TaxTMI 
TaxTMI 
2026 (4) TMI 1548
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....tain bonafide inadvertent mistakes and therefore, the negative observations of the learned AO / DRP need to be disregarded from the order passed by Transfer Pricing Officer ("TPO") / DRP directions. 1.2. On facts and circumstances of the case, the learned AO / Hon'ble DRP has erred in facts and circumstances of the case and in law, in re-computation of the arm's length price ("ALP") of the specified domestic transactions entered by the Appellant, by making an upward adjustment of INR 23,01,101. 1.3. On the facts and circumstances of the case, the learned AO / Hon'ble DRP erred in taking Comparable Uncontrolled Price ("CUP") method as Most Appropriate Method ("MAM") by comparing certain selected transactions and observing that invoices do not reflects quality difference in as much as having regard to Potato being commodity and nature of business of the Appellant and COVID 19 situation, CUP may not be considered as MAM under the provisions of section 92C and rule 10B. 1.4. On facts and circumstances of the case, the learned AO / Hon'ble DRP has erred in deciding the MAM as internal CUP on the ground that AE / HAPL is undertaking complex func....
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....r." 3. The brief facts of the case are that the assessee is a private limited company engaged in the business of manufacturing frozen potato-based food products such as French fries and other potato specialties under the "Hyfun Foods" brand. The assessee filed its return of income for A.Y. 2022-23 declaring total income of Rs.14,52,65,970/-, which was processed under section 143(1) of the Income-tax Act, 1961 ("the Act"). Subsequently, the case was selected for complete scrutiny under CASS on multiple risk parameters viz. high liabilities vis-à-vis income, existence of large specified domestic transactions attracting transfer pricing provisions, discrepancies in stock reporting, mismatch in personal expenditure disclosures, and non-compliance with Income Computation and Disclosure Standards (ICDS). 4. During the course of assessment proceedings, the assessee furnished its financials and transactions with associated enterprises. One of the key issues identified by the Assessing Officer was the presence of specified domestic transactions between the assessee and its associated enterprise, namely Hyfun Agro Private Limited (HAPL), was in respect of purchase of potatoes. G....
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....indings of the TPO and confirmed the proposed adjustment. The DRP specifically affirmed the approach adopted by the TPO and rejected the contentions of the assessee, holding that the CUP method applied by the TPO was appropriate and that the assessee failed to demonstrate any infirmity in the determination of ALP. Thus, no relief was granted to the assessee on the transfer pricing issue. 8. Pursuant to the directions issued by the DRP under section 144C(5), the Assessing Officer passed the final assessment order and in conformity with the DRP directions and the effect order passed by the TPO, the Assessing Officer made an addition of Rs.23,01,101/- to the returned income of the assessee. Accordingly, the Assessing Officer assessed the total assessed income at Rs.14,75,67,071/- as against the returned income of Rs.14,52,65,970/-. 9. The assessee is in appeal before us against the final assessment order passed by the Assessing Officer. 10. We have heard the rival contentions and perused the material on record. The core issue involved in the present appeal relates to determination of the Arm's Length Price in respect of specified domestic transactions of purchase of potatoes ....
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....n'ble ITAT made the following observations: "9. On perusal of above provisions, it could be noted that broadly, CUP method compares the price charged with regard to a controlled transaction for transfer of goods or services to the price charged for transfer of goods or services in a thirdparty scenario having comparable circumstances. Accordingly, while applying CUP there shall be certain adjustments i.e. type and quality of the products, Delivery terms, Volume of sales and related discounts, Contractual terms, Allocation of risk, Geographical factors, etc. which needs to be made to eliminate the differences in the transactions between independent enterprises which has material impact on the price to reasonable extent. 9.1. Thus the nature of end consumer/business model of consumer to whom the product is being sold needs to be considered for comparability analysis. The price at which the product sold by an entity to a consumer for end-use (B2C model) may not be comparable with the price of the product sold to a consumer, who is using such product for its business (ie., B2B model). In this regard, reference to the decision of the Kolkata Tribunal in the case of....
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....ates are market driven. Whereas HAPL sell potatoes to ASPL at cost plus agreed arm's length markup. * Even quality of products are different and are not comparable as can be observed from the quality wise details maintained in the books of account of the Assessee. 9.5. In view of the above, TPO/DRP has not taken any accurate adjustments in order to apply CUP method nor considered the impact of above factors/fundamental differences while applying CUP method. Further, in the absence of lack of data in public domain to make accurate adjustments, it can be concluded that CUP cannot be considered as the most appropriate method in the present case and the analysis undertaken by the Assessee in TP study as well as by the ld TPO as confirmed by DRP suffer from various flaws does not reflect the correct ALP. 9.6. Now once it is concluded that CUP cannot be applied in the present case, the next best possible option is to consider TNMM as the most appropriate method. We find that the Assessee has submitted alternative benchmarking methodology during the course of assessment proceedings. Before coming to search submitted by the Assessee, in order to apply TNMM, f....
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....o examine TNMM and held that the associated enterprise (HAPL) being the least complex entity without significant intangibles was the correct tested party. The Tribunal accepted the benchmarking analysis submitted by the assessee under TNMM and recorded a finding that the AE had earned a net margin of 5.86%, which was higher than margins of comparable companies ranging between 1.19% to 2.44%. Accordingly, it was held that the transactions were at arm's length and no adjustment was warranted. 16. When we examine the facts of the present assessment year, we find that there is parity with the earlier year. The assessee is engaged in the same business activity, the transactions are with the same associated enterprise, the nature of transaction continues to be purchase of potatoes under a cost-plus mechanism, and the dispute again revolves around rejection of TNMM and adoption of CUP by the TPO without making necessary comparability adjustments. The reasoning adopted by the TPO and affirmed by the DRP in the present year is substantially identical to that adopted in A.Y. 2021-22. Thus, both on facts and in law, the issue is squarely covered by the decision of the coordinate bench in a....