TaxTMI 
TaxTMI 
2021 (3) TMI 1082
X X X X Extracts X X X X
X X X X Extracts X X X X
....lant, without appreciating the limitations in applying the CUP Method? 3. Whether on the facts and circumstances of the case, the Tribunal was right in holding that the Appellant is estopped from changing the most appropriate method during the assessment proceedings/appellate proceedings without appreciating the need and merit of the new method for determination of arm's length price? 4. Whether on the facts and in the circumstances of the case, the Tribunal was right in confirming the rejection of adjustment made for quantity discount given to the Non-AE which is otherwise to be allowed in view of Rule 10B(3)? 5. Whether on the facts and circumstances of the case, the Tribunal was right in remanding the issue of trading segment to the CIT(A) when all the facts to adjudicate the issue were before it nad applicability of CUP Method is itself in question?" 3. The assessee is a Joint Venture Company promoted by three Korean Multi-Nationals, Hyundai Corporation (HC), Pohang Iron & Steel Company (POSCO) and POSCO Steel Service and Sales Company (POSTEEL) for manufacture of steel sheets and components out of cold rolled steel coils for supply predominantly to Hyundai Motor Ind....
X X X X Extracts X X X X
X X X X Extracts X X X X
....54 of the Act read with Section 92CA(4) by order dated 30.05.2006 confirming the additions made by the TPO. 7. The assessee would state that though they did not challenge the jurisdiction of the Assessing Officer to exercise powers under Section 154, this being a jurisdictional issue, the assessee is not precluded from raising such a contention for the first time before this Court. It is submitted that the order of rectification passed under Section 154 is without jurisdiction as there was no mistake apparent from the records as on the date of which the assessment was completed under Section 143(3) by order dated 28.02.2006. It is further submitted that the subsequent order of the TPO dated 16.03.2006 will not make the order of assessment dated 28.02.2006 rectifiable under Section 154 of the Act. 8. The assessee filed appeal against the assessment order before the Commissioner of Income Tax (Appeals)-3, Chennai (hereinafter referred to as 'CIT(A)'). The assessee raised additional grounds before the CIT(A) stating that it used Transactional Net Margin Method (TNMM) as the most appropriate method for computing the ALP and provided an analysis on the same. 9. The CIT(A) ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to substantial question of law No.1, it was submitted that the TPO does not have jurisdiction to conduct a transfer pricing adjustment once the assessment has been completed by the Assessing Officer under Section 143(3) of the Act. The Assessing Officer, in the order dated 28.02.2006, has accepted the ALP, as computed by the assessee, and exercised his jurisdiction under Section 92C(3) and completed the assessment. The TPO has no jurisdiction to parallely exercise power under Section 92CA, after completion of the assessment by the Assessing Officer. This is so because the TPO is ceased to have jurisdiction on completion of the assessment vide order dated 28.02.2006. Further, it is submitted that the Assessing Officer, under the guise of invoking his power under Section 154 of the Act, seeks to review the assessment order dated 28.02.2006, which is impermissible as the subsequent order of the TPO cannot be a ground to invoke the provisions of Section 154 to rectify an order of assessment when there is no "mistake apparent on the record". The Assessing Officer in fact has exercised powers vested by the Commissioner under Section 263 of the Act and therefore, the order is without juri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssued by one of its AE, who supplied to the third party comparable, had stated that it had offered volume discount based on the quantity purchased. Further, it is submitted that under Rule 10B(3), if accurate adjustments are not made to a comparable to eliminate effects of material evidences, then such comparable ceases to be an uncontrolled transaction and consequently, no ALP can be determined on the basis of that comparable. In this regard, reliance was placed on the decision of the High Court of Bombay in the case of PCIT Vs. M/s.Merck Ltd. [ITA.No.726 of 2017, dated 16.09.2019. 16. With regard to the substantial question No.5, the learned counsel for the appellant submitted that the Tribunal ought not to have remanded the matter with regard to the issue of trading segment when all the facts to adjudicate the issue were brought before it and applicability of CUP method itself was in question. On this issue, it is submitted that for adopting CUP method, there is a requirement of high degree of comparability in products, functions performed, contractual terms, characteristics and volume of transactions, etc., and in the assessee's case, comparison of PSCEN with SPCEN-HMI is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....de steel and SPCEN-HMIT and SPCD-HMI grade steel. 20. On the first issue, the TPO stated that the assessee failed to keep, maintain and produce the TP documentation for international transactions representing purchase of 12751.31 MT of steel to initiate penalty proceedings under Section 271AA of the Act. With regard to the second issue, the TPO proposed to make adjustments to the import price of SPCD and SPCEN grade steel. On the third issue, after taking note of the reply, which was filed by the assessee, the TPO stated that as per the assessee company's claim that the materials SPCEN and SPCEN-HMI, SPCD and SPCD-HMI are not identical and hence not comparable, is not tenable as the assessee could not prove the difference in quality with documentary evidence. Further, the TPO stated that the assessee has submitted the sale invoice copies of similar transactions made in India by TISCO and claimed that the purchase price is comparatively low. The TPO proposed that this claim could not be accepted as the company has an obligation with Tamil Nadu Government to purchase 30% of their raw material requirements from local market and thus, it becomes a controlled transaction. The TPO a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the issue arising in question No.5 was remanded to the CIT(A) for adjudication based on the request made by the assessee, for which the Revenue did not object. 