TaxTMI 
TaxTMI 
2018 (1) TMI 1723
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....ctions (IT. s) with its AE. He made a reference to the Transfer Pricing Officer (TPO) to determine the arm's length price (ALP)of such transactions. After receiving the order of the TPO, he proposed an upward adjustment of Rs. 9. 84 crores to the income of the assessee. Aggrieved by the order of the AO/TPO, the assessee filed objections before the DRP. Considering the available material, the DRP directed the AO to follow its instructions to work out the TP adjustments. Accordinlgy, he reworked the adjustment to Rs. 3. 89 crores. 3. Effective ground of appeal is about adopting the most appropriate method to benchmark the IT. s. During the Transfer Pricing (TP) proceedings, the TPO found that the assessee had adopted TNMM for determining the ALP of the IT. s, that 14 comparables were identified for that purpose, that the arithmetic mean margin of comparables was computed at 1. 56%, that the operating margin on cost was claimed at 3. 47%, that the IT. s were claimed to be at arm's length, that it had entered into seven transactions of sale of iron ore, that out of the seven, four transactions were with the AE. s, that three transactions were with non-AE. s, that all the transaction....
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....e well settled, that the comparables had to be perfect of realistic, that while using it, reasonable and accurate adjustments should be allowed, that quality of iron ore had a substantial bearing on its price, that in the absence of details regarding actual iron content it would be unfair to compare such prices with the price at which the iron ore had been exported by the assessee to its AE, that the assessee had pointed out various instances in the TIPS data wherein unit prices of a specific category of iron ore varied widely, that among the assessees own transactions export prices for different categories varied widely, that the assessee had only exported iron ore fines, that for the purpose of comparability analysis the TPO had considered iron ore fines and iron ore lumps, that the price of iron ore lumps was higher than price of iron or iron ore fines, that that the assessee had exported iron ore to its AE's on FOB basis, that the price for export by third parties was not mentioned in the data provided by the TPO, that the variation in price and terms would have a significant impact on the price, that the price of iron ore would fluctuate by quantum of sales also, that the pric....
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.... 2,500 25.01% 4. Zenith Macao Commercial Offshore Co. Ltd. Non AE 36100 2,807. 74 2,400 16.99% 5. Shanxi Dajin International (Group) Co. Ltd. Non AE 72123 3,420. 92 3,021 13.24% 6. General Nice Resource (Hong Kong) Ltd. HK AE 62550 4,971. 67 4,160 19.51% 7. General Nice Resource (Hong Kong) Ltd. HK AE 75538 1,877. 82 1,450 29.50% The DRP further observed that GP in Non-AE-transaction varied from 64. 07% to 13. 24% having mean of 31. 40%, that GP in AE-transactions ranged between 35. 20% to 19. 51%, that the mean GP-rate, realised on exports to non-AE. s, would be the appropriate way to benchmark the AEtransaction and to determine the resale price of consignments to the AE. s, that all the transactions were of export of iron ore having different iron contents, that exports were made from different ports, that the mean of GP-rates realised from each of the non-AE-transaction would be appropriate to determine the arm's length gross margin from each AE-transaction. Accordingly, the DRP directed the TPO/AO to verify the purchase and sale price and purchase and sale rates of each consignment of iro....
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....ering these peculiar facts, we are of the opinion that the DRP had rightly held that TIPS data was not a reliable tool to determine the ALP of the IT. s of the assessee. 6.2. If we analyse the directions of the DRP it depth, it becomes clear that though it had used term RPM to decide the fair market value of the transactions, but actually it had approved the method adopted by the TPO to a certain extent. Using the term RPM at one place in itself is not such a grave mistake which would make the order untenable. What has to be seen is the detailed directions given by it. The TPO had used an external source i. e. TIPS data for determining the ALP of the IT. s, whereas the DRP directed him and the AO to consider the mean GP-rate realised in the exports to non-AE. s to benchmark the AE-transactions. It clearly held that mean of GPrates realised from each of the non-AE-transactions would be appropriate to determine the arm's length gross margin from each AE-transaction. In our opinion, methodology adopted by the DRP was most appropriate way to determine the ALP. 6.3. The basic purpose of the TP provisions is to ensure that transactions entered in to by an assessee with its AE. s sh....