TaxTMI 
TaxTMI 
TaxTMI 
2023 (2) TMI 568
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.... company engaged in manufacturing and trading of Pharma packaging products. A return was filed declaring loss of Rs.240.29 crore, which was revised to loss of Rs.43.50 crore. Such return was accompanied by Form No.3CEB containing details of certain international transactions. The Assessing Officer (AO) made a reference to the Transfer Pricing Officer (TPO) for determining the Arm's Length Price (ALP) of the international transactions. The TPO recommended two transfer pricing adjustments, one, in Manufacturing activity and the other on account of Corporate guarantee fee, which are under challenge. We will espouse them one-by-one. I. MANUFACTURING ACTIVITY - T.P. ADJUSTMENT 4. The major issue raised by the assessee as well as the Revenue is in respect of transfer pricing adjustment made in the 'Manufacturing activity'. The assessee made purchases of pharma packaging material from its AE for a sum of Rs.5,17,41,946/- and sold the pharma packaging material worth Rs.16.27 crore to its AEs. For determining the ALP, the assessee employed the Comparable Internal Uncontrolled Price (CUP) method. The TPO observed that the assessee had used the transactional net margin method (TNMM) in the....
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....atures at a common pedestal. Howbeit, the essential requirement for resorting to the internal TNMM is that no differences, having bearing on the operating profits, should persist in factors, conditions and features in the sale of products made by the assessee to its AEs and non-AEs. If not capable of quantification, such material differences thwart the applicability of the internal TNMM. 5.3. Here is a case in which the assessee's total revenue from sales to AEs is Rs.16.27 crore, which is just 4.83% of the combined sales made to AEs and non-AEs. Volume of sales is an important factor in the price determination and the consequential profit rate. Further, sales to AEs are in Germany, Singapore and USA etc., whereas roughly 90% of the non-AE sales are in domestic market only. It deciphers that there are vast geographical differences between the AE and non-AE sales. It goes without saying that geographical locations largely impact the pricing of a product and the resultant profit. Neither any PLI in respect of non-AE exports has been placed on record nor the geographical location of such exports visà- vis exports to AEs is provided. To sum up, we are confronted with a situatio....
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....im for capacity utilization adjustment will reoccur and require adjudication. We, therefore, set-aside the impugned order on this score and send the matter to the file of the AO/TPO for recomputing the ALP of the 'Manufacturing activity' afresh in above terms. Needless to say, the assessee will be allowed a reasonable opportunity of hearing. 7. The ground raised by the Revenue urging to apply the external TNMM is thus allowed and the ground of the assessee in its cross objection for granting capacity utilization adjustment in case of external TNMM is also accepted for statistical purposes. II. CORPORATE GUARANTEE FEE- T.P. ADJUSTMENT 8.1. The next issue raised by the assessee as well as the Revenue in their respective appeals is against the transfer pricing adjustment in respect of Corporate Guarantee. It has two components, viz., Loan Guarantee and Performance Guarantee provided by the assessee for its Associated Enterprises (AEs) in different countries, including, Singapore, Germany and USA etc. In all, there were nine transactions comprising of seven of loan guarantees and two of performance guarantees. Albeit such guarantee transactions were declared in Form No. 3CEB, but n....
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....adding 0.5% as guarantee fee. The impugned order holding that the transactions of performance guarantee should be excluded is also hereby overturned as this issue has also been decided in the Tribunal order against the assessee. Another important factor which requires consideration is that the TPO allowed credit of Rs.2.43 crore against the gross amount of guarantee fee determined by him at Rs.26.27 crore. The assessee agitated the issue before the ld. CIT(A), who allowed further credit of Rs.1.21 crore. It is seen from para 7.4 of the order passed by the Tribunal for the A.Y. 2014- 15 that the assessee recovered a sum of Rs.2,43,26,467/- from Bilcare AG during the year. This shows, that the credit of Rs.2.43 crore against the gross guarantee fee determined for the year under consideration got wrongly allowed by the TPO since such credit was already allowed in the A.Y. 2014-15. Though, the ld. CIT(A) allowed further credit of Rs.1.21 crore, which was actually required to be given, but did not reduce the credit of Rs.2.43 crore that stood allowed in an earlier year as well. It is axiomatic that credit for Rs.2.43 crore allowed in an earlier year cannot be allowed once again for the ....