Tribunal Allows Assessee's Appeal on Transfer Pricing Method & Deductions

The Tribunal partly allowed the assessee's appeal, directing acceptance of Internal TNMM as the Most Appropriate Method for international transactions with Associated Enterprises. All twelve comparables chosen by the assessee were included under External TNMM, leading to the deletion of the transfer pricing adjustment. The deduction for employee's contribution to provident fund and ESI was allowed if remitted before the income tax return filing due date. Penalty proceedings under section 271(1)(c) were deemed premature, and no interest under sections 234A and 234B was chargeable. The Tribunal directed the granting of MAT credit under section 115JAA and consequential refund with interest under section 244A.

---

---

Issues Involved:
1. Rejection of Internal Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM).
2. Inclusion of five comparables chosen by the assessee using External TNMM.
3. Allowability of deduction for employee's contribution to provident fund and ESI.
4. Initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act.
5. Levy of interest under section 234A of the Income Tax Act.
6. Chargeability of interest under section 234B of the Income Tax Act.
7. Granting of MAT credit under section 115JAA of the Income Tax Act.
8. Granting of consequential refund and interest under section 244A of the Income Tax Act.

Detailed Analysis:

1. Rejection of Internal Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM):
The assessee challenged the rejection of Internal TNMM by the lower authorities. The assessee had benchmarked its international transactions using Internal TNMM, showing a higher profit margin in transactions with Associated Enterprises (AEs) compared to non-AEs. The Transfer Pricing Officer (TPO) rejected this method, preferring External TNMM and selecting only three of the twelve comparables provided by the assessee. The Dispute Resolution Panel (DRP) upheld the rejection of Internal TNMM, citing non-compliance with date-wise analysis. However, the Tribunal found that date-wise analysis is relevant only under Comparable Uncontrolled Price (CUP) method, not TNMM. The Tribunal concluded that the Internal TNMM should be accepted as the MAM since the assessee's international transactions with AEs were at arm's length.

2. Inclusion of Five Comparables Chosen by the Assessee Using External TNMM:
The DRP accepted seven out of twelve comparables chosen by the assessee, rejecting five due to lack of segmental break-up between flexible and normal packaging. The Tribunal held that under TNMM, broad functional comparability suffices, and regular packaging industry is broadly comparable to flexible packaging industry. Citing precedents, the Tribunal included all twelve comparables chosen by the assessee, directing the TPO to delete the entire transfer pricing adjustment.

3. Allowability of Deduction for Employee's Contribution to Provident Fund and ESI:
The assessee contested the disallowance of employee's contribution to provident fund and ESI, which was remitted beyond the due dates under respective acts but before the due date of filing income tax returns. The Tribunal referenced the Jurisdictional High Court's decision in CIT vs. Ghatge Patil Transport Ltd., allowing such contributions if remitted before the filing due date. Thus, the deduction was allowed.

4. Initiation of Penalty Proceedings under Section 271(1)(c) of the Income Tax Act:
The assessee challenged the initiation of penalty proceedings under section 271(1)(c). The Tribunal deemed this issue premature for adjudication at this stage and dismissed it.

5. Levy of Interest under Section 234A of the Income Tax Act:
The assessee contested the levy of interest under section 234A, arguing that the return was filed before the due date. The Tribunal found that the return was indeed filed timely and ruled that no interest under section 234A was chargeable.

6. Chargeability of Interest under Section 234B of the Income Tax Act:
The issue of chargeability of interest under section 234B was deemed consequential in nature by the Tribunal.

7. Granting of MAT Credit under Section 115JAA of the Income Tax Act:
The assessee challenged the non-granting of MAT credit under section 115JAA. The Tribunal directed the Assessing Officer to verify and grant MAT credit in accordance with the law.

8. Granting of Consequential Refund and Interest under Section 244A of the Income Tax Act:
The assessee contested the non-granting of consequential refund and interest under section 244A. The Tribunal directed factual verification and determination of the actual refund, ensuring interest under section 244A is granted till the date of refund.

Conclusion:
The appeal of the assessee was partly allowed, with the Tribunal providing specific directions on each issue, ensuring compliance with legal standards and precedents. The order was pronounced on 23/06/2022.

---