TaxTMI 
TaxTMI 
2013 (1) TMI 867
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.... the assessee company had entered into various international transactions with its associated enterprises. A reference, therefore, was made by the AO to the TPO u/s 92CA(1) of the Act for determining the arm's length price of the said transactions. The said transactions, inter alia, involved commission income received by the assessee from two of its associated enterprises, namely, M/s Fuchs Europe Schemierstoffe GmbH, Germany and M/s Fuchs Lubritech GmbH, Germany amounting to Rs. 3,36,923/- and Rs. 2,06,721/- respectively. As noted by the TPO, the commission of Rs. 3,36,922/- was received by the assessee company from M/s Fuchs Europe Schemierstoffe GmbH, Germany in respect of direct sales made by the said company to SKF Bearings and the amount of such commission was determined as the difference between FOB price to SKF Bearings and the list price of M/s Fuchs Europe Schemierstoffe GmbH, Germany. According to the TPO, the commission income determined was quite fair and reasonable as the assessee company was duly rewarded for negotiating better price with SKF Bearings. He, therefore, treated the commission so received by the assessee from M/s Fuchs Europe Schemierstoffe GmbH, Germany....
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.... the rate of 5% on the FOB price of the associated enterprises was not acceptable to the AO/TPO, they should have at best taken commission calculated at the rate of 5% on the FOB value of the transactions to Grasim Industries as arm's length price and not the difference between the two FOB prices as taken by them. The working in this regard was also prepared and furnished by the assessee before the learned CIT(Appeals) showing that the commission calculated at the rate of 5% of the FOB value of the transactions to Grasim Industries comes to Rs. 2,74,068/- as against Rs. 2,03,507/- received by the assessee. 4. After considering the submissions made on behalf of the assessee and the material available on record, the learned CIT(Appeals) restricted the addition made by the AO/TPO on account of TP adjustment to Rs. 70,561/- for the following reasons given in paragraph No. 5.5 of his impugned order : " I have perused the assessment order, TPO's order and the written submissions. The facts of the case is that the Appellant has provided marketing support functions to its Associated enterprise, namely Fuchs Lubritech GMBH Germany, and it has been compensated at the rate of 5 pe....
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....Tribunal. 5. The learned DR submitted that similar international transactions were entered into by the assessee company with two of its associated enterprises which resulted in the earning of commission income. He submitted that even the services rendered by the assessee company in relation to these transactions to both the associated enterprises was similar but still the method of determining the commission adopted in case of these two associated enterprises was found to be entirely different. He contended that as the method adopted by the assessee for determining the commission income in respect of similar transactions from one AE, namely, Fuchs Europe Schemierstoffe GmbH, Germany was found to be fair and reasonable by the TPO, the same was adopted by him as the arm's length price of the commission received/receivable from the other AE, namely, Fuch Lubritech GMBH Germany for rendering the similar services. He contended that there was thus nothing wrong in the approach adopted by the AO/TPO while making the addition by way of TP adjustment at Rs. 12,07,421/- and the learned CIT(Appeals) is not justified to restrict the same to Rs. 70,561/- by accepting the working of the asses....
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....ls) did not accept the same as CUP for benchmarking the transactions with other AE. The question that arises before us, therefore, is whether the rate of commission realized by the assessee from a transaction with its associated enterprise can be taken as an internal comparable uncontrolled price (CUP) for the computation of ALP of other international transaction with another AE. It is observed that a similar issue had arisen for consideration of the Third Member in the case of Tecnimont ICB Private Limited (supra) and the same has been decided in favour of the assessee for the following reasons given in paragraph No. 14 of its order : " What is an 'uncontrolled transaction' has been clearly defined under Rule 10A(a) to mean 'a transaction between enterprises other than associated enterprises whether resident or non-resident'. A plain reading of the meaning given to the expression 'uncontrolled transaction' leaves no room for any doubt that it is a transaction between two non-associated enterprises. If the transaction is between two associated enterprises, it goes out of the ambit of 'uncontrolled transaction' under Rule 10A. When section 92C is read along with Rules 10B(e....