Tribunal allows appeal, directs deletion of transfer pricing adjustment based on TNMM.

The Tribunal directed the AO/TPO to delete the transfer pricing adjustment of Rs. 361,32,20,620, accepting the Transactional Net Margin Method (TNMM) as the most appropriate method based on the appellant's business profile and the consistent acceptance of TNMM in previous assessment years. The appeal filed by the appellant was allowed, rendering the stay petition unnecessary.

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Issues Involved:
1. Validity of the assessment order.
2. Sustainability of the transfer pricing adjustment.
3. Rejection of the Transactional Net Margin Method (TNMM) by the TPO/DRP.
4. Non-benchmarking using the Comparable Uncontrolled Price (CUP) method.
5. Application of the "Other Method" by the TPO/DRP.
6. Selection of inappropriate comparables by the TPO/DRP.
7. Disregard for the principles of Res Judicata and consistency.

Detailed Analysis:

1. Validity of the Assessment Order:
The appellant challenged the assessment order dated 31.03.2021 framed under section 143(3) read with section 144C(13) of the Income Tax Act, 1961, arguing that the assessment at an income of Rs. 4,39,14,34,770 is "bad in law and void-ab-initio."

2. Sustainability of the Transfer Pricing Adjustment:
The appellant contested the transfer pricing adjustment amounting to Rs. 361,32,20,620, claiming it was not sustainable in law. The TPO/DRP disregarded the economic analysis performed by the appellant and rejected the TNMM adopted by the appellant for marketing support services.

3. Rejection of the Transactional Net Margin Method (TNMM):
The appellant used TNMM to benchmark its international transactions for marketing support services. The TPO discarded TNMM without assigning specific reasons and instead used the "Other Method." The Tribunal noted that TNMM had been consistently accepted as the most appropriate method from AY 2009-10 to 2014-15. The Tribunal emphasized that the TPO must provide reasons for discarding an accepted method and cannot arbitrarily adopt another method.

4. Non-benchmarking using the Comparable Uncontrolled Price (CUP) Method:
The appellant argued that the TPO/DRP erred by not benchmarking the international transaction using the CUP method, specifically citing an internal comparable involving a third-party agreement between SABIC and MAPECO accepted during AY 2015-16.

5. Application of the "Other Method":
The TPO applied the "Other Method" using the CUP approach as the Most Appropriate Method (MAM) without providing reasons or justification. The Tribunal highlighted that the TPO must justify and document reasons for rejecting the five specified methods before selecting the "Other Method." The Tribunal found that the TPO/AO/DRP's orders lacked such findings.

6. Selection of Inappropriate Comparables:
The TPO/DRP selected comparables that were not in the business of providing marketing support services and had been rejected in the previous assessment year (2015-16). The Tribunal noted the inconsistencies and conflicting findings in the selection of comparables. For instance, the DRP rejected certain comparables in AY 2015-16 but accepted similar ones for the current assessment year.

7. Disregard for the Principles of Res Judicata and Consistency:
The appellant argued that the TPO/DRP disregarded the principles of Res Judicata and consistency, despite the facts of AY 2016-17 being identical to those of AY 2015-16. The Tribunal agreed, emphasizing the need for consistency unless there are good reasons to deviate.

Conclusion:
The Tribunal directed the AO/TPO to delete the TP adjustment of Rs. 361,32,20,620, accepting TNMM as the most appropriate method based on the appellant's business profile and the consistent acceptance of TNMM in previous assessment years (AY 2009-10 to 2014-15). The appeal filed by the appellant was allowed, and the stay petition became infructuous.

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