Date of Order: September 11, 2023
The case centers on an appeal by Willis Towers Watson India Pvt. Ltd. against the decision made by the Assessing Officer and the Dispute Resolution Panel (DRP), which endorsed the use of the Transactional Net Margin Method (TNMM) over the Comparable Uncontrolled Price (CUP) method for determining the arm’s length price of consultancy services provided to its associated enterprises (AEs).
The appellant contested the adjustments made to its taxable income for the financial year 2017-18, arguing that the CUP method, previously accepted in similar circumstances in earlier assessment years, should have been adopted. The tax authorities’ decision to switch to TNMM was challenged on the grounds that it did not accurately reflect the economic reality of the transactions.
The Income Tax Appellate Tribunal (ITAT) reviewed the case, focusing on the appropriateness of the TNMM versus the CUP method. The tribunal noted inconsistencies in the application of the methods and the lack of a detailed analysis by the tax authorities in rejecting the CUP method proposed by the taxpayer.
The ITAT ruled in favor of Willis Towers Watson, directing the tax authorities to accept the CUP method as the Most Appropriate Method (MAM) for this case, citing precedents and the consistent application in similar past cases. This decision reinforces the principle that the choice of transfer pricing method should be grounded in the factual matrix of the transactions and consistent with the company’s operational realities.
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