TaxTMI 
TaxTMI 
2025 (6) TMI 67
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.... Vs. ACIT, which was also confirmed by the Karnataka High Court vide their judgement in the case of Aztec software vs ACIT (2012) 209 taxman 187 (Kar). B. The ld. AO/DRP erred in law and on facts in confirming the addition of income for Rs. 2,39,98,806/- on the pretext of google website or any such graph, which merely offers suggestive figures, is improper and misleading, as has also been held by the Karnataka high court in the case of Sri om Pratap Singh vs the station house officer, where the high court gave the finding that google reviews have no evidentiary value. C. The ld. AO/DRP erred in law and on facts in confirming the addition of Rs. 2,39,98,806/-simply on the basis of whims, surmises and conjectures, that it can be argued that there is 'no reason to believe' that the assesses in present case manufacture speciality chemicals which would give them higher margins, rather it has been repeatedly submitted along with proof that the assessee is a mere trader (an intermediary) who makes miniscule margin upon selling such chemical which it imports from it's associated enterprise in Thailand. Additionally, it is submitted that if the findings of DRP are allowed ....
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.... India, the assessee purchases chemical products from its AE. The assessee also undertakes the storage, promotion and sale of such products in India. During the year under consideration, certain goods which were purchased by the assessee from its AE were returned to the said AE as the goods did not meet the quality standards. Since both the transactions entered into with the AE were inextricably linked to each other, the assessee aggregated these transactions for the purpose of transfer pricing benchmarking analysis. Various functions performed by the assessee in respect of international transactions with the AE, as detailed in the Transfer Pricing Study Report, are as follows: - "(i) Strategic Planning, production scheduling and day to day activities The activities of Troy India are such that they involve much strategic planning only at the operational level. Maintaining, searching and building relationships with distributors and customers - present and potential, entail significant functions of planning. Troy India undertakes day-to-day planning activities. These functions are performed by Troy India in accordance with strategic level guidance provided by the Group Companies.....
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....r ensuring customs clearance and other related compliances. No functions are performed in this regard by AES. (vi) Research and development ("R&D") R&D centre operated by Troy Siam in Thailand is involved in limited R&D activities only. All complex R&D activities focused towards continuous product and technology improvement of existing products and development of new products are carried out by Troy Corp. (vii) Marketing The entire routine marketing function is carried out by Troy India to ensure continuous demand for the products distributed by it in India. Marketing budgets are prepared by Troy India after obtaining necessary approval from the parent company, which is in line with the overall group policy. (viii) Inventory management Troy India maintains a certain requisite level of inventory of finished goods, based on sales forecast, empirical sales data, information collated from customers and expected sales orders. Generally, Troy India maintains inventory based on demand estimated for 90 days. The decision to maintain a certain level of inventory, taking into account the shelf life of inventory and timely fulfilment of orders, is the prerogative of the Company.....
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....ternational transactions undertaken by the assessee. After considering the response of the assessee, the TPO vide order dated 19.10.2023 passed under section 92CA(3) of the Act excluded 13 companies considering as comparable by the assessee in its Transfer Pricing Study Report and arrived at a set of the following 9 comparable companies for benchmarking the international transactions entered into by the assessee with its AE: - S. No. Company Name GP/Sale 1. IMCD India Pvt. Ltd. 5.02% 2. KKP Petchem Pvt. Ltd. 6.69% 3. Remik Trading Co. Pvt. Ltd. 6.69% 4. Kemistar Corporation Ltd. 6.91% 5. Singhania & Sons Pvt. Ltd. 6.91% 6. Metroglobal Ltd. 7.82% 7. Vimal Intertrade Pvt. Ltd. 7.82% 8. Multichem Specialites Pvt. Ltd. 11.61% 9. Champion Commercial Co. Ltd. 14.80% Count- 9 Median 691% 35th Percentile- 6.91% 65th Percentile- 7.82% 7. Since the 35th and 65th percentile range of 9 companies considered as comparable by the TPO ranged between 6.91% to 7.82%, with a median of 6.91%, the TPO by applying the arm's length margin made an adjustment of Rs. 2,39,98,806/- to benchm....
