OMNIACTIVE HEALTH TECHNOLOGIES LIMITED,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 8(2)(1), AAYAKAR BHAWAN, MUMBAI

18. June 2024 issued by the Hon'ble Dispute Resolution Panel ('DRP") u/s 144C(5) of the Act, for the aforesaid assessment year on the grounds set out herein; Omniactive Health Technologies Limited 1:0 Transfer Pricing Adjustment of INR 15,93.35.145 to the international transaction relating to export of goods 11 The learned Assessing Officer ("AO")/ Transfer Pricing Officer (TPO)/ Dispute Resolution Panel ("DRP") has erred in making an upward adjustment of INR 15,93,35,145/- to the total income of the Appellant by holding that the international transaction relating to the export of goods entered into by the Appellant with its Associated Enterprise ("AE") was not at arm's length. 1:2 The learned AO/TPO/DRP erred in rejecting Transactional Net Margin Method ("TNMM") which was determined by the Appellant as the most appropriate method as per provisions of section 92C(1) of the Act. 1:3 The learned AO/TPO/DRP has erred in applying Comparable Uncontrolled Price ("CUP") method by comparing sales made to third party customers with that to AE ignoring the significant factors like differences on account of geographical market, volume of transactions etc. 1:4 The learned AO/TPO/DRP has erred in not following the orders of the Hon'ble Income Tax Appellate Tribunal ('ITAT') in Appellant's own case in earlier years wherein TNMM was accepted as the most appropriate method relating to export of goods to AE Accordingly, the learned TPO/AO/DRP have erred in adopting consistency in approach and disregarding the fact that there is no change in facts of the Appellant which required change in the benchmarking approach. 1:5 The Appellant submits that the learned AO be directed to delete the upward adjustment of INR 15,93,35,145 made by him to the Appellant's total income and to re-compute its total income and tax liability accordingly. 2:0 General 2:1 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, the impugned order dated 22 July 2024 passed u/s. 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 is ab-initio void being barred by limitation and hence, ought to be struck down. 2:2 The Appellant submits that considering the facts and circumstances of its case, the learned AO has erred in initiating penalty proceedings under section 270A of the Act. ………………………………………………………………………………”

It is pertinent to mention that the appellant assessee, vide application dated 12.11.2024 requested to withdraw ground of appeal

This issue has further been elaborately dealt in details by the coordinate bench of this Tribunal, vide order dated 19.04.2023 passed in for A.Y. 2017- Omniactive Health Technologies Limited 18 in assessee’s own case. The relevant paras 9 to 11 are reproduced as under: “9.We have considered the rival submissions on the transfer pricing adjustment and perused the material on record. We find that for the Assessment Year 2010-11 and 2011-12, Assessing Officer/TPO had accepted internal TNMM benchmarking analysis conducted by the Appellant. For Assessment Years 2012-13 and 2013-14, the Tribunal has vide order, dated 06/03/2018, passed in ITA Nos. 638 & 4643/Mum/2017), allowed the appeal of the Appellant and accepted TNMM method, as applied by the Appellant as the most appropriate method holding as under: “24. Against the above order, the assessee is in appeal before us.

We have heard both the counsels and perused the records. The ld. Counsel of the assessee submitted that since the last three years the assessee has been following TNMM method which has been duly accepted by the Revenue. He submitted that no cogent reason has been given for rejecting the TNMM method in the present year. He placed reliance on several decisions from the Hon'ble Apex Court including Radhasoami Satsang v. CIT [1992] 193 ITR 321/60 Taxman 248 for the proposition that there should be a consistency in the income tax proceedings unless mandated by change in law and the facts.

Per contra, the ld. Departmental Representative relied upon the orders of the Transfer Pricing Officer. Justifying the change from TNMM to CUP method, the ld. Departmental Representative submitted the case law for the proposition that error should not be perpetuated. He further referred to ITAT decision in the case of Serdia Pharmaceuticals (India) (P.) Ltd. v Asstt. CIT [2011] 44 SOT 391/9 taxmann.com 13 (Mum.) that CUP method was to be preferred.

