AI Drafter 
TaxTMI 
TaxTMI 
2020 (9) TMI 1284
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....undertaking marketing support activities for overseas group companies. The assessee's business operations of manufacturing speciality chemicals can be divided into the following three areas. a. Paint and coating materials b. Packaging and building materials c. Performance chemicals and biocides 2.2. Pursuant to the order of the Hon'ble Bombay High Court dated 22nd January 2016, Rohm and Haas India Private Limited merged with Dow Chemical International Private Limited. The effective date of the merger is 1st April 2015.The assessee filed its Return of Income ('ROI') for A.Y.2011-12 on 28th November 2011 declaring total income as NIL after adjusting brought forward losses amounting to INR 19,93,40,340/-. Along with its ROI, the assessee filed Accountant's Report in Form 3CEB [in accordance with section 92E) of the Income-Tax Act, 1961 ('Act)] reporting interalia, the particulars of international transactions undertaken with its Associated Enterprises ('AEs') during A.Y.2011-12. 2.3. The assessee has imported raw materials from its AEs amounting to Rs.232,45,04,170/-. The assessee benchmarked said transaction in its transfer pricing report applying Cos....
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....232.45 Differential 88.24 +5% 32.97 -5% 29.83 As the assessee's margin in the manufacturing function of PPT Division is less and does not fall within the +/-5% safe limits, an adjustment of Rs.88.24 Crore is to be made towards determination of ALP of the transaction done in this division. The above adjustment is pro-rated for the value of international transactions (AE Cost) as under: (AE Cost/ total cost)* Adjustment (232.45 / 535.68) * 88.24= Rs.38.29 Crores. 2.5. The ld. TPO did not disturb the arm's length determination of any of the other international transactions undertaken by the assessee including the export of finished goods. 2.6. Before the ld. DRP, the assessee filed various objections against determination of ALP by the ld. DRP.During the proceedings before the ld. DRP, the assessee on without prejudice basis vide its letter dated 23/09/2015 filed certain additional evidences that could be used as Comparable Uncontrolled Price (CUP) for chemicals (monomers) imported by the assessee from its AEs which worked out to 78.11% of the total raw materials from AEs. The assessee submitted details pertaining to date-wise comparison of import p....
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.... transfer pricing officer as comparables during the course of the assessment proceedings. Non-consideration of Comparable Uncontrolled Price ('CUP') available in the form of market prices published by Independent Chemical Information Services ('ICIS') which reports prices based on contract between third parties and which is relied upon by chemical industry to fix their prices) 7. Erred in rejecting CUP available in case of import of raw materials (i.e.monomers)(available in ICIS website), furnished by the Appellant for justifying the arm's length nature of the transaction of import of raw materials. 8. Erred in inappropriately stating that the Appellant did not provide any details of CUP justifying the high degree of accuracy in terms of comparability such as terms of contract, geographical difference, quantity details and other terms and conditions etc., 9. Without prejudice basis, erred not taking cognizance to Appellant's contention that there will be no transfer pricing adjustment in case of import of raw materials (monomers) based on comparison with market prices published by ICIS, in case the value of adjustment for each of raw materials im....
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....rimary reason for rejection of CPM by the ld. TPO was that assessee had incurred loss during the year. He argued that the loss had been incurred due to sales made to a third party i.e. Asian Paints Ltd. wherein the prices were very poor. The selling price offered by Asian Paints Ltd. was very poor and loss had not been incurred on account of import of raw materials from its AEs. In support of this proposition, the ld. AR filed a letter dated 13/04/2018, wherein additional evidences were filed in this regard which are enclosed in 1044 of the paper book. The ld. AR vide letter dated 22/10/2018 had also filed additional grounds of appeal to substantiate the commercial rationale in respect of operating loss incurred in its manufacturing segment. He vehementlyarguedthatthegrossmarginsoftheassesseecannotbeignored which are derived based on commercial decisions taken by the assessee by accepting to the selling price quoted by Asian Paints Ltd., which is a third party. B. Usage of TIPS Data Base for application of CUP asMAM The ld. AR in support of application of CUP method as MAM provided data from TIPS Data Base in addition to ICIS, based on the action of the ld. TPO in....
