TaxTMI 
TaxTMI 
2021 (10) TMI 831
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....as per order u/s 92CA (3) of the Act dated 30/11/2016 on which the learned Dispute Resolution Panel - 2, New Delhi [ Ld DRP] passed its direction on 10/05/2016 and thereafter Assessment order was passed. Ld TPO proposed adjustment to the international transaction of the sale of Rice amounting to Rs. 2,422,889,000/-, arm's-length price of which was determined by the learned Transfer Pricing Officer at Rs. 2,670,216,194 making the proportionate adjustment u/s 92CA(3) of the Act of Rs. 193,657,087/- which was confirmed by the learned Dispute Resolution Panel. This is the only dispute in this appeal. 3. Assessee has raised the following grounds of appeal in ITA No. 441/Del/2017 for Assessment Year 2012-13:- "Impugned Assessment Order dated 29.11.2016 passed under section 143(3) read with section 144C of the Income-tax Act, 1961 ("the Act") pursuant to directions of Dispute Resolution Panel under section 144C(5) of the Act dated 10.10.2016, is erroneous and not in accordance with provisions of law inter- alia on the following Grounds, which are without prejudice to each other: 1. Ld. AO / TPO / DRP have erred in making an addition of INR 19,36,57,087/- under chapter X of the Act. ....
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....f distributors. 5. For the impugned assessment year assessee filed its return of income on 29th of November 2012 declaring loss of Rs. 34,82,54,122. The case of the assessee was picked up for scrutiny and as assessee has entered into an international transaction, the case of the assessee was referred to the learned transfer pricing officer for determining arm's-length price of the international transaction. The assessee has entered into international transaction of sale of Basmati rice of Rs. 183,95,38,249 and also sale of non-basmati [ Sona Massoorie] rice of Rs. 5,52,31,625 which was stated to be at arm's-length by adopting the Most Appropriate Method [ MAM] of Comparable Uncontrolled Price [CUP] method. For this Analysis for sale of rice assessee relied on the daily export data of April 2011 to March 2012 which was procured from customs and compiled in TIPPS database. The assessee claims that the database provides quantum, Price, date, quantity and the type of rice exported by parties in India to parties in European Union, Middle East and North America. Assessee also claims that in its transfer pricing study it has given due consideration for the product differences, geographic....
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....at transactional net margin method is a method which is more accommodative whereas liberal export turnover ratio is appropriate, export turnover filter adopted by the learned transfer pricing officer at the rate of 25% against the request of the assessee to move up to 50% was also upheld. The DRP also upheld the comparables and also directed the learned transfer pricing officer to examine the claim of the assessee with respect to some of the comparables. It dismissed the ground of capacity utilisation adjustment as same was not substantiated on the basis of audited reliable data. Accordingly the findings of the learned transfer pricing officer was upheld. Based on this the final assessment order u/s 143 (3) read with Section 144C (13) of the act was passed on 29/11/2016. 9. During the course of assessment proceedings, assessee filed application dated 28 July 2019 the assessee has made a request for admission of an additional ground of appeal as Under:- "that on the facts and circumstances of the case and in law, for the application of CUP method, benefit of set of be allowed, for the value of international transactions where the appellant has transacted at a price higher than th....
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....lhi High Court in case of Sony Ericsson upheld claim for set off of such claim of losses Against those transactions which are below the ALP. He made specific reference to paragraph number 140 of that decision. He stated that this development was brought to the notice of the learned transfer pricing officer and the learned dispute resolution panel also, however same was disregarded. Therefore he stated that the assessee prays for appropriate direction to work out the CUP on principle approved by the honourable jurisdictional High Court. He further referred to the decision of the coordinate bench in ITA number 2064/del/2014 in case of SRF Ltd where identical issue has been decided. He further submitted that this issue has been raised before the learned transfer pricing officer which is demonstrated at page number 19 of the order of the learned transfer pricing officer but same has not been considered. 13. He further referred to page number 149 of the appeal set wherein a table is placed demonstrating the sale of goods by assessee to its associated enterprise showing value and the quantity. The learned authorised representative stated that for the purpose of working out the differenc....
