TaxTMI 
TaxTMI 
2026 (1) TMI 467
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....automotive industry and marine segments. The imports were made from Exxon Mobil Group entities only. Besides this, assessee received certain administrative, technical, professional and other support services from its associated enterprises ("AEs"). The return of income for the year under appeal was filed on 29.10.2005 declaring total loss of Rs. 20,68,46,690/-. The case was selected for scrutiny and notice u/s 143(2) of the Act was issued on 27.09.2006. Since the assessee is having international transaction with its AE thus the AO make a reference to TPO for determination of Arm's Length Price (ALP') u/s 92CA(3) of the Act of such transactions. The TPO vide its order dated 10.10.2008 proposed total adjustments of Rs.46,57,04,908/- on the value of imports of raw material under manufacturing segment and finished goods under trading segment and payments of services. Thereafter, the AO passed the final order wherein total addition of Rs.46,57,04,908/- as proposed by TPO were made. Besides this, disallowance out of various expenses were also made and, accordingly, total income of the assessee was assessed at Rs. 40,68,88,803/- against the declared loss of Rs. 20,68,46,690/-. 3. Again....
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...., assessee has taken Resale Price Method (RPM) as MAM. In this regard, ld. CIT-DR submits that TPO at page 10 &11 of its order has given specific reasons as to why RPM should not be applied to these transactions and ld. CIT(A) has given no reasons as to why TNMM applied by the TPO is to be rejected. The Ld. CIT-DR submits that the Ld. CIT(A) has not discussed even the comparable chosen by the assessee in RPM and, therefore, he submits that the matter may be set aside to the file of the Ld. CIT(A) / TPO for determination of ALP after considering the fresh claim of the assessee. He prayed accordingly. 7. On the other hand, the Ld. AR for the assessee vehemently supported the orders of Ld. CIT(A) and submits that assessee has selected CUP method as MAM for determination of ALP of import of base oils and for other transactions RPM was selected for the reason that Indian entities is least complex and since all the imports were made from its AEs situated outside India. Ld. AR drew out attention to the fact that CUP method was accepted by the revenue in all the subsequent Assessment Years starting from 2007-08 till 2018-19. It is further submitted that in immediate preceding assessment....
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....nalysis was duly submitted to the TPO vide submissions dated April 17, 2008 and May 2, 2008 (refer page 224 to 250 of the PB Vol. 21, along with sample invoices (refer pages 365-411 of the PB Vol. 2). 16. With regards to import of additives, it was submitted before the TPO that while the Respondent procures base oil from its AEs, the additives are not procured from Exxon Mobil Group companies but are manufactured and supplied by other independent companies. The vendors for these additives, for the Respondent, are generally overseas corporations like, Chevron, Rohm & Haas, Crompton Corporation, Afton Chemicals etc. which are all independent multinational groups that do not have any relationship with Exxon Mobil group. It was submitted before the TPO that Respondent procures additives from independent third-party suppliers through global agreements negotiated by its affiliated companies to secure volume-based discounts and lower purchase prices. The actual transactions, in substance, are with the independent third parties, therefore, the price paid for the additives is on arm's length basis. Further, it is emphasized that the AE has not retained any benefit or profit for....
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....g transactions (namely, import of base oils and additives) by applying CUP method and the same has been accepted by the TPO. The status of method selected in earlier as well as subsequent AYs have been tabulated as below: AY Method selected TP study Supplementary submission TPO 2004-05 Cost plus method ("CPM") Comparable uncontrolled Price method ("CUP") Accepted CUP in second round of proceedings (refer page 42-43 of PB Vol.4) 2005-06 The present appeal before the Hon'ble Tribunal (Impugned AY) 2006-07 Pending for disposal before the Hon'ble Tribunal 2007-08 CPM - Accepted (refer orders for AY 2007-08 to 2015-16 at S. No.3 to 11 at pages 66-397 to 11 at pages 66-397 of PB Vol.4) 2008-09 CUP 2009-10 2010-11 CUP - 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 23. It is submitted that the facts and circumstances, as prevalent in the subject AY have remained unchanged in other AYs and therefore, applying the rule of consistency, it should not be open for revenue to ado....
