Tribunal allows appeal, directs AO to accept appellant's claims. Key issues on Transfer Pricing Adjustments resolved.

The Tribunal allowed the appeal filed by the assessee, setting aside the order of the Dispute Resolution Panel (DRP) and directing the Assessing Officer (AO) to allow the claims of the appellant as raised in the grounds of appeal. The Tribunal found in favor of the appellant on various issues including Transfer Pricing Adjustments, rejection of Comparable Uncontrolled Price (CUP) method, Profit Level Indicator (PLI) selection, computation of Transfer Pricing Adjustment, and levy of interest under Section 234D. The order was pronounced on 19th November, 2014.

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Issues Involved:
1. Validity of the Assessment Order.
2. Transfer Pricing Adjustments.
3. Rejection of Comparable Uncontrolled Price (CUP) Method.
4. Profit Level Indicator (PLI) Selection.
5. Economic Analysis and Comparable Search.
6. Use of Multiple Year Data.
7. Computation of Transfer Pricing Adjustment.
8. Benefit of +/- 5 Percent Range.
9. Levy of Interest under Section 234D.

Detailed Analysis:

1. Validity of the Assessment Order:
The appellant contended that the Assessment Order passed following the directions of the Dispute Resolution Panel (DRP) is vitiated as the DRP erred both on facts and in law in confirming the addition made by the Assessing Officer (AO) to the appellant's income.

2. Transfer Pricing Adjustments:
The DRP confirmed the addition of Rs. 7,03,17,843 to the appellant's income by holding that its international transaction of 'Freight receipts and expenses' does not satisfy the arm's length principle envisaged under the Act. The appellant argued that the issue of Transfer Pricing (TP) adjustment is covered in its favor by earlier orders of the Tribunal for preceding assessment years.

3. Rejection of Comparable Uncontrolled Price (CUP) Method:
The DRP erred in agreeing with the Transfer Pricing Officer's (TPO) action of rejecting the CUP method and the CUP data available in the form of comparable arrangements with Agility network agents, which are unrelated third parties. The Tribunal in previous years had accepted the CUP method used by the appellant, which was also examined and accepted by the TPO in earlier assessment years.

4. Profit Level Indicator (PLI) Selection:
The DRP erred in rejecting the Operating Profit (OP) to Value Added Expenses (VAE) ratio selected by the appellant as the PLI and instead used OP to Total Cost (TC) ratio as the PLI. The Tribunal had earlier upheld the appellant's use of OP/VAE as the PLI, finding it appropriate for determining the arm's length price.

5. Economic Analysis and Comparable Search:
The DRP disregarded the economic analysis undertaken by the appellant and the search of comparables considering OP/VAE as PLI. The Tribunal had previously found the appellant's comparables functionally comparable and relevant to the appellant's business.

6. Use of Multiple Year Data:
The DRP did not allow the use of multiple year data as prescribed under Rule 10B(4) of the Income Tax Rules, 1962, read with the OECD TP Guidelines, and determined the arm's length price based on financial information of the comparables for the year ended March 31, 2008. The Tribunal had earlier allowed the use of multiple year data for a more accurate determination of the arm's length price.

7. Computation of Transfer Pricing Adjustment:
The DRP computed the TP adjustment on freight receipts (as against freight expense) merely to derive a larger adjustment. The appellant argued that the Indian transfer pricing law does not prescribe the manner in which a transfer pricing adjustment needs to be computed under the TNMM, where there are more than one international transaction. The Tribunal had previously accepted the appellant's approach of determining the arm's length price of the freight expenses while keeping the freight income constant.

8. Benefit of +/- 5 Percent Range:
The DRP denied the benefit of the +/- 5 percent range mentioned in the proviso to section 92C(2) of the Income Tax Act, 1961, while computing the ALP. The Tribunal had earlier granted this benefit to the appellant in similar cases.

9. Levy of Interest under Section 234D:
The appellant contended that the AO and DRP erred in levying interest of Rs. 41,06,495 under section 234D of the Act. The Tribunal had previously ruled in favor of the appellant on similar grounds.

Conclusion:
The Tribunal, following its previous orders for the preceding assessment years, found that the issues raised by the appellant are covered in its favor. The Tribunal set aside the order of the DRP and directed the AO to allow the claims of the appellant as raised in the grounds of appeal. The appeal filed by the assessee was allowed, and the order was pronounced in the open Court on 19th November, 2014.

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