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....led additional ground vide letter dated 22/10/2018 wherein he contested that even if TNMM is applied as the MAM, in respect of two comparables chosen by the ld. TPO i.e. Jubiliant Life Sciences Ltd., and Vivimed Labs Ltd., he requested for adoption of operating margin of these two companies at segment level instead of entity level. The ld. AR reiterated the fact that this additional ground is raised without prejudice to his earlier contention that CUP should be accepted as MAM. The ld. AR also argued that ld. DRP had also been following the proper method for selection of MAM. Before the ld. DRP, the combined profitability of both importofrawmaterialsandexportoffinishedgoodsfrom/toAE'sforlast three years were availed. The ld. DRP having accepted TNMM to be MAM cannot choose only for one transaction. This argument was advanced by the ld. AR in order to drive home the point that the ld. DRP ought to have accepted CUP as MAM using TIPS Data Base wherein 68% of comparable data were available for benchmarking the international transaction, in addition to adoption of portfolio approach thereon by considering both positive figures as well as negative figures of various dates in respect of ....
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....till 2009 primarily at a price linked to Asian Paints Ltd., internal cost of manufacturing the same product irrespective of market price and the actual cost of manufacture in the hands of the assessee. The said commercial arrangement with Asian Paints Ltd., (third party customer) was a primary reason for operating loss in the hands of the assessee. The assessee also submitted the segmental information with respect to its manufacturing business vide page No.1050 of paper book asunder:- a. Saleofproducts - (Primal RH - 4A, Bulk and PiramalRH-1/Bulk) to Asian Paints Ltd b. Sale of other products to Asian Paints Ltd. and sale of products to othercustomers The ld. AR also stated that assessee had incurred operating losses of 29.72% on its operating revenue with regard to sale made to Asian Paints Ltd., on account of specific business of commercial arrangement made with M/s. Asian Paints Ltd., whereas the assessee had made reasonable profits of other manufacturing business. Further the arrangement with Asian Paints Ltd. continued till F.Y.2014-15 post which, the assessee decided to change the product portfolio owing to continuous loss. The ld. AR stated that po....
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....on Plan 8 to 10 on Aligning Transfer Pricing TP outcomes as with Valuation Creation specifically contains the chapter of commodity transactions, wherein the OECD as profit guidance with price obtained from a recognized and transparent price reporting or statistical agencies or from Governmental price setting agencies can be considered to be valid for CUPmethod. 5.4. The ld. AR also made several arguments to prove that TNMM cannot be considered as MAM in the facts of the instant case and he also vehemently objected to the various comparables chosen by the ld. TPO. due to functional dissimilarities, among others in that regard. The said arguments are not brought out herein in this order in view of the elaborate arguments made by the ld. AR for adoption of CUP to beMAM. 5.5. Per contra, the ld. DR vehemently objected to admission of various additional evidences filed by the assessee detailed hereinabove on the ground that assessee is in the habit of filing additional evidences before the ld. DRP as well as before this Tribunal. The ld. DR vehemently argued that the reasons for incurring losses by the assessee using CPM as MAM during the year was stated to be the comm....
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.... verification to the file of the ld. TPO on the grounds that assessee cannot be given a second chance to improve its case. The ld. TPO finally submitted that even in TIPS Data Base, the data on the relevant date of transaction is to be considered or at least to the nearby dates. Hence, the claim of the assessee is that 94.69% of the total import transactions gets covered using TIPS Data Base is not correct and only 70% of the total value is comparable from the said TIPS Data Base. Hence, he submitted that the argument of the ld. AR deserves to be rejected on this grounditself. 6. We have heard rival submissions and perused the materials available on record including the judicial pronouncements relied upon by the parties before us at the time of hearing. It is not in dispute that assessee had been consistently following CPM as MAM in the earlier years. It is not in dispute that assessee had indeed adopted CPM as MAM in its TP study report and even before the ld. TPO. The said method has been rejected by the ld. TPO on the ground that assessee has incurred loss from its manufacturing business during the year under consideration. From the elaborate arguments narrated hereinab....