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....id transaction was at ALP vide submissions dated August 05, 2008 (refer page 251 of the PB Vol. 2). 26. However, the TPO rejected the aforesaid also without providing any cogent basis and adopted the approach similar to AY 2004-05 wherein TNMM was applied on entity level. 27. It is pertinent to mention that the Respondent had submitted similar RPM analysis in the preceding AY 2004-05 at the CIT-A level, following which the CIT-A had deleted the adjustment in the manufacturing segment. Further, post remand back by the Hon'ble Tribunal, the TPO in remand proceedings accepted the transactions under Trading segment to be at Arm's Length Price (refer TP order for AY 2004-05 pursuant to ITAT remand at pages 39-65 of the PB Vol. 4). 28. It is further submitted that the Respondent has consistently been benchmarking its trading segment by applying RPM method and the same has been accepted by the TPO. The status of method selected in earlier as well as subsequent AYs have been tabulated as below: AY Method selected TP study Supplementary submission TPO 2004-05 Cost plus method ("CPM") Resale price method Accepted CUP in ....
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....n accordance with the arm's length principle (refer TP study at page 125-127 of the PB Vol. 1) Re: Adjustment made without any show cause notice 32. At the outset, it is submitted that TPO had made adjustment to the ALP in respect of international transaction of provision of services, without issuing any show cause notice or calling for information in relation to services received (refer CIT-A submissions at pages 338 of the PB, Vol. 2) 33. It is further submitted that the TPO under sub-section (2) is required to serve a notice on the assessee to produce or cause to be produced, on a date specified, evidence which the assessee relies upon in support of computation made by it of the ALP in relation to the international transaction. Under sub-section (3) of section 92CA, the TPO is required to pass an order in writing, determining the ALP in relation to the international transaction in accordance with the provisions of sub-section (3) of section 920. An important caveat in this regard is that while determining the ALP, TPO is statutorily required to hear such evidence as the assessee may produce, including information or documents referred to under sub-....
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....uld be selected Further, sub-rule (2) to Rule 10C provides as below: "(2) In selecting the most appropriate method as specified in sub-rule (1), the following factors shall be taken into account, namely: (a) the nature and class of the international transaction 99for the specified domestic transaction): (b) the class or classes of associated enterprises entering into the transaction and the functions performed by them taking into account assets employed or to be employed and risks assumed by such enterprises; (c) the availability, coverage and reliability of data necessary for application of the method, (d) the degree of comparability existing between the international transaction 99 [or the specified domestic transaction] and the uncontrolled transaction and between the enterprises entering into such transactions; (e) the extent to which reliable and accurate adjustments can be made to account for differences, if any, between the international transaction 99for the specified domestic transaction) and the comparable uncontrolled transaction or between the enterprises entering into such transactions, (f) the nature, exte....
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....proved the arm's length nature of international transaction, which was capable of being analyzed individually on a transaction-by-transaction basis. Thus, the approach adopted by the Respondent has a valid sanction of the law. 43. Further, in Respondent's own case for AY 2007-08, CIT(A) has accepted the arm's length of intra-group services pertaining to (i) corporate law, (ii) Security, (ii) Safety Health Environment, (iv) Treasury, (v) Business Advisory and (vi) Information Technology (partly) 9. Heard both the parties and perused the materials available on record. The TPO has allocated the transfer pricing adjustment of Rs.46,57,04,908/- amongst the various international transactions in proportionate, to their respective book values which is tabulated as under: S. No. International transactions Book Value Difference loader Arm's length price Manufacturing Segment: 1. Import of base oils 36,32,16,946 17,09,16,094 19,23,00,852 2. Import of additives 15,68,48,306 7,38,06,853 8,30,41,453 Trading Segment: 3. Import of lubricants 23,76,04,747 11,18,07,765 12,57,96,980....
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....ng adjustment made on the international transactions of import of raw material under manufacturing segment as well under trading and the service segment also. Accordingly, the ground of appeal No.1 of Revenue is dismissed. 12. Ground of appeal No.2 of the Revenue is with respect to the deletion of disallowance of Rs.5,00,000/- made out of foreign travel expenses. 13. The Ld. CIT-DR supported the order of the AO and submits that the assessee has not provided details for foreign travel expenses and, therefore, the AO has made the disallowance. The Ld. CIT-DR further submits that AO has discussed this issue in para 3 of its order wherein the AO has observed that assessee has not provided complete details of persons and purpose of their visit outside India, therefore, disallowance made by the AO deserves to be upheld. 14. On the other hand, the Ld. AR by the assessee supported the order of the Ld. CIT(A) and submits that the disallowance was made without issuing any show cause notice nor the assessee was ever asked to file any information related to foreign travel expenses. It is further argued that ad-hoc disallowance @ 20% was made by the AO which was deleted by Ld. CIT(A) f....