2020 (2) TMI 1715 - AT - Income Tax

Tribunal Upholds TNMM for ALP, Favors Appellant on TP Adjustment, Dismisses Challenge on Interest Charges in Case.

The ITAT upheld the internal TNMM as the appropriate method for determining the ALP for international transactions, allowing the appeal on this ground. It ... TP Adjustment - AO/DRP rejecting internal Transactional Net Margin Method (TNMM) and applying the external TNMM - HELD THAT:- Pune Benches in assessee’s own case reported in A.Y. 2007-08 [2015 (5) TMI 644 - ITAT PUNE] held that the internal THMM is the most appropriate method to compute arm’s length price for the international transactions of purchase of raw material and components from associated enterprises AR brought to our notice the ITAT, Pune Benches upheld the same internal TNMM for A.Ys. 2008-09, 2010-11 and 2011-12. There is no contrary order brought on record by the respondent-revenue in this regard. Therefore, we uphold the internal TNMM adopted by the assessee in determining ALP of its international transactions in purchase of raw material, components and finished goods. Accordingly, ground No. 2 raised by the assessee is allowed. Upward TP adjustment - international transaction in respect of payment made to AEs for corporate support services - HELD THAT:- As in assessee’s own case for A.Y. 2010-11 [2019 (11) TMI 1190 - ITAT PUNE] dealt the issue and decide the same in favour of assessee Issues involved:1. Challenge against rejection of internal Transactional Net Margin Method (TNMM) and application of external TNMM.2. Upward transfer pricing (TP) adjustment relating to international transaction for corporate support services.3. Charging of interest under sections 234B and 234C of the Act.Issue 1: Challenge against TNMM rejectionThe appellant contested the rejection of internal TNMM and imposition of external TNMM by the Assessing Officer (AO) and Dispute Resolution Panel (DRP). The appellant, engaged in manufacturing fluid power equipment, applied internal TNMM for international transactions with its associated enterprises (AE). The Transfer Pricing Officer (TPO) rejected internal TNMM due to identified errors. The appellant cited previous favorable ITAT decisions supporting internal TNMM. The Appellate Tribunal upheld the internal TNMM as the most appropriate method for determining arm's length price (ALP) for international transactions, allowing the appeal on this ground.Issue 2: Upward TP adjustment for corporate support servicesRegarding the upward TP adjustment for corporate support services, the appellant had paid a substantial amount towards Corporate Service Charges. The AO considered the received services' value as Nil, emphasizing the need for the appellant to demonstrate that payments were commensurate with services received. The appellant failed to provide detailed expenses incurred by the associated enterprises, leading to the AO determining the arm's length price as Nil. The appellant referred to previous ITAT decisions favoring their position. The Appellate Tribunal found the facts similar to previous cases and allowed the appeal on this ground, aligning with the earlier decisions in the appellant's favor.Issue 3: Charging of interest under sections 234B and 234CThe appellant challenged the charging of interest under sections 234B and 234C of the Act. The Tribunal dismissed this ground, stating that charging interest under these sections is mandatory and consequential, lacking merit for appeal. Consequently, the appeal was partly allowed, with the Tribunal pronouncing the order on 19th February 2020.This comprehensive summary provides a detailed analysis of the judgment, addressing each issue involved in the legal matter.