TaxTMI 
TaxTMI 
2014 (3) TMI 63
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....e deem it appropriate to reproduce the grievances raised by the appellant, as set out in the memorandum of appeal , as follows: 1. The learned Assistant Commissioner of Income Tax Circle -16(1), New Delhi ("the Assessing Officer" or the "AO") / Hon'ble Dispute Resolution Panel ("DRP") have erred in confirming the order passed u/s 92CA(3) of the Income Tax Act, 1961 ("Act") making an addition of Rs.26,07,70,513 to the total income of the appellant on account of adjustment in the arm's length price determined by the learned Transfer Pricing Officer ("TPO") and the arm's length price determined by the Appellant for the international transaction entered into by the appellant with its associated enterprises. 2. The DRP has erred in concurring with findings of the AO/TPO and disregarding the economic analysis undertaken by the appellant for establishing the arm's length price of the international transactions without appropriate justification and mechanically relying on the order under section 92CA(3) of the Act passed by the TPO. 3. The TPO/AO/DRP have erred in law and on facts of the case in rejecting C....
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....rial facts are as fol lows. The assessee before us is an exporter of brown basmati rice and mi l led basmati rice to its associated enterprises. The assessee procures paddy, stores, processes/mills, packs and exports various kinds of rice. During the relevant previous year, the assessee's exports of basmati rice and non -basmati rice to the AEs was Rs 367,50,02,759 and Rs 7,48,79,4 75 respectively. It is not in dispute that the orders placed by the AEs were priced on the basis of market trends, and that, during the relevant previous year, there were no fixed price contracts. In the course of the assessment proceedings, the determination of arm's length price of these transactions with the AEs was referred to the Transfer Pricing Officer. The TPO noted, as set out in his order dated 25th October 2011, that the transfer pricing approach adopted by the assessee was as follows: The assessee exports different varieties of rice, viz traditional basmati rice, evolved basmati rice, raw milled basmati rice, sella milled basmati rice, raw brown basmati rice, sona maoori rice and permal rice to countries in European Union, United States and Middle Eastern countries....
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....re differences exist between controlled and uncontrolled transactions or between the enterprises undertaking these transact ions, it may be difficult to determine reasonable accurate adjustments to eliminate the effect on price ". The Transfer Pricing Officer was further of the view that the assessee has relied upon the data furnished by Tips Software Services Pvt Ltd but the said company " is a private company and the quotes (given by Tips Software) are not covered within the provisions of Rule 10D(3)". The TPO was further of the view that " the criteria adopted for arriving at the CUP price by the assessee, in its TP report, shows that the filters have been applied to arrive at CUP", that "as per the provision in the income tax statute and several decisions of higher appellate bodies, it is inferred that under CUP method, stringent comparability is required" and that " transact ions cannot be compared if there are geographical differences, differences in quality of products ". The TPO also noted that there are various adjustments made to the CUP data on account of factors like adopting quarterly analysis, eliminating transactions with extra ordinary high prices etc. It was in thi....
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....od". While rejecting the application of CUP method on the facts of this case, the TPO concluded as follows: As the characteristics of these goods vary specially because of the brand name associated with each of various varieties of rice, in such a situation, economic adjustments cannot bring on parity between the controlled and uncontrolled transactions, such uncontrolled transact ion applied by the assessee is not comparable by using the CUP method, and, hence, rejected. 8. The TPO then proceeded to determine the arm's length price on the basis of the Transactional Net Margin Method (TNMM) on the entity level , but, for the reasons we will set out in a short while, it is not really relevant to take note of the facts so far as this aspect of the matter is concerned. Suffice to note that based on TPO's ALP determination under the TNMM and on the basis of comparables of some entities engaged in similar activity, an adjustment of Rs. 26,07,70,513 was finally made by the Assessing Officer. The assessee did take up, inter alia, grievance against rejection of CUP method before the Dispute Resolution Panel , but without any success. The DRP rejected this gri....
