2025 (8) TMI 25 - AT - Income Tax

TPO Cannot Reject Previously Accepted Certified Segmental Comparison Without Adjustment Under Transfer Pricing Rules

Pos – Hyundai Steel Manufacturing India Private Limited Versus Deputy Commissioner of Income Tax, Circle -1, LTU, Chennai.

The ITAT Chennai held that the TPO cannot reject the certified segmental comparison of AE and Non-AE entities when it had accepted the same basis of ... TP Adjustment - MAM Selection - rejection of certified segmental comparison of AE and Non-AE - HELD THAT:- We find that on an identical set of facts for AY 2015-16, the TPO while conducting the TP assessment has in principle accepted the basis of segmentation and has not made any adjustment. In our considered view, when the TPO has accepted internal TNMM workings on the same parameters in the past years, cannot now take a different stand and try to reject the same. Our view is supported by the decision in the case of Radhasaomi Satsang [1991 (11) TMI 2 - SUPREME COURT] as held where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. We are also of the view that Internal TNMM is more superior than external TNMM more so when audited segmental are available. Accordingly, in principle we hold that in Internal TNMM is the most appropriate method. As relying on Brillo Technologies Pvt Ltd. [2022 (6) TMI 1367 - ITAT BANGALORE] we are also of the view that Internal TNMM basis the audited segmentation furnished by the external CA should be accepted. This ground of appeal is allowed. ISSUES: Whether the rejection of certified segmentation between Associated Enterprise (AE) and Non-AE segments for transfer pricing purposes was justified.Whether the application and rejection of the Value Added Expense (VAE) filter in selecting comparable companies for benchmarking international transactions was appropriate.Whether the computation of Transfer Pricing (TP) adjustment was erroneous due to reliance on the original instead of the rectified Transfer Pricing Officer (TPO) order. RULINGS / HOLDINGS: On the rejection of segmentation: The Court held that the certified segmentation and internal TNMM method adopted by the assessee is the 'most appropriate method' and should be accepted, especially since the same method and segmentation were accepted in prior and subsequent years; rejection without specific defects in sample invoices was improper.On the VAE filter and selection of comparables: This issue was rendered academic and not adjudicated due to the primary ruling in favor of the assessee on segmentation and internal TNMM.On computation of TP adjustment: Similarly, this ground was not adjudicated as it became academic following the acceptance of the internal TNMM method and segmentation. RATIONALE: The Court applied the principle of consistency as established by precedent that 'where a fundamental aspect permeating through the different assessment years has been found as a fact ... it would not be at all appropriate to allow the position to be changed in a subsequent year.'Reliance was placed on judicial decisions affirming the acceptability of internal benchmarking, including audited and certified segmental results, over external comparables when available and reliable.The Court emphasized that the TPO's insistence on the entire set of bills and vouchers was impractical and unjustified when sample invoices were not specifically challenged for defects.Precedents from coordinate Benches were followed, which held that internal TNMM benchmarking is superior and that unaudited or audited segmental data should be accepted unless errors are demonstrated.The Court remitted the issue to the TPO to reconsider the ALP determination based on the internal TNMM method and certified segmentation, directing adherence to prior accepted principles and decisions.