TaxTMI 
TaxTMI 
2025 (10) TMI 1106
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....dertaken by the assessee. 3. The Ld. CIT(A) has erred in accepting the CUP method as the rate quoted in Sunwin, claimed to be the price quoted of KLC, does not fits the stringent comparability criteria as is required in the CUP analysis. 4. The Ld. CIT(A) has erred in upholding the CUP method adopted by the assessee for the justification of the ALP of the transactions entered into by the appellant with its AEs when the comparable transaction has not actually occurred. 5. The Ld. CIT(A) has erred in ignoring Rule 10B(1)(a) of the Income tax Rules, 1962, which denotes that the CUP has to be a transaction which has actually occurred. 6. The Ld. CIT(A) has erred in upholding the CUP method adopted by the assessee for the justification of the ALP of the transactions entered into by the appellant with its AEs when the report of the private publisher is not reliable as it does not state whether the rate given is of edible grade oil or not and does not specify the terms and conditions of the contracts. 7. The Ld. CIT(A) has erred in accepting in dependent Third party quotation for CUP analysis without anything to demonstrate its contemporaneous ....
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....7.2017 from the Office of ACIT, Circle 25(2), Delhi. During the year under consideration, the assessee had imported Palm Oil and RBD Palmolien in aggregate amounting to Rs. 1,18,11,89,731/- from its AE, namely, M/s Inter-Continental Oils and Fats Pte. Ltd, Singapore, within the meaning of the Transfer Pricing Provisions enshrined in the IT Act. The AO, in accordance with the provisions of Section 92CA of the Act, referred the matter to the Transfer Pricing Officer (TPO) for determining the Arm's Length Price (ALP). The DCIT, TPO-3(2)(1), New Delhi passed an order u/s 92CA(3) of the IT Act, on 31.10.2019 rejecting the CUP Method used by the Assessee to benchmark the international transaction and concluded at ALP Method, proposing the average GP/Sales of the comparables to be taken at 4.29% (GP/Sales, Median) as against margin of the assessee at 1.67% (GP/Sales). The AO after considering the facts, vide assessment order dated 19/02/2020, applied the Arm's Length Price taken by TPO and enhanced the income of the Assessee by Rs. 2,18,32,196 and recomputed the income of the Assessee company at a total loss of Rs. 2,01,59,135/- (4,19,91,331-2,18,32,196). 5. Aggrieved by the As....
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....plied, it should be preferred over the other methods as this gives a more reasonable and accurate comparison of the prices of two transactions. This has been duly held by the Mumbai Tribunal in the case of Serdia Pharmaceuticals (India) (P) Ltd v. ACIT [9 taxmann.com 13 (2011)] Page 31 of 42 and in other rulings of Delhi ITAT in Clear Plus India (P) Ltd. v. DCIT [10 taxmann.com 249] and Hughes Systique India (P.) Ltd vs. ACIT [36 taxmann.com 41 (2013)]. 9.3 In this regard, on perusal of the order of the TPO passed u/s 92CA(3) it is noticed that the TPO at Page No. 4 to 8 of his order has discussed in detail about the non-applicability and rejection of the CUP method and made reference to Para 2.9 of the OECD Guidelines, however, the TPO did not highlight the discrepancy in the comparison performed by the appellant under the CUP method adopted by it for justification of the ALP. 9.4 It is noticed that the Appellant's selection of the CUP method and determination of the arm's length price is based on the rates prevalent on the Kuala Lumpur Commodity Exchange (KLCE) on or in close proximity to the dates at which transactions have taken place. For the rates pr....
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....in each case; (j) a record of the actual working carried out for determining the arm's length price, including details of the comparable data and financial information used in applying the most appropriate method, and adjustments, if any, which were made to account for differences between the international transaction [or the specified domestic transaction] and the comparable uncontrolled transactions, or between the enterprises entering into such transactions; (k) the assumptions, policies and price negotiations, if any, which have critically affected the determination of the arm's length price; (I) details of the adjustments, if any, made to transfer prices to align them with arm's length prices determined under these rules and consequent adjustment made to the total income for tax purposes; (m) any other information, data or document, including information or data relating to the associated enterprise, which may be relevant for determination of the arm's length price. (2) Nothing contained in sub-rule (1), in so far as it relates to an international transaction, shall] apply in a case where the aggregate value, as reco....
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....of the change on the pricing of the international transaction or the specified domestic transaction. 9.6 It is noticed by this office that the provisions of Rule 10D as reproduced above Page 34 of 42 have duly specified the information and documents to be kept in support of the transactions undertaken by any entity and it also specifies at clause (g) under subrule (1) that documents and information shall bring out the proper comparability of the price of the transaction with the uncontrolled transaction and it also specifically mentions at Clause (h) to record the analysis performed to evaluate the comparability. And Sub-Rule (3) has accepted at Clause (c) the price publications including prices quoted on stock exchanges as suitable comparable price. Under the circumstances if the specific conditions as prescribed under the Income Tax Rules, 1962 have been complied by the appellant in the compilation of the TP Documentation maintained u/s 92D r.w.r. 10D, then, it is the duty of the TPO/AO to bring out on record, by way of a speaking order, as to why the analysis so performed by the appellant should not be considered as suitable to bring out the comparability of the transac....