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....i tem not being included in illustrative list of required documents does not take outside the ambit of 'acceptable document' for the required purposes. In any event, al l that Tips Software does is to collect the data, compile the same in easy to refer format and make it available to the end -user of such data online (www.tipsexim.com) or on electronic media, but this data, nonetheless, is public data maintained by the customs department at various ports. It was also open to the Transfer Pricing Officer to, if he had any doubts, cal l for further information from this database supplier and examine authenticity of the data so furnished. Yet, in stead of doing so, he summarily rejected the data as unreliable on a technical ground - which, as we have seen above, is not tenable in law. 12. We have also seen that the information so furnished by the database used by the assessee is fairly comprehensive information, including description and prices as per invoices presented to customs - a fact noted by the TPO himself, which can be cross checked and verified, in case of doubts. The TPO has, at page 11 of the transfer pricing order, himself stated that "the product data compiled in the ....
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....mparison altogether. In any event, even i f there are minor variations in prices of generic goods, such factors are adequately taken care of by average in the case of large size of comparables, as is the situation before us. As noted in the UN Transfer Pricing Manual for Developing Countries, with which we are in considered agreement, "the CUP Method is appropriate especially in cases where an independent enterprise buys or sells products that are identical or very similar to those sold in the controlled transact ion....". It would, therefore, indeed seem that for the purpose of applying CUP method would be, a reasonable classification, which could justifiably define the prices, would suffice. We have also noted that the assessee has done categorization of basmati rice, as evident from pages 352 and 253 of the transfer pricing study fi led before us, in three broad geographical categories and seven sub categories, and of non-basmati rice in four broad geographical categories and six sub categories. Let us also not forget that the classification is done on the basis of geographical markets and normally the products sold in a geographical market, due to sheer competitive forces, are ....
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....priate method, no such order of preference-director implied, can be exercised by us either. 61. This issue is no longerres integra. In the case of Asstt. CIT vs. MSS India (P) Ltd. (2009) 123 TTJ (Pune) 657 : (2009) 25 DTR (Pune)(Trib) 1 : (2009) 32 SOT 132 (Pune), a Co-ordinate Bench of this Tribunal , speaking through one of us (i .e. the AM), had, inter alia, observed that "While there is no particular order or priority of methods which the assessee must follow, and no method can invariably be considered to be more reliable than others, on a conceptual note, transactional profit methods (i.e. , TNMM and profit spl it method) are treat ed as methods of last resort which are pressed into service only when the standard methods, which are also termed as 'traditional methods' (i.e. , CUP method, resale price method and cost plus method) cannot be reasonably applied". It was noted by the Co - ordinate Bench that the OECD Guidelines also recognize this approach, and the Bench expressed its considered agreement with this approach. We are in considered agreement with the views so expressed by the Co-ordinate Bench. In our considered view, the traditional trans....
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....means of establishing whether conditions in the commercial and financial relations between AEs are at arm's length. This is because any difference in the price of a controlled transaction from the price of a comparable uncontrolled transaction can normally be traced directly to the commercial and financial relations made or imposed between the AEs, and the arm's length conditions can be established by directly substituting the price in comparable uncontrolled transaction for the price of the controlled transaction. As a result , where, taking into account the criteria established in para 2.2, a traditional transact ion method and a tradition prof it method can be applied in a equally reliable manner, the traditional transact ion method is to be preferred over traditional prof it method. Moreover, where, taking into account the criteria established in para 2.2, the CUP method and another transfer pricing method can be applied in an equally reliable manner, the CUP method is to be preferred..... .. . ." 64. In other words, therefore, even as there may not be any order of preference in which methods of determining the ALP must be considered, the traditional....
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....h as while under rule 10 B (1)(a)(i), it is indeed open to compute ALP on the basis of price charged in a comparable controlled transaction or 'a number of such transactions' , but the arm's length price so computed is, under rule 10B(1)(a)(iii), taken as arm's length price in respect of property transferred in the international transact ion. The expression ' the international transaction' referred to in rule 10 B(1)((a)(iii) is used in singular and does not permit taking into account, unlike rule 10B(1)(a)(i), 'a number of such transactions ' . While averaging is thus permissible for the uncontrolled transactions, each international transaction is to be taken on standalone basis. In our humble understanding, it is not open to the assessee to compare the average price in his transactions with AEs with average price in uncontrolled transactions. Dealing with a somewhat similar issue, though in the context of cost plus method of ascertaining the arm's length price, a coordinate bench of this Tribunal , in the case of ACIT vs Tara Ultimo Pvt Ltd (143 TTJ 91), has explained this principle as follows: .......... .The way this rule works, the benchmark gross p....