ITAT Justified Rejection of TNMM Method as TPO Considered Rates as on Invoice Date Instead of Agreement Date

Case Details: Principal Commissioner of Income-tax v. Phoenix Comtrade (P.) Ltd. - [2024] 162 taxmann.com 99 (Bombay)

Judiciary and Counsel Details

• • Dr Neela Gokhale & K.R. Shriram, JJ.
  • Suresh Kumar & Dr. Dhanalakshmi Krishnaiyer for the Appellant.
  • Paras S. Savla, Pratik B. Poddar & Harsh R. Shah for the Respondent.

Facts of the Case

The assessee adopted the Resale Price Method (RPM) for the import of coal and the Transactional Net Margin Method (TNMM) for the import of pulses from its Associate Enterprise (AE) to determine the Arms Length Price (ALP). Assessee also exported rice to its AE and followed TNMM to ascertain ALP.

The Transfer Pricing Officer (TPO) collected the details of rice export prices from the Bloomberg database and compared them with the price realized by the assessee with respect to each of the exports. Accordingly, the TPO proposed an addition.

On appeal, the Dispute Resolution Panel (DRP) accepted the assessee’s contention that there were mistakes in the computation made by the TPO. The DRP accepted that the rates prevailing on the date of entering into the agreement should be compared, not the rates that prevailed on the invoice date. Accordingly, rectification was made. ITAT also upheld the order of DRP.

The matter reached before the Bombay High Court.

High Court Held

The High Court held that the TPO searched the Bloomberg database to find the sale price of rice. Without ascertaining or explaining in detail whether the rates were for products exported from India or any other country or specifying whether the rates relate to controlled or uncontrolled transactions or whether they relate to the retail or wholesale market, the TPO proceeded based on the Bloomberg database.

The assessee had even provided the rates accepted by the Indian Customs Department for the export of rice and requested that the same be considered for CUP analysis as it would be more reliable. The assessee also submitted that it realized more price on exports than the rates quoted by the Customs Authorities. The TPO proceeded to fix the ALP, relying on the Bloomberg database that was available to him.

Thus, ITAT rightly directed the Assessing Officer to delete the addition made for TP adjustment.