25. It is submitted that the issue relating to the jurisdiction of the Assessing Officer to invoke Section 154 of the Act was never raised before the Assessing Officer or the CIT(A) or the Tribunal and such being the case, the assessee is not the person aggrieved over the same and the issue has become final. Furthermore, the jurisdictional issue should have been raised by the assessee at the earliest point of time. 26. In support of this contention, the learned Senior Standing Counsel placed reliance on the following decisions: (i) K.Ravindranathan Nair Vs. CIT [(2001) 247 ITR 0178 (SC)] (ii) Mangalore Ganesh Beedi Works Vs. CIT [(2015) 378 ITR 0640 (SC)] (iii) P.R.Narahari Rao Vs. CIT [(2008) 299 ITR 0400 (Ker)] (iv) Ramanlal Kamdar Vs. CIT [1977) 108 ITR 0073 (Mad)] (v) Anjuga Chit Fund (P) Ltd. Vs. DCIT [(2009) 318 ITR 0121 (Mad)] (vi) Sundaram Finance Ltd. Vs. ACIT [(2018) 93 taxmann.com 250 (Mad)] (vii) Sundaram Finance Ltd. Vs. DCIT [(2018) 99 taxmann.com 152 (SC)]. 27. Thus, it is submitted that unles....
X X X X Extracts X X X X
X X X X Extracts X X X X
....question Nos.2 and 3 against the assessee. 32. With regard to substantial question of law No.4, the learned Senior Standing Counsel referred to the relevant portion of the findings recorded by the Assessing Officer, the TPO, the remand report and the order of the CIT(A) as confirmed by the Tribunal and submitted that the reasoning is fully justified, more particularly when the appropriate method was held to be the CUP method. 33. With regard to substantial question of law No.5, it is submitted that the assessee cannot seek to question the remand as the assessee is the one who sought for the matter to be remanded to the CIT(A) for adjudication and the Revenue did not make any objection for remanding the matter back to the CIT(A), which has been specifically recorded by the Tribunal in paragraph 9.0 of the impugned order. 34. On the above grounds, the learned Senior Standing Counsel appearing for the respondent sought for dismissal of the appeal. 35. We have elaborately heard Mr.R.Sandeep Bagmar, learned counsel for the appellant-assessee and Mr.T.Ravikumar, learned Senior Standing Counsel appearing for the respondent-Revenue. 36. As noticed above, the learned counsel for the ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sment years. 41. Pursuant to such order, the Assessing Officer issued notice under Section 154 of the Act. In the notice, the Assessing Officer stated that she proposed to rectify the defect with regard to ALP, which is less than the actual import price of particular grade and hence, there will be an addition to the total income taken for tax purposes. 42. The assessee submitted their reply dated 29.05.2006 referring to their earlier reply dated 13.03.2006 filed to the show cause notice dated 30.03.2006 and the written submissions dated 20.02.2006 filed before the TPO. Further, the assessee also referred to all other communications filed for submission of documents, offering clarification and technical explanation for the difference in quality of import material. Further, the assessee stated that the TPO had compared the transaction date, import price wherever it is higher only and ignored the transactions the import prices are lower and did not consider the volume discount offered by supplier and a 5% variation allowed by CBDT Circular dated 23.08.2001. Further, with regard to ALP for SPCEN and SPCD Trading grades, the assessee stated that the TPO had compared the import price o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o directed the Assessing Officer to afford an opportunity to the assessee. 47. Precisely, the Assessing Officer has complied with the directions of the TPO in its letter and spirit. The notice clearly states that the ALP being less than the actual price of a particular grade, there has to be an addition to the total income taken for tax purposes. The assessee clearly understood the implication as they were aware of the TPO's order dated 16.03.2006, which was after affording full opportunity to the assessee. Therefore, the assessee thought fit not to question the jurisdiction of the Assessing Officer in issuing a notice in a form prescribed for notice under Section 154 of the Act. The reply given by them, dated 29.05.2006, is on merits and not a whisper about the alleged jurisdiction of the Assessing Officer to issue the notice. The Assessing Officer passed the order under Section 92CA(4) of the Act and this being a mandate under the statute, the Assessing Officer had to follow. Once again, the assessee was fully aware of the implications and presumably for such reason, did not raise any objections as regards the validity of the notice dated 28.03.2006, when they filed appeal ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ection 154 finds place in Chapter XIV which deals with Procedure for Assessment. Section 154 deals with rectification of mistake apparent from the record. Chapter XIV not only deals with assessment and re-assessment and it also deals with re-computation and the object of re-computation is to assess (quantify) the correct taxable income and such re-computation of a correct taxable income is a matter of procedure. This decision squarely explains the procedure of assessment as settled down in Chapter XIV of the Act and Section 154 falls under the said Chapter. 