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....sfer pricing officer and upheld by the learned dispute resolution panel. We find that this issue is squarely covered in favour of the assessee by the decision of the coordinate bench in assessee's own case [[2014] 42 taxmann.com 400 (Delhi - Trib.) When the coordinate bench with respect to the most appropriate method has held as Under:- "11. We have noted that the information inputs given by the Tips Software, on the facts of this case, are inputs with regard to the information publicly available with the customs department at the different ports. These inputs are not the independent 'quotes', as referred to by the TPO, but only compilation of the data available in public domain. In our considered view, the Transfer Pricing Officer was clearly in error in rejecting these inputs on the ground that such information is not covered by Rule 10D(3) for the simple reason that Rule 10D(3) is only illustrative in nature and it merely describes the information, required to be maintained by the assessee under section 92D, "shall be supported by authentic documents, which may include the following (i.e. documents specified therein)". The logic employed by the Transfer Pricing Officer....
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....such an authority; it is bounden duty of every quasi-judicial authority to appreciate the scope of the legal provisions and apply them in letter and in spirit. We uphold the grievance of the assessee to the extent the authorities below have indeed erred in summarily rejecting assessee's reliance on the database, with respect to information publicly available with customs department at various ports, compiled by a private entity. 13. As regards learned DRP's additional observation that, "Further, in a commodity like Basmati rice, it is very difficult to find the exact comparables which can meet the stringent standards required for application of CUP method", we are unable to see any merits in this approach either. Undoubtedly, product comparability should be closely examined in applying the CUP Method as a price may be materially influenced by differences between the goods in the controlled and uncontrolled transactions, but product comparability does not require the comparables to be exactly the same. The product categorization has been done on the basis of reasonable generic description, and the product being generic in nature, such categorization in reasonable and suffi....
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....has noted in his order, the assessee did not have any contractual arrangement and these were market driven prices on which the exports to AEs took place. It is also important to bear in mind the fact that the assessee has taken average of a quarter so as to ensure that day-to-day variations in prices do not distort the comparability. Neither there is any specific objection to this averaging, nor has the TPO suggested any better alternative to this approach. In our humble understanding, this method does provide for a reasonable, even if not perfect, solution to the distortion which may creep in case comparison of prices is done on day-to-day basis, and due to limited comparables being available for the same. Transfer Pricing is not a perfect science but we still have to choose a less imperfect alternative from the various alternatives available. 15. Coming to the inherent edge that direct methods have over indirect methods of determining the arm's length principle, which justifies selection of CUP method as the most appropriate method, we may refer to the following observations made by a coordinate bench in the case of Serdia Pharmaceuticals (P.) Ltd. (supra): '60. The t....
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....oach is quite in line with Indian transfer pricing legislation which requires selection of most appropriate method rather than the method being picked up in the order of priority. To this extent, the approach of OECD and Indian transfer pricing legislation is now quite in harmony with each other. 63. It will, however, be stretching the things too far to suggest that in the 2010 version of OECD Guidelines, all the methods of determining the ALP have been placed at par with each other. The change in the OECD Guidelines, as we see it, is in respect of the order in which suitability of the methods is to be considered and in recognition of the fact that there can be situations in which transactional profit methods can have an edge over traditional transactional methods. However, wherever transactional profit methods as also traditional transactional methods can be applied in equally reliable manner, the OECD Guidelines still consider the traditional transactional methods to be preferable, as is evident from following observations in para 2.3 of the OECD Guidelines 2010 : "2.3 Traditional transaction methods are regarded as the most direct means of establishing whether conditions in ....
