TaxTMI 
TaxTMI 
2012 (11) TMI 347
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....distribution of specialties chemicals imported from various associated enterprises and to some extent manufacturing certain Rhodia Products in India. During the course of assessment proceedings, the Assessing Officer referred the matter to the TPO for computation of Arm's Length Price in relation to the international transactions undertaken by the assessee during the year. The assessee has undertaken following international transactions and the methods employed for determining the Arm's Length Price during the year under consideration:- S. no. Particulars Value (Rs.) Method 1. Receipt of indenting commission 3,05,25,968 Comparable Uncontrolled Price Method (CUP) 2. Import of raw materials 7,15,868 Resale Price Method 3. Sale of finished goods 1,39,40,532 Resale Price Method 4. Purchase of finished goods 6,31,10,452 Resale Price Method 5. Payment for intranet services to Equant a deemed associated enterprise 10,83,449 CUP 6. Payment of interest to Societe Generale Bank 35,46,870 CUP 7. Reimbursement of travel, hotel and mobile expenses (payment) 5,40,497 CUP 4. Out of the above transactions, marketing service segment i.e., indenting commission and ot....
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....y, Oregon Commercials Ltd., a comparable company short listed by the assessee, the TPO observed that the same cannot be used as comparable because the sales of the said company has dipped year-after- year, which indicates some abnormality in the business and also the operating profit of the company is consistently loss making. Thus, after rejecting the above criteria adopted by the assessee for searching of comparable companies, the TPO finally short listed three companies with the following gross profit ratio. Daga Global Chemicals Ltd. 3.53% Indian Potash Ltd. 12.79% K.P.L. International Ltd. 27.50% 8. According to the above, the average gross profit margin was taken at 14.60% and arm's length price was determined at Rs. 1,88,37,650, and the enhancement was made at Rs. 81,78,650. Subsequently, in rectification proceedings under section 154, enhancement on account of arm's length price was reduced to Rs. 34,20,338, after taking the gross profit margin of 10.94%. 9. Before the Commissioner (Appeals), it was contended by the assessee that it is pre-dominantly a trading company and has negligible exports in the distribution segment and, hence, has chosen one of the criteria f....
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.... enough indicator. Nowhere is his order, has he satisfied the criterion change, made by him. Moreover, the TPO mentions that qualitatively he has selected companies completely engaged in Chemicals Trading activities, which contradicts the above criterion of 75% selected by him. Due to the above change of criterion by the TPO, he concluded LPL International Ltd. as a comparable company. It is observed that in the appellant's transfer pricing analysis, this company had got rejected as a comparable company as it failed the quantitative screening test. Obviously, therefore, KPL International is engaged in activities other than Trading i.e., it is not wholly or substantially in trading activities. On the other hand, the TPO deleted the following four companies from the list of comparable companies selected by the appellant viz Oregon Commercial Ltd., Anukaran Commercial Enterprises Ltd., Bijoy Hans Ltd., Nikhil Adhesives Ltd. For rejecting Oregon, the TPO has clearly relied on the data of that company for F.Y. 2003-04, which is clearly violative of Rule-10B(4), which prescribes that the data to be used for comparison shall relate to the financial year of International Transaction and da....
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....n behalf of the assessee, on the other hand, submitted that insofar as the rejection of Oregon Commercials Ltd. by the TPO, the same is not correct, as the turnover of the company dipped only after financial year 2002-03 and subsequent circumstances after the financial year 2002-03, are not relevant and, therefore, such a basis is not called for. He further clarified that insofar as filtration criteria of less than 20% of the export of the total turnover, he submitted that the assessee's export turnover is around 13% and not 8% as submitted by the learned Departmental Representative, which is evident from the Schedule-XII of Profit & Loss Account. Lastly, he heavily relied upon the findings and the conclusion drawn by the Commissioner (Appeals) which has been arrived at after considering the entire argument and the facts of the assessee's case. 13. We have carefully considered the rival contentions of the parties, perused the orders of the authorities below and the material placed on record. Insofar as application of "Resale Price Method" to bench mark the gross profit margin with that of comparable companies is concerned, there is no dispute. The main issue, in the present case, ....