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....bai, which is a broker/ consultant in Oils, oilseeds, oilcakes, de-oiled cakes, etc. and provides information on daily prices based on the commodity exchange prices prevalent on KLCE. The appellant has also submitted a certificate of "SUNVIN OILS" asserting the fact that the price quotes of "SUNVIN OILS" are based on the prices prevalent on KLCE, now known as Bursa Malaysia Derivatives ("BMD"). 9.13 In support of its contention to use the price quotes of "SUNVIN OILS", the appellant relied on the decision of the jurisdictional Hon'ble Delhi HighCourt in the case of CIT vs. Cargill Food India Ltd. [(2017) 88 taxmann.com 470], whereby the appeal of the tax Department against the ruling of the Hon'ble Pune ITAT in the case of Cargill Food India Ltd. vs. DCIT (2015) 57 taxmann.com 330] was dismissed. The appellant has pointed out that vide the judgment of the Hon'ble Pune ITAT, the broker quotes of consultants/ data publishing agencies like SUNVIN have been duly accepted as comparable prices under CUP. Since the judgement of the Pune ITAThas been upheld by the Delhi High Court, therefore, the action of the appellant of using the price published by SUNVIN for CUP an....
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....quoted on the KLCE or the rate quotes of SUNVIN as used by the appellant for the comparability under external CUP. In fact, the TPO is completely silent on these methodology as adopted by the appellant. 9.17 In his discussion on rejection of CUP method adopted by the appellant, the TPO also referred to Para 2.9 of the OECD Guidelines highlighting that relative reliability of the CUP method is affected by the degree of accuracy with which adjustments can be made to achieve comparability. The TPO, also discussed about the requirement for strict comparability under the CUP method. However, he failed to prove that how in the light of the OECD Guidelines, the comparability adopted by the appellant for its purchase transactions under the CUP method by using the broker quotes of SUNVIN is a flawed process or inaccurate. 9.18 The appellant has critically raised his contention to the observation of the MNO regarding the average billing rate in the transaction with related parties. It is clear that these observations of the TPO were made considering that the appellant is rendering offshore software service in the IT/ITeS industry. The TPO also somehow made the observation t....
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....y it to justify its transactions with AEs, the appellant placed on record the details of the transactions, invoices of the AEs, copies of the agreement entered into by the appellant with its AE w.r.t. each transaction, quotations of SUNVIN. This office verified the price quotations as forming part of the comparability data, as provided by the appellant, to this office and found that the prices are comparable. Also, it was submitted that there are rulings of the Hon'ble Courts w.r.t. the price quotes of the stock exchanges or more specifically the commodity exchanges in the case of the goods traded between the AEs, which have been accepted as the comparable uncontrolled price under the CUP method as has been provided under Rule 10D(3)(c) of the Income Tax Rules, 1962. 9.23 This office on going through the ruling of the Hon'ble Pune ITAT in the case of Cargill Foods India Ltd. vs. DCIT [(2015) 57 taxmann.com 330] has found out that the Page 38 of 42 judiciary has affirmed the price quotes obtained from such reputed brokers/ consultants including "SUNVIN OILS" as a valid CUP as the prices are exchange quoted prices. The Hon'ble Pune ITAT in Cargill Food has specif....
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....city of the price publication of Oil World was upheld and found to be a relevant material while testing the international transactions of the assessee in the course of application of CUP method. In the face of the aforesaid, we are unable to acquiesce ourselves to Page 39 of 42 the objections of the TPO in rejecting the external CUP data sought to be used by the assessee in order to benchmark its transaction of import of oils from its associated enterprises. We hold so. 23. Although, assessee has also raised other grounds, the same are rendered academic in view of our aforesaid discussion. 24. In the result, the appeal of the assessee is allowed, as above." 9.24 The aforementioned finding of the Hon'ble ITAT has been affirmed by the order of the Hon'ble Delhi High Court in the case of CIT vs. Cargill Food India Ltd. [(2017) 88 taxmann.com 470], where the appeal of the revenue is dismissed by observing that: "3. As noticed by the ITAT in the impugned order, the ground on which the AO rejected the CUP method adopted by the Assessee was that "the price charged or paid" was on the basis of a broker quote, though based on the prices prevailing in the market, an....
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....ned findings of the Hon'ble Delhi High Court and Hon'ble ITAT in the case of Cargill Food (supra), Hon'ble Gujarat High Court in the case of AdaniWilmar (supra), Noble Resources (supra), I hereby hold that the broker quotes of publishing agencies/ brokers like "SUNVIN", can be reliably used as comparable under the CUP method for justification of the ALP of the import purchases as has been used by the appellant. 9.29 Based on the aforementioned discussion and in view of the Hon'ble Delhi High Court ruling in the case of Cargil Food (supra), Hon'ble Gujarat High Court in AdaniWilmar (supra) and OECD Guidelines it can be safely inferred that the CUP methop adopted by the appellant is a suitable method for the justification of the ALP of the transactions entered into by the appellant with its AEs. Hence, the transactions of the appellant are found to be at ALP under the CUP method and therefore, the action of the TPO rejecting the CUP as adopted by the appellant is devoid of merit. Hence, the TP Adjustment u/s 92CA(3) of the IT Act made by the TPO amounting to Rs. 2,18,32,196/- and the consequent addition made on that account by the ACIT, Circle 25(2) is he....