TaxTMI 
TaxTMI 
2020 (3) TMI 674
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....FINAL HEARING. 2. The brief facts of the case are, assessee is engaged in the business of manufacturing of pharmaceutical products. During the assessment proceedings, AO observed from the audit report in Form No. 3CEB, assessee had entered into specified domestic transactions with the associated enterprises to the extent of Rs. 15 crores. Accordingly, he referred the matter to the TPO to determine the arm's length price. Accordingly, reference were made u/s 92CA(1). The TPO proposed an addition of Rs. 1,89,480/- to the income of assessee. Accordingly, a draft assessment order was passed and served upon the assessee. In response, assessee submitted to the AO that it is contesting the above issue in the appeal. Further considering that assessee is in appeal before appellate authority, assessment order u/s 144C(3) of the Act was passed by making addition u/s 92CA(4) of the Act. 3. Further AO observed that assessee has adopted an amount of Rs. 27,73,969/- on account of sale promotion expenses. On verification of the copy of the ledger account alongwith copy of the bills /evidences submitted by the assessee, AO observed that there were certain expenses incurred through credit card....
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....(c) Analysis expenses were higher for AE (d) Testing also required testing by Outside Laboratory (e) Special and expensive packing of product was required (f) Refrigerated vehicle was required to transport the product from factory to airport (g) Freight charges are high. c. It was also explained that the Price of Third Party compared was in relation to a local sale made by AE and hence price was a bit lower as all the above factors were absent in the local sale. d. Thus, the instance relied on by the learned TPO was strictly not a comparable instance for CUP method. e. In the premises set out above, it is submitted that the price charged by AE was more than fair and ALP and hence no such addition by way of upward adjustment is called for. f. Your Honour may also note that the Appellant had transactions of over Rs. 15.0 crores with the AE and all the other transactions are found to be fair and at ALP. Thus, there was no reason or rationale for the Appellant to do a transaction worth only Rs. 1 1,53,200 (i.e less than 1.5% of the total) at a higher cost with the AE, more so, as both the companies paid tax at the same rate. the premises set out abov....
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.... NICORANDIL at higher price because it is of superior quality compared to what is sold to third party. The AO has opined that the appellant has submitted invoices which have been seen and it is found the there is no difference in the description of the product sold by related party to assessee and to third party. I have also pursued the invoices and I am in agreement with the TPO that the invoices do not show anything new which substantiates appellants claimed that product was of superior quality. Moreover the appellant has submitted that as the product was meant for export it needed more stringent specification. I do not agree with the appellant contention whatever has been submitted before me clearly shows that product was same but appellant had to do value addition to it for export. So this will not increase the purchase price of the product. This will make its selling price more. So I do not accept appellant's submission and so adjustment made by TPO is hereby confirmed. This ground of appeal is dismissed. 8. Decision for Ground No.2 &3: Ground No. 2 and 3 is regarding disallowance of sales promotion expense of Rs. 173901/-. I have gone through the submiss....
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....xport quality requires specific requirement of test and quality. Accordingly, he prayed that the arm's length adjustment proposed by the TPO may be dismissed. 8. With regard to sales promotion expenses disallowance, he submitted that assessee incurs this expenses in order to entertain the buyers who visits India and in several occasions, the director of the company has to accompany them in order to entertain them and the payment for the above said entertainment expenditure are made by the directors by way of using their credit card and the same was reimbursed by the assessee. This is genuine expenditure incurred for the purpose of business only and he prayed that the disallowance made by the AO may be deleted. 9. On the other hand, Ld. DR relied upon the orders passed by the lower authorities. 10. Considering the rival submission and material placed on record, we notice from the records that assessee has purchased Nicorandil chemical from its associate enterprises @ 20,000 per Kg, whereas the same chemical are sold in the domestic market for lesser value. We observed from the submission made by Ld. AR that the assessee has purchased chemical from the associate enterprises ....