We have carefully considered the submissions and all the relevant records have been perused. We find that the first objection of the ld. Counsel of the assessee is that in the preceding years, for three years transactional net margin method was used to benchmark the international transaction. In the present assessment year, the Transfer Pricing Officer noted that the assessee has adopted transactional net margin method for determining the arms length price for export of finalised goods to the Associate Enterprises. During the course of assessment proceedings, the Transfer Pricing Officer proceeded with the same and also asked the assessee to provide an updated margin of the comparable selected. The updated margin was given to the Transfer Pricing Officer. From the computation of updated margin also, the PLI of the assessee come to 15.21% which was higher than the PLI of the two comparable companies. Hence, from this analysis of updated comparables also, the transaction was found to be at arm's length. At this juncture, the Transfer Pricing Officer changed his tracks. He observed that no verifiable data has been provided to substantiate the method used. He further held that CUP would be a more appropriate method to benchmark the sale transaction. The assessee objected to the same. In the objections, the assessee also relied upon the OECD Guidelines and the ITAT decision in the case of Welspun Zucchi Textiles Ltd. v Asstt. CIT [2014] 151 ITD 353/43 taxmann.com 314 (Mum. - Trib.). However, the Transfer Pricing Officer summarily rejected and Omniactive Health Technologies Limited held that the application of TNMM is the method of last resort when the comparable price method cannot be applied. However, he noted that in the assessee's case since the comparable price for the same or similar products to the third parties has been provided by the assessee, the same has to be considered for bench-marking this transaction. Accordingly, Transfer Pricing Officer proceeded to apply the CUP method for bench-marking. The assessee's objection in this regard was also dismissed by the DRP when it held that it was of the opinion that when internal CUP is easily available, the TNMM is to be treated as method of last resort.

From the above discussion, we find that the Transfer Pricing Officer has rejected the consistently applied TNMM method without bringing on record any cogent reason. It is the settled law that the consistent method followed can be changed only if there is a change of facts or law. There are various decisions of Hon'ble Apex Court in this regard including that from Radhasoami Satsang (supra). In the present case, there is no case that there is a change of law or there is a change in fact. It is also not the case that TNMM method which has been consistently applied in past was totally wrong method. In this regard, we may gainfully refer to the relevant provisions contended by the Transfer Pricing Officer as under “92C Computation of Arm‟s Length Price xx xx……………………………………………..”

Thus from the above, it is evident that the arm's length price in relation to an international transaction is to be determined by one of the prescribed methods which is most appropriate method having regard to the nature of transaction, class of transaction, class of associated persons, functions to form by such person, or such other relevant factors. Section 92C(2) provides that it is only the appropriate method as referred to in section 92C(1) which can be applied for determining arm's length price in the prescribed manner. The choice of method on the basis of which arm's length price is determined has to be exercised on the touch stone of principles governing selection of most appropriate method set out in section 92C(1). The legislature does not provide for an order of preference of method of determining of arm's length price. Now once an appropriate method for determining the arm's length price has been chosen and accepted by the Revenue consistently over a number of years, there has to be some cogent reason to make it departure from the consistent method. We do not find that any case has been made out by the Transfer Pricing Officer or the DRP that there was an error committed earlier when the TNMM method was chosen and approved. The Transfer Pricing Officer while justifying the change stated that in T.P. report assessee has benchmarked the transaction under TNMM, no verifiable data has been provided to substantiate the method used. Hence, from the above discussion, we find that no cogent reason has been pointed out by the authorities below that the TNMM method applied earlier was not in accordance with the mandate of law as above. It is settled law that res judicata does not apply to taxation proceedings but it has fairly often been held by the higher courts including by the Hon'ble Apex Court that the consistency should be maintained in the assessment proceedings. A consistently applied method can be changed only if there is a change in facts and law. In the present case, we find that there is no such case Omniactive Health Technologies Limited has been made out. Rather the Transfer Pricing Officer has proceeded to examine the issue on the basis of TNMM method. He has ordered for updated data of comparable. Thereafter, when even on the basis of updated data, the international transaction was found to be at arm's length, he laconically held that CUP method would be preferred. The DRP had summarily upheld the change from TNMM to CUP method without assigning any cogent reason whatsoever. By no means it is justified to keep on finding a method for addition by trial and error method. Accordingly, on the anvil of aforesaid Hon'ble Apex Court's decision as discussed hereinabove, we hold that there was no justification in rejecting the TNMM method applied by the assessee as in the preceding year. Since as per the same computation the assessee's margin was found to be at arm's length, we set aside the order of authorities below and decide the issue in favour of the assessee. Since we have already allowed the assessee's appeal on this issue, for lack of justification in changing the method of benchmarking we are not dealing with the arguments on other aspects of merits of application of CUP method computation of arm's length price by the Transfer Pricing Officer in this case. The case law referred by the ld. Departmental Representative are distinguishable on the facts of this case.”