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....icals, therefore, they should be considered as comparable to the assessee, as it is also involved in trading of wide range of chemical and chemical compounds. 11. On the other hand, the learned Departmental Representative ("learned DR"), vehemently relying upon the orders passed by the lower authorities, submitted that the assessee, as per its own admission in the Transfer Pricing Study Report, is a trader of specialty chemicals and since specialty chemicals and bulk chemicals serve different purpose and have distinct characteristics, therefore, the assessee cannot be compared with companies which are not involved in trading of specialty chemicals. 12. We have considered the submissions of both sides and perused the material available on record. In the present case, there is no dispute regarding the profile of the assessee, that it is a distributor of chemical products in India, which it has purchased from its AE in Thailand. Further, there is no dispute regarding the fact that the assessee has not assumed any significant risk and also did not make any value addition to the products sold by it in the Indian market. Thus, the transfer pricing benchmarking analysis of the internati....
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.... incurred by the enterprise in connection with the purchase of property or obtaining of services; (iv) the price so arrived at is adjusted to take into account the functional and other differences, including differences in accounting practices, if any, between the international transaction or the specified domestic transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of gross profit margin in the open market; (v) the adjusted price arrived at under sub-clause (iv) is taken to be an arm's length price in respect of the purchase of the property or obtaining of the services by the enterprise from the associated enterprise;" 14. From a plain reading of the provisions of Rule 10B(1)(b) of the Rules, it is evident that in RPM the gross sale margin realised by an enterprise from a control transaction are compared with gross margins realised by the enterprise or an unrelated party from comparable uncontrolled transaction of purchase and resale of the "same or similar" property or from obtaining and providing the "same or similar" services. Thus, it is evident that Rule 10B(1)(....
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....rvices are resold and normal gross profit margin is derived at by the enterprise which is deducted from the resale price of such property or service in comparable uncontrolled transactions. The gross profit margin earned by the independent enterprise in comparable uncontrolled transactions is served as a guidance factor. This is also what happens in the case of a distributor wherein the property and service are purchased from the A.E. and are resold to other independent entities, without any value additions. The gross profit margin earned in such transactions becomes the determination factor to see the gross compensation after the cost of sales. In the instant case, the assessee is a distributor of Mattel toys and gets the finished goods from its A.E. and resells the same to independent parties without any value addition. In such a situation, RPM can be the best method to evaluate the transactions whether they are at ALP." 15. We find that similar findings have been rendered by the Co-ordinate Benches of the Tribunal in the following decisions: - * ACIT vs. Kobelco Construction Equipment India Ltd., (2017) 81 taxmann.com 31 (Delhi - Trib.) * Pepperl & Fuchs (India) (P.) Ltd. v....
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....ny is engaged in the business of trading of dyes, stuff dyes and lab chemicals. Main income is from chemicals (73.67%) in 2020. The dyes and stuff dyes can be used as a final product in order to impart color on any textiles, paper, leather etc. 5. Yash Chemex Ltd. 4.18% Company is engaged in the business of trading of industrial chemicals. It also sells dyes intermediates, reactive dyes and laminate chemicals. Main income is from trading chemical (99.97%) in 2020. The company deals in product which can be used as a final product in order to impart color on any textiles, paper, leather. If it mixes with any other product, it will increase the chemical's value. 18. Before us, learned AR also furnished the complete set of Annual Reports of the aforesaid 5 companies to substantiate the business description of these companies. From the perusal of the business description of these companies as noted above and as provided in the Annual Reports filed by the assessee, we find that the main income of these companies arises from the trading of chemicals, which, inter alia, are used in textiles, paper, leather, and paint industries. Therefore, in the light of the decisions of the ....