Tribunal overturns Dispute Resolution Panel's orders on international transactions, emphasizing statutory compliance.

The Tribunal set aside the orders of the Dispute Resolution Panel and Transfer Pricing Officer, directing the Assessing Officer to delete the proposed adjustments on international transactions. The Tribunal emphasized the TPO's obligation to follow prescribed methods under Section 92C of the Income-tax Act, highlighting the necessity for statutory compliance in determining the arm's length price. The appeal was allowed, dismissing other grounds raised by the assessee as academic in light of the primary issue's resolution.

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Issues:
1. Determination of arm's length price of international transactions without following prescribed methods under section 92C of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Determination of Arm's Length Price (ALP)
The assessee appealed against the order of the Dispute Resolution Panel-III relevant to the assessment year 2011-12, challenging the direction to make adjustments on account of write-off of bridge fees and service fees without following the prescribed methods under Section 92C of the Act. The appellant contended that the TPO determined the ALP without using any prescribed method, resulting in proposed adjustments to the international transactions. The appellant argued that the TPO's approach was flawed and contrary to the statutory requirements. The appellant cited precedents from the Hon'ble Bombay High Court to support the contention that the TPO must follow one of the methods mandated by Section 92C of the Act. The appellant emphasized that the TPO's failure to adhere to the prescribed methods rendered the order invalid and requested the quashing of the adjustments proposed by the TPO.

In response, the Revenue argued that the TPO implicitly followed the "incidental cup method" for determining the ALP, although not explicitly mentioned in the order. The Revenue distinguished the present case from the cited precedents, stating that the facts were dissimilar, and the TPO's approach was justified. The Revenue relied on the orders of the DRP and TPO/AO, urging the affirmation of the decisions.

After considering the submissions, the Tribunal observed that the TPO had not followed any prescribed method under Section 92C of the Act while determining the ALP for the international transactions. The Tribunal noted that adjustments were proposed without adherence to the statutory methods, as mandated by law. Citing the decisions of the Hon'ble Bombay High Court, the Tribunal emphasized the TPO's obligation to follow the prescribed methods for determining the ALP. Consequently, the Tribunal set aside the orders of the DRP and TPO, directing the AO to delete the additions. The Tribunal allowed the appeal, dismissing the other grounds raised by the assessee as academic in light of the decision on the primary issue.

In conclusion, the Tribunal's judgment highlighted the necessity for the TPO to comply with the prescribed methods under Section 92C of the Act when determining the arm's length price of international transactions. The decision underscored the importance of statutory adherence in transfer pricing assessments and upheld the appellant's challenge against adjustments made without following the mandated procedures.

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