TaxTMI 
TaxTMI 
2019 (10) TMI 1609
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....he Revenue. 3. Now, we shall take these main grounds/ issues one by one. 4. The first ground/issue raised by the Revenue relates to Transfer pricing adjustment of Rs. 5,79,08,930/- by substituting CUP Method instead of TNMM applied by the assessee. 5.When this appeal was called out for hearing, learned counsel for the assessee invited our attention to the order dated 15.06.2018, passed by the Division Bench of this Tribunal in assessee's own case in ITA No.1065 and 1066/Kol/2017, for A.Y.2011-12 &2012-13, whereby the issue of CUP method Vs. TNMM has been discussed and upheld that TNMM is most appropriate method (MAM). Learned counsel for the assessee submitted that the present appeal is squarely covered by the aforesaid order of the Tribunal, a copy of which was also placed before the Bench. 6. Learned Departmental Representative relied upon the orders of the TPO/AO. 7. We see no reasons to take any other view of the matter than the view so taken by the Division Bench of this Tribunal in assessee's own case vide order dated 15.06.2018. In this order, the Tribunal has inter alia observed as follows: "26. We have heard learned arguments on both sides, perused the material avai....
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....e Kenya, Congo, Angola, Uganda, Sri Lanka, USA, etc. The prices at which the products were sold to third party distributors in these countries are being compared by the Ld. TPO with those sold to assessee's wholly owned subsidiaries in Bangladesh, Dubai and UK without any adjustments to the difference in economies of these countries. It is a settled position that for application of the CUP method, highest degree of comparability is required. The CUP cannot be applied without adjustments on account of differences in market and economic conditions of countries in which products have been sold to independent third parties. For that we rely on the judgment of the Coordinate Bench Mumbai in case of Internet India Private Limited (2010) 39 SOT 93, wherein it was held as follows: "We heard both parties. From the submissions made by the assessee the economic and market conditions of Thailand and Vietnam are totally different. The ld. CIT (A) has held that both the countries are located in Far East Asia and have similar demographical constitution.......... We find that the TPO and the CIT(A) have assumed similarity of markets and economic conditions and have made adjustments only ....
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....Even in respect of these 56 products, the Ld. TPO, later on, noted that 12 products were showing that the prices at which assessee had sold products to its AE's were higher. Accordingly, the Ld. TPO made adjustment with reference to prices of 44 products. The Ld. TPO however, conveniently missed out to benchmark the remaining 194 (250 - 56) products sold to AEs & non-AEs. We note that Compared Products by Ld TPO are not same. Even though both the compared products appear to be similar in terms of basic function i.e. cream, lotion, powder, etc but their labeling, packaging, ingredients are different. It is by now well settled principle that CUP requires high degree of comparability and where the product mix, material, composition etc. are not identical, application of CUP fails. In most of the instances, where compared products were of dissimilar sizes, Ld. TPO calculated FOB Rate of goods sold to AE and Non-AE of different sizes based on proportionate price per unit. This methodology is devoid of any merit, as in FMCG sector the pricing of product, as per unit/quantity is never done proportionately. The rationale is that in FMCG sector packaging cost, transportation cost, handl....
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....ts unless and until a cogent case is made out by the Assessing Officer on the basis of change in facts. For that we rely on the order of the Hon'ble Supreme Court in Radhasoami Satsang vs. CIT 193 ITR 321 (SC). 29. The cornerstone of Transfer Pricing principle is the comparability analysis of a controlled transaction with an uncontrolled transaction which is substratum of arriving at Arm's length price. The controlled and uncontrolled transactions are comparable if none of the differences between the transactions materially affect the factor being examined in a given methodology, whether determination of prices or for profit margin and for such determination a reasonable accurate adjustment can be made to eliminate the material effects of any such differences. Rule 10B(2) of Income Tax Rules, provides the comparability of the transaction with uncontrolled transaction which has to be judged with reference to specific characteristics of the property transferred or services provided; FAR analysis; contractual terms; conditions prevailing in the markets, that is, economic conditions in which respective parties transact or operate including geographical locations, size etc. Thus, com....
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....D Guidelines states as under: "When evaluating a taxpayer's claim that it was following a business strategy that temporarily decreased profits in return for higher long-run profits, several factors should be considered. Tax administrations should examine the conduct of the parties to determine if it is consistent with the professed business strategy .... Another factor to consider is whether the nature of the relationship between the parties to the controlled transaction would be consistent with the taxpayer bearing the costs of the business strategy. For example, in arm's length dealings a company acting solely as a sales agent with little or no responsibility for long-term market development would generally not bear the costs of a market penetration strategy ...." Thus, business strategies, market penetration, increase or save its market share are relevant and material factors determining prices and profit. All these factors have to be taken into consideration while eliminating the material effects which warrants some kind of reasonable accurate adjustments. Therefore, after going through the facts of the assessee`s case under consideration, it seems to us that selective ap....
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.... due to the lender.A guarantee to a lender that a loan will be repaid, guaranteed by a company other than the one who took the loan, is called a corporate guarantee. The ld Counsel for the assessee submitted before us that extending corporate guarantee for borrowings by subsidiaries was a shareholder activity, that it was not an international transaction, that no fee was warranted since no cost was incurred, and that bank guarantees were not comparable to corporate guarantees since the business of the bank was different from that of a corporate. Before us, ld DR for the Revenue submitted that there are plethora of judicial pronouncements wherein it has been held that the corporate guarantee is in the nature of service provided by the taxpayer to its associate enterprises(AEs) and hence should bear a charge. The judgments have explicitly held that after the Income Tax Act,1961 was amended by the Finance Act, 2012 to include 'guarantee' within the definition of "international transaction" with retrospective effect from 01.04.2002, the corporate guarantee should be benchmarked from arm's length perspective. 10. However, after hearing both the parties, we note that the....
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....ve noticed that the 'OECD' Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations specifically recognizes that an activity in the nature of shareholder activity, which is solely because of ownership interest in one or more of the group members, i.e. in the capacity as shareholder "would not justify a charge to the recipient companies". It is thus clear that a shareholder activity, in issuance of corporate guarantees, is taken out of ambit of the group services. Clearly, therefore, as long as a guarantee is on account of, what can be termed as 'shareholder's activities', even on the first principles, it is outside the ambit of transfer pricing adjustment in respect of arm's length price. " " .... We are in agreement with these views. There can thus be activities which benefit the group entities but these activities need not necessarily be 'provision for services'. The fact that the OECD considers such activities in the services segment does not alter the character of the activities. While the group entity is thus indeed benefited by the shareholder activities, these activities do not necessarily constitute services ... " "....
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....on 'having a bearing on profits, income, losses or assets' appearing in section 92B( 1) of the Act ... " "Para 33 .... The onus is on the tax authorities to demonstrate that the transaction is of such nature as to have 'bearing on profits, income, losses or assets of the enterprise' and has to be on real basis even if in present or in future, and not on contingent or hypothetical basis ...." "Para 32.... There can be a situation in which a guarantee default takes place and therefore, the enterprise may have to pay the guarantee amount but such a situation even if that be so is only a hypothetical situation ....." "Para 32 ..... When an assessee extends an assistance to the associated enterprise which does not cost anything to the assessee and particularly for which the assessee could not have realized money by giving it to someone else during the course of its normal business, such an assistance or accommodation does not have any bearing on its profits, income, losses or assets and therefore it is outside the ambit of international transaction under section 92B(1) of the Act. ..." "Para 35 .... In the case of GE Capital Canada -vs- The Queen, the tax cou....