AI Drafter 
TaxTMI 
TaxTMI 
2019 (11) TMI 1419
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing adjustment made in this regard are as under :- Assessment Year Amount 2005-06 2,75,93,140 2006-07 6,42,78,560 2007-08 6,37,42,069 4. Since facts are identical we are referring to facts and figures from A.Y. 2005-06. 5. Brief facts of the case and transfer pricing officer's observation are as follows :- The assessee is engaged in the business of developing, manufacturing and marketing additive systems for Automotive and Industrial Lubricants and for treatment of fuels. A summary of international transactions is as under: A.Y.2004-05 A.Y.2005-06 Sr. No Transaction Amount Method Amount Destination Method 1 Exports of chemical additives 8,83,03,672 TNMM 22,55,18,766 Various countries TNMM 2 Commission for customer service support activities 25,97,102 TNMM 44,76,749 USA TNMM Total Receipts 9,09,00,774 2,99,95,515 3 Imports of intermediate and raw materials 42,10,25,864 TNMM 48,32,87,438 USA, France and Singapore TNMM 4 Royalty 10,88,88,386 TNMM 11,57,86,095 US....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ies. In reply the assessee objected to the modification in the arm's length price determined by it. The gist of objections is as under:- "Merely the rate for metric ton charged for the products viz. LZ-9222 and LZ6499 cannot be compared without considering the factors that affect the comparability:- a. Geographical market:- The controlled transactions have taken place with enterprises located in France, Japan, Singapore, Brazil etc while the uncontrolled transactions have been entered into in the domestic market of India. b. Volume of sale of products:- Product Qty sold to AE Qty sold to non-AE LZ 9222 362.57 MT 100.97 MT LZ 6499 1757.19 MT 93.28 MT The volume of the products sold to the related parties is substantially higher than that sold to the domestic customers. The impact of such volumes on determination of prices needs an adjustment. c. Export benefits:- The assessee has received export benefits by way of advance licenses on account of sales to related party which are not available in case of sales to domestic customers. d. Risk adjustment:- There is no bad debt r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er's rejection of assessee's TNMM method by an elaborate order as under :- "9. I have considered the submissions furnished by the Appellant, grounds of appeal and statement of facts along with various documentary evidences furnished by the Appellant. The observations made by the TPO in his order have also been considered. 10. TPO erred in not appreciating that, the assessee during the relevant period had performed a scientific analysis for selection of the Most Appropriate method having regard to the provisions of the rule 10B of the Income Tax Rules, 1962 (Rules). The TPO has further erred in considering CUP as the Most Appropriate method to benchmark the export of Chemical Additives disregarding the rules laid down in Rule 10B (2) and Rule 10B (3) of the Rules, which are a prerequisite, were not considered for application of CUP method. The TPO failed to take into account the huge difference in volume between sales to AE and Nor AE. In respect of one product, it is more than 300% times while in another it is more than 1700%. Such huge difference in volume pre-empts any application of CUP. Besides the TPO also failed to take into account the geographical....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of TPO. As regards assessee's objection to change of the method from consistently applied TNMM method to the cup method, learned DRP without any elaboration simply upheld the TPO order. However, it provided some directions accepting the assessee's plea for adjustment for packing cost. 15. Against the above order assessee and Revenue have filed appeal before the ITAT. We have heard both the counsel and perused the records. We find that assessee has been consistently applying TNMM method for transfer pricing benchmarking as in the past earlier years. The same has been duly accepted by the Department. In the present assessment year the Assessing Officer has rejected the same without brining on record any cogent material as to why the facts are different from earlier assessment years. The main reason for the Assessing Officer in rejecting the TNMM method is his finding that the assessee has also transactions with unrelated parties. However he has summarily rejected the assessee's contention that there are various factors which have to be taken into account and adjustment thereof will have to be required for a comparable analysis with those parties. The Assessing Officer has not g....
X X X X Extracts X X X X
X X X X Extracts X X X X
....action was found to be at arm's length. At this juncture, the Transfer Pricing Officer changed his tracks. He observed that no verifiable data has been provided to substantiate the method used. He further held that CUP would be a more appropriate method to bench mark the sale transaction. The assessee objected to the same. In the objections, the assessee also relied upon the OECD guidelines and the ITAT decision in the case of Welspun Zucchi Textiles Ltd. Vs ACIT. However, the Transfer Pricing Officer summarily rejected and held that the application of TNMM is the method of last resort when the comparable price method cannot be applied. However, he noted that in the assessee's case since the comparable price for the same or similar products to the third parties has been provided by the assessee, the same has to be considered for bench-marking this transaction. Accordingly, Transfer Pricing Officer proceeded to apply the CUP method for bench marking. The assessee's objection in this regard was also by the DRP when it held that it was of the opinion that when internal CUP is easily available, the TNMM is to be treated as method of last resort. 28. From the above ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es entering into the transaction and the functions performed by them taking into account assets employed or to be employed and risks assumed by such enterprises; (c) the availability, coverage and reliability of data necessary for application of the method; (d) the degree of comparability existing between the international transaction and the uncontrolled transaction and between the enterprises entering into such transactions; (e) the extent to which reliable and accurate adjustments can be made to account for differences, if any, between the international transaction and the comparable uncontrolled transaction or between the enterprises entering into such transactions; (f) the nature, extent and reliability of assumptions required to be made in application of a method. iii. Rule 10B of the Income-Tax Rules, 1962 ("Rules") states that: (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely :-- (e) transactional net margin method, by which,-....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... been made out by the Transfer Pricing Officer or the DRP that there was an error committed earlier when the TNMM method was chosen and approved. The Transfer Pricing Officer while justifying the change stated that in T.P. report assessee has bench marked the transaction under TNMM, verifiable data has been provided to substantiate the method used. Hence, from the above discussion, we find that no cogent reason has been pointed out by the authorities below that the TNMM method applied earlier was not in accordance with the mandate of law as above. It is settled law that resjudicata does not apply to taxation proceedings but it has fairly often been held by the higher courts including by the Hon'ble Apex Court that the consistency should be maintained in the assessment proceedings. A consistently applied method can be changed only if there is a change in facts and law. In the present case, we find that there is no such case has been made out. Rather the Transfer Pricing Officer has proceeded to examine the issue on the basis of TNMM method. He has ordered for updated data of comparable. Thereafter, when even on the basis of updated data, the international transaction wa....