2020 (8) TMI 929 - AT - Income Tax

Tribunal directs consideration of current year's Functional Analysis Reports in APA for international transactions

The Tribunal allowed the appeal, directing the TPO to consider the Functional Analysis Reports of the current year alongside the APA years and decide on ... TP adjustment - APA for international transactions - arm’s length in terms of provisions of section 92C - assessee has adopted the transaction by transaction approach which was disregarded by the TPO by aggregating all transactions and applying TNMM method and made a total adjustment - DRP upheld the application of TNMM on the basis that the appellant had adopted TNMM in the previous years and margins of the comparable companies were recomputed - HELD THAT:- Tribunal, in a series of decisions, have consistently held that even if the year under dispute is not covered by APA, if the FAR is same, APA should be adopted for international transactions for the year under dispute. Accordingly, we direct TPO to consider the FAR of the year under consideration with FAR of the years in APA. The assessee is directed to produce all necessary documents in compliance with APA and the AO/TPO is directed to decide the issue in light of APA in respect of international transactions in dispute in the present appeal and adopt the same methodology which has been directed to be adopted in the APA. Issues Involved:TP adjustment of Rs. 9.58 crores in international transactions under section 92C of the Income Tax Act, 1961.Detailed Analysis:Issue 1: TP Adjustment in International Transactions- The appellant contested the TP adjustment of Rs. 9.58 crores made by the Assessing Officer/TPO/DRP, alleging it to be not at arm’s length under section 92C of the Act.- The appellant's business involved publishing, reprinting, and distributing scientific books and journals, along with marketing and sales support services in specific territories.- The TPO disregarded the appellant's transaction-by-transaction approach, opting for the TNMM method, resulting in a total adjustment of Rs. 12.41 crores.- The DRP upheld the TNMM method based on the appellant's previous adoption and recomputed comparable company margins.- Following directions from the DRP, the TPO recalculated the TP adjustment to Rs. 9.58 crores.Issue 2: Applicability of Advance Pricing Agreement (APA)- The appellant entered into an APA with CBDT for the selection of the Most Appropriate Method (MAM) and computation mechanism for determining the ALP of international transactions.- The APA designated the 'other method' as the MAM for disputed transactions, covering specific assessment years and a roll-back period.- Despite the year under consideration not falling under the APA, the appellant sought to apply the method and computation mechanism from the APA due to consistent risk profiles.- The appellant's counsel argued for adopting the APA method for determining the ALP of the disputed international transactions.Issue 3: Tribunal's Decision and Applicability of APA- The Tribunal considered the APA terms, noting that the year under review was not covered by the APA.- Citing previous decisions, the Tribunal emphasized adopting the APA for international transactions if the Functional Analysis Reports (FAR) remained consistent, even if the year was not covered by the APA.- The Tribunal directed the TPO to assess the FAR of the current year alongside the APA years, requiring the appellant to provide necessary documents in compliance with the APA.- The TPO was instructed to decide on the international transaction issue in line with the APA methodology directed for adoption.Conclusion:The Tribunal allowed the appeal for statistical purposes, directing the TPO to consider the FAR of the current year with the APA years' FAR and decide on the international transaction issue accordingly. The decision emphasized the importance of consistent FAR in adopting the APA for international transactions, even if the specific year was not covered by the APA.