ITAT Ahmedabad Deletes ₹3.88 Crore Transfer Pricing Adjustment, Upholds TNMM Consistency

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) on 27 May held that in the absence of any change in facts or functional profile, tax authorities must consistently follow transfer pricing positions accepted in earlier years, and deleted a transfer pricing adjustment of Rs.3.88 crore in the case of Inductotherm (India) Pvt. Ltd.

Vice-President Dr. B.R.R. Kumar and Judicial Member T.R. Senthil Kumar rejected the Revenue's attempt to replace the Transactional Net Margin Method (TNMM) with an internal Cost Plus Method (CPM). The Bench held:

“Judicial discipline requires that orders of coordinate benches on identical facts must be followed unless stayed, reversed or distinguished on facts.”

The Transfer Pricing Officer (TPO) rejected the taxpayer's entity-level TNMM analysis and applied an internal Cost Plus Method based on a selection of around 240 products from a portfolio of approximately 9,000 products, which led to the adjustment of Rs.3.88 crore.

The Tribunal noted that the Revenue did not demonstrate any change in facts or business model compared to earlier years, where TNMM stood consistently accepted. It upheld TNMM as the most appropriate method on the facts of the case and directed deletion of the adjustment.

On the separate issue concerning reversal of provisions, the Bench held that tax authorities cannot tax amounts already disallowed in earlier years again, as it would result in double taxation. However, it remanded the issue to the Assessing Officer for verification of the taxpayer's claim and supporting documents.

Accordingly, the ITAT deleted the transfer pricing adjustment and remanded the issue relating to reversal of provisions for fresh adjudication.