TaxTMI 
TaxTMI 
2021 (6) TMI 1111
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....ts and circumstances of the case, the transfer pricing adjustment in an amount of Rs. 361,32,20,620 is not sustainable in law. 3. That the TPO / DRP erred on facts and in law in disregarding the economic analysis performed by Appellant and rejecting the Transactional Net Margin method ('TNMM') adopted by Appellant in relation to provision of marketing support services, thereby making an upward adjustment of Rs. 361,32,20,620. 4. Without prejudice, that the TPO / DRP erred on facts and in law in not benchmarking the international transaction of provision of market support services using CUP method, adopting the internal comparable in the form of third party agreement between Saudi Basic Industries Corporation ('SABIC') with an unrelated party namely EURL Maghreb Petrochemicals Company ('MAPECO'), accepted by DRP during AY 2015-16. 5. That the TPO / DRP erred in facts and in law in applying Other Method using CUP approach as the Most Appropriate Method ('MAM') without giving any reasons / justification in support thereof. 5.1. That the TPO / DRP erred in facts and in law in benchmarking the international transaction of provision of market support s....
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.... of selling fertilizers, chemicals and polymers primarily in India, but also in Nepal, Maldives, Bhutan, Sri Lanka, and Bangladesh. As a sales support organization, Sabic India does not enter into contracts with the customers and does not take title to inventory. The products are sold an: invoiced directly by Sabic and SAPPL to the third party customers. Accordingly, SABIC India does not book sales revenue in its books, either, since it does not act as a buy-sell organization. 6. The details of the international transaction entered by the assessee with its AE during the year under consideration are as follows :- S. No. Description of the transactions Amount (In INR) i. Provision of marketing support services 87,92,14,730/- ii. Training and SAP related expense 14,75,826/- 7. The assessee has used TNMM to benchmark its international transactions pertaining to provision of marketing support services. The assessee has also paid Training and SAP related expenses to its AE and the international transaction relating to the same has been considered as closely linked to the marketing support activities and hence no separate benchmarking is undertaken by the ....
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.... NC 28.71 % 4. Killick Agenceis and Marketing Limited 3.41% 33.12 % 31.39 % 24.64 % No. of comparables 4 Mean 21.38 % Our operating margins (OP/OC) 369.39 % 11. It would be pertinent to mention here that this practice has been adopted by the assessee since A.Y. 2009-10 to A.Y. 2014-15. It is equally pertinent to mention that TNMM has been accepted as the most appropriate method in assessment year 2009-10 to 2014-15. 12. We find that the TPO has discarded the TNMM method adopted by the assessee summary. We further find that without assigning any specific reason the TPO proceeded by using the "other method" as the most appropriate method and finally came to the set of following comparables for making the ALP adjustment :- S. No. Ref. Agreement Title Agreement Type Industry Cost Base Exclusivity Rate 1 L22581 Non Compete Agreement Asset Purchase, Patent, technology, trademark Chemicals Net Sales Exclusive 5.00% 2 L291 Distribution Agreement Distribution Business Services Net Sales Unknown 5.00% 3 L23918 Distribution Agreement Distribution, Trademark, Trade ....
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....e in respect of transaction with its AEs." 17. And further para -33 observed as under :- "33. We find no infirmity with the Tribunal's finding that indenting transactions reported by the Assessee were plainly in the nature of facilitating trade where the Assessee was required to do nothing more than to follow up the customers for facilitation of the transaction. The Assessee was not required to raise any invoice for sale and purchase and its financial commitment and risk were inconsiderable." 35. One of the principal issues before the Tribunal concerned the applicability of TNMM with Berry ratio as the PLI, as the most appropriate method. Mr Aggarwal had sought to contend before us that the TPO had rejected the PLI of Berry ratio but had not rejected the TNMM as the most appropriate method and, therefore, it was incumbent upon him to replace the PLI with whichever ratio he considered appropriate as had been done in the preceding years. He contended that on principles of consistency, he was required to follow the TNMM method. There is much merit in the contention that a method once considered appropriate should be consistently applied unless for good reasons....
