TaxTMI 
TaxTMI 
TaxTMI 
2025 (9) TMI 86
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....y notices were issued to the assessee. A reference u/s. 92CA(1) of the Act was made for determination of ALP in respect of international transactions reported in Form No.3CEB. 3. The Assessee had undertaken international transactions which were in the nature of Purchase of raw materials, Sale of raw materials, Sale of readymade garments, Sale of machinery, Sale of intangible asset - designs, sale of spares, reimbursement. The Assessee in its TP documentation benchmarked these international transactions under CUP method. The TPO in the Transfer Pricing Order has observed the following: "Purchase and sale of raw materials: The Assessee submitted that the extra stock available with itself and the AE are bought and sold at cost and thus the transaction is justified under CUP method. The assessee has adopted CUP as the MAM and has submitted that it requires to purchase only from accredited customer certified vendors in which case had the same it would have been on similar price and terms. Sale of readymade garments: the Assessee has adopted CUP method and considered the AE as tested Buyers party for this transaction. The buyers for reasons of SCM place orders on Amb....
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.... Ltd arriving at arithmetic mean of comparable at 8.83% against the PLI arrived by the assessee at -4.82% and proposed TP adjustment of Rs. 15,99,52,588/- (page 16 to 18 of the TPO order) by passing an order u/s. 92CA(3) of the Act dated 31.10.2016. 3.3 The AO passed a Draft Assessment Order dated 08.12.2016 wherein the AO made a disallowance under section 14A of the Act of Rs. 1,57,67,288/- and also incorporated the TP adjustment proposed by the TPO and provided 30 days time to accept or to file an objection to DRP. Later the assessee filed an objection before the DRP. On perusal of the objections and after providing the opportunity to the assessee the directions dated 11.05.2017 are issued by confirming the adjustments proposed the TPO and the AO. Consequently, the impugned Final Assessment Order dated 21.06.2017 was passed sustaining the adjustment, but the total income was determined at "Nil" after setting off the losses. Later, the AO has issued a rectification order dated 07.07.2017 and the determined the gross demand payable at Rs. 4,57,31,265/-. On being aggrieved, the assessee is in appeal before this us. 4. Addl Grounds: Validity of assessment proceedings barred ....
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....nancials of the AE wherein it is specifically mentioned by way of a Note that AE is acting as a pass through and therefore AE is not disclosing the sale done by the Assessee in their financials. The AE did not charge any commission because the Assessee was already reeling under losses. The loss is due to the fact that the Assessee had excess employee cost and fixed cost which could not be observed and also because of shutting down of factories due to declining export orders in the subject AY. The TPO has accepted CUP method for other similar transactions viz., Purchase of raw materials and Sale of Raw materials. Alternatively, the Ld.AR submitted that if CUP is not accepted as the most appropriate method then Internal TNMM data already furnished by the Assessee before the TPO and DRP ought to be considered for the purpose of benchmarking. 5.4 The Ld.DR opposed to this proposition but could not make any argument or controvert factually or legally instead the Ld.DR contended that though the TPO in AY 2014-15 has decided the issue in favor of the Assessee and accepted CUP method, the TPO has included a caveat which stated that the decision in this AY is not applicable to any subseq....
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....ll through its Buying House: Orchards Brands and Talbots Inc through its Buying House: Li & Fung India Pvt Ltd) wherein it is apparent that pricing of the product has been directly negotiated and fixed by Assessee with its third party customer without the involvement of its AE. Thus, the contention of the Assessee that the international transaction is undertaken on the basis of back to back invoicing is explicitly clear and factually found to be correct and thus we accept the same. In fact, the TPO also agrees on this factual aspect and does not dispute the same. The main contention of the TPO is that the above analysis does not qualify as CUP and therefore the TPO proceeds to benchmark under TNMM. Further, the TPO gives a finding that when pricing was determined by the Assessee it is unclear as to why the AE is involved in the transaction. The TPO has also stated that full financials of the AE were not furnished and therefore the TPO was not sure whether the AE has received any commission from this transaction. For these reasons, the TPO has rejected application of CUP method. 5.6 The Ld.AR denied all the above allegations of the TPO. The Ld.AR contended and stressed on the poi....
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.... is incorrect to state that full financial of AE is not furnished and the doubt of the TPO whether the AE would have received commission is unwarranted and it is proved beyond doubt that the AE has not received any such commission from the Assessee. The Ld.AR also clarified that the reason for the AE not charging commission is for the fact that the AE also has a manufacturing facility in Bahrain and the AE also supplies its products to the same customers. Therefore, for ease of Supply Chain Management, the AE acts as a single point of contact for the limited purpose of facilitating the transaction. We also find from the note disclosed in the financial of the AE wherein it is declared that it is acting only as a pass through without any economic benefit. Considering the entire factual matrix, it is undoubtedly and undisputedly clear that the AE has acted as a pass through entity and therefore the back to back invoicing could be considered for CUP analysis as rightly reported by the Assessee in its TP documentation. Therefore, we hold that the TPO is not right in holding that the Assessee has not complied with provisions of Section 92C(3) of the Act. We are also of the view that when....
