ZACKS RESEARCH PVT. LTD.,KOLKATA vs. ACIT, CIR. 8(2), KOLKATA

After perusing the various grounds of appeal, we find that the assessee has raised a legal issue in ground no. 7 to the effect that transfer pricing adjustment made iscontrary to the provisions of Section 92C(1) of the Act as the ALP of Assessment Year: 2016-17 Zacks Research (P) Ltd. transactionsentered into by the assessee was within 3% range from arm’s length price determined by the TPO.

Facts in brief are that the assessee filed return of income on 27.09.2016 declaring total income of Rs. 50,16,590/-. The case of the assessee was selected for scrutiny for two reasons namely i) to examine TP parameters and ii) whether the sale/receipts was correctly offered for tax. Since the assessee has entered into transactions as its AE, the matter was referred to TPO for determination of arm’s length price in respect of said transactions. The DCIT, IT and TPO-2, Kolkata vide order dated 26.10.2019 passed u/s 92CA(3) of the Act determined arm’s length price wherein arm’s length price margin was recommended at 3.59% whereas the margin declared by the assessee was 2.29%. Accordingly, TPO recommended upward adjustment on account of TP in respect of international transactions with the AE to the tune of Rs. 21,29,779/-. Accordingly assessment was framed and the addition was made to the income of the assesse in the order passed u/s 143(3) read with Section 144C(3) of the Act dated 18.12.2019. Pertinent to state that there is no dispute as to the method of determination of arm’s length price. The assessee has applied TNMM which has been accepted by the TPO. However the TPO rejected the seven comparables as stated in para 5.4 whereas the remaining comparables as per TPSR were accepted however the working capital adjustment margin of the comparables were rejected.

In the appellate proceedings, the Ld. CIT(A) affirmed the order of AO by holding that there is no infirmity or mistake in the TPO’s order.

After hearing the rival contentions and perusing the material on record and also the provisions of Section 92C(2) of the Act , we observe that the variation in the arm’s length price so determined by the TPO and price at which international transactions have been undertaken by the assesse does not exceed 3% of the later. In that scenario, the price at which international transactions were entered into shall be deemed to be arm’s length price. In the present case, arm’s length margin proposed by the TPO is Assessment Year: 2016-17 Zacks Research (P) Ltd. 3.59% whereas the margin as per TPSR is 2.29% meaning thereby that variation in the arm’s length price as computed by the TPO and as calculated by the assessee as per TPSR is less than 3%. Therefore the price at which the international transactions were undertaken with its AE shall be considered to be at arm’s length price. Accordingly we set aside the order of Ld. CIT(A) and direct the AO to delete the disallowance.

Since we have allowed the appeal of the assesse on legal issue, the other grounds are not being adjudicated. The appeal of the assessee is allowed.

In the result, the appeal of the assessee is allowed.