Tribunal allows appeal, sets aside transfer pricing adjustment, emphasizing compliance with statutory provisions. 'sLengthPrice

The Tribunal allowed the appeal challenging the transfer pricing adjustment in the international transaction of 'Payment of Management Fee'. It held that the Transfer Pricing Officer's methodology for proposing the adjustment lacked legal sanction as it did not determine the Arm's Length Price under prescribed methods. The Tribunal set aside the Rs.2.89 crore adjustment, emphasizing compliance with statutory provisions and prescribed methods for determining the Arm's Length Price in international transactions. The addition was deleted, and the appeal was allowed on 01st February, 2023.

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Issues:
1. Transfer pricing adjustment in the international transaction of 'Payment of Management fees'

Analysis:
1. The appeal challenged the final assessment order passed by the Assessing Officer regarding the transfer pricing adjustment in the international transaction of 'Payment of Management fees' for the assessment year 2016-17.

2. The Assessing Officer made a reference to the Transfer Pricing Officer (TPO) to determine the Arm's Length Price (ALP) of the transaction. The TPO analyzed the allocation of Management Fees paid by the assessee to its Associated Enterprise (AE) under various heads and proposed an adjustment of Rs.2.89 crore based on his working of cost allocation.

3. The TPO's adjustment was based on reworking the cost allocation on the basis of sales ratio rather than head count, which the TPO deemed inappropriate. The TPO's methodology for determining the allowable and disallowed costs was not in line with the prescribed methods for determining ALP under Chapter X of the Income-tax Act.

4. The relevant provisions of Chapter X of the Act require any income arising from an international transaction to be computed at the Arm's Length Price (ALP). The TPO's failure to determine the ALP under the prescribed methods and his deviation from the comparison with uncontrolled transactions rendered his approach contrary to the statutory procedure.

5. The assessee had computed the ALP of the international transaction in its Transfer Pricing Study Report, showing the transaction at ALP. The TPO's analysis did not challenge the ALP determination by the assessee, which indicated that the transaction was carried out at ALP.

6. The Tribunal held that the TPO's methodology for proposing the transfer pricing adjustment lacked legal sanction as it did not involve determining the ALP under the prescribed methods. The Tribunal set aside the adjustment of Rs.2.89 crore in the international transaction of 'Payment of Management Fee' and ordered its deletion.

7. The decision emphasized the importance of following the statutory provisions and prescribed methods for determining the Arm's Length Price in international transactions to ensure compliance with transfer pricing regulations.

8. The appeal was allowed, and the order to delete the addition of Rs.2.89 crore in the international transaction of 'Payment of Management Fee' was pronounced in the Open Court on 01st February, 2023.

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