Facts of the Case

The respondent/assessee, M/s Hellmann Worldwide Logistics India Pvt. Ltd., engaged in freight forwarding services (air, sea, land transport, warehousing, and customs clearance), filed its return for AY 2008–09 declaring income of ₹6.55 crores.

The case was selected for scrutiny and referred to the Transfer Pricing Officer (TPO) due to international transactions with Associated Enterprises (AEs).

  • The assessee applied Comparable Uncontrolled Price (CUP) Method for benchmarking freight transactions.
  • The TPO rejected CUP and adopted External TNMM, making an upward adjustment of ₹28.87 crores.
  • The Dispute Resolution Panel (DRP) reduced the adjustment to ₹9.57 crores.
  • The ITAT set aside the matter directing application of Internal TNMM, subject to proper FAR analysis.

Subsequently, in remand proceedings, the TPO again applied External TNMM, reducing the adjustment significantly.

Issues Involved

  1. Whether ITAT was justified in directing adoption of Internal TNMM under Section 92C despite it not being used by the assessee initially.
  2. Whether appellate authorities can adopt a different Most Appropriate Method (MAM) than the one used in transfer pricing documentation.
  3. Whether tolerance range under proviso to Section 92C is a standard deduction.

Petitioner’s Arguments (Revenue)

  • ITAT exceeded jurisdiction by directing application of Internal TNMM, which was neither used by the assessee nor examined by the Assessing Officer.
  • Absence of proper FAR analysis made Internal TNMM unreliable.
  • The Tribunal’s direction was legally unsustainable and contrary to statutory framework.

Respondent’s Arguments (Assessee)

  • The ITAT order had already been implemented; hence, the appeal had become infructuous.
  • Appellate authorities are empowered to determine the Most Appropriate Method irrespective of the method used earlier.
  • Reliance was placed on judicial precedents including:
    • Pr. CIT vs Dentsply India Pvt. Ltd.
    • Pr. CIT vs Matrix Cellular International Services Pvt. Ltd.

Court Findings / Order

  • The ultimate objective of transfer pricing is determination of correct Arm’s Length Price (ALP).
  • Appellate authorities are not bound by the method adopted by the assessee.
  • ITAT rightly directed consideration of Internal TNMM subject to proper FAR analysis.
  • No substantial question of law arose for consideration under Section 260A.

Final Outcome: Appeal dismissed.

Important Clarifications

  • Selection of Most Appropriate Method (MAM) is not restricted to the method chosen by the assessee.
  • Authorities can change the method if it leads to more accurate ALP determination.
  • Internal TNMM can be preferred where reliable internal comparables exist.
  • FAR (Functions, Assets, Risks) analysis remains critical in transfer pricing evaluation.

 

Sections Involved

  • Section 92C – Determination of Arm’s Length Price
  • Section 92CA(3) – Order of Transfer Pricing Officer
  • Section 143(3) – Assessment
  • Section 144C – DRP Proceedings
  • Section 260A – Appeal to High Court
  • Rule 10B – Methods for ALP determination

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/60804102023ITA14242018_131754.pdf

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