TaxTMI 
TaxTMI 
2026 (9) TMI 603
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....erroneous on facts and law, and liable to be quashed. 2. Transfer Pricing Adjustment - Method Selection The learned TPO erred in rejecting the Cost Plus Method (CPM) adopted by the assessee as the most appropriate method (MAM) for benchmarking its international transactions with Associated Enterprises (AEs). The authorities below failed to appreciate that the assessee's transactions involved provision of services on a cost-plus basis, and hence CPM was the most appropriate method, consistent with Rule 10B(1) (c) of the Income-tax Rules, 1962. The learned TPO erred in adopting the Transactional Net Margin Method (TNMM) in spite of the availability of reliable internal comparable data under cost plus method. 3. The learned TPO ignored real nature of transaction between Assessee and its Associated Enterprises (AE), in reality AE is established for working like branch office and not a profit centre. Arm length price should be determined keeping in view that Bio-Analytical Technologies UK Ltd is not a separate stand-alone company (who has only one employee), not doing any other business than supporting service sale of Bio-Analytical Techn....
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....PO has not applied mind while passing the Order u/s. 92CA(3). Ld.AR invited our attention to various paragraphs of the TPO's Orders which do not pertain to the assessee. Ld.AR submitted that most of the TPO's order contains incorrect facts. Ld.AR submitted that though the assessee had brought to the notice of the DRP these facts the DRP failed to consider it. 4.1 Ld.AR submitted that the assessee had benchmarked its transactions using CPM method. Ld.AR further submitted that during the year assessee had supplied identical services to the unrelated party at same Cost plus 15 % mark up. Ld.AR submitted that details were provided to the TPO and DRP but they failed to consider it as Internal CUP. The relevant paragraphs of the written submission of the Ld.AR are reproduced here as under : "The Company, Bio Analytical Technologies (India) Pvt. Ltd is promoted by Mr. S.G. Bhalerao, Mr. S.S. Bapat, Mr. V.S. Upadhye and Mr. V.M. Bibikar and all the four persons have a sound educational background and all had gained wide experience in handling sophisticated analytical / scientific instruments. BioAnalytical Technologies India Pvt. Ltd. (B.A.T.) is engaged in providing K....
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....es India Private Limited' ('BAT' or 'the assessee' or 'the Company') was incorporated in India in 2003. Bioanalytical Technologies (UK) Limited is a private company limited by shares incorporated in England as wholly owned subsidiary of assessee. During the previous year relevant to assessment year 2022-23, assessee has entered into international transactions which, inter alia, included rendering of software development services to overseas affiliates. The software developed / services rendered by the assessee is only based on the instructions received from its associated enterprises. The assessee does not create / develop / sell software products and packages to Associated Enterprise. The software developed / services rendered by the assessee is used by its associated enterprises for integrating the same with other software / hardware Companies. Therefore, the assessee's business is limited to providing software development services. The assessee conducted a Transfer Pricing Study ('TP Study') in order to comply with the Indian transfer pricing provisions. The assessee provides software development services to its associated enterpr....
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....pertaining to the assessee. Further the TPO has mentioned in para 11.2 that certain additional comparable proposed by Assessee have failed on filters. This is absolutely incorrect facts as Assessee has never submitted those comparables. The Assessee in its paper book at page 112 onward has mentioned that TPO has reproduced incorrect facts in para 8.1, 8.2, 8.3, 8.4, 9.1, 9.2 etc . This fact has not been rebutted by the Ld.DR. This explains the utter Non application of mind by the TPO. 6.6 The TPO in the TP Order at para 3.2.2 has rejected the Cost Plus Method selected by the Assessee and decided to apply TNMM method. The relevant paragraph of the TPO is as under : "3.2.2 The arm's length price of the international transactions in SD Ssegment provided to the associated enterprises (AE) has been determined by applying Cost Plus Method (CPM), stating to be the most appropriate method in the facts and circumstances of the case. The gross profit to operating sales ratio (GP/Sales) has been taken as the profit level indicator (PLI) in CPM analysis. The assessee has not provided any rationale for the use of GP/SALES as the PLI. Further the assessee is into software develop....
