Assessee's Appeal Partially Allowed: TNMM Upheld, TP Adjustments Deleted, Interest Levied

The Tribunal partly allowed the assessee's appeal by upholding the use of TNMM over CPM for determining the Arm's Length Price (ALP) and deleting Transfer Pricing Adjustments related to finished goods sale and AMP expenditure. The levy of interest under Sections 234B and 234C was upheld, with directions for the AO to recompute the interest in accordance with the Tribunal's order.

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Issues Involved:
1. Validity of the final assessment order under Section 143(3) read with Section 144C(13) of the Income Tax Act.
2. Validity of the reference to the Transfer Pricing Officer (TPO) under Section 92CA.
3. Determination of the Arm's Length Price (ALP) using the Cost Plus Method (CPM) versus the Transactional Net Margin Method (TNMM).
4. Adjustment on account of Advertisement, Marketing, and Sales Promotion (AMP) expenditure.
5. Levy of interest under Sections 234B and 234C of the Income Tax Act.

Detailed Analysis:

1. Validity of the Final Assessment Order:
The assessee contended that the final order of assessment was not passed within the prescribed time limits and thus should be quashed. However, the Tribunal referred to a previous decision in the assessee's own case for the same assessment year, where it was held that the delay in passing the final assessment order does not go to the root of the jurisdiction of the Assessing Officer (AO). Consequently, this ground was dismissed.

2. Validity of the Reference to the TPO:
The assessee did not press grounds IV to VI, which challenged the validity of the reference to the TPO. Therefore, these grounds were dismissed as not pressed.

3. Determination of ALP Using CPM vs. TNMM:
The TPO adopted CPM as the Most Appropriate Method (MAM) for determining the ALP of the international transactions, whereas the assessee used TNMM. The Tribunal found that the TPO did not make necessary adjustments for functional and other differences between the domestic and export segments, which is required under Rule 10B(1)(c). The Tribunal held that due to the numerous differences and the impossibility of making reasonably accurate adjustments, CPM could not be considered the MAM. Instead, TNMM was deemed more appropriate as it is less affected by transactional and functional differences. Consequently, the Transfer Pricing Adjustment made by the TPO using CPM was deleted.

4. Adjustment on Account of AMP Expenditure:
The TPO made a Transfer Pricing Adjustment for AMP expenditure, arguing that the expenditure promoted the brand owned by the foreign AE, Himalaya Global Holdings Ltd. The Tribunal, however, found no evidence of any agreement or arrangement between the assessee and the AE to incur AMP expenditure for brand promotion. Citing various judicial pronouncements, the Tribunal held that in the absence of such an arrangement, no Transfer Pricing Adjustment could be made for AMP expenditure. The Tribunal also noted that the net margin from exports to AEs was higher than that from domestic sales, indicating that the transactions were at arm's length. Therefore, the Transfer Pricing Adjustment for AMP expenditure was deleted.

5. Levy of Interest under Sections 234B and 234C:
The assessee challenged the levy of interest under Sections 234B and 234C. The Tribunal held that the charging of interest is consequential and mandatory, as upheld by the Supreme Court in the case of Anjum H. Ghaswala. The AO was directed to recompute the interest while giving effect to the Tribunal's order.

Conclusion:
The assessee's appeal was partly allowed. The Tribunal upheld the use of TNMM over CPM for determining the ALP and deleted the Transfer Pricing Adjustments related to both the sale of finished goods and AMP expenditure. The levy of interest under Sections 234B and 234C was upheld, subject to recomputation by the AO.

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