2015 (1) TMI 302 - AT - Income Tax

Tribunal upholds CUP method over Transfer Pricing Adjustment. Revenue's appeal dismissed.

The Tribunal dismissed the Revenue's appeal, affirming the Comparable Uncontrolled Price (CUP) method as the appropriate benchmarking method for the ... Transfer pricing adjustment deleted - Medical transcription services provided by assessee – CUP method correct method or not for computation of ALP - Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the assessee has adopted the CUP method for computing the Arms' Length Price for the international transaction entered into by it with its AE for the medical transcription service rendered by it to the AE - the assessee has considered two external comparables and three internal comparables - The service rendered by the assessee to its AE as well as to the other overseas customers and the services rendered by the other two Indian companies to CBay systems is also same, i.e. medical transcription work - the comparables adopted by the assessee are uncontrolled parties and can be considered for the purpose of determining the Arms' Length Price as per CUP method - the finding of the TPO that the assessee has not given the quantitative details is without any basis. The assessee has submitted the agreements between the assessee and its AE as well as the agreements entered into by the AE with the other Indian companies and the agreements between the assessee and its other overseas customers - the price charged by the assessee to its AE on each line of medical transcription work at 0.063 US$ is almost equal to the similar rate charged per line on medical transcription work by the other uncontrolled parties, considered as comparable by the assessee - The observation of the TPO that the comparables cannot be considered to be uncontrolled is without any basis, and it is based on mere presumptions and surmises - When the comparables considered by the assessee are in no way connected either with the assessee or with its holding company, and all the information/data relating to their transactions are available, the TPO was not justified in rejecting the computation of ALP made by the assessee by applying the CUP method - CIT(A) has passed a well reasoned order, and ultimately came to a conclusion that the CUP method is the most appropriate method for computing the ALP for the international transactions entered into by the assessee with its AE – Decided against revenue. Issues Involved:1. Appropriateness of the Comparable Uncontrolled Price (CUP) method versus the Transactional Net Margin Method (TNMM) for transfer pricing.2. Validity of the transfer pricing adjustment made by the Assessing Officer (AO) and Transfer Pricing Officer (TPO).Issue-wise Detailed Analysis:1. Appropriateness of the Comparable Uncontrolled Price (CUP) Method:The primary issue was whether the CUP method or the TNMM was the appropriate method for benchmarking the international transactions between the assessee and its Associated Enterprise (AE). The assessee used the CUP method, arguing that it provided medical transcription services to its AE, CSSI, USA, at rates comparable to those charged by independent third parties in India. The assessee provided detailed reasons, including identical services and terms with third parties DHS Info Systems Pvt. Ltd. and Saral Software Solutions Private Limited.The TPO rejected the CUP method, citing reasons such as lack of comparability and reliability, unclear nature of services from agreements, and varying man-hourly rates. Instead, the TPO adopted the TNMM, determining the Arm's Length Price (ALP) at Rs. 15,49,48,592, resulting in an addition of Rs. 4,86,38,268 to the assessee's income.2. Validity of the Transfer Pricing Adjustment:The assessee appealed against the TPO's adjustment, arguing that the CUP method was the most appropriate given the availability of internal comparables and identical terms and conditions. The CIT(A) agreed with the assessee, noting that CSSI USA availed similar services from third parties in India, making the CUP method suitable per OECD guidelines. The CIT(A) also referenced a similar case for the assessment year 2005-06, where the Tribunal upheld the CUP method as the most appropriate.In the Tribunal's review, it was observed that the facts and material for the year under consideration were similar to the assessment year 2005-06. The Tribunal found that the assessee had provided adequate comparables and data, and the TPO's rejection of the CUP method was not justified. The Tribunal upheld the CIT(A)'s decision, confirming that the CUP method was the most appropriate for determining the ALP of the international transactions.Conclusion:The Tribunal dismissed the Revenue's appeal, affirming that the CUP method was the most appropriate method for benchmarking the international transactions of the assessee with its AE, and the transfer pricing adjustment made by the AO/TPO was not sustainable. The order pronounced on 13th October 2014 concluded that the appeal of the Revenue was dismissed.