TaxTMI 
TaxTMI 
2023 (3) TMI 1594
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....ngaged in manufacturing and sale of flavours and fragrances used in manufacture of soap, detergent, toiletry, beverages, drugs, pharmaceuticals, etc. The assessee undertake the activity of manufacturing and sale of flavors and fragrances on license granted by Firmenich SA. The assessee entered into various international transactions during the period relevant to the assessment year under appeal with the Associated Enterprise (AE) in respect of : (i) export of finished products; (ii) payment of royalty; (iii) payment of interest on ECB loans. 3.1 To benchmark the international transaction relating to export of finished products and payment of royalty the assessee applied Transactional Net Margin Method (TNMM) as the most appropriate method and for benchmarking the transaction of payment on ECB loans, the assessee applied CUP. The Transfer Pricing Officer (TPO) rejected assessee's method of benchmarking the aforesaid international transactions. The TPO held that for benchmarking the transaction of export of finished goods and payment of royalty, CUP is the most appropriate method and thus made adjustment as under: (i) Export of finished products - Rs.57,73,987/- (ii) Paym....
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....und during the search, and applied CUP. The matter travelled to the Tribunal . The Tribunal in ITA No.2590/Mum/2017 for Assessment Year 2012-13 deleted the adjustment holding : (a) The TPO was duty bound to determine the ALP by applying any of the prescribed method. The determination of ALP on an adhoc basis is unsustainable; (b) the CUP could not have been applied as the parties to the agreement( selected by the TPO for benchmarking the transaction) were located outside India. In other words, the Tribunal rejected CUP on account of geographical differences; (c) The TPO in 2010-11 and 2011-12 accepted payment of royalty to be at arm's length which was benchmarked using TNMM after aggregating it with other international transaction. 4.2 In Assessment Year 2014-15 and 2015-16 the TPO applied CUP to benchmark the transaction. The Tribunal in ITA No.6081/Mum/2018 for Assessment Year 2014-15 and ITA No.7844/Mum/2019 for Assessment Year 2015-16 followed the order for the preceding Assessment Years i.e. Assessment Year 2012-13 and 2013-14. The ld. Authorized Representative for the assessee submits that the TPO in the impugned assessment year has applied CUP and corroborated it with TNM....
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....7330/Mum/2017 for Assessment Year 2013-14 vide order dated 22/02/2019 decided similar controversy. The Bench after placing reliance on the decision of assessee's sister concern viz. Firmenich Aromatics Production (India) Pvt. Ltd. in ITA No.7145/Mum/2017 decided on 13/11/2018 held as under:- "7. We have considered rival submissions and perused material on record. As far as the primary facts are concerned, there is no dispute that out of the sales turnover of finished products sold to the AE amounting to Rs. 10,13,28,211, benchmarked by the assessee applying TNMM, the Transfer Pricing Officer has accepted a major part of the sales of finished products to the AEs to be at arm's length. He has only raised objections in respect of the turnover relating to specific finished products sold both to AEs and non-AEs. Upon verifying the price charged for such products to AEs and non-AEs, he has observed that the price charged to non-AEs is more than the price charged to AEs. Thus, he has made an upward adjustment of Rs. 73,04,480, to the price charged to AEs for sale of finished products. On a perusal of Annexure-1 to the order passed by the Transfer Pricing Officer, wherein, he ....
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....- i). Differences in volume of both the transactions - It is general knowledge that volumes commands the prices. Purchase or sale of lower quantities are expensive, this is usually because of cost of transportation for deliveries and administration cost involved in handling smaller deliveries. The assessee is engaged in manufacturing of aromatic ingredients, natural and synthetic perfumery, flavoring and derivatives. Specific and majority of the products manufactured are sold to the group companies. However, in the circumstances where the group entities do not want a product then it is sold in the market at a price best negotiated by the assessee. In the table below, the assessee has provided the details of the quantitative differences in respect of Sales made to the AE and the Non-AE. Sr.No. in TPO order Material Description Quantity in KG sold to Non AE's Quantity in KG sold to AE's Addition Value (INR) AE sales times of Non AE sales 59 Neobutenone Alpha 25 32,343 490,680,563 1,294 56 Damascenone Total 25 19,734 490,873,437 789 45 Great Heart 28,080 303,840 95,340,394 11 55 Aldehyde Su....
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....e royalty rate based on the royalty agreement of Edward H. Hall and Uplift Nutrition Inc. The objection of assessee against use of said comparable by the TPO are : (i) Both the parties to agreement are located outside India and hence, are not governed by India Rules and Regulations; (ii) The Licensor is an individual; (iii) The Intellectual Property (IP) covered in comparable agreement differs from the IP covered in assessee's Technical Licence Agreement. The comparable agreement is only for 'patent', whereas the agreement in the case of assessee is for granting licence to IP such as secret formulae, trade secrets, etc. along with patents and copy rights; (iv) The comparables are functionally different. 10. We find that in Assessment Year 2015-16 the assessee adopted similar method for benchmarking the payment of royalty for use of technical know-how. The TPO in Assessment Year 2014-15 and 2015-16 held that CUP is the most appropriate method for benchmarking the transaction. The Tribunal in Assessment Year 2014-15 and 2015-16 rejected TPO's approach of benchmarking the transaction. In the impugned assessment year the TPO has again applied CUP to make the upward adjus....