TaxTMI 
TaxTMI 
2021 (10) TMI 1206
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.... international transaction of export of finished products at Rs. 8,34,22,404 instead of Rs. 7,59,14,928 thereby, computing a TP adjustment of Rs. 75,07,476. 1.2. While doing so, the Hon'ble DRP/ Ld. AO/ Ld. TPO erred in: (a) Disregarding the aggregation approach adopted by the Appellant thereby, rejecting the application of entity level Transactional Net Margin method ('TNMM') as the Most Appropriate Method ('MAM'); (b) Applying Comparable Uncontrolled Price ('CUP') Method as the MAM vis-a-vis the products sold to both Associated Enterprises ('AEs') and Non-AEs; and (c) Applying two methods i.e., CUP and TNMM at the same time for benchmarking the impugned international transaction. 1.3. Without prejudice to point 1.1. and 1.2., while applying CUP, the Hon'ble DRP/ Ld. AO/ Ld. TPO erred in ignoring the differences on account of geographical market, volume of transactions, functional and risk profile and level of market while comparing the impugned international transaction with the comparable uncontrolled transaction. 1.4. On the facts and circumstances of the case, and in law, the Hon'....
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.... in selecting the comparable companies for arriving at the arm's length interest rate; (b) Not appreciating the fact that the interest paid by the Appellant on ECB loan is as per the circular issued by Reserve Bank of India ('RBI'); and (c) Disregarding the fact that the effective rate of interest paid by the appellant is lower than the SBI Prime Lending rate ('PLR') for the relevant year. 3.3. On the facts and circumstances of the case, and in law, the Hon'ble DRP/ Ld. AO/ Ld. TPO has erred in not following the order of the Hon'ble ITAT for AY 2013-14 and AY 2014-15. The Appellant prays that the aforesaid adjustment of Rs. 58,05,338 be deleted. 4. Ground No. 4: Transfer Pricing ('TP') adjustment in relation to payment of Information System ('IS') charges 4.1. On the facts and circumstances of the case and in law, the Hon'ble DRP erred in upholding the action of the Ld. AO/ Ld. TPO in determining the ALP of the international transaction of payment of IS service charge at Rs. 9,41,68,816 instead of Rs. 11,08,02,230 thereby disallowing the claim pertaining to internal cost of IS char....
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....ed to be engaged in manufacturing of various types of chemicals / compounds / ingredients / derivatives etc. Since the assessee carried out certain international transaction with its Associated Enterprises (AE), the same were referred u/s 92CA(1) to Ld. Transfer Pricing Officer [TPO] for determination of Arm's Length Price (ALP). The Ld. TPO, vide its order dated 24/10/2018, proposed certain adjustments which are the subject matter of appeal before us. These adjustments were incorporated by Ld. AO in draft assessment order dated 21/12/2018 which was subjected to objections before Ld. DRP. The Ld. DRP issued directions on 22/08/2019 pursuant to which the final assessment order was passed by Ld. AO on 25/10/2019 which is under challenge before us. 5. TP adjustment on Export of finished products 5.1 The Ld. TPO noted that the assessee was into manufacturing and marketing of industrial flavors, fragrances and chemical specialties. Its AEs were in the business of production and the distribution of flavors and fragrances for use in products in the beauty, household, pharmaceutical and food and drink industries with the support of centralized extensive research and development. 5....
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....he price charged to non-AEs is more than the price charged to AEs. Thus, he has made an upward adjustment of Rs. 73,04,480, to the price charged to AEs for sale of finished products. On a perusal of Annexure-1 to the order passed by the Transfer Pricing Officer, wherein, he has made comparative analysis of price charged to AEs and non-AEs for common products, it is noticed that he has short listed eight common products which were sold both to AEs and non- AEs. On a critical examination of the details mentioned in Annexure-1, it is noticed that except one non-AE in U.A.E., all other non-AEs are located in India. Whereas, the AEs are located outside India. Even, in respect of price charged to the solitary non-AE situated outside India, the Transfer Pricing Officer has compared it to the price charged for similar product to an AE in India. Therefore, in strict sense of the term, this particular sale of product Lemoncello to the AE in India cannot be termed as an international transaction. Be that as it may, from a perusal of Annexure-1, it becomes factually clear that sale of similar products made to both AEs and non-AEs are in different geographical locations. While the AEs are locat....
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....has subsequently been followed by another coordinate bench in AY 2014-15, ITA No.6081/Mum/2018 order dated 07/06/2019 (para nos. 10-11). It has been held that while considering the issue of comparability with an uncontrolled transaction, the condition prevailing in the market in which the respective parties to the transaction operate, including the geographical location along with other factors would be relevant to decide which method would be suitable for benchmarking the transactions. Finally, the application of CUP method has been rejected by the bench and the adjustment has been deleted. Respectfully following the consistent stand of Tribunal, we reject application of CUP method and delete the impugned adjustment as proposed by Ld. TPO. This ground stand allowed. 7. TP adjustment against payment for technical know-how (Royalty) The assessee paid royalty for use of technical know-how to its AE @ 5% on local sale and @ 8% on export sales. It was stated that technical know-how owned by the AE was in the nature of secret formulae, trade secrets, manufacturing procedure, methods and other technical information relating to the manufacturing, compounding, quality control, testin....
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....rder for AY 2013-14 (para-24) wherein it has been held that ALP of such transaction could be more accurately determined by following rate of interest fixed by RBI in respect of ECB loan. This decision has subsequently been followed in AY 2014-15. The assessee has followed the same RBI rate to benchmark the transactions in this year. Therefore, respectfully following earlier stand of Tribunal, we delete the impugned adjustment. The grounds thus raised stand allowed. 11. TP adjustment against payment to AE for Software charges 11.1 The assessee paid sum of Rs. 11.08 Crores for software usage during the year. Accordingly, assessee was asked to substantiate the use of software and actual services provided by the AE and basis for allocation of cost to the taxpayer, cost incurred by its AE and evidence for third party payments made by the AE. The assessee submitted that during financial year 2010-11, it switched over from old accounting software, stock maintenance software and software for other purposes into S3-ERP being SAP software. The software was developed / acquired by its AE namely Firmenich SA, Switzerland for all the Group entities around the world. Previously, the assess....
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....ided /services received as part of IS and S3 services. The details of the same have been extracted in the order of TPO. It was also submitted that the cost benefit analysis was never questioned or litigated before the tax authorities in earlier years. Therefore, the assessee justified the said amount and relied on the Tribunal's order in its own case for Assessment Year 2012-13. 11.5 The Ld.TPO, after considering assessee's submissions, accepted the S3 charge to be at Arm's Length Price but proposed adjustment of Rs. 166.33 Lacs being IS charges paid by the assessee since the assessee could not submit substantial evidence in this regard. This adjustment, upon confirmation by Ld. DRP, is in further challenge before us. Our findings and Adjudication 12. We find that IS charges were paid by the assessee for obtaining access to ERP software and for regular recurrent services and such charges were paid in earlier years also. In AY 2012-13, similar adjustment proposed by Ld. TPO was deleted by coordinate bench on the premises that Ld. TPO was duty bound to determine ALP by following any one of the prescribed methods and determination of ALP on adhoc basis could not be sustained.....