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....port transaction from AEs, which according to the ld. DR covers only 70% of the total transactions. We hold that in either case, substantial amount of transactions gets covered using TIPS Data Base under CUP method. Hence, we admit the entire additional evidences filed by the assessee before us in this regard and deem it fit and appropriate to restore the entire issue to the file of the Ld. AO with the followingdirections:- (a) CUP should be adopted as MAM being the direct method and being a traditional transaction method which should be preferred over traditional profit method such as RPM andTNMM. (b) TIPS Data Base maintained by the Customs Department which has also been accepted by the Delhi Tribunal in the case of Tilda RicelandPvt.Ltd. vs. ACIT reported in 161 TTJ 213 supra, should be accepted as a valid database. (c) While comparing the data at or near to the relevant date of transactions with the comparable prices using TIPS Data Base, the ld. TPO is directed to adopt portfolio approach to take both the prices that are favourable to assessee as well as that are adverse to assessee in view of a categorical finding of fluctuating prices for the same ....
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....this Tribunal by the assessee providing CUP data on the TIPS data base. Needless to mention that CUP method and comparable prices available in TIPS Data Base using portfolio approach covers 95.79% of total import of raw materials transaction from its AEs, if on verification, it is found by the ld. TPO that the import prices of the assessee to be lower than the comparable prices reported by the TIPS Data Base, the remaining imports i.e.4.21% are also be considered to be at arm's length and therefore, no adjustment to ALP would be warranted in such a scenario. Accordingly, the ground Nos 1-9 and additional ground No.23 & 24 are allowed for statistical purposes and disposed off in the aforesaid manner. Corporate Tax Issues: 3. Ground Nos. 10 & 11 raised by the assessee are with regard to the action of the ld. DRP upholding the disallowance of foreign exchange loss amounting to Rs.8,18,29,149/-. 3.1. The brief facts of this issue are that the assessee is in the business of manufacturing and trading of chemicals.The assesseeis in the business of manufacturing and trading of chemicals. It regularly imports/ exports raw materials, traded products etc. The assessee had also taken ....
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....normal business loss. 3.6. Aggrieved by the action of AO, the assessee filed objections before the ld. DRP. During the ld. DRP proceedings, the assessee made detailed submissions as to why loss incurred on cancellation of forward contracts are related to the business activity along with furnishing the submissions made before AO and by filing additional evidence in the form of Bank Certificate from Citi Bank evidencing that the forward contracts are entered for imports. 3.7. Before the ld. DRP, the assessee further submitted as under:- a) Forward contracts entered into with the Bank are purely to mitigate the foreign exchange fluctuation risk and they are purely for the purpose of its business b) The assessee is not in business of hedging forward contracts. Therefore, the exchange loss incurred on cancellation of forward contracts cannot be treated as speculation loss c) Since forward contracts were entered to safeguard against foreign exchange fluctuation and are related to business of the assessee, they are not speculative in nature. d) RBI specifically allows importer/ exporter to enter into forward contracts based on the exposure availab....
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....ns. 3.13. The ld. AR submitted that the net foreign exchange loss of Rs 8,18,29,150 incurred on cancellation of forward contracts entered into with Citibank were related to import/ export activity. The assessee had entered into forward contracts with banks to mitigate the risk of exchange loss while discharging the trading liabilities in foreign currency. Further the ld. AR submitted that the value of forward contract did not exceed the valueof the underlying exposures (i.e. value of import of goods or services) at the time of entering into contracts. The said forward contracts were entered purely for the purpose of business of the assessee. 3.14. The ld. AR submitted that the above-mentioned details were produced before the ld. AO/DRP. However, the ld. AO upheld the disallowance of net foreign exchange loss incurred on cancellation of forward contracts without appreciating the fact that forward contracts entered into were related to business of the assessee. 3.15. The ld. AR further submitted that as a practice, the assessee enters into foreign exchange forward contracts with the banks for a period of one month to mitigate the risk of exchange fluctuation loss while disch....