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....t to proceed on the basis, as has been done by the TPO, that when TNMM in puts are available, the application of CUP can be rejected. CUP is not a residuary method. As a matter of fact, when perfect CUP inputs are available- as in this case in respect of back to back transaction, that is the best and inherently most suitable method, as it is a direct method and it hardly leaves any scope for distortion of results by extraneous factors." [2016] 72 taxmann.com 324 (Kolkata - Trib.) AT & S India (P.) Ltd. Vs DCIT "In the instant case, the transactions involving sale of PCBs by the appellant to AE during the financial year2010-11 stood as controlled transactions, whereas the transactions involving sale of exactly the same PCBs in the same quantity as those transacted between the appellant and AE and by AE (i.e. one of the parties to the controlled transaction) to independent customers in Europe during the relevant financial year stood as comparable uncontrolled transactions. The prices at which PCBs were sold by the Assessee to AE are equal to the prices at which PCBs were sold by AE to independent customers. Thus the international transaction involving sale of finished goo....
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.... Transfer Pricing Officer to strengthen his case that CUP cannot be applied as the most appropriate method. Undisputedly, CUP is a more direct method compared to TNMM. A reading of rule 10B)(1)(a)(i) makes it clear that if the price charged or paid for property transferred or service provided in a comparable uncontrolled transaction or a number of such transactions can be identified and are available, it can be applied to determine the arm's length price of the transaction between the related parties. In the present case, admitted factual position is, the assessee has taken on hire six vessels from third party vendors and in turn has hired them to the AE on back-to- back basis. The Revenue has also not disputed that the price charged by the third party vendors to the assessee for hiring vessels is lesser than the price charged by the assessee to the AE on hiring the very same vessels on back-to-back basis. This difference in price suggests that the transaction between the assessee and the AE is at arm's length. Therefore, when a valid internal CUP is available in the shape of price charged by non- AEs for hiring vessels to the assessee, CUP method, in our view, is the most ....
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.... own case in the immediately succeeding Assessment Year 2014-15, the Transfer Pricing Officer vide order dated 28th January 2016 (page 616 of paper book), has accepted CUP as the most appropriate method to benchmark the international taxation with the AE relating to sale of readymade garments. The Revenue having accepted CUP method in respect of assessment year 2014-15 cannot be allowed to sustain its differential stance in subject AY 2013-14. In this connection, the decision given by the Hon'ble Supreme Court of India in the matter of Radhasoami Satsang (supra) wherein the Hon'ble Supreme Court has inter alia held as under:- "We are aware of the fact that, strictly speaking, res judicata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. On these reasonings, in the abse....
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....e highest degree of similarity in the product between the comparable uncontrolled transaction and the comparable controlled transaction. Since in the instant case, as found by the TPO as well as by us in the preceding paragraphs, the product, quantity, pricing are exactly the same between the comparable uncontrolled transaction and the comparable controlled transaction basis back to back invoicing and also because of the fair and true disclosure in the AE Financials, we hold that the international transaction of sale of readymade garments benchmarked by the Assessee under internal CUP method is at arms' length and therefore we hereby delete the entire TP adjustment on this account. 6. Ground No. 2.2 to 2.5: Erroneous rejection of Internal CUP method: 6.1 Alternatively, the Ld. AR contended that internal TNMM ought to be accepted as most appropriate method. This contention was also raised before the TPO. However, the TPO rejected the same on /the premise that the Assessee has not provided the detail of standard production and questioned the allocation of depreciation on the basis standard production. The DRP without any specific finding rejected on the same by relying on the f....
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....ational transaction is at arms' length. We believe and have also held that internal TNMM is superior to external TNMM. Our view is supported by the jurisdictional Tribunal decision in the case of Prodapt Solutions (P.) Ltd. vs. Deputy Commissioner of Income-tax, Company Circle-5(2), Chennai [2019] 109 taxmann.com 282 (Chennai - Trib.): "4.1 With regard to issue of the DRP directing the AO to compute the ALP adjustment on the entire turnover (including revenue from third party customers) of the assessee, the Ld AR relied on the order of this this Tribunal in the case of Yongsan Automotive India (P.) Ltd. v. Asstt. CIT [IT Appeal No.357 (Mds.) of 2017, dated 16-11-2017]. The relevant portion of the order of this Tribunal is extracted as under:- "7. This Tribunal is the considered opinion that under the scheme of the Income tax act, the transfer pricing adjustment has to be made only in respect of the transaction of the assessee being a tested party, with associated enterprise outside the country after comparing the transaction made by similarly placed company in uncontrolled transaction with non- Associated Enterprise. Therefore, we are unable to uphold the order of....
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....4A: 7.1 As far as disallowance u/s. 14A of the Act is concerned it is discerned from the orders of the lower authorities that the Assessee has made investments in subsidiary and partnership firm and contended that these investments are strategic investments done for the purpose of business. Further, the Assessee has on its own made a disallowance of Rs. 79,511/- and the basis of arriving at the same was also explained to the AO and the DRP. The Assessee has also submitted that during the subject A.Y.2013-14, it has not earned any dividend income and therefore there is no necessity to make any disallowance u/s. 14A of the Act in the absence of exempt income. 7.2 We find that the Assessee had been carrying investments in subsidiary company and partnership firm. However, the Assessee has not earned exempt income during the subject A.Y.2013-14. Despite this fact, the Assessee has Suo motto disallowed Rs. 79,511/- based on man hours spent for keeping track of the investment. The AO has computed expenditure in relation to investment by applying Rule 8D and disallowed the same u/s. 14A of the Act. The DRP noted that since the Assessee has maintained common set of books of account fo....