Tribunal directs deletion of transfer pricing adjustment, emphasizing adherence to prescribed methods

Elkem South Asia Pvt. Ltd. (Formerly known as Orkla India P. Ltd.) Versus Dy. Commissioner of Income Tax (OSD), Range–10 (1), Mumbai

Elkem South Asia Pvt. Ltd. (Formerly known as Orkla India P. Ltd.) Versus Dy. Commissioner of Income Tax (OSD), Range–10 (1), Mumbai - TMI Issues:
Addition of amount on account of transfer pricing adjustment.

Analysis:
The appeal was filed challenging the addition of an amount on account of transfer pricing adjustment for the assessment year 2008-09. The dispute revolved around the payment of an amount to an overseas AE for availing services related to Lotus Note. The Transfer Pricing Officer determined the arm's length price of the services availed at nil, proposing an adjustment of the amount paid. The first appellate authority upheld the decision of the Transfer Pricing Officer, leading to the appeal.

The assessee contended that detailed submissions and documentary evidence were provided to demonstrate the mechanism of cost allocation and services rendered. The modalities of cost allocation were explained, and it was highlighted that similar payments in subsequent assessment years were accepted by the Transfer Pricing Officer. The assessee argued that the Transfer Pricing Officer did not follow any prescribed method in determining the arm's length price at nil, contrary to the provisions of the Act. The rule of consistency was invoked, citing past acceptance of similar benchmarking in preceding and subsequent assessment years.

Upon considering the submissions and evidence, the tribunal found that the assessee had justified the payment made to the AE, benchmarking it using the Comparable Uncontrolled Price (CUP) method. The Transfer Pricing Officer's failure to provide valid reasons for rejecting the benchmarking and not following prescribed methods rendered the determination of arm's length price at nil unacceptable. The tribunal held that the price paid by the assessee to the AE for the services availed was at arm's length, directing the Assessing Officer to delete the addition amount. The appeal was allowed, emphasizing the importance of following prescribed methods in transfer pricing adjustments.

In conclusion, the tribunal's decision focused on the necessity of justifying transfer pricing adjustments with valid reasons and following prescribed methods under the statute. The rule of consistency and the requirement for Transfer Pricing Officers to benchmark arm's length prices appropriately were underscored, ensuring fair treatment and adherence to legal provisions in transfer pricing disputes.