SPICA ELASTICA PVT. LTD,MUMBAI vs. NATIONAL FACELESS ASSESSMENT CENTRE, DELHI

This appeal is filed by assessee against Assessment order passed by National faceless assessment Centre [ NFAC] [The ld AO ] u/s 143 (3) read with Section 144C (13) read with Section 144B of The Income Tax Act (The Act) dated 9/3/2022 for Assessment Year 2017 – 18 raising several grounds of appeal. However, only grievance of the assessee is that the National faceless assessment Centre has made transfer pricing adjustment of Rs. 219,00,415/– and not restricted to Rs. 44,70,673/– as directed by the learned Dispute Resolution Panel as per the remand report of the TPO dated 3rd February, 2022.

Assessee is a company engaged in manufacturer of quality elastic narrow fabrics in India. It filed its return of income on 28/10/2017 declaring a total income of ₹

The learned transfer-pricing officer found that during the year the assessee has received a royalty income of ₹ 46,695,981/- from its associated enterprises from Vietnam. Assessee has benchmarked this international transaction applying transactional net margin method as the most appropriate method. The learned transfer pricing officer found it untenable and noted that assessee has not given any benchmarking of the transaction of the royalty income. The notices were issued to the assessee went unnoticed and unresponded. Therefore the learned transfer pricing officer benchmarked this transaction adopting Transactional Net Margin Method by comparing the assessee’s margin of operating profit against operating cost with three years’ weighted average of comparables in the textile manufacturing industry, selecting 5 comparables , whose mean margin was 11.75% , whereas the margin of the assessee is computed at (–) 34.34% , and, therefore, amount of royalty of ₹ 46,695,981 was benchmarked for arm’s-length price by making a proportionate adjustment of RS. 2,19,00,415/– as the difference between the margin of the assessee and margin of comparable is 46.90%. The learned transfer pricing officer passed an order u/s 92CA (3) of the act as per order dated 21/11/2019.

Based on this, the learned dispute resolution panel directed the learned transfer pricing officer to submit a remand report after providing an opportunity to the assessee.

The learned transfer-pricing officer submitted remand report on 3/2/2022. In the remand report, assessee submitted additional evidences. In the additional evidences assessee has also submitted a transfer pricing study report where the transaction has been benchmarked adopting the transactional net margin method as the most appropriate method but taking the associated enterprise as tested party. According to Vietnam transfer pricing rules, Assessee selected the comparable profit method, which was found to be equivalent to Transactional Net Margin Method in India. Thereafter it was examined by the

Based on this the learned National faceless assessment Centre passed an assessment order on 9/3/2022 wherein the transfer pricing adjustment made by the learned transfer pricing officer Under Section 92CA (4) of Rs 219,00,415/– was repeated and the total income of the assessee was computed at a loss of ₹ 24,099,865/–

Therefore, the assessee is aggrieved with the same. The only contention of the learned authorised representative is that when learned transfer pricing officer, in remand report requested by the learned dispute resolution panel has accepted that benchmarking made by the assessee in its transfer pricing study report taking the foreign AE as a tested party is proper and addition could have been at the maximum of ₹ 4,470,673/–, the learned National faceless assessment Centre should not have repeated the adjustment made by the learned transfer pricing officer in his original order.

We have carefully considered the rival contention and perused the orders of the lower authorities. The fact in short shows that assessee is in receipt of royalty income of ₹ 46,695,981/– from its associated enterprises. The assessee selected the transactional net margin method as the most appropriate method for benchmarking of this transaction taking its associated enterprise in Vietnam as tested party. When this benchmarking methodology submitted before the learned transfer pricing officer, assessee could not remain present before him, could not submit the details, therefore, it was rejected. The ld TPO accepted the transactional net margin method as the most appropriate method, but took assessee as tested party and after selecting five comparables computed the adjustment on account of A-L P of ₹ 21,900,415/–. On objection before the learned dispute resolution panel, the remand report of the learned transfer-pricing officer was obtained. The assessee submitted the transfer pricing study report which was examined by the learned transfer pricing officer and he found that assessee has benchmarked above transaction by adopting transactional net margin method by taking Vietnam associated Enterprises as tested party and has selected comparable profit method which is same as transactional net margin method. He examined the transfer pricing documentation. He also examined the profit level indicator of operating profit/operating cost earned by the associated enterprise

All other grounds of the appeal are merely supportive to ground number 5 of the appeal. Therefore, those grounds are not adjudicated and hence dismissed.

In the result, appeal of the assessee is allowed.