TaxTMI 
TaxTMI 
2016 (9) TMI 148
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....mounting to INR 197,55.19.0001- made by the appellant to AT &8 AG for further sale to independent customers at same prices. 2. That on the facts and in the circumstances of the case and in law, the DRP/AO erred in not appreciating that tile Comparable Uncontrolled Price ('CUP') Method would be the most appropriate method in determining the arm's length price of the international transaction involving sale of printed circuit boards by the appellant 10 AT &S AG. 3. That on the facts and in the circumstances of the case and in law, the DRP/AO failed to adopt transaction-by-transaction approach and determine separately the arm's length price of the international transaction involving payment of distribution commission by the appellant to AT&S AG, having been income in the hands of AT&S AG, which was netted of against sales in the books of the appellant and duly demonstrated before the DRP/TPO. 4. That on the facts and in the circumstances of the case and in law, the DRP/AO erred in disregarding the principle of consistency enunciated by the Hon'ble Supreme Court of India in various judicial precedents of our country, although the same was specifically mentione....
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....,66,860/-. Thereafter the case was selected for scrutiny and accordingly notice under section 143(2) of the Act was issued and served upon the assessee. The assessee during the year had international transactions with its Associated Enterprises (AE for short) for supplying the PCB manufactured by it. The Assessing Officer after having the approval from the CIT made reference to the Transfer Pricing Officer (TPO for short) u/s 92 CA(1) of the Act to determine the Arm's Length Price (for short ALP) in respect of international transactions reported in the audit report in form 3CEB as submitted by the assessee. The assessee, for the year under consideration has undertaken various international transaction inter-alia export of PCB for a value of Rs.197,55,19,200/- to its AE which is under dispute. The transfer pricing study of the assessee for determining the ALP of the PCB goods exported to its AE reveals the following facts :- The assessee is performing various functions such as production & manufacturing, Logistics, warranty support, Sales & marketing for Indian Customers, Information technology and outsourcing of some activities. However certain functions such as corporate strategy....
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....are mentioned in the TP report though the assessee claimed to have selected 25 companies. The companies selected by the assessee are in different activity such as computer, fax, printer, toner, telecommunication products, PC hardware, software, peripherals, projectors, cartridges, scanner, USB, TVs etc. but not the PCB. The Annual report, FAR analysis of the companies selected as comparables has not been submitted to ascertain the functional comparability. The annual report and financial statement of the tested party was also not submitted to ascertain the functional comparability. In view of above, the TPO issued the show cause notice for rejecting the TP study of the assessee with regard to the determination of ALP for the export of PCB. The TPO proceeded to determine the ALP by selecting the assessee as tested party i.e. AT& S India with TNMM method and PLI as operating profit on sales. Accordingly the TPO searched for suitable comparables from different data base of public domain on certain criteria as mentioned on page 58 of the TPO order. Accordingly, the TPO worked out the average mean of PLI at 8.75% as operating profit / operating Revenue but in case of assessee operating ....
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....year under consideration is 2.6% as certified by PWC. The assessee has also submitted audited standalone financial statements of the tested party for the year 2009-10 and the consolidated financial statements of the tested party for the year 2010-11 for the purpose of making the functional analysis. As per the OECD guidelines the tested party should be the one that has less complex functional analysis. In the instant case the assessee is a full fledged manufacturer and therefore it has more complex functions rather than the AE as it has less risks and its function is limited to distribution activity. The AO in the AY 2009-10 and 2010-11 has accepted the AE as tested party for carrying out foreign bench marking in relation to the aforesaid international transactions. 6. In the instant case the AE is entitled only for distribution commission @ 6% of the gross price and preliminary guarantee price @ 2% of the gross price which is finally settled on actual basis. In support of its claim, the assessee has submitted back to back invoices on sample basis which are recorded in the order of TPO. Finally the assessee requested not to reject the TP done by it. "Your kind self may please fu....
