Appellate tribunal favors assessee in transfer pricing dispute, emphasizes consistency principle

The appellate tribunal allowed the appeal in favor of the assessee regarding the determination of the Arm's Length Price (ALP) of international transactions. It held that the Transfer Pricing Officer (TPO) should have maintained consistency in methodology, as the Cost Plus Method (CPM) had been accepted in preceding and succeeding years. Emphasizing the principle of consistency in tax proceedings, the tribunal overturned the TPO's decision to apply the Transactional Net Margin Method (TNMM) and make an upward adjustment. The appeal was allowed, resulting in the order favoring the assessee on 24th October 2018.

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Issues:
Adoption of appropriate method for determining the ALP of international transactions.

Analysis:
The appeal involved a dispute regarding the adoption of the most appropriate method for determining the Arm's Length Price (ALP) of international transactions. The assessee had filed the return of income declaring a loss and had undertaken international transactions. The Transfer Pricing Officer (TPO) did not accept the Cost Plus Method (CPM) used by the assessee and applied Transactional Net Margin Method (TNMM) as the most appropriate method. The TPO made an upward adjustment based on selected comparables with an average PLI of 4.45%. The Dispute Resolution Panel (DRP) and the Assessing Officer upheld the TPO's order, leading to an upward adjustment of Rs. 3,01,29,754. The assessee contended that the TPO wrongly rejected the CPM, which had been accepted in preceding and succeeding years. The assessee relied on various case laws supporting the consistency in methodology for benchmarking international transactions.

The appellate tribunal analyzed the facts and legal precedents presented by both parties. It observed that the business model of the assessee remained consistent in preceding and succeeding years, and the Revenue had accepted the CPM method in those years. The tribunal emphasized the principle of consistency in tax proceedings and cited relevant case laws to support its decision. It concluded that the authorities should have maintained consistency in methodology and allowed the appeal of the assessee based on the principle of consistency and legal precedents. Consequently, the appeal was allowed, and the order was pronounced in favor of the assessee on 24th October 2018.

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