TaxTMI 
TaxTMI 
2015 (3) TMI 1010
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....om TPL. The chemicals manufactured by it are used in the industries operating in Paints, Civil engineering applications, Structural composites, Electrical insulation material, Adhesive and Tooling material. The AO made reference to Transfer Pricing Officer (TPO) for determination of Arm's Length Price (ALP) of the international transactions of the assessee. The international transactions of the assessee comprised of Export of finished goods worth Rs. 46.48 crores, Import of raw materials at Rs. 3.06 crores and Payment for management services to the tune of Rs. 3.11 crores. The assessee followed Transactional Net Margin Method (TNMM) to benchmark its international transactions in a composite way for all such transactions taken together. It adopted Profit Level Indicator (PLI) as Operating Profit / Sales which was shown at 4.20%. The assessee selected the following four comparable cases to benchmark its international transactions : - 1. Dai- Ichi Karkaria Ltd. 2. Sunshield Chemicals Limited. 3. Indo-Nippon Chemicals Company Ltd. 4. Resinova Chemie Limited. 3. The TPO did not find any of the cases selected by the assessee as comparable for the reasons given in his order. Init....
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....nt plants for increasing business. It can further be observed from the assessee TP study that during the year 1999-2000, DIKL also introduced eight new products in therapeutic areas of cardiovascular, anti-histaminics, analgesics, anxiolytic, anti-depressant and anticonsulgants. The TPO ignored this case by observing that DIKL is engaged in the manufacture and sale of specialty chemicals primarily for the petroleum industry in India and its products include surface active agents, oil filled chemicals, Synthetic Polymers. He noted the names of seven products with which DIKL is dealing in. It was found that three of the products, namely, Trimetazidine, Tramadolc and Carboprost were functionally different. In view of such functional differences, he ordered for the exclusion of this case from the assessee's list of comparables. 7. The ld. AR submitted that the case of DIKL ought not to have been excluded by the TPO because the overall segment in which the assessee and DIKL are engaged in, is similar. He submitted that both assessee and DIKL are dealing with specialty chemicals industry and hence no distinction could have been justifiably made. On the other hand, the ld. DR support....
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....e is said to be functionally comparable if it is in the same activity of business. If the activity of such case is by and large similar to the assessee's case with some minor exceptions here and there, then also we can include such a case in the list of comparables provided the incomparable part of the functional profile of the other case is not such so as to have damaging influence over its overall profit rate. But if the other case is largely different in the functional profile, but comparable part is minimal, such case can not be considered as comparable. The main factor to be taken into consideration is the comparability of two cases. It is no doubt true that the TNMM is tolerant to functional differences between two cases to some extent, but at the same time the broader functional dissimilarities cannot be overlooked in selecting comparables. In view of the foregoing discussion, we are of the considered opinion the case of DIKL cannot be considered as a comparable one. 10. One more factor which needs to be accentuated is the selection of number of comparable cases. The most appropriate method for determining ALP in the extant case is admittedly TNMM. Rule 10B(1)(e)(ii) pr....
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.... of this case on the ground that there was difference in the product profile of two companies. Both the sides opposed and supported the impugned order to their respective stands. 13. After considering the rival submissions and perusing the relevant material on record it is observed from the order of the TPO that SCL is basically engaged in manufacture of chemicals used in textiles, agrochemicals, mineral oils, coning oils, orchard, or tree spray oils, and THEIC, an EO based specialty surfactant, which is an additive used in insulation enamels, PVC stabilizers, and paints industry, as well as used as anti foaming agents for paints and lubricants and in metal treatment as cleaning and corrosion inhibitors. The company also provides aminic and phenolic antioxidants for additives, polymers, lube, plastics, rubber, latex, tyre, resins and other industries. The list of the chemicals manufactured by SCL, as given the TPO, is found to be quite exhaustive as against only a few items shown by the assessee in its TP study as being manufactured by SCL. The position so stated by the TPO has not been contraverted by the ld. AR. On the other hand, specialty chemicals manufactured by the assessee....
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....nsider all of its international transactions as one unit and apply TNMM on entity level to benchmark them. While calculating the percentage of Related party transaction at 52% in the case of MIL, what the assessee has done is that it computed percentage of all its international transactions of sale of goods and services, royalty, reimbursement of expenditure, gain/loss on exchange rate fluctuation, other expenditure and purchase of goods and service with only the total net sales. It is but natural that the contents of the numerator and denominator must be similar. Finding a percentage of all types of the related party transactions with only sales on entity level, has vitiated such calculation. As such, we are not inclined to accept the contention raised by ld. AR to reject the case of MIL on the question of variation in the percentage of related party transactions. 16. However, we find from the annual accounts of MIL that they are mainly engaged in the sale of inks and other intermediaries and are also in the business of manufacture of certain specialty chemicals. No bifurcation of profits on segmental level is available from such annual accounts of MIL. Since this party, apart fr....
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....al IQ Information Systems (India) (P.) Ltd. v. Dy. CIT [ITA No.6961/Hyd/2011 has held, vide its order dated 23.11.2012], that a company cannot be considered as a comparable because of exceptional final results due to mergers/de-mergers. In reaching this conclusion, the Tribunal also relied on certain other cases holding accordingly. As the case of PIL has also acquisition and demergers during the relevant year, respectfully following the above precedents, we hold that the such a case cannot be included in the final list of comparables. In view of our this decision, there is no need to look into the comparability or otherwise of the factual aspects of this case with that of the assessee. This case is directed to be excluded from the eventual list of comparables. 19. Now we espouse the next objection of the ld. AR against the making of transfer pricing adjustment on the entity level without restricting it to the transactions with the Associated Enterprises (AEs). The TPO applied the arithmetical mean of OP/TC of the comparables cases chosen by him on the total costs incurred by the assessee, that is, relating to transactions with the AEs and non-AEs. The assessee objected to the sam....
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....ges paid to the AEs claimed as deduction by the assessee to the tune of Rs. 3,11,52,568/-. Briefly stated the facts of the issue are that the assessee procured services from its group companies, viz., Huntsman Advanced Materials (Switzerland) Gmbh (HAM) and Vantico AG for which it claimed deduction towards the payment of Rs. 3,11,52,568/-. The TPO proposed adjustment for the equal amount of Rs. 3.11 crores on the ground that the assessee could not produce any evidence to show as to whether any services were requested for; whether a written agreement existed for the services; when and how the services were actually received; at what rate similar services were available in the open market; if there was any duplication of services. This amount was finally added in the assessee's total income. 23. Before us ld. AR submitted that the assessee entered into an Agreement with HAM on 30.4.2003 for procuring services listed in Annexure-2 to the agreement as per page 90 of the paper book. Similarly another agreement was entered into between Vantico AG and the assessee on the same date i.e. 30.4.2003 for receiving services explained in Annexure-2 at page 102 of the paper book. The ld. AR ....