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....epared for the management only for the purpose of tax audit in India. The TPO also observed with certain defects in the financial information submitted by the assessee which are enumerated on page 73 of the assessment order. The TPO also not accepted the plea of the assessee for treating the AE as tested party in view of the Hon'ble Mumbai ITAT order in the case of Onward Technologies Limited Vs. DCIT 35 taxmann.com 584 and Cyber tech System & Software Limited Vs. ACIT 33 taxmann.com 371 where it was decided that only Indian entity can be held as tested party. In the instant case the financial prepared of the AE are based on the GAAP which are different with India GAAP. Besides the foreign companies selected for comparables are not following Indian Accounting standards so those companies cannot be compared. With regard to the consistency of the assessee method accepted in the earlier years, the TPO held that the in case of income tax proceedings res judicata does not apply and these are year specific. The approach in the current year is better than the erroneous approach in the earlier year therefore it cannot act as estoppel on carrying out the correct analysis. Finally the TPO....
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....by obtaining orders from potential customers abroad. It is negotiating sale price with customers and is liable to customer regarding product quality and warranty. All credit risk lies with foreign AE. It is responsible for getting the product manufactured from its group company having right kind of technology for the product under consideration. The foreign AE is having substantial intangibles. On the other hand, the assessee is responsible for manufacturing the product as asked for by its foreign AE. It is assured of pre-determined sale price and is not liable to end customer [or warranty etc. Though the assessee may not be in a position of contract' manufacture in strict sense, yet it is not even full-fledged manufacturer. Considering function and risk analysis as above, it can be said that the assessee is more close to contract manufacturer. In no way, it can be inferred that foreign AE is doing less complex activities. The assessee is just manufacturing the product as guided/directed by its foreign AE. The assessee is not holding any significant intangibles. Therefore, the panel does not find fault with approach of TPO of taking the assessee as tested party. Various decisio....
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....ts, product and service. Further, a scheme of amalgamation has been approved by Hon'ble HC which indicates exceptional economic event. DRP is of the view that since TPO has used only product segment for comparability analysis and the assessee could not establish whether amalgamation has impacted the profitability of the company, it is a good comparable. Regarding Essae Electronics Pvt. Ltd., the assessee submitted that its financials are not available on public domain. DRP is of the view that sufficient guidance is available from various judicial decisions that information collected by TPO cannot be used at back of the assessee. Therefore, this comparable is to be dropped. Regarding Fineline Circuit (L) Ltd., the assessee submitted that it operates in a bigger market. This objection of the assessee does not sound good as the assessee is also not a small player. Hence, this comparable is to be retained. Regarding Hind Rectifier Ltd., the assessee submitted that it deals in diverse products and hence functionally different. The panel is of the view that due to product diversity, it is not a good comparable. Regarding SPEL Semiconductor Ltd, the assessee submitted that this co....
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....f deduction made by AT&S AG for preliminary warranty guarantee exceeded the actual warranty expenses incurred by AT&S AG during the relevant financial year and the excess deduction was returned by AT&S AG to the appellant as recorded in Form No. 3CEB. The distribution commission and preliminary warranty guarantee were thus netted off against sales in the books of the appellant and duly demonstrated before the DRP/AO. In order to substantiate the above facts, the assessee submitted copies of back-to-back invoices (i.e. invoices issued by the appellant to AT&S AG for sale of PCBs and the corresponding invoices issued by AT &S AG to independent customers in Europe for further sale of the PCBs imported from the appellant) on sample basis to the TPO [enclosed in page no. 347, 349 and 348 (computation) and 527 to 553 (copies of backto- back invoices on sample basis) of the paper book] and subsequently to the DRP [enclosed in page no. 243 to 246 (computation) and 201 to 231 (copies of back-toback invoices on sample basis) of the paper book] during the course of respective proceedings. Your Honors may please note that neither the DRP nor the TPO disputed the aforesaid facts in their respe....
