2019 (8) TMI 348 - AT - Income Tax

Tribunal allows appeal on transfer pricing, remands deduction issue, dismisses penalty proceedings

Tetra Pak India Private Limited Versus The Dy. Commissioner of Income Tax, Circle 7, Pune

The Tribunal allowed the appeal, finding the aggregation approach for benchmarking international transactions appropriate and rejecting the transfer ... TP Adjustment - assessee in the packaging solutions division had been carrying on various closely linked transactions - aggregation transactions of packaging solutions with import of straw from AE - applied TNMM method as most appropriate method - HELD THAT:- The Tribunal while deciding the issue in assessment year 2009-10 [2017 (9) TMI 1836 - ITAT PUNE] had noted the fact that as part of its packaging activity, as business strategy, it was identifying the customers and marketing its products to them. In addition, the assessee was also supplying packaging material and also straws were sold to the customers as business strategy. The said straws were imported from associated enterprises for sale to the customers. So, this was business strategy applied by assessee and the transaction of sale of straws cannot be benchmarked separately, once the aggregation approach is to be applied. Following the same parity of reasoning, we allow the claim of assessee and delete the transfer pricing adjustment made in the hands of assessee as by applying TNMM method, it was held that aggregation of transactions undertaken by it were at arm's length price with the margins of comparables finally selected. There is no dispute about selection of comparables. Allowability of expenses which was disallowed in earlier year for non deposit of TDS - since TDS was deposited in current year - HELD THAT:- In the year under consideration, the said TDS was deposited and the assessee claimed the said expenditure as allowable in its hands. However, the issue of deductibility of TDS in assessment year 2011-12 has been set aside by the Tribunal to the Assessing Officer and consequent to its being settled, in case no disallowance is made in assessment year 2011-12, then the issue raised by way of ground of appeal No.6 would become academic; otherwise, the same needs to be allowed in the hands of assessee. Issues Involved:1. Transfer pricing adjustment on import of straws and export of packaging material.2. Rejection of aggregation approach for benchmarking international transactions.3. Selection of comparable companies for benchmarking.4. Adoption of Internal Transactional Net Margin Method (TNMM) for determining Arm's Length Price (ALP).5. Deduction of expenses disallowed in previous assessment years due to non-deposit of TDS.6. Initiation of penalty proceedings under section 271(1)(c).Issue-wise Detailed Analysis:1. Transfer Pricing Adjustment on Import of Straws and Export of Packaging Material:The primary issue in the appeal was the transfer pricing adjustment made by the Assessing Officer (AO) / Transfer Pricing Officer (TPO) amounting to Rs. 77,33,52,433/-. This adjustment was split into Rs. 3,50,87,856/- for the import of straws and Rs. 73,82,64,577/- for the export of packaging material. The assessee contended that these transactions were at Arm's Length Price (ALP) and no adjustment was warranted.2. Rejection of Aggregation Approach for Benchmarking International Transactions:The assessee had adopted an aggregation approach for benchmarking all international transactions related to the packaging solution segment. The AO / TPO rejected this approach and benchmarked the transactions of import of straws and export of packaging material separately. The Tribunal noted that in previous assessment years (2009-10, 2010-11, 2011-12, and 2012-13), the aggregation approach had been accepted by the Tribunal. Thus, the Tribunal found no merit in the AO/TPO's rejection of the aggregation approach and allowed the assessee's claim.3. Selection of Comparable Companies for Benchmarking:The assessee challenged the selection of F.K. Bagasrawala Exports Pvt. Ltd. as a comparable company for benchmarking the import of straws. The Tribunal did not provide a specific ruling on this issue as it was resolved by accepting the aggregation approach, which rendered the selection of individual comparables moot.4. Adoption of Internal Transactional Net Margin Method (TNMM) for Determining ALP:The AO / TPO adopted the internal TNMM to determine the ALP of the export of packaging material. The assessee argued that this method was inappropriate as the domestic segment used for comparison was also a controlled segment with substantial imports from associated enterprises. The Tribunal, referencing its decisions in previous years, held that the internal TNMM method was not the right method to apply and allowed the assessee's claim.5. Deduction of Expenses Disallowed in Previous Assessment Years Due to Non-Deposit of TDS:The assessee claimed a deduction for expenses disallowed in AY 2011-12 under section 40(a)(i) due to non-deposit of TDS, which was subsequently deposited in the current assessment year. The Tribunal noted that this issue was contingent on the outcome of the appeal for AY 2011-12, which had been set aside to the AO. The AO was directed to decide this issue in line with the decision for AY 2011-12.6. Initiation of Penalty Proceedings Under Section 271(1)(c):The Tribunal dismissed the ground related to the initiation of penalty proceedings under section 271(1)(c) as premature.Conclusion:The Tribunal allowed the appeal of the assessee, concluding that the aggregation approach for benchmarking international transactions under the packaging solutions division was appropriate and that the transfer pricing adjustments made by the AO/TPO were unwarranted. The issue of deduction for expenses disallowed in previous years was remanded to the AO for a decision in line with the outcome for AY 2011-12. The initiation of penalty proceedings was deemed premature and dismissed.