M/S KENNAMETAL INDIA LTD.,,BANGALORE vs. ACIT, BANGALORE

This appeal is preferred by the assessee against the order of the Assessing Officer passed pursuant to the direction of the DRP on the following grounds:

During the course of hearing, the learned counsel has invited attention that during the impugned assessment year, the assessee had entered into several international transactions with its AE. The transactions related to purchase of raw materials and components, purchase and sale of finished goods, import of capital goods and reimbursement of costs paid and received. In its transfer pricing analysis, the assessee had applied Transactional Net Margin Method (TNMM). However, in the absence of the required information and database to ascertain the correct ALP, the AO has made reference to TPO under section 92CA of the Act. After making an exhaustive study

The learned counsel for the assessee further contended that in the succeeding assessment year, similar TP adjustment was made by the TPO and in appeal, the CIT(A) called a remand report during the period of appellate proceedings and in remand report the TPO has accepted the contentions of the assessee. The relevant portion of the TPO’s remand report order accepting the contention of the assessee is reproduced below: “After going through the submissions of the taxpayer and the demonstration of the services received, the TPO is of the opinion that the payments made for these Group services are for day to day SAP running costs, payment for SAP Licences and maintenance and upgradation. The transaction was aggregated with manufacturing and trading since it was closely linked and hence was aggregated without any separate benchmarking. This stand of the taxpayer is acceptable to the TPO.”

In the light of these findings of the TPO in remand proceedings, the learned counsel for the assessee has contended that since the TPO

The ld. DR did not dispute the remand report of the TPO. He however placed reliance upon the assessment order and order of the TPO in the instant case. Having carefully examined the order of the lower authorities and in the light of the remand report of the TPO, we find that the TPO has taken a contradicting stand in the succeeding year in the remand proceedings.

In the light of these facts, we are of the view that in the instant case, TPO should do fresh exercise in the light of its remand report in order to determine the ALP for international transactions.

Accordingly, we set aside the assessment order and restore the matter to the file of the AO/TPO to make fresh exercise for determining the ALP of the international transaction in the light of the assessee’s contentions, TPO report and the remand proceedings submitted to the CIT(A) in succeeding year.

In the result, the appeal of the assessee is allowed for statistical purposes.