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....CBs were sold by the appellant to AT&S AG having been equal to the prices at which PCBs were sold by AT&S AG to independent customers. Therefore the international transaction involving sale of finished goods by the appellant to AT&S AG is at the arm's length principle as per the Indian Transfer Pricing Regulation under the CUP Method. In the instant case, AT&S AG earned income from the international transaction involving payment of distribution commission by the appellant to AT&S AG in return for distribution services received by the appellant from AT&S AG under the 'Distribution Agreement' during the relevant financial year. In view of the above it can be concluded that the income actually realized by AT&S AG in return for distribution services rendered to the appellant need to be compared with those of the comparables. There could be no question of substituting the distribution income realized by AT&S AG from distribution of PCBs with the profit realized entity level from manufacture and sale of PCBs to the ultimate customers because the 'FAR' (i.e. Function-Asset-Risk) of the distribution function was absolutely different from the 'FAR' of full-fledge....
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....ion-by-transaction' basis. The Hon'ble Tribunals in various decisions have accepted the selection of foreign tested party in appropriate cases and further accepted selection of foreign comparable companies available in foreign database where tested party is a foreign entity. Though the relevant decisions were submitted before the DRP during the course of proceedings, the same were disregarded by the DRP and the appellant did not get justice from the DRP. Finally the ld. AR prayed that the AE should be treated as tested party and its transfer pricing report should be accepted. Alternatively the AR also submitted that in case the assessee is treated as the tested party then CUP method should be applied for the determination of ALP. As the price charged by the assessee is same as the price charged by the AE from its customers then the same price should be taken as ALP in the instant case. Finally it was humbly prayed to delete the aforesaid adjustment and to provide full relief to the assessee. 10. On the other hand the ld. DR submitted that the Indian party should be treated as the tested party and relied on the following OECD guidelines which reads as under: "3.18 When app....
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....nces, risk management strategies, data on comparables and the market (in terms of the geographic location; the size of the markets; the extent of competition in the markets and the relative competitive positions of the buyers and sellers, etc.) and other economic conditions, at the time of audit to substantiate the various claims / averments and pass the 'litmus test'. Such an approach would go a long way to avert protracted litigation and gain certainty in an ever-evolving field of transfer pricing. Ld. DR further relied in the case law in the case of Sony Ericsson Mobile Communication India Pvt. Ltd. v. CIT (ITA No. 16/2014) - Taxsutra.com, wherein the Hon'ble High Court held that distribution and marketing are intertwined and may be examined as bundled/inter-connected transactions Clubbing of closely linked transactions, which includes continuous transactions is permissible under law. However, close linkage of transactions is a pre-condition for aggregation. For example, transaction for import of raw material for manufacturing may not be aggregated with distribution activity due to absence of the close linkage. The High Court held that it would be inappropriate to proceed with A....
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.... in the matter of Hughes Systique India (P) Ltd. vs. ACIT reported in [2073] 36 taxmann.com 47 (Delhi-Trib), wherein the Hon'ble Tribunal inter alia held that: " 6.5 The CUP method provides the most direct comparison for the purpose of determining the arm's length price of international transactions and is to be preferred over the other profit based methods. Reliance is placed in this regard on the following decisions: - Aztec Software & Technologies Services Ltd. vs. Asstt. CIT [2009] 107 ITO 141/162 Taxman 179 (Bang.)(SB) - UCB India (P) Ltd. v. Asstt CIT [2009130 SOT 95 (Mum.) - Gharda Chemicals Ltd. v. Dy. CIT [2070135 SOT 406(Mum.) - Intervet India (P) Ltd. v. Asstt CIT [2070139 SOT 93 (Mum.) - Asstt. CIT v. Dufon Laboratories [2070139 SOT 59 (Mum.) 2.7.76. Reliance in this regard is also placed on the decision of Hon 'ble Mumbai Tribunal in the case of Serdia Pharmaceuticals (India) (P) Ltd v. Asstt. CIT reported in [2011] 44SOT 391/9 taxmann.com 13, wherein the Hon'ble Tribunal while dealing with the priority of application of methods, has held as under: "64 ... as long as CUP method can be reasonably applied in determining the arm's leng....
