Tribunal directs reassessment of transfer pricing method, emphasizing interest benefit consideration.

The Tribunal allowed the appeal, directing the Transfer Pricing Officer to reevaluate the comparison method and consider the interest benefit enjoyed by the assessee. The Tribunal emphasized the correct application of the second proviso to Sec. 92C(2) for determining the arm's length price and allowed the adjustment of interest from the purchase price, resulting in all grounds raised in the appeal being allowed.

---

---

Issues:
Transfer Pricing Adjustment - Arms Length Price Determination
Application of Second Proviso to Sec. 92C(2)
Interest Disallowance in Transfer Pricing Adjustment

Transfer Pricing Adjustment - Arms Length Price Determination:
The appeal was against the addition of C77,58,955 by the Assessing Officer towards adjustment in Arms Length Price, determined by the Transfer Pricing Officer (TPO). The TPO had determined the Arms Length Price of the Associated Enterprise purchase at C37,12,20,434 as opposed to C37,90,79,389 admitted by the assessee. The Commissioner of Income Tax (Appeals) upheld the addition made by the Assessing Officer based on the TPO's determination. The assessee contended that they were entitled to a + 5% tolerance margin for determining the arm's length price, as per the second proviso to Sec. 92C(2). The Tribunal agreed with the assessee, emphasizing that the second proviso should be read independently. The TPO's method of comparison was also questioned, and the Tribunal directed the TPO to compare the average monthly price to the product published in the cashew bulletin with the average price charged by the assessee for its product.

Application of Second Proviso to Sec. 92C(2):
The Tribunal found that the lower authorities had incorrectly followed the first proviso instead of the second proviso to Sec. 92C(2) in determining the arm's length price. The Tribunal agreed with the assessee's claim for the benefit of + 5% variation adjustment while computing the arm's length price. This decision was supported by a previous Special bench order.

Interest Disallowance in Transfer Pricing Adjustment:
The Tribunal considered the disallowance of interest amounting to C39,80,531 as part of the total difference of C77,58,955 determined by the TPO. The assessee argued that the interest should be adjusted from the prices at which the Associated Enterprise supplied the cashew. The Tribunal agreed with the assessee, emphasizing that the interest benefit enjoyed by the assessee by availing credit for 150 days should be considered. Rule 10B(1)(a)(ii) of the Income Tax Rules was cited to support the adjustment of interest from the purchase price. The Tribunal allowed this ground raised by the assessee, resulting in all grounds raised in the appeal being allowed.

In conclusion, the Tribunal allowed the appeal, emphasizing the correct application of the second proviso to Sec. 92C(2) for determining the arm's length price and considering the interest adjustment in the transfer pricing calculation. The Tribunal directed the Transfer Pricing Officer to reevaluate the comparison method and consider the interest benefit enjoyed by the assessee.

---