TPO cannot aggregate transactions with separate AEs in different jurisdictions

While remitting TP-adjustment qua contract receipts and payment for technical services in case of assessee (engaged in design, manufacture, servicing, erection, and installation of hydro and thermal power generators) for AY 2017-18, the Indore ITAT held that transactions between the assessee and it’s more than one AE having separate and independent functions performed or assets employed cannot be aggregated for the purpose of determination of ALP.

The Coram comprising Shri Vijay Pal Rao (Judicial Member) and Shri B.M Biyani (Accountant Member) observed that “the aggregation of the transactions is not prohibited by TP regulation under the Income Tax Act but the scope of closely linked transaction is limited to common source or arrangement between two parties which meant multiple transactions between two parties and emanating from common source or arrangement”.

Mr. Rahul Kaul argued on behalf of the assessee while Revenue was represented by Mr. P.K. Mishra, CIT-DR.

Briefly, the assessee entered into international transactions with around 14 AEs based in different tax jurisdictions and aggregated the same for the purpose of benchmarking. The TPO however treated each project as a separate international transaction and proposed a TP adjustment.

After considering the submission and referring to OECD Guidelines and Income-tax Rules, the Bench observed that the concept of aggregation of closely linked transactions would be restricted only to the number of transactions which each AE executed in same geographical and economic environment.

The Bench clarified that transactions with separate AE’s cannot be aggregated under the rule of aggregation, when the AEs are based at different economic, market and geographical conditions then the transactions of project executed for different AE at different tax jurisdiction, economic, geographical and market conditions cannot be grouped together for determination of ALP.

The Coram further observed that portfolio approach is recognized for ALP determination but the relevant factors for aggregation or segregation of international transactions could be FAR analysis of the segment of which the transactions form part.

Thus, the Coram held that assessee’s approach of aggregating all transactions with all AEs (based in different locations, different conditions, etc.) is beyond the scope of aggregation.

Thus, the ITAT concluded that TP analysis is required to be done afresh, having regard to scope of aggregation of closely linked transactions.

Cause Title: Andritz Hydro Private ltd vs. DCIT [ITA No 75/Bang/2022 / 2023-Enterslice-21-ITAT-Indore]

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Andritz-Hydro-Private-ltd-vs-DCIT