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....ata under similar circumstances of transactions with AE. Ordinarily the Internal CUP method should be preferred over external Cup method as it neutralizes several distinguishing factors, such as the local factors and the economies available or unavailable to the appellant in particular, having bearing over the comparison of price charged from unrelated parties and AE". 1.2. The CUP method is followed to determine the price of the goods or services transacted whereas profit of international transaction between related parties is determined under TNMM method. In determining arm's length price, there are, two aspects viz. FAR an analysis and economic analysis. In the FAR analysis, after selection of most appropriate method, the comparison has to be made with respect to product, function, risks and identical circumstances, market conditions and contractual terms. The foremost requirement under CUP method is high degree of comparability between products. 1.3 It is important to consider the relevant portion of Rule 10B(1), 10B(2) and Rule 10B(3) of the Rules in harmonious manner which states that for application of the CUP method it is essential to follow the following steps: - i....
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....by the Appellant to its AEs differs from the credit period offered by the Appellant to third parties. The Appellant has a policy of offering 30 days credit on sales made to its AEs, from the date of the airway bill. Whereas, the credit period offered to third parties is 45 days from the date of airway bill invoice. The aforesaid differences also have an impact on the pricing at which the products are sold by the Appellant to its AEs/ third parties. iv. Difference in Sales volume Quantity sold to the AE is almost 88 percent of total sales and the quantity sold to the third party constitute minimal. v. Marketing function It is important to note that with respect to sale of finished products to AEs, the Appellant is not required to undertake any significant sales and marketing efforts, whereas, the appellant is necessitated to undertake sales and marketing efforts with respect to its third party business. The fact that similar products were sold by the Appellant to its AEs as well as third parties was also evaluated at the time of doing the TP analysis. However, it was determined that it is not possible to make reliable and accurate adjustments to iron out the differences between....
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.... reason of geographical location and size of markets, those uncontrolled transactions cannot constitute valid comparables for benchmarking similar transactions between the AEs". Given the above, it is submitted that the CUP method cannot be considered as the most appropriate method to demonstrate the arm's length nature of international transaction pertaining to export of finished goods. 1.8 Now, it is better to appreciate the relevance TNMM method over the CUP method. 1.8.1 Meaning * Examines the net profit margin relative to an appropriate base that a taxpayer realizes from a controlled transaction - Costs - Sales - Assets - other relevant base * Most frequently used method - In India, due to lack of availability of comparable uncontrolled prices and gross margin data required for application of the comparable uncontrolled price method / cost plus method / resale price method * Level of Comparability - Broad level of product comparability - High level of functional comparability 1.8.2 The UN TP manual offers the following guidance on the use of TNMM: * TNMM is usually applied with respect to board comparable functions rather than controlled transactions. * TNMM is m....
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....lled transaction (i.e. related party manufacturer or the distributor). The case laws relied upon by the appellant also state that the ultimate aim of the transfer pricing is to examine whether the price or margin arising from international transaction with related party is at ALP or not. The various judicial decisions relied upon by the appellant hold that the most appropriate method shall be adopted. In the instant case, since, profit derived by the appellant out of the sale of PCBs to the foreign AEs is at ALP or has to be ascertained. The moot point is to determine whether the profit is at ALP or not and not the prices at which the goods are sold to foreign AE. Therefore, the most appropriate method would be TNMM method and not the CUP method. Therefore, it is humbly prayed that the appellant's claim of selection of CUP method may be rejected. 1.8.6 The appellant reliance on the case of Gharda Chemicals Ltd. V. DCIT (Mum) (2009-TIOL-790-ITAT-MUM) is misplaced. In the case of Gharda Chemicals Ltd. V. DCIT (Mum) (2009-TIOL-790-ITAT-MUM) the issue was application of international CUP or external CUP method in determining the price of the goods and not the profit or margin on t....
