TPO must club international transactions with receipts and payments for TNMM analysis under transfer pricing rules

The ITAT Bangalore ruled on transfer pricing adjustments for Global Sale and Marketing Activity Fees. The TPO had accepted all international transactions except these fees. The tribunal held that when multiple international transactions involve both receipts from and payments to associated enterprises, they should be clubbed together and analyzed under TNMM rather than tested separately. The court directed that management fees and Global Sale and Marketing Activity Fees be treated as operating costs and allocated proportionally based on turnover of other international transactions. The matter was remanded to TPO/AO for fresh determination of arm's length price. Additionally, the AO was directed to follow DRP directions regarding foreign tax credit and TDS credit.

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Issues:
1. Transfer Pricing Adjustment in respect of Global Sale and Marketing Activity Fees
2. Most Appropriate Method (MAM) applied by the TPO
3. Foreign tax credit and TDS credit not granted by the Assessing Officer

Transfer Pricing Adjustment in respect of Global Sale and Marketing Activity Fees:
The case involved cross-appeals against the assessment order under the Income Tax Act, 1961 for the Assessment Year 2010-11. The TPO proposed an adjustment for Global Sale and Marketing Activity Fees paid by the assessee to its Associated Enterprise (AE). The TPO held that the ALP of these fees was NIL and proposed an adjustment of the entire amount. The DRP disagreed with the TPO's approach, stating that the TPO exceeded its jurisdiction by examining the necessity of the payment. The DRP directed the TPO to determine the ALP using recognized methods under the Act. There was also a dispute regarding the Most Appropriate Method (MAM) applied by the assessee (TNMM) and the TPO (CUP). The Tribunal set aside the issue for fresh determination, considering the fees as part of operating costs and allocating them based on turnover for other international transactions.

Most Appropriate Method (MAM) applied by the TPO:
The TPO applied the Comparable Uncontrolled Price (CUP) method as the MAM, while the assessee used the Transactional Net Margin Method (TNMM). The DRP directed the TPO to analyze relevant case law and provide comparability analysis for identifying comparables. The Tribunal did not find any error in the DRP's directions but set aside the issue for a fresh determination, suggesting that the fees should be considered as operating costs and allocated based on turnover for other international transactions.

Foreign tax credit and TDS credit not granted by the Assessing Officer:
The assessee raised concerns about the Assessing Officer not granting foreign tax credit and TDS credit despite DRP's directions. The Tribunal emphasized that the Assessing Officer must follow DRP's directions and grant the credits accordingly. A petition under Section 154 of the Act was pending, and the Tribunal directed the Assessing Officer to give effect to the DRP's directions and dispose of the pending petition.

In conclusion, the Tribunal allowed the revenue's appeal for statistical purposes and partly allowed the assessee's appeal, emphasizing the need for a fresh determination of ALP for international transactions involving Global Sale and Marketing Activity Fees and proper grant of foreign tax credit and TDS credit as per DRP's directions.

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