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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
evident from para 5 of the impugned assessment order.
We have heard both the sides and perused the material available on record as well as the orders of the Ld. Revenue Authorities. We find from the directions of the Ld. DRP wherein the objections raised by the assessee with respect to providing appropriate adjustment towards difference on account of working capital, the Ld. DRP in para 2.1 of its order has directed the Ld. AO to compute the mean of the working capital adjustment in respect of the comparables retained. The Ld. AO in his order in para 5 while considering the other directions of the Ld. DRP has erred in not considering the directions of the Ld. DRP with regard to working capital adjustment. We find that the Ld. AO has partly carried out the directions and partly ignored the directions with regard to working capital adjustment. We are therefore of the considered view that it would be deemed fit to direct the Ld. AO/ Ld.TPO to consider all the directions of the Ld. DRP while drafting the final assessment order. Accordingly, this legal
9 ground raised by the assessee is partly allowed for statistical purposes.
With regard to additional Grounds No. 3.9 and 3.10, the Ld. AR submitted that it has requested for changing the method from TNMM to CUP which was rejected by the Ld. DRP. The Ld. AR submitted that for the AY 2011-12, this Bench of the Tribunal has accepted the CUP method as Most Appropriate Method in the assessee’s own case. The Ld. AR further submitted that as per the OECD guidelines, the assessee is allowed to change the Method if it is considered as an appropriate method. In this connection, the Ld. AR relied on the decision of the Hon’ble Delhi High Court in the case of Matrix Cellular International Services Private Limited (ITA 484/2017). The Ld. AR further submitted that the rate per unit of the fabric sold to AEs is Rs. 3.81 as against the average rate per unit sold to Non-AEs stood at Rs. 3.56. The Ld. AR further submitted that the Revenue has not appealed against the Tribunal order for the AY 2011-12 and hence the issue is settled and therefore adopting the CUP Method for the impugned assessment year is valid.
Per contra, the Ld. DR submitted that the assessee has selected TNMM as Most Appropriate Method in its TP study
10 report. The Ld. DR also referred to the assessee’s own case in circumstances, the assessee has adopted TNMM as Most Appropriate Method. Further, the Ld. DR also submitted that in the case relied on by the Ld. AR, there was a secondary method adopted by the assessee and therefore the Hon’ble High Court directed to adopt the secondary method. The Ld. DR therefore argued that in the instant case, there is no secondary method prescribed in the TP report and hence the decision of the Hon’ble Delhi High Court is distinguishable on facts. Countering the arguments of the Ld. DR, the Ld. AR submitted that in the assessee’s own case in & 155/Viz/2022 there were multiple transactions and hence TNM method was used.
However, in the instant case, there is only one transaction i.e sales and hence CUP method will be considered as Most Appropriate Method.
We have heard both the sides and perused the material available on record as well as the orders of the Ld. Revenue Authorities. The case of the assessee is that in view of the facts and circumstances of the instant case, CUP method will be Most Appropriate Method to benchmark the international transaction
11 with its AEs. Even though, the assessee can resile from the Most Appropriate Method as adopted in the TP Study Report provided the new method confirms the requirement of Rule-10C(2) of the IT Rules, 1962. The principle of Res Judicata is not applicable to tax proceedings but at the same time, when there is no change in the facts, then it is the requirement of law that consistency should be maintained and the method will be adopted by the assessee for benchmarking its international transaction should not be disturbed. The assessee has adopted the TNMM during the earlier and subsequent assessment years as Most Appropriate Method. In the absence of any reasoning brought on record, there is no merit in deviating or taking a stand contrary to the accepted method in both the preceding and succeeding years. We therefore find merit in the arguments of the Ld. DR and in the present case, since there is no change in the facts and circumstances which merits deviating from the TNMM to CUP method to benchmark its international transactions. We are therefore of the considered view that the change in method from TNMM to CUP method cannot be entertained and thereby dismissed the grounds raised by the assessee.
12 9. With regard to Grounds No. 3.1 to 3.7, the Ld. AR submitted that the objections raised before the Ld. DRP were not considered and rejected by the Ld. DRP. He therefore pleaded that appropriate adjustment shall be made with respect these grounds.
Per contra, the Ld. DR relied on the order of the Ld. DRP and the Ld. Revenue Authorities.
We have heard both the sides and perused the material available on record as well as the orders of the Ld. Revenue Authorities. On perusal of the directions of the Ld. DRP dated 31/10/2016, we find that the Ld. DRP has observed and rejected the objections raised by the assessee with respect to multiple / prior year data and comparable companies while determining the ALP in relation to the assessee that the assessee has failed to establish that the use of data of earlier FYs could result in more reliable results. Further, the Ld. DRP also relied on various judicial pronouncements and Rule-10B(iv) of the IT Rules, 1962.
The assessee also failed to produce any data to establish its objections raised before the Ld. DRP, even before us. Further, the Ld. DRP also rejected the objections of the assessee with regard to peculiar economic conditions faced by the assessee by 13 observing that any such differences are taken care of while computing the mean margin. Further, with regard to abnormal business loss and under-utilization of the capacity by the assessee company, the assessee has failed to demonstrate such factors which are unique to the assessee-company and does not exist in the case of comparable companies. We find that the assessee has also failed to produce or demonstrate such factors even before us. With regard to non-operating and extraordinary expenses, the Ld. DRP has observed that these cannot be considered as operating expenses as it is only a provision made in the books of account. We also find that the assessee has failed to establish that the above expenses are extraordinary in nature and these are not incurred by the comparable companies which necessitate appropriate adjustment. We are therefore inclined to uphold the directions of the Ld. DRP on the above issues thereby rejecting the grounds raised by the assessee.
In the result, appeal of the assessee is partly allowed for statistical purposes as indicated herein above.
14 Pronounced in the open Court on 13th February, 2024.