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.... High Court in case of Sony Ericsson Mobile communication Pvt. Ltd(TS96-HC-2015 ( DEL)- TP) while deciding on the issue of AMP has also discussed in detail about the aggregation of transactions while using the Transaction Net Margin Method ( 'TNMM'). It has considered the OECD guidelines linking the same with the Indian regulation. The High Court observed that expression "class of transaction", "functions performed by the parties" under section 92C( 1) of the Act, illustrate that the word "transaction" includes a bundle or group of connected transactions. Clubbing of closely linked, which include continuous transactions, may be permissible under the Act and the taxpayer can aggregate the controlled transactions if the transactions meet the specified common portfolio or package parameter. 2.2.5. The Mumbai Tribunal in case of Melstar Information Technologies Ltd. [TS- 74-ITAT -2015(Mum)- TP] held that a service provider charging its AEs at hourly rates will benchmark its transactions on an aggregate basis. The services provided by the software development service provider is a composite work of development of software by the team and the work of one member of team cannot be....
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....ng exported the appellant has no occasion to make payment of commission and warranty. The payments of commission and warranty are inextricably related to export transaction. In other words the payments of commission and warranty germinate from the export transaction. The above payments do not have independent existence. Therefore, as held in the above judicial decisions, the export of PCBs to AE and the payments of commission and warranty are closely linked transactions. Hence the action of TPO in treating them together and arriving at ALP is in order. 3. Selection of tested party: In this regard in its submission the appellant has relied upon on the following decisions: (i) Tata Motors European Technical Centre Plc. V. Assistant Director of Income Tax reported in (2014) 52 Taxman. Com 411 (Mumbai - Tribunal). (ii) General Motors Indian (P) Ltd. Vs. Deputy Commission of Income Tax / Assistant Commissioner of Income Tax reported in [2013] 37 Taxman . Com. 403 (Ahmedabad - Tribunal) (iii) Development Consultants (P) Ltd. Vs. Deputy Commissioner of Income Tax reported in [2008] 23 SOT 455 (KOL). 3.1. In Tata Motors case services for rendered by UK (Foreign AE to Indian Company).....
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....equal to that charged by the assessee firm its AE. 5. Assessee choose its foreign AE as tested party, adopted TNMM as appropriate method and did TP study by comparing NP profit margin of foreign AE with six foreign companies doing similar activities. 6. TPO held that price determined by assessee in providing IT enables services is not in accordance with 92C( 1) & 92C(2) and rejected assessee TP study. The issue before Tribunal was can Foreign AE be taken as Tested party for TP study held Foreign AE cannot be taken as tested party by explaining TP law in India as under: (a) Section 92( 1) provides that any income from international transactions shall be determined having regard to the Arm's length price. (b) Section 92B defines international transaction to be transaction between two or more associated enterprise. (c) Section 92C read with rule 10B (1)( e) specified TNMM as one of method for determining ALP, which method provides that net profit margin realized by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to cost incurred or sale effected or assets employed or having regard to any other relevant base. ....
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....oreign AE as tested party has no legal sanctity under the Indian transfer pricing regulations. Furthermore, the ITAT also mentioned that the data used by the assessee with respect to the comparable companies does not conform to the comparability standard laid down under Rule 10B of the Rules. In view of the above the decision of onward technologies is directly applicable to the facts of the case. Hence the action of TPO in rejection of Foreign AE as tested party may be sustained. Further as observed by the DRP in its order at page No. 9 Para 6.2, the findings of the DRP are reproduced as under. 6.2. The panel has examined FAR analysis of the assessee and its foreign AE. It is seen that foreign AE is gathering business by obtaining orders from potential customers abroad. It is negotiating sale pride with customers and is liable to customer regarding product quality and warranty. All credit risk lies with foreign AE. It is responsible for getting the product manufactured from its group company having right kind of technology for the product under consideration. The foreign AE is having substantial intangibles. On the other hand, the assessee is responsible for manufacturing the pro....
