TaxTMI 
TaxTMI 
2025 (1) TMI 1746
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....assed by the Hon'ble Dispute Resolution Panel (hereinafter referred to as "Hon'ble DRP") under Section 144C(5) of the Act, is a vitiated order having been passed in violation of principles of natural justice and is otherwise arbitrary and is thus bad in law and void-ab-initio. 2. That the directions passed by the Hon'ble DRP are bad in law to the extent the same are prejudicial to the Appellant. 3. That the Hon'ble DRP/ Learned Transfer Pricing Officer ("Ld. TPO")/ Ld. AO has erred on the facts and in law in making the TP adjustment of INR 8,67,61,000 in respect of the international transactions and INR 1,08,670 on account of outstanding receivables. Grounds on Transfer Pricing ("TP") Legal Ground 4. That on facts and circumstances of the case and in law, the Hