2023 (4) TMI 455 - AT - Income Tax

Appeal Allowed for TP Adjustments and ALP Determination in International Transactions

The Tribunal allowed the appeal for Assessment Year 2017-18, challenging the ALP adjustment in international transactions with overseas Associated ... TP Adjustment - ALP adjustment of international transactions with overseas Associated Enterprises pertaining to manufacturing segment - internal rejection of assessee’s comparables - HELD THAT:- We make it clear that we are dealing with the assessee’s Transactional Net Margin Method [ “TNMM”] having profit level indicator than exact product similarly as held in Gemstone Glass (P.) Ltd. [2015 (11) TMI 185 - ITAT AHMEDABAD]. Faced with the situation, we adopt judicial consistency qua the instant sole surviving issue and leave it open for the learned Transfer Pricing Officer [in short “TPO”] to compute the assessee’s ALP in light of its internal comparables as per law in very terms. Issues:Assessment Year 2017-18 - ALP adjustment of Rs.7,77,78,194 in international transactions with overseas Associated Enterprises - Challenge to lower authorities' action - Adoption of internal comparables - Judicial consistency in previous orders - TP adjustments amounting to Rs.11,20,79,272 and Rs.4,07,27,000 for corporate support services and manufacturing segments - Corporate cost allocation disallowance of Rs.4,51,07,206 - Failure to demonstrate ALP in transactions of import of raw materials - TNMM with profit level indicator - Directions of DRP - Judicial consistency in decision-making.Analysis:The appeal for Assessment Year 2017-18 involved a challenge to the correctness of the lower authorities' action in making an ALP adjustment of Rs.7,77,78,194 in the assessee's international transactions with overseas Associated Enterprises (AEs) related to the manufacturing segment. The assessee raised substantive grounds, with some being rejected as general or premature. However, the key issue revolved around the ALP adjustment and the adoption of internal comparables. The counsel referred to previous orders where the Tribunal upheld the internal Transactional Net Margin Method (TNMM) as the most appropriate method for determining the arm's length price (ALP) for international transactions. The Tribunal, in line with previous decisions, allowed the assessee's grounds challenging the correctness of the lower authorities' actions, leading to the acceptance of the substantive grounds 4 to 7.5 in the assessee's favor.In a subsequent appeal regarding TP adjustments amounting to Rs.11,20,79,272 and Rs.4,07,27,000 for corporate support services and manufacturing segments, along with a corporate cost allocation disallowance of Rs.4,51,07,206, the Tribunal followed judicial consistency in decision-making. The Tribunal adopted a similar approach as in previous orders, deciding the issues in the assessee's favor based on the absence of distinguishing features throughout the assessment years. The appeal was allowed, and necessary computations were to follow as per law.Regarding the failure to demonstrate the ALP in transactions related to the import of raw materials, the Tribunal considered the Transactional Net Margin Method (TNMM) with a profit level indicator. The Tribunal, in line with Gemstone Glass (P.) Ltd. vs. JCIT, ordered judicial consistency in addressing the sole surviving issue and left it open for the Transfer Pricing Officer (TPO) to compute the assessee's ALP based on internal comparables as per law. The appeal was partly allowed for statistical purposes, with the order pronounced on 30th December 2022.