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....od of accounting treatment. ii. Secondly, as the subject of transfer pricing is evolving day by day, rule of consistency may not be strictly applicable. iii. Thirdly, the TPOin his order has discussed on the issue of consistence by referring to the comments made by Hon' ble Justice P. N. Bhagavati (Page No. 193 to Paper Book). iv. Lastly, the appellant cannot rely on rule of consistency when the appellant itself has deviated and claimed that CUP method to be applied. As TPO has rejected selection Foreign AE as tested party the assessee charged his stance and would like to adopt CUP method instead of TNMM method. Therefore, there is no force in the appellant's reliance on the rule to consistency. 5. Selection of comparables: In this regard, the DRP at Page No. 10 Para 6.3 of the order for Assessment Year 2011-12 has discussed the issue of comparables. The findings of the DRP may be considered as the arguments against the submission of appellant with respect to the comparables. 6. Conclusion: 1. The most appropriate method for determining ALP of international transaction entered into by the appellant with AE is TNMM method in view of the reasons mentioned above. 2. A....
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....he enterprise or having regard to any other relevant base, which is then compared with the net profit margin realized by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction. The modus operandi of determining ALP of an international transaction under this method is that firstly, the profit rate earned by the assessee from a transaction with its AE is determined (say, profit A), which is then compared with the rate of profit of comparable cases (say, profit B) for ascertaining as to whether profit A is at arm's length vis-à-vis the profit B. If it is not, then the transfer pricing adjustment is made having regard to the difference between the rates of profit A and profit B. The rate of profit of comparable cases (profit B) may be computed from internally or externally comparable cases, depending upon the FAR analysis and the facts and circumstances of each case. Thus the calculation of profit B may undergo change with the varying set of comparable cases. However, in so far as calculation of profit A is concerned, there cannot be any dispute as the same has to necessarily result only from the transaction between two or more associated ent....
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....gument that such transactions have to be considered at arm's length on ground that there is no shifting of profits. The Tribunal categorically held that the assessee i.e., the Indian party has to be taken as the tested party and the TNMM method is to be followed. Recently the Delhi Bench of ITAT in the case of Ranbaxy Lab Ltd. vs. Addl CIT (AY 2004-05) rejected the assessee's case since it had taken the foreign AEs as 'tested parties' and calculated its ALP. The ITAT agreed with the AO's contention that such benchmarking is not in consonance with the Income Tax rules. Besides the above the AE cannot be treated as tested party because its accounts are based on Austria GAAP which is different from Indian GAAP. Accordingly the method of accounting, allocation of costs, recognition of revenue etc. differ for making the comparison. In the instant case we need to determine the ALP of the transaction between the assessee and AE for the export of the PCB. Therefore the tested party will be the Indian Party. In view of above we find no reason to interfere in the order of DRP. Hence the assessee has rightly been treated as tested party. With regard to the TNMM method adopted by the lower a....
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....d transaction ("external comparable'). The OECD Guidelines inter alia defines the CUP Method as follows: "Comparable uncontrolled price (CUP) method A transfer pricing method that compares the price for property or services transferred in a controlled transaction to the price charged for property or services transferred in a comparable uncontrolled transaction in comparable circumstances. " 11.1 We also find support from the decision of the Hon'ble Mumbai Tribunal in the matter of DCIT vs. Isagro (Asia) Agrochemicals (P.) Ltd reported in [2013] 31 taxmann.com 388 (Mumbai - Trib.), wherein the Hon'ble Tribunal interalia held that : "various benches of the Tribunal including Asstt. CIT v. MSS India (P.) Ltd. [2009J 32 SOT 132 (Pune) and Philips Software Centre (P.) Ltd. v. Asstt. CIT [2008] 26 SOT 226 (Bang.) have preferred the following of CUP method. It is obvious that when the price of similar goods or services as sold or provided to the non-AEs is available, such a price constitutes the best guide to find out whether the price charged or paid to the AEs is at ALP or not It is more so when such comparable uncontrolled transactions is internal. When similar good....