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....nd as no such finding has been given by the TPO/ DRP. 19. The facts considered by the Hon'ble High Court at para -45 of its order are identical to the facts of the assessee. Para-45 of the order read as under :- "45. Traditionally, the denominator of the ratio only comprised of selling, general and administration expenses. However, the Treasury Legislation of USA also included depreciation as a part of the Operating Expenses used as a denominator in the berry ratio. As is apparent, Berry ratio has limited applicability; it can be used effectively only in cases where the value of goods have no role to play in the profits earned by an Assessee and the profits earned are directly linked with the operating expenditure incurred by the Assessee. In other words, the operating expenditure incurred by the Assessee effectively captures all functions performed and risks undertaken by the Assessee. Thus, in cases where an Assessee uses intangibles as a part of its business, Berry ratio would not be an apposite PLI as the value of such tangibles would not be captured in the operating cost and, therefore, it would not be appropriate to compute the ALP based on net profit margin havin....
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.... mentioned elsewhere no such circumstance has been mentioned by the TPO in the case in hand. 22. The institute of Chartered Accountants of India in its guidelines has mentioned as under :- "6.56 The introduction of the Other Method as the sixth method allows the use of 'any method' which takes into account (i) the price which has been charged or paid or (ii) would have been charged or paid for the same or similar uncontrolled transactions, with or between non-associated enterprises, under similar circumstances, considering all the relevant facts. The various data which may possibly be used for comparability purposes could be: (a) Third party quotations/ invoices; (b) Valuation reports; (c) Tender/Bid documents; (d) Documents relating to the negotiations; (e) Standard rate cards; (f) Commercial & economic business models; etc. 6.57 It is relevant to note that the text of Rule 10AB does not describe any methodology but only provides an enabling provision to use any method that has been used or may be used to arrive at price of a transaction undertaken between non AEs. Hence, it provides flexibility to determin....
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.... comparables. The objection, therefore, is not acceptable and is rejected accordingly. 3.3 Ground no 1.2 relates to the certain factual errors, which the assessee. has tabulated as follows: Factual errors in the Order passed by TPO Our Contentions SABIC India Private Limited was incorporated on 15 June 1992 as a wholly owned foreign owned enterprise, (refer Para 2, Page 1 of the TP order given at page 19 of the Paperbook) We were incorporated in the year 1992 as a joint venture between SABIC and an Indian unrelated partner. As on date, we are a subsidiary of SABIC Global Limited ('SGL') with 51% shareholding and balance shares are held by SABIC Asia Padfic Pte Ltd. ('SAPPL). Companies engaged in trading operations cannot be considered as comparable to the service provider earning commission income. We wish to submit that while undertaking the benchmarking analysis of the international transactions entered with the AEs, we had also performed a search of comparable companies who were service providers and engaged in the provision of services. However, the learned TPO has completely ignored the alternate, benchmarking analysis conducted in the TP....
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....and Trustee and Polymer Energy LLC Rate- 7.50% 3.4.3 The assessee has submitted that this agreement is identical to Sr no 1 and should, " therefore, be excluded. The Panel has considered the submission. The agreement is not similar to the serial no 1 as it pertains to a host of sectors and the agreement is regarding know how, patent and process technology. The Panel, accordingly, rejects the objection and upholds the action of the TPO. L17964 Atagencer, LLC; Mehmet Gencer, an individual and Polymer Energy LLC Rate- J. 3.75% 3.3.4 The assessee has submitted that this agreement is identical to Sr no 1 and should ; therefore be: excluded. The Panel has considered the submission. The agreement is not similar to the serial no 1 but to L6245 Zbigniew Torkaz, an individual and Trustee and Polymer Energy LLC. The Panel, accordingly, rejects the objection and upholds the action of the TPO. L22581 Dow Coming Corp. & Advanced Polymer, Systems Inc Rate-5% 3.4.5 The assessee has submitted that this agreement is not similar to the assessee's agreement it is essentially, and agreement for sale, transfer and assignment of certain worldwide pate....