Tribunal directs recalculation of Arm's Length Price & reassessment of expenses in appeal decision.

The tribunal partially allowed the appeals of both the Revenue and the assessee, with the cross-objection of the assessee allowed for statistical purposes. The tribunal directed the AO/TPO to recalculate the Arm's Length Price for manufacturing activity and corporate guarantee fee using the external Transactional Net Margin Method. Additionally, the tribunal instructed a reassessment of the disallowed expenses, giving the assessee a chance to provide the required details.

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Issues Involved:
1. Condonation of Delay
2. Transfer Pricing Adjustment in Manufacturing Activity
3. Transfer Pricing Adjustment on Corporate Guarantee Fee
4. Disallowance of Expenses

Detailed Analysis:

1. Condonation of Delay:
The assessee's appeal and cross-objection were time-barred by 79 and 89 days, respectively. The assessee filed condonation petitions explaining the reasons for the delay. The tribunal was satisfied with the reasons, and no serious objection was raised by the Revenue. Consequently, the delay was condoned.

2. Transfer Pricing Adjustment in Manufacturing Activity:
The core issue was the determination of the Arm's Length Price (ALP) for international transactions in the manufacturing activity. The assessee initially employed the Comparable Uncontrolled Price (CUP) method, which was rejected by the Transfer Pricing Officer (TPO) in favor of the Transactional Net Margin Method (TNMM). The TPO applied external TNMM, while the Commissioner of Income Tax (Appeals) [CIT(A)] approved internal TNMM. The tribunal held that internal TNMM could not be applied due to significant differences in sales volume and geographical locations between AE and non-AE transactions. Consequently, the tribunal directed the application of external TNMM and remitted the matter to the AO/TPO for recomputation of the ALP, including consideration of capacity utilization adjustments.

3. Transfer Pricing Adjustment on Corporate Guarantee Fee:
The dispute involved the arm's length rate for corporate guarantees provided by the assessee to its Associated Enterprises (AEs). The TPO applied a 2% guarantee fee, while the CIT(A) reduced it to 1.75% and excluded performance guarantees from ALP determination. The tribunal referred to its earlier orders for prior years, which set the guarantee fee at 0.5% plus any actual expenditure incurred by the assessee. The tribunal remitted the matter to the AO/TPO to ascertain actual expenditures and recompute the guarantee fee. Additionally, the tribunal corrected the credit for guarantee fee recovery, restricting it to Rs.1.21 crore and reducing the excess credit allowed.

4. Disallowance of Expenses:
The AO disallowed 10% of various expenses due to the assessee's failure to furnish details during the assessment. The CIT(A) deleted the addition, noting no such disallowance in preceding or succeeding years. However, the tribunal found that the assessee did not provide necessary details during the assessment, justifying the AO's action. The tribunal remitted the matter to the AO for reconsideration, allowing the assessee an opportunity to furnish supporting details.

Conclusion:
The appeals of both the Revenue and the assessee were partly allowed, and the cross-objection of the assessee was allowed for statistical purposes. The tribunal directed the AO/TPO to recompute the ALP for manufacturing activity and corporate guarantee fee, and to reconsider the disallowance of expenses after providing the assessee an opportunity to present necessary details.

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