Tribunal Condones Appeal Delay, Invalidates TPO's Arm's Length Price Adjustment on Fixed Asset Transaction.

The tribunal condoned a 32-day delay in filing the appeal due to reasonable circumstances. It addressed a transfer pricing adjustment concerning fixed assets purchased from an AE, where the TPO had treated the transaction value as Nil. The tribunal found the TPO's determination of the Arm's Length Price (ALP) unsustainable, as it did not apply any prescribed method and failed to justify the adjustment. Citing the Bombay HC's decision, the tribunal emphasized that the TPO's role is limited to determining ALP, not questioning expenditure genuineness. Consequently, the tribunal allowed the appeal, deleting the TPO's addition, despite the order's delayed pronouncement due to COVID-19.

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Issues Involved:
1. Delay in filing the appeal.
2. Transfer pricing adjustment for the purchase of fixed assets from an associated enterprise (AE).
3. Methodology adopted for determining the Arm's Length Price (ALP).

Detailed Analysis:

1. Delay in Filing the Appeal:
The appeal was filed with a delay of 32 days. The assessee cited reasons such as the shifting of operations, finalization of new office and factory locations, and the engagement of the financial accounts team in upgrading the company's ERP software due to new GST requirements. The delay was attributed to these activities and the subsequent misplacement of the final assessment order. The tribunal found these reasons reasonable and condoned the delay, allowing the appeal to proceed.

2. Transfer Pricing Adjustment for the Purchase of Fixed Assets:
The assessee, a subsidiary of Tokheim Group S.A.S, engaged in manufacturing fuel dispensers, purchased fixed assets worth Rs. 23,20,989/- from its AE, Tokheim UK Ltd. The assessee declared the details of the international transactions and adopted the 'other method' for Transfer Pricing (TP) analysis. However, the Transfer Pricing Officer (TPO) observed discrepancies in the quantities mentioned in the invoices and concluded that the assessee failed to prove the arm's length nature of the transaction. Consequently, the TPO treated the transaction value as Nil and made an adjustment of Rs. 23,20,989/-.

3. Methodology Adopted for Determining the Arm's Length Price:
The assessee submitted detailed calculations of a 5% markup on cost and provided sample invoices for raw materials and fixed assets to the Dispute Resolution Panel (DRP). The DRP rejected the assessee's contentions, noting that the rationale for the markup was not adequately documented, and sustained the TPO's adjustment.

Upon appeal, the assessee argued that the TPO did not apply any prescribed method to determine the ALP and relied on case laws to support their contention. The assessee also pointed out that the customs authorities had accepted the transaction value, indicating the reasonableness of the declared prices.

The tribunal noted that while the assessee had declared the transaction as international and adopted the 'other method,' it did not follow any specific method to arrive at the ALP. The TPO, on the other hand, failed to apply any method prescribed under the income tax rules before treating the ALP as Nil. The tribunal emphasized that the benchmarking should be done for the markup charged by the AE and found the 5% markup reasonable given the circumstances.

The tribunal referred to the Bombay High Court's decision in the case of Lever India Exports Ltd, which held that the TPO's jurisdiction is limited to determining the ALP of an international transaction and not to question the genuineness of the expenditure. The tribunal concluded that the TPO's ad-hoc determination of ALP without following the prescribed methods could not be sustained.

Conclusion:
The tribunal allowed the appeal, deleting the addition made by the TPO. The order was pronounced beyond the 90-day period due to the exceptional circumstances of the COVID-19 lockdown, following the guidelines laid down by higher judicial authorities.

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