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....no method can invariability be considered to be more reliable than others, on a conceptual note, transactional profit methods (i.e., Transactional Net Margin Method and Profit Split Method)are treated as methods of last resort which are pressed into service only when the standard methods, which are also termed as 'traditional methods' (i.e., Comparable Uncontrolled Price Method, Resale Price Method and Cost Plus Method) cannot be reasonably applied. The OECD Guidelines also recognize this fact and state that transactional profit methods might be used to "approximate arm's length conditions when traditional methods cannot be relied applied alone or exceptionally cannot be applied at all". We are in considered agreement with this approach. In our considered view, the transaction profit methods should be applied only when standard or traditional methods are incapable of being properly applied on the facts of a case. While traditional methods seek to compute the prices at which international transactions would normally be entered into by the associated enterprise, but for their interdependence and relationship, transactional profit methods seek to compute the profits that t....
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.... In this case except theoretical assertions and generalized observations, no objective findings have been given to come to a reasoned conclusion that assessee's adoption of CPM for manufacturing segment and RPM for trading segment was Factually and objectively not correct. Thus the rejection of methods by TPO as adopted by assessee is bereft of any cogency and objectivity. The same is a work of guessing and conjectured. Similarly the TNM method applied by the TPO suffers from the same inherent aberrations as mentioned above. In these circumstances we are of the view that Assessees methods of CPM and RPM respectively worked by applying appropriate comparables is to be upheld. Thus the ALP working returned by the assessee is upheld. Assessees TP grounds are allowed." Unquote. 9. Thus, it has been explained in the above decision by ITAT Pune, and ITAT Delhi that whenever, traditional methods like CPM,CUP can be used and has been used by the assessee, the revenue cannot discard it without giving cogent reasons. In the case of the assessee we have already reproduced the relevant paragraphs of the TP Order to demonstrate that no valid reasons given by the TPO to reject CPM . Co....
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....s LLC USA . The Assessee had filed sample invoices of Labworks LLC to prove that Assessee is charging Cost Plus 15 % to Labworks LLC which is an independent entity. Assessee also filed elaborate Cost details at page 155 of the paper book. These facts have not been disputed by TPO or DRP. As per Annual Report of the assessee, the Net Profit earned by AE in UK is 2.9 % only (page 16 of the paper book). 10.5 Thus in the case of the assessee, the assessee has provided Software services to its AE at cost plus 15% mark up. Assessee also provided Software services to Independent entity at Cost Plus 15% mark up. Assessee had applied CPM for benchmarking ALP. We have already reproduced above the OECD Guidelines which have explained that Cost Plus Mark up of Controlled transaction should be established in comparison to Cost Plus Mark up of Transaction entered with Independent Entity. In the case of the Assessee, the Assessee has established that it had charged Cost Plus 15 % mark up to its AE and to Independent Entity also. The DRP has mentioned that there is difference in Geographical Market of USA and UK, also terms of contract not submitted. However, the objection raised by DRP cannot ....
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.... ALP determination on the basis of transactional profit methods, but when traditional methods of ALP determination are being pressed into service, such consideration are wholly irrelevant. We are, therefore, not inclined to approve the line of reasoning adopted by the Transfer Pricing Officer in adopting this approach. We have also noted that the TPO has observed that Cost Plus Method cannot be applied as the relevant data is not available in the databases available to him, but this reasoning proceeds on the fallacy that for application of Cost Plus Method, internal comparable uncontrolled transaction is not sufficient. Rule 10B(c)(ii ), inter alia, provides for determination of the amount of normal gross profit mark up to direct and indirect costs, computed according to the same accounting norms as followed in the transaction with AE, by the enterprise in a comparable uncontrolled transaction. In the present case the assessee has entered into export transactions with the unrelated parties and the assessee's mark up on such transactions is admittedly comparable with the exports to related parties. 28. We have also noted that the Transfer Pricing Officer had rejected th....
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....le 10(1)(c)( ii) which refers to the gross profit mark up to such costs arising from the transfer of similar property by the assessee in a comparable controlled transactions. The assessee had offered the comparison of gross profit mark up margin of the assessee-company on transactions with AEs with gross profit mark up margin of the assessee-company on transactions with unrelated parties, which, in our considered view, was a sufficient basis for determination of ALP under rule 10(1)(c). The Transfer Pricing Officer therefore did not have any good reasons to reject the method adopted by the assessee." Unquote. 12. It is important to mention here that the Ld.AR submitted that Assessee has entered with the International Transaction with its AE since 2014, Assessee has always benchmarked the transaction using CPM and Revenue has accepted it for earlier years. This fact has not been rebutted by the Ld. DR. The Ld. DR merely submitted that the case may not have been selected for scrutiny. The chart submitted by the Assessee in the paper book is reproduced here under : Assessment Year Method Used 2021-22 Cost plus 15% CPM 2022-23 Cost plus 15% CPM 2....