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....facts of a case, it does offer most direct method of neutralizing the impact of interrelationship between AEs on the price at which the transactions have been entered into by such AEs.' 16. In view of the above discussions, and bearing in mind entirety of the case, we are of the considered view that the ALP determination under CUP Method on the basis of 'Daily Export Port Data - April 2007- March 2008', by adopting quarterly averages, was wrongly rejected by the TPO and the DRP." 18. Both the parties agreed that there is no change in the facts and circumstances of the case. In view of the above facts and respectfully following the decision of the coordinate bench in case of the assessee itself for assessment year 2008 - 09 we hold that CUP method is the most appropriate method for benchmarking the international transactions of the assessee. Accordingly on this issue we reverse the orders of the learned transfer pricing officer as well as the direction of the learned dispute resolution panel. Accordingly, ground numbers 2 - 4 of the appeal are allowed. 19. In view of our decision in the above ground number 2 - 4 of the appeal, the ground number 5 - 9 does not require....
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....global basis', essentially in respect of same or similar property or services though, the benchmark so arrived at cannot be applied on the global basis i.e. the average of gross profit earned from same or similar transactions with AEs. The application of CPM has to be on transaction basis rather than on global basis, and this fundamental scheme of CPM is also evident from the plain wordings of r. 10B as well. Any other view of the matter will result in incongruities. For example, if our average mark up to unrelated enterprises is 20 per cent, and we charge a mark up of 2 per cent in one transaction with AE and 38 per cent in another transaction with the AE, both these transactions, by applying the mark up on global basis, will meet the test of ALP whereas in the first case, the mark up charged is certainly not a mark-up resulting in an ALP. In this particular case, for example, the normal mark up in transactions with has been computed at 16.31 per cent, and the average of mark up on sales to AEs having been taken at 17.08 per cent, entire sales to AEs has been taken at ALP, but, the mark up in the many cases is clearly less than benchmark. To give one example, at p. 221 of the ....
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....-length price by the learned transfer pricing officer. He has compared the F of the value of a particular date of international transaction of the assessee and compared it with the highest price of industry for the day. We do not find any logic to compare the highest price of the day of the industry. We find that assessee has exported a specific quality of rice i.e. Sona Masoori and given the date wise detail. Further we also find that when the goods are exported on 29th of April 2011, the learned transfer pricing officer has taken the same rate which he has taken for 26 April 2011. Further the claim of the assessee is that they are interlinked transactions and therefore they should be clubbed together. The assessee has relied upon the decision of honourable Delhi High Court 2015] 55 taxmann.com 240 (Delhi)/[2015] 231 Taxman 113 (Del.) wherein it has been held as Under:- 144. Question of set off would only arise in case two transactions are separate and arm's length price should be computed separately. It would not arise for consideration in cases where there are closely linked or continuous international transactions. Yet, there may be a third category of cases, where the as....
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....r Assessment Year 2013-14:- Impugned Assessment Order dated 30.06.2017 passed under section 143(3) read with section 144C of the Income-tax Act, 1961 ("the Act") pursuant to directions of Dispute Resolution Panel under section 144C(5) of the Act dated 05.05.2017, is erroneous and not in accordance with provisions of law inter- alia on the following Grounds, which are without prejudice to each other: 1. That on facts and circumstances of the case and in law, final assessment order passed by the Assessing Officer ("AO") is in complete disregard of the provisions of Section 144C(13) of the Income tax Act, 1961 (the "Act") inasmuch that the AO failed to pass the said Order in conformity with the binding and mandatory directions issued by the Dispute Resolution Panel ("DRP") and consequently the Order is nonest, illegal and bad in law. 2. Ld. AO / TPO / DRP have erred in making an addition of INR 16,98,96,186/- under chapter X of the Act in respect of international transaction pertaining to sale of rice. 3. Ld. AO/ TPO/ DRP have erred in law and in facts and circumstances of the present case by rejecting application of Comparable Uncontrolled Price ("CUP") method as the most app....