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....iate method. 11.3 In this connection, we rely in the decision of the Hon'ble Mumbai Tribunal in the matter of Mattel Toys (I) (P.) Ltd vs. Deputy Commissioner of Income-tax, Circle - 6(3) reported in [2013] 34 taxmann.com 203 (Mumbai - Trib.), wherein the Hon'ble Tribunal inter alia held that: "41. Now coming to the argument of the learned Departmental Representative that once the assessee itself has chosen TNMM as most appropriate method in TPR, then it cannot resort to change its method at an assessment or appellate stage. In our opinion, such a contention cannot be upheld because if it is found on the facts of the case that a particular method will not result into proper determination of the ALP, the TPO or the appellate authorities can very well hold that why a particular method can be applied for getting proper determination of ALP or the assessee can demonstrate a particular method to justify its ALP. Thus, even if the assessee had adopted TNMM as the most appropriate method in the transfer pricing report, then also it is not precluded from raising the contentions/objections before the TPO or the appellate Courts that such a method was not an appropriate method and....
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....ethod provides the most direct comparison for the purpose of determining the arm's length price of international transactions and is to be preferred over the other profit based methods. Reliance is placed in this regard on the following decisions: - Aztec Software & Technologies Services Ltd. v. Asstt. CIT [2007] 107 ITD 141/162 Taxman 119 (Bang.) (SB) - UCB India (P.) Ltd. v. Asstt. CIT [2009] 30 SOT 95 (Mum.) - Gharda Chemicals Ltd. v. Oy. CIT [2010] 35 SOT 406 (Mum.) - Intervet India (P.) Ltd. v. Asstt. CIT [2010] 39 SOT 93 (Mum.) - Asstt. CIT v. Dufon Laboratories [2010] 39 SOT 59 (Mum.) 11 Reliance in this regard is also placed on the decision of Hon'ble Mumbai Tribunal in the case of Serdia Pharmaceuticals (India) (P.) Ltd. v. Asstt. CIT reported in [2011] 44 SOT 391/9 taxmann.com 13 wherein the Hon'ble Tribunal while dealing with the priority of applications of methods for the determination of ALP, has held as under: "64... as long as CUP method can be reasonably applied in determining the arm's length price of an international transaction in a particular fact situation, and unless another method is proven to be more reliable a method vis-a-vis the fac....
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....able to the appellant in particular, having bearing over the comparison of price charged from unrelated parties and AE." 11.5 In view of the above judicial precedents, we find that the CUP method provides the most direct comparison for the purpose of determining the arm's length price of international transactions and is to be preferred over the other profit based methods. Accordingly in the instant case internal CUP method should be preferred over the external CUP method. Hence, we hold that in the instant case, the CUP Method (internal) is the most appropriate method in determining the arm's length price of the international transaction involving export of PCBs by the assessee to AE and accordingly, delete the adjustment of INR 69,30,53,3971- made in the assessment order. 12. As we have decided the issue in favour of assessee with regard to the determination of ALP, we are not inclined to adjudicate other grounds of appeal raised by the assessee. Hence the ground no. 3 to 5 do not require any adjudication. 13. The second issue raised by the assessee in ground no. 6 to 7 in this appeal is that DRP erred in confirming the order of the AO by sustaining the disallowance o....
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....- thereby leading to an excess provision of INR 7,53,519/- being created during the year which was otherwise entitled to deduction from the computation of income but was inadvertently added back in the computation of total taxable income. In view of our above submissions, that the above amount representing the excess provisions is not taxable in the hands of the appellant. It was an inadvertent mistake committed by the appellant while filing the return of income which should have been otherwise not added to the total income of the appellant. 16. On the other hand the ld. DR vehemently supported the order of the AO. 17. We have heard rival contentions of both the parties and perused the material available on record. In the instant case, the assessee inadvertently added back the negative balance of the opening and closing provisions made for diminution in the value of inventories in the return filed which should have otherwise reduced from the total income of the appellant. Later on, realizing the inadvertent mistake, the assessee filed a written submission before the AO dated 2nd March, 2015 praying before the AO to allow the deduction of the excess provision which was inadverten....