The Delhi bench of the Income Tax Appellate Tribunal (ITAT) held that the transactional net margin method (TNMM) is the most appropriate method in the absence of details of independent contracts/ functions/ services rendered to different Associated enterprises (AEs) and unrelated parties.
The assessee filed objections before the Dispute Resolution Panel (DRP), New Delhi, against the Draft Assessment order passed by the Assessing Officer. The DRP had issued certain directions in the case. Therefore, after giving effect to the directions of the DRP, the earlier adjustment of Rs.6,91,26,651/- as proposed by the Transfer Pricing Officer (TPO) under Section 92CA (3) of the Income Tax Act, 1961 remained unchanged.
The assessee has preferred an appeal before the ITAT and raised the issue that in the Order Giving Effect (OGE) given by the TPO in pursuance of the directions of the DRP, the TPO did not follow the DRP’s directions. The DRP has given directions about the acceptance or otherwise of the ITAT’s order.
The Departmental Representative contended that Comparable Uncontrolled Price (CUP) is not acceptable as the most appropriate method and TNMM should be treated as the Most appropriate method (MAM). The DRP concurred with the order of the ITAT in the case of the assessee and held that the order is binding on the TPO in the same factual matrix.
The Departmental Representative submitted that the facts of the instant year are totally different from the earlier years and even acceptance or non-acceptance of the earlier years ITAT orders did not have any effect on the facts of the instant case. It was further submitted that the assessee company has failed to provide the details of the independent contracts/functions/ services rendered to different AEs and unrelated parties, hence, the CUP method followed by the assessee was rejected by the TPO and instead, TNMM was selected as Most Appropriate Method.
The Two-member bench comprising of Kul Bharat (Judicial member) and B.R.R. Kumar (Accountant member) held that the DRP has already allowed the CUP as MAM and the TPO sought to undertake the comparison “invoice by invoice” with the third party located in the same “geographical location” while rejecting the CUP undertaken by the assessee however, these facts are of no relevance as long as the amount/rate charges for hours incurred by an individual for a project is uniform and the services were provided to its AE as well as to third party by same employee located in India.
Since, the appeal of the assessee was decided in favour of the assessee, the Stay Application of the assessee was fructuous and hence dismissed.
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