2019 (4) TMI 1476 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on international transactions pricing.

ACIT. Circle-I, Block I-B, Faridabad, DCIT, Circle-I, Faridabad Versus M/s. BCEOM (India) P. Ltd

ACIT. Circle-I, Block I-B, Faridabad, DCIT, Circle-I, Faridabad Versus M/s. BCEOM (India) P. Ltd - TMI Issues Involved:1. Deletion of addition on account of Arm’s Length Price (ALP) of international transactions.2. Acceptance of internal Transactional Net Margin Method (TNMM) benchmarking.3. Rejection of comparables selected by Transfer Pricing Officer (TPO).4. Allocation of marketing and business development expenses.5. Application of OECD guidelines and internal comparables.6. Rejection of segmentation and allocation keys used by the assessee.Issue-wise Detailed Analysis:1. Deletion of Addition on Account of ALP of International Transactions:The primary issue across all appeals was the deletion of additions made by the Assessing Officer (AO) on account of the ALP of international transactions determined by the TPO. The AO challenged the deletion of Rs. 4,46,29,132/- for AY 2007-08, Rs. 7,52,66,923/- for AY 2008-09, Rs. 3,07,73,768/- for AY 2009-10, and Rs. 5,50,72,979/- for AY 2010-11. The Tribunal upheld the CIT(A)'s decision to delete these additions, finding that the CIT(A) provided valid reasons for accepting the internal segmentation and benchmarking analysis provided by the assessee.2. Acceptance of Internal TNMM Benchmarking:The Tribunal agreed with the CIT(A) that internal TNMM benchmarking was appropriate. The CIT(A) relied on OECD guidelines and previous judicial decisions, emphasizing that internal comparables should be preferred if they are available and reliable. The Tribunal found no factual infirmity in the CIT(A)'s acceptance of the internal TNMM, noting that the TPO did not adequately demonstrate why the internal comparables were unreliable.3. Rejection of Comparables Selected by TPO:The TPO's selection of comparables was contested by the assessee, which argued that the comparables were not functionally similar. The CIT(A) rejected most of the comparables selected by the TPO, and the Tribunal upheld this decision. The Tribunal noted that the TPO failed to provide sufficient reasons for rejecting the internal comparables and did not adequately address the differences in functions, assets, and risks (FAR) between the selected comparables and the assessee.4. Allocation of Marketing and Business Development Expenses:The Tribunal upheld the CIT(A)'s acceptance of the assessee's allocation of marketing and business development expenses to the non-AE segment. The CIT(A) found that the assessee did not incur such expenses for AE transactions but did so for non-AE transactions. This allocation was deemed reasonable and was based on actual expenses and turnover.5. Application of OECD Guidelines and Internal Comparables:The CIT(A) applied OECD guidelines, which suggest a preference for internal comparables. The Tribunal concurred with this approach, noting that the CIT(A) provided a detailed analysis and valid reasons for accepting the internal comparables. The Tribunal found that the TPO did not sufficiently demonstrate that the economic scenarios of the controlled and uncontrolled transactions were different.6. Rejection of Segmentation and Allocation Keys Used by the Assessee:The TPO rejected the segmentation and allocation keys used by the assessee, arguing that they were inappropriate. However, the CIT(A) and the Tribunal found that the segmentation was based on actual expenses and turnover and that the TPO did not provide a clear rationale for rejecting these allocation keys. The Tribunal upheld the CIT(A)'s acceptance of the segmentation and allocation keys used by the assessee.Conclusion:The Tribunal dismissed all four appeals filed by the AO for the assessment years 2007-08, 2008-09, 2009-10, and 2010-11. The Tribunal upheld the CIT(A)'s decisions, which were based on a thorough analysis of the facts, the application of OECD guidelines, and the acceptance of internal TNMM benchmarking and segmentation provided by the assessee. The Tribunal found no factual or legal infirmities in the CIT(A)'s orders and confirmed the deletion of the additions made by the AO on account of the ALP of international transactions.