TaxTMI 
TaxTMI 
2019 (4) TMI 1380
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....sing Officer ("Ld. AO") [along with the Learned Transfer Pricing Officer ("Ld. TPO")] under the directions of Hon'ble DRP erred on facts and in law in determining the arm's length price for purchase of raw material pertaining to manufacturing activity at INR 3,874,663,557 instead of INR 4,081,684,747 under the provisions of section 92CA(4) of the Income Tax Act, 1961 ("the Act") and thereby making an upward adjustment of INR 207,021,190 to the taxable income of the Appellant. 2. The Ld. TPO, Ld. AO and Hon'ble DRP erred on facts and in law in proposing to modify the economic analysis carried out by the Appellant in the Transfer Pricing ("TP") documentation maintained under section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ("the Rules"), without providing any cogent reasons. 3. The Ld. TPO, Ld. AO and Hon'ble DRP erred on facts and in law in rejecting various comparable companies based on certain parameters and ignoring the that the same are functionally comparable to the Appellant. 4. The Ld. TPO, Ld. AO and Hon'ble DRP erred on facts and in law in rejecting Kemrock Industries & Exports Ltd as a comparable to the ....
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...., liquid chlorine, HCL, Feeric Chloride, i.e. chemicals while the assessee is into manufacturing of plastics" and "hence DCW Ltd is also rejected from the list of final comparables". The final comparables were thus Finolex Ltd and Supreme Petrochem Ltd. The average margin OP/OR of these two comparables worked out to 7.97% as against the margin of the manufacturing segment computed at 5.58%.. It was on this basis that an arm's length expenses were computed at Rs. 561,93,77,896 as against the actual related expenses of Rs. 582,63,99,086, and, accordingly, an arm's length price adjustment of Rs. 20,70,21,190 was recommended by the Transfer Pricing Officer. When the Assessing Officer proposed to make the resultant addition, assessee did raise a grievance before the Dispute Resolution Panel, but without any success. The DRP confirmed the action of the authorities below and declined to interfere in the matter. The assessee is not satisfied and is in further appeal before us. For the reasons we will set out in a short while, it is not really necessary to take note of any further facts at this stage and for our purposes. 4. We have heard the rival contentions, perused the material on re....
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....ne the facts of this case, we find that the while there is PVC segment loss in the financial year 2012-13 (i.e. current year) @ 4.53%, and in the immediately preceding year 2011-12 (5.87%), there is in fact profit in the financial year 2010-11 at 2.88% net profit margin. The fact about profit in the financial year 2010-11, as also in the financial year 2015-16 onwards, is not even disputed by the revenue authorities below. In view of these discussions, the exclusion of DCW Ltd from the list of final comparables is not justified on the ground that it is a persistent loss making company. As regards the automation and debottlenecking program in the DCW Ltd in the relevant financial years, that is an ongoing process and cannot result in comparability. In view of these discussions, in our considered view, the exclusion of DCW Ltd was not justified. We, therefore, direct the Assessing Officer to recompute the arm's length margin after taking into account DCW Ltd as valid comparable. 6. Learned representatives agree that in the event of DCW Ltd being accepted as a valid comparable, there will be no need to deal with other issues raised with respect to this arm's length price determinat....
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....heir taxable income in India. 9. So far as this grievance of the assessee is concerned, the relevant material facts are as follows. In the course of proceedings before the Transfer Pricing Officer, it was noticed that the assessee has made payments of (i) Rs. 1,27,70,479 to Sabic Innovative Plastics US LLC USA; (ii) Rs. 7,20,92,912 to Sabic Innovative Plastic Management (Shanghai) Co Ltd China; and (iii) Rs. 13,02,53,476 to Sabic Innovative Plastics (SEA) Pte Ltd, Singapore. When the TPO probed the arm's length price determination of these transactions, he found that the assessee has clubbed the payment of management service charges with manufacturing/ trading and benchmarked such aggregated transactions together using Transactional Net Margin Method as the Most Appropriate Method, using the assessee as the tested party. The TPO was of the view that this benchmarking was incorrect and observed that the payments were for specific services rendered by different AEs, the assessee should have conducted benchmarking separately for each type of payment. It was noted that no such study was carried out. It was also noted that benefit test and receipt of actual services should have exami....
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....ually applicable in the present context: 15. One of the very basic pre condition for use of CUP method is availability of the price of the same product and service in uncontrolled conditions. It is on this basis that ALP of the product or service can be ascertained. It cannot be a hypothetical or imaginary value but a real value on which similar transactions have taken place. Coming to the facts of this case, the application of CUP is dependent on the market value of the arrangements under which the present payments have been made. Unless the TPO can identify a comparable uncontrolled case in which such services, howsoever token or irrelevant services as he may consider these services to be, are rendered and find out consideration for the same, the CUP method cannot have any application. His perception that these services are worthless is of no relevance. It is not his job to decide whether a business enterprise should have incurred a particular expense or not. A business enterprise incurs the expenditure on the basis of what is commercially expedient and what is not commercially expedient. As held by Hon'ble jurisdictional High Court in the case of CIT v. EKL Applianc....
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....ssee gets the relief accordingly. 9. The only justification for taking ALP of services at NIL is under CUP but then there has to be something on record to show that in an arm's length situation these services are rendered without consideration. The worth of services cannot be decided by the TPO, nor is it open to him to question, as such an approach implicitly does, the commercial expediency of these services. It is only elementary that how an assessee conducts his business is entirely his prerogative and it is not for them to decide what is necessary for an assessee and what is not. It is not for the TPO to question assessee's wisdom in making payment for the services, which, in the opinion of the TPO, are not of "much" use. The TPO has travelled much beyond his powers in questioning commercial wisdom of assessee's decision to take benefit of expertise of its AEs. The DRP is also in error, in the light of these discussions, evaluating the worth of services on the basis of benefit of these services. The very foundation of the impugned ALP adjustment was thus devoid of any legally sustainable basis. 10. In any case, we have carefully perused the evidenc....