ITAT Delhi Validates Foreign AE as Tested Party Under RPM, Quashes Transfer Pricing Adjustment for POSCO International
In a significant judicial determination concerning transfer pricing methodologies, the Income Tax Appellate Tribunal (ITAT), Delhi Bench, has delivered a comprehensive ruling in the case of ACIT Vs POSCO International India Pvt. Ltd. The tribunal upheld the decision of the Commissioner of Income Tax (Appeals) [CIT(A)], thereby deleting a substantial transfer pricing adjustment of ₹13,42,61,738/-. The core of the dispute revolved around the correct application of the Resale Price Method (RPM), the validity of selecting a foreign Associated Enterprise (AE) as the "tested party," and the functional comparability of entities engaged in merchant trading on a high-sea-sale basis.
Procedural History and Condonation of Delay
The Revenue department approached the ITAT Delhi to challenge the appellate order dated 09.06.2022, which had previously granted relief to the assessee for the Assessment Year 2016-17. The original assessment was framed under Section 143(3) read with Section 144C(3) of the Income Tax Act 1961.
Upon filing the appeal before the tribunal, the Revenue encountered a procedural hurdle: a filing delay of 27 days. The Revenue submitted an application for condonation, citing administrative exigencies, time-barring pressures, and a heavy workload within the concerned jurisdiction. The assessee raised no objections to this request. Recognizing the presence of a reasonable and sufficient cause, the tribunal condoned the 27-day delay and proceeded to adjudicate the matter on its substantive legal merits.
Factual Matrix of the Assessee's Business
The assessee, incorporated during the Financial Year 2010-11, operates as a wholly-owned subsidiary of Posco Daewoo Corporation (PDC), based in Seoul, Korea. The operational profile of the assessee encompasses multiple business verticals:
- Exporting business support services to its parent company.
- Trading industrial materials on a commission basis for overseas entities.
- Engaging in the principal-to-principal trading of industrial materials. This involves procuring goods from PDC for subsequent resale on a merchant trading basis, alongside exploring domestic market opportunities.
For the relevant assessment year, the assessee reported a total income of ₹4,23,94,360/-, which was subsequently maintained in a revised return. Given the presence of international transactions with its AEs, the assessing officer referred the case to the Transfer Pricing Officer (TPO) under Section 92CA(3) of the Income Tax Act 1961 to determine the Arm's Length Price (ALP).