fiogf49gjkf0d
Section 92C, the Act – TPO cannot reject method consistently adopted by the taxpayer in past years for determination of ALP (which was not disputed by the tax authority) and apply another method without providing detailed reasons.
Facts
The taxpayer was engaged in the business of trading of medical devices. It had entered into international transactions with its AE for purchase of certain medical devices from its AE. The taxpayer was selling these devices in India to non-related parties. In its TP study, for determination of the ALP the taxpayer had adopted RPM and had adopted 4 companies as comparable companies.
According to the TPO RPM could be applied only where: the products were closely comparable; and where enterprise purchases a property or services from AE and then resells the same to unrelated enterprises. Further, one should ascertain the functions performed by the tested party before it resold the property or the services and also the cost incurred for performing these functions. Therefore, the TPO considered TNMM as more appropriate method in case of the taxpayer and proceeded to determine ALP accordingly.
Held
The taxpayer had been purchasing medical devices from its AEs even in the earlier years. This is evident from order of Tribunal in earlier year where tax authority has not disputed the method adopted by the taxpayer during its TP study.
Hence, there is no reason to dispute the same method during the relevant year. the order of the TPO merely reproduces the parameters to be taken into consideration for adopting the RPM for comparability analysis, but does not give detailed reasoning as to why the said method is not applicable.
Further, the TPO has not brought on record any evidence to support why the products sold by the comparable companies are not similar to the products sold by the taxpayer.
If the TPO desires to reject the method consistently being followed by the taxpayer and desires to adopt a different method, he is required to give his reasoning which he failed to provide in the present case.
Accordingly, the issue was remanded to the TPO for determination of the most appropriate method for determination of the ALP with directions that if he finds the RPM as the most appropriate method, then he shall also take into consideration the comparable companies selected by the taxpayer in addition to the companies selected by him for determination of the ALP.