51. At the risk of reputation, we may point out that the assessment order dated 28.02.2006 is an order under Section 143(3) and not an order under Section 92C(3) of the Act. 52. The argument of the assessee before us is that the Assessing Officer has exercised jurisdiction under Section 92C(3) and the TPO parallely cannot exercise his power under Section 92CA. On facts, the assessee is wrong. 53. Reference to the TPO was as early as on 21.11.2005. The assessee submitted the details called for in the questionnaire on 13.01.2006 furnishing all relevant information and participated in the proceedings before the TPO, which culmin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....not foreclose the assessee solely on the ground of estoppel. To explain this position, we may refer to the order passed by the TPO dated 16.03.2006 under Section 92CA(3) of the Act. In paragraph 6 of the order, the TPO referred to the method adopted by the assessee, namely the CUP method, as the MAM to arrive at the ALP. The reason for adoption of CUP method and the step involved in arriving at the ALP by the assessee was clearly spelt out in the transfer pricing document. After reproducing the relevant portion of the transfer pricing document, the TPO proceeded to consider as to what would be the appropriate method. In paragraph 6.2, analysis of ALP has been done. The 6 steps and the computation of the ALP for the assessment year is given in a tabulated form. In a note below the tabulated form, it has been stated as follows: "Note * The import price as determined using an uncontrolled Transactions is more than the actual import price from the Associated Company. Hence, the Arm's Length Price is the actual import price. ** A Comparable Uncontrolled transactions is not available for this imported material." 61. The TPO has observed that from the steps listed down in his....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to material SPCEN and SPCD are taken as comparables to be compared with the sale price of SPCEN-HMI and SPCD-HMI made to AE. On a transaction to transaction based comparison of prices as given in Ann III for SPCEN and Ann IV of SPCD, it works out to a difference in prices to the tune of Rs. 2,69,34,151.10 which is to be adjusted to the purchase price of materials. SPCEN-HMI Rs. 21,98,232.27 SPCD-HMI Rs. 4,945,918.83 TOTAL Rs. 2,69,34,151.10" 63. Next, the TPO mentioned about the failure on the part of the assessee to keep and maintain information and document in respect of international transactions and ultimately proceeded to determine the Arm's Length Price, which is as follows: "7. DETERMINATION OF ARMS LENGTH PRICE: As per the provision of sub-section (1) of Section 92 of Income Tax Act, any income arising out of international transaction shall be computed having regard to Arms length price, which is determined by applying most appropriate method having regard to nature of transactions, functions performed and other relevant factors. In this case, as discussed above, I am of the opinion that the price charged or paid in the above stated international transacti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed for and therefore, the claim of volume discount was not allowed. Accordingly, based on transaction to transaction analysis, the difference in the purchase prices a downward adjustment to the tune of Rs. 2,99,05,100/- was made. The assessee company had failed to provide comparable information during the TP proceedings, initiation of penalty u/s 271AA on the assessee company was suggested to the Assessing Officer. Accordingly, the Assessing Officer added Rs. 2,99,05,100/- to the total income of the assessee company and completed assessment u/s 143(3) of the IT Act, on 28.02.2006." 65. After recording the above facts, the TPO dealt with the additional grounds raised by the assessee requesting to adopt TNMM method for comparing the margin of the tested party and submitted some comparables after doing the comparability analysis. The TPO, after noting the said submission of the assessee, referred to the TP proceedings and the TP documentation submitted by the assessee stating that the CUP method is the MAM. The TPO holds that the stand taken by the assessee during the appeal proceedings resorting to TNMM method is only an after thought and cannot be accepted. The TPO does not s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ded to adjudicate the matter. The CIT(A) referred to the remand report in extenso and held that the order passed by the TPO has answered the assessee's arguments and he has accepted the findings recorded by the Assessing Officer in the remand report and the speaking order passed by the TPO and accordingly confirmed the additions made. 69. Therefore, it would be incorrect to pick out couple of sentences from the order of the CIT(A) and to state that the assessee has been shut out on the ground of estoppel, we are fully convinced that the assessee's case was dealt with on merits at every stage from the stage of the order passed by the CIT(A) as well as the remand report and the CIT(A) has recorded reasons as to why he is convinced on facts that the findings recorded by the TPO is an answer to the assessee's arguments. 70. Therefore, we are of the definite view that the assessee has not been non-suited on the ground of estoppel, but the entire matter has been analysed on facts and a finding has been rendered. This finding has been reappreciated by the Tribunal, which can be seen from paragraph 8.0 of the order. No doubt, in paragraph 11.0, the Tribunal made an observatio....