The above decision of the Tribunal was followed by the Tribunal in appeal preferred by the Appellant for the Assessment Year 2014- 15. The relevant extract of the decision of the Tribunal dated 26/05/2020, passed in read as under: “3.4 We find that, as rightly noted by Ld. DRP, the issue stood covered in assessee‟s favour by the order of Tribunal for AYs 2012- 13 & 2013-14 wherein the coordinate bench held as under:- „ 27. We have carefully considered the submissions ……………‟ Upon perusal of the same, we find that TNMM method as adopted by the assessee in earlier years has constantly been accepted to be the Most Appropriate Method as against the observation of Ld. TPO that it was to be applied as a last resort. We find that similar facts exist in this year. Applying TNMM method, the assessee‟s margins in AE segment are much higher than margin in non-AE segment and therefore, it could be stated that the transactions were at Arm‟s Length. No infirmity has been pointed out by any of lower authorities in assessee‟s methodology. Therefore, respectfully following the earlier order of Tribunal in assessee‟s own case, we hold that TNMM method as adopted by the assessee was appropriate methodology and therefore, no TP adjustment would be warranted on these transactions. By deleting the same, we allow ground no.1 of the appeal.” (Emphasis Supplied) 11. As noted by the DRP, the facts and circumstances in which transfer pricing addition was made during the Assessment Year 2017-18 before us are identical to those prevailing in Assessment Year 2012-13 to 2014-15. Therefore, respectfully following the above decision in the case of the Assessee, we hold that TNMM method as adopted by the Assessee was the most appropriate method for benchmarking the international transaction of sale/exports of goods. Accordingly, transfer pricing adjustment of INR 16,59,51,699/- made by the Assessing Officer is set aside, and the issue is remanded back to the file of Assessing Officer for determination of ALP of the transaction of export of Omniactive Health Technologies Limited finished goods by the Appellant to its AE (i.e. OmniActive Health Technologies Inc., USA) as per TNMM method as adopted by the Appellant. It is clarified that no transfer pricing addition would be made in case the submission of the Appellant that the Appellant’s margins in AE Segment are higher than the margins in non-AE Segment is found to be correct. In terms of the aforesaid, Ground No. 1 to 1.4 are allowed for statistical purposes.”

We note that the DRP has rejected appellant’s objections vide order dated 18.06.2024 merely by referring some of its earlier orders. There is neither any change in law nor in fact pertaining to the previous year relevant to the present A.Y. 2020-21. The impugned order is also found to be against the rule of consistency. The facts and circumstances in which the transfer pricing addition has been made during the present A.Y. 2020-21 are identical to those prevailing during A.Ys. 2012-13 to A.Y. 2014-15 and A.Y. 2017-18. Therefore, respectfully following the above referred Tribunal’s order passed in assessee’s own case. We hold that TNMM method (as against the Comparable Uncontrolled Price (CUP) method) adopted by the assessee was the most appropriate method for benchmarking the international transaction of sale/exports of goods. The impugned order related to the transfer pricing adjustment of Rs. 15,93,35,145/- is accordingly set aside. The matter is restored to the file of learned assessing officer for determination of ALP of the assessee’s transaction of export of goods to its AE (Omni Active Health Inc. USA) as per TNMM method as adopted by the appellant. The aforesaid point is accordingly determined in positive in favour of the appellant assessee and against the respondent revenue.