In the case of MUFG Bank, the Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that the Comparable Uncontrolled Price method for ALP bench marking international transactions is not justified.
The assessee is a foreign company incorporated under the laws of Japan and is a tax resident of Japan. The assessee operates its banking business in India under the license from RBI and is primarily engaged in wholesale banking operations in distinction to retail banking.
The Assessing Officer while framing the assessment order under 144C(13) r.w. Section 143(3) of the Act dated 31st October 2017 inter alia continued with the transfer pricing adjustments of INR 13,66,36,735/- made to the returned income of the assessee in respect of international transactions aboutthe receipt of counter-guarantee commission (impugned international transaction) from its Associated Enterprises.
The AO in terms of TPO/DRP directions made an upward adjustment to the income of the Assesseeabout impugned transactions by using bank guarantee rates ( average 2.63%) quoted by third-party banks as comparable uncontrolled data to determine the arms’ length price (ALP) of such impugned transaction.
It was submitted that there was an assertion the directions of the ITAT imply that the CUP method adopted by AO has been endorsed by the ITAT. The CIT(DR) thus backed the action of the AO to be in terms of directions of ITAT in the first round of proceedings and submitted that no interference therewith is called for.
In rejoinder, the assessee stated that ITAT in its order dated 11.06.2018 has not decided on the issue of application of the CUP method at all and the contrary, the Tribunal has directed the TPO to provide CUP data to the assessee as collected by him under Section 133(6) of the Act to enable the Assessee to place its response and defend its stance on the application of MAM.
It was noted by the Tribunal that the DRP itself in Assessment Years 2010-11 & 2011-12 has acknowledged the stand of the assessee on FAR analysis and the benchmarking, i.e., TNMM method adopted by the assessee in affirmative.
A Coram comprising of Shri Pradip Kumar Kedia, Accountant Member & Shri Narender Kumar Choudhry, Judicial Member observed that the counter-guarantee with negligible risks can not per se be compared with the guarantee offered by independent parties/ banks shouldering very high-risk parameters as also observed by the co-ordinate bench in other assessment years.
The Transfer Pricing Adjustment made in the impugned assessment order towards counter guarantee commission is thus grossly at odds with the factual position enunciated by the co-ordinate benches.
Further viewed that the Tribunal has merely set aside the action of the Assessing Officer and remanded the matter back for confronting the data obtained behind the back of the assessee to enable it to counter the same effectively.
The Tribunal further viewed that the assessee would not be in a position to defend its case for the TNMM method as MAM unless data collected is provided for its examination and rebuttal and allowed the appeal of the assessee.
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