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TPO has no jurisdiction to determine ‘status of residence’ of an entity by applying POEM: ITAT

July 15, 2019[2019] 107 taxmann.com 226 (Pune - Trib.)

TRANSFER PRICING : Where AO came to a finding that control and management of business of assessee was wholly situated in India, then he had to proceed further; AO having failed to do so, action of TPO in applying Profit Split Method for bench-marking transactions without picking comparable was beyond his jurisdiction; further, where TPO has not exercised his jurisdiction, DRP in exercise of its powers cannot benchmark new transaction though reported by assessee, in hands of assessee

• After Assessing Officer came to a finding of control and management of business of assessee being wholly situated in India during previous years in question, he had to proceed further. Assessing Officer having failed to do so, action of TPO in applying Profit Split Method that too, not applied as per rules, as no comparable had been picked up to benchmark impugned international transactions, was beyond jurisdiction cast under section 92CA(1) and, hence, could not stand since Assessing Officer had failed to apply law correctly; there was no merit in consequent orders passed against assessee.

• Where TPO has not exercised his jurisdiction, DRP in exercise of its powers cannot benchmark new transaction though reported by assessee, in hands of assessee. Where DRP benchmarked transaction in hands of assessee and overturned order of TPO and held that AEs were not sham, but were legal entities and attributed a part of global profits, first to assessee and then to AEs and, in result, 70 per cent of world profits were added in hands of assessee under guise of Profit Split Method completely overlooking rules in this regard and no comparables were selected and allocation of profits was made by DRP on its own, said exercise carried out by DRP was beyond its scope and jurisdiction.

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