M/S. MEGASOFT LTD.,CHENNAI vs. DCIT, CHENNAI

ITTPA 72/CHNY/2019Status: DisposedITAT Chennai22 December 2023AY 2013-145 pages
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What were the facts?

The assessee, M/s. Megasoft Limited, filed its return of income for Assessment Year 2013-14 on 29.11.2013, declaring a total income of ₹.89,24,000/-. The Assessing Officer (AO), under section 143(3) r.w.s. 92C(4) of the Income Tax Act, 1961, completed the assessment on 31.01.2017. The AO rejected the assessee's plea to adopt the Comparable Uncontrolled Price (CUP) method as the most appropriate method for benchmarking international transactions, following the directions of the Transfer Pricing Officer (TPO) dated 28.10.2016. The Commissioner of Income Tax (Appeals) – 8, Chennai, upheld the AO's decision. The assessee appealed to the Income Tax Appellate Tribunal (ITAT). The dispute revolves around the appropriate method for benchmarking international transactions for AY 2013-14.

What did the Tribunal hold?

The Tribunal held that the Comparable Uncontrolled Price (CUP) method is the most appropriate method for benchmarking the assessee's international transactions for Assessment Year 2013-14. The Tribunal noted that the TPO had accepted the CUP method for AY 2010-11 and 2011-12. For AY 2012-13, the assessee's appeal before the Tribunal resulted in a decision dated 21.09.2022 (ITA No. 733/Chny/2017) where the Tribunal reversed the TPO's and DRP's rejection of the CUP method. The Tribunal in that prior decision observed that the TPO had not provided credible reasons to reject the CUP method, especially since the assessee consistently followed it and there was no change in facts and circumstances compared to preceding years. The Tribunal also noted that the margin from third-party non-AE sales was lower than from AE sales, supporting the CUP method. Following this coordinate bench decision in the assessee's own case for AY 2012-13, the Tribunal reversed the orders of the authorities below for AY 2013-14. The AO was directed to consider the CUP method as the most appropriate method and delete the addition made towards Transfer Pricing adjustment. The issue of TNMM being the most appropriate method was implicitly rejected by allowing CUP.

What were the issues?

1. Whether the Comparable Uncontrolled Price (CUP) method is the most appropriate method to benchmark the assessee's international transactions for Assessment Year 2013-14, or if the Transactional Net Margin Method (TNMM) should be followed as determined by the TPO. Assessee's Contentions: - The TPO had accepted the CUP method for AY 2010-11 and 2011-12. - For AY 2012-13, the Tribunal, in assessee's own case (ITA No. 733/Chny/2017 dated 21.09.2022), held that the CUP method was the most appropriate method. - The TPO and CIT(A) for AY 2013-14 rejected the CUP method by following the order for AY 2012-13. - The issue is squarely covered by the Tribunal's decision for AY 2012-13. - The assessee consistently followed the CUP method, using internal CUP based on third-party export sales to non-AEs, and the margin from such sales was lower than from AE transactions. - There was no change in facts and circumstances compared to the previous two assessment years, necessitating adherence to the rule of consistency, as per the decision in Radhasaomi Satsang. Revenue's Contentions: - The ld. DR strongly supported the orders of the authorities below.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 92C(4)

AI-generated summary — verify with the full judgment below

Before: Shri V. Durga Rao & Shri Manoj Kumar Aggarwal

Hearing: 20.12.2023Pronounced: 22.12.2023

PER V. DURGA RAO, JUDICIAL MEMBER:

This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals) – 8, Chennai dated 25.07.2019 relevant to the assessment year 2013-14. 2. Brief facts of the case are that the assessee has filed its return of income for the assessment year 2013-14 on 29.11.2013 admitting total income of ₹.89,24,000/-.

The order continues below.

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