2022 (3) TMI 1460 - AT - Income Tax

Resale Price Method upheld for 2017-18 assessment, assessee's appeal partly allowed

The Tribunal held that the Resale Price Method (RPM) was the most appropriate method for the Assessment Year 2017-18 due to the absence of management ... TP Adjustment - selection of MAM - Resale Price Method (‘RPM’) as the most appropriate method - DRP recording the following held that TNMM is the most appropriate method - HELD THAT:- Each assessment years is independent assessment year and what is applicable in one assessment year cannot be applied to another assessment year unless there is same set of facts and circumstances. It is also to be noted that in the assessment year 2012-13 and 2013-14, the appellant had adopted the aggregation of the transaction pertaining to the receipt of management support services with the purchase of trading of goods. Though the appellant had clearly stated in TP study that RPM is MAM for purchase of trading, however due to aggregation of the international transactions, it adopted TNMM to benchmark purchase of trading of goods. Thus, it is clearly evident that the appellant’s FAR is constant as for as purchase of Trading of Goods is concerned since the inception and there is no departure by the appellant for adoption/selection of RPM as MAM for the purchase for trading of goods. Therefore, in our considered view, since, there is no transaction of management service in the assessment year under consideration i.e Assessment Year 2017-18 unlike in the other Assessment Years, we hold that in the assessment year under consideration RPM is the MAM and the same has to be applied. Accordingly the said ground urged by the Assessee deserves to be allowed. Since we have agreed with application of RPM method as MAM to determine the ALP of the international transaction for AY in consideration, we remit all other grounds raised before us to the file of AO/TPO for fresh consideration after giving opportunity to the Assessee. Issues Involved:1. Rejection of Resale Price Method (RPM) as the most appropriate method (MAM) for benchmarking international transactions.2. Consistency in applying the Transactional Net Margin Method (TNMM) as MAM in previous assessment years.3. Aggregation of transactions related to management support services with the purchase of trading goods.4. Application of RPM as MAM for the assessment year under consideration.Detailed Analysis:Issue 1: Rejection of Resale Price Method (RPM) as the Most Appropriate Method (MAM)The assessee, a Private Limited Company engaged in trading sanitary wares, filed its return for the Assessment Year 2017-18. The Transfer Pricing Officer (TPO) rejected RPM as the MAM for benchmarking international transactions and instead applied TNMM, resulting in an adjustment of Rs. 7,51,50,945/-. The Dispute Resolution Panel (DRP) upheld the TPO's findings, leading to the assessee's appeal. The assessee argued that RPM was consistently used in previous years and was appropriate given the unchanged functional profile.Issue 2: Consistency in Applying TNMM as MAM in Previous Assessment YearsThe TPO noted that the assessee had used TNMM in Assessment Years 2012-13, 2013-14, and 2016-17, and there was no change in the functional profile. The principle of consistency was cited to justify the application of TNMM for the Assessment Year 2017-18. The DRP also recorded that TNMM was the most appropriate method due to the unchanged functional profile and the aggregation of transactions involving management support services in previous years.Issue 3: Aggregation of Transactions Related to Management Support Services with Purchase of Trading GoodsThe assessee contended that it had adopted TNMM in earlier years due to aggregation of transactions involving management support services, which were absent in the Assessment Year 2017-18. The assessee argued that RPM should be applied for the purchase of trading goods as there was no change in the functional profile. The Tribunal referred to the TP study for Assessment Year 2016-17, which indicated that RPM was appropriate but TNMM was used due to transaction aggregation.Issue 4: Application of RPM as MAM for the Assessment Year Under ConsiderationThe Tribunal considered the assessee's argument and previous Tribunal decisions, noting that there is no bar on changing the MAM if warranted by the facts. The Tribunal emphasized that each assessment year is independent and the facts for Assessment Year 2017-18 justified the use of RPM as the MAM. The Tribunal concluded that since there were no management support services in the year under consideration, RPM was the appropriate method for benchmarking the international transactions.Conclusion:The Tribunal held that RPM is the most appropriate method for the Assessment Year 2017-18, given the absence of management support services and the unchanged functional profile for the purchase of trading goods. The Tribunal allowed the assessee's appeal on this ground and remitted other grounds to the Assessing Officer/TPO for fresh consideration, providing an opportunity for the assessee to present its case. The appeal was partly allowed for statistical purposes.