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....d. DRP • Date of Booking of contract {refer column DEAL_BOOKED_DATE) • Date of Maturity of contract (refer column DEAL_VALUE_DATE) • Contract Number (refer column DEAL NO) • Purpose of Forward Contract ie Trade, Import (refer column DEAL_PU_PRODUCT and DEAL_PU_SUB_PRODUCT) • Type of Currency bought/ sold (refer column DEAL_BOUGHT_CCY and DEAL_SOLD_CCY) • Amount of currency bought/ sold (refer column DEAL_BOUGHT_AMT andDEAL_SOLD_AMT) The relevant extract of the underlying exposure attached to the bank certificate (on Page No. 48 of the Additional evidence) is reproduced hereinunder along with the cross referencing of related contract copies and details of exchange gain or loss realized/ unrealized on such contract: Based on above bank certificate, its clearly evident that forward contracts entered were related to import/ export transactions the assessee for the purpose of trades. 3.18. The ld. AR submitted that similar issue had come up in assessee's own case for AY 2010-11, wherein the Hon'ble Tribunal admitted the additional evidence filed and decided the principle issue in favour of the....
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.... the closing balances lying in this sundry creditors account as unexplained cash credits u/s.68 of the Act and made addition to the total income. Before the ld. DRP, the assessee pleaded that the provisions of Section 68 of the Act cannot be made applicable to the sundry creditor. Further, the assessee submitted that the details of various sundry creditors were duly submitted before the ld. AO vide letter dated 15/01/2015 and that the details of merely 2 sundry creditors could not be furnished at that time. The ld. DRP however, did not heed to the contentions of the assessee and upheld the action of the ld. AO. 4.2. Aggrieved, the assessee is in appeal before us. 4.3. We have heard rival submissions. It is not in dispute that the addition had been made u/s.68 of the Act in respect of amounts lying in the 2 sundry creditors account in respect of 2 creditors. This goes to prove that these sundry creditors had apparently emanated out of purchases or revenue expenses incurred by the assessee. We find that nowhere in the orders of the lower authorities, the revenue has brought out the fact that the corresponding purchases / expenses to the sundry creditors were either ingenuine or....
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....rring such expenditure. The ld. AO also stated that similar disallowance made in earlier year in assessee's own case. Before the ld. DRP, the assesseeapart from making factual and legal submissions, also filed additional evidences on 23/07/2015 furnishing copy of invoices aggregating to Rs.5,24,61,045/- out of the total legal and professional fee expenses of Rs.7,08,36,209/-. The ld. DRP however, disregarded the entire contentions of the assessee and upheld the action of the ld. AO. 5.2. Aggrieved, the assessee is in appeal before us. 5.3. We have heard rival submissions and perused the materials available on record. We find that the assessee had incurred legal and professional fees in respect of 113 parties during the year under consideration totaling to Rs.7,08,36,209/-. Out of that, theassessee had produced copy of invoice with the relevant details to the extent of Rs.5,24,61,045/- in the form of additional evidences before the ld. DRP vide letter dated 23/07/2015. Further, the assessee had also submitted additional evidences vide its letter dated 11/02/2020 before us by enclosing the details of legal and professional fees incurred for the parties above Rs.2,00,000/- which....
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.... housing / electricity etc., and the balance advance of Rs.3,81,75,397/- pertain to trade advance towards purchase of raw material. The assessee further substantiated the claim of trade advance of Rs.3,81,75,397/- filed additional evidence before the ld. DRP vide letter dated 23/07/2015,furnished ledger accounts of four vendors on sample basis amounting to Rs.1,91,88,845/- which were admittedly included in the trade advance of Rs.3,81,75,397/-. Assessee submitted that it had not given any interest free advance to anybody and that the advances were made only as a matter of mandatory / statutory deposits and advance for purchase of raw materials, both of which were apparently for the purpose of business of the assessee. It was also pleaded that assessee in any case had sufficient own funds to make these advances and that the borrowings were not touched for the same. Accordingly, it was pleaded that no disallowance of interest could be made in the facts of the instant case. 6.3. The ld. DRP directed the ld. AO to verify the nature of advance of Rs.70,31,18,515/-, whether there are mandatory deposits or not and also directed that if those deposits were found to be mandatory deposits....
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....usiness of the assessee company. Considering the huge volume of transactions by the assessee company and considering the huge volume of mandatory deposits given by the assessee as claimed by the assessee, we deem it fit and appropriate in the interest of justice and fair play to remand this issue also to the file of the ld. AO for giving a proper finding with regard to nature of each deposits after due verification of the evidences submitted by the assessee in that regard. The assessee is also directed to furnish the entire list of mandatory deposits (as claimed by it before the ld. AO) afresh together with supporting evidences thereon to justify its contentions. The ld. AO is directed to give a factual finding in this regard. 6.7. With regard to alternative argument made by the ld. AR that assessee having sufficient own funds for the purpose of making these advances, we find that this issue is already decided by the Hon'ble Jurisdictional High Court in the case of HDFC bank reported in 366 ITR 505 and accordingly we direct the ld. AO to verify the availability of the own funds with the assessee. If the assessee is having sufficient own funds, then there cannot be any disallowan....
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....98/-. 7.2. Aggrieved, the assessee is in appeal before us. 7.3. We have heard rival submissions. We find from the perusal of the paper book that the assessee had indeed furnished sample of copy of invoices in respect of additions to fixed assets as under:- Building - Rs.98,91,993/- (Sample invoices enclosed pages 358-360, 415,418 of the paper book) Computer - Rs.84,09,580/- (Sample invoices enclosed in pages No.428,429,516, 517 of the paper book) Furniture and Fixtures - Rs.11,55,186/- (Sample invoices enclosed in pages 348-351 of the paper book) Office Equipment - Rs.91,52,577/- (Sample invoices enclosed in pages 427 & 428 of the paper book) Plant and Machinery - Rs.11,54,80,123/- (Sample invoices enclosed in pages 361-414 and 416 & 417 of the paperbook) Total Addition - 11,14,40,89,459 ============ 71.4. We find that the details of additions to fixed assets had been submitted and sample copies of invoices before the ld. AO vide letter dated 12/11/2015 and 22/01/2016. We find that the ld. AR vehemently argued that details of assets being put to use for the purpose of business is reflected in point No.14 of the....
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....charging of interest u/s.234B of the Act is consequential in nature and does not require any specific adjudication. 11. The ground No.22 raised by the assessee is with regard to initiation of penalty proceedings u/s.271(1)(c) of the Act which would be premature at this stage to be adjudicated. 12. In the result, appeal of assessee for A.Y.2011-12 is partly allowed for statistical purposes. Order pronounced on 10/09/2020 by way of proper mentioning in the notice board. ============= Document 1 DEAL BOOKED DEAL VALUE DATE DATE 30-APR-10 02-JUN-10 31-MAY-10 02-JUL-10 28-JUN-10 28-JUN-10 30-JUN-10 30-JUN-10 30-JUL-10 30-JUL-10 31-AUG-10 31-AUG-10 02-SEP-10 02-SEP-10 02-SEP-10 29-SEP-10 29-SEP-10 29-OCT-10 29-OCT-10 30-NOV-10 30-NOV-10 31-DEC-10 31-DEC-10 31-JAN-11 31-JAN-11 28-FEB-11 26-FEB-11 31-MAR-11 31-MAR-11 DEAL NO AMT 1001205861 1,066,505,550.00 1001514072 1,044,736,000.00 25-JUN-10 1017904763 1,424,084.02 25-JUN-10 1017904764 1,610,949.39 30-JUL-10 1018106184 234,012,500.00 5,000,000.00 03-AUG-10 1018107076 1,268,862,650.00 -27,100,000.00 31-AUG-....