) TMI 1513 - DELHI HIGH COURT by applying the finding of Tribunal rendered in the case of Toll Global Forwarding India (P.) Ltd. 2014 (11) TMI 844 - ITAT DELHI CUP method is the most appropriate method for computation of ALP. Objection of Revenue is with regard to applicability of CUP method that the variation payment made on hourly base - contention of the assessee is that since it paid the lowest of third parties hence such variation becomes irrelevant - Coupled with the fact the Revenue failed to demonstrate as to why Rule of Consistency should not be followed in the present case. Strangely the rates quoted in the quotations are not acceptable but same price actually claimed to have been paid is accepted by the Revenue in other years. And on such basis CUP method is treated to be appropriate in the AYs 2011-12 and 2020-21. In the light of discussion herein before the AO is hereby directed to apply CUP method for determining the ALP and if found in order would delete the impugned addition. Appeal of the assessee is allowed for statistical purposes only.
Issues Involved:
1. Validity of the order passed by the CIT(A). 2. Appropriateness of the Transfer Pricing Methodology applied by the TPO/AO. 3. Inclusion and exclusion of comparables in the Transfer Pricing analysis. 4. Initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act. Detailed Analysis: 1. Validity of the Order Passed by the CIT(A): The assessee challenged the CIT(A)'s order as being "bad in law and void-ab-initio." The Tribunal examined whether the CIT(A) had erred in sustaining the method adopted by the TPO for computing the Arm's Length Price (ALP) of international transactions. The Tribunal found that the CIT(A) had partly allowed the appeal for statistical purposes, directing the exclusion of certain comparables but retaining others, such as Jai Hind Projects Ltd. The Tribunal scrutinized the CIT(A)'s decision, particularly the retention of Jai Hind Projects Ltd. as a comparable, despite the assessee's objections regarding functional dissimilarity. 2. Appropriateness of the Transfer Pricing Methodology: The primary contention revolved around the TPO's substitution of the Comparable Uncontrolled Price (CUP) Method with the Transactional Net Margin Method (TNMM) for determining the ALP. The assessee argued that the CUP method, which had been accepted in previous assessment years, should have been applied, citing consistency and the availability of reliable CUP data. The Tribunal noted that the Revenue had accepted the CUP method in Assessment Years 2011-12 and 2020-21 and found no substantial change in facts or circumstances for the year under consideration. The Tribunal, relying on precedents, held that the CUP method was the most appropriate method for computing the ALP in this case, directing the AO to apply the CUP method and delete the impugned addition if found in order. 3. Inclusion and Exclusion of Comparables: The assessee contested the inclusion of Jai Hind Projects Ltd. as a comparable, arguing that it was functionally different, being engaged in large infrastructure projects, unlike the assessee, which focused on designing and building small to medium-sized factories and industrial buildings. The Tribunal agreed with the assessee, noting that Jai Hind Projects Ltd. operated in different business sectors, such as oil, gas, and pipeline projects, and should not have been retained as a comparable. The Tribunal directed the exclusion of Jai Hind Projects Ltd. from the set of comparables. 4. Initiation of Penalty Proceedings: The assessee contended that the AO erred in mechanically initiating penalty proceedings under Section 271(1)(c) for concealment of particulars of income and furnishing inaccurate particulars. The Tribunal's decision on this issue was not explicitly detailed in the judgment, as the primary focus was on the transfer pricing adjustments and the appropriateness of the methodologies applied. In conclusion, the Tribunal allowed the appeal for statistical purposes, directing the AO to apply the CUP method for determining the ALP and to delete the impugned addition if the method was found appropriate. The Tribunal's decision emphasized the importance of consistency in applying transfer pricing methods and the need for a careful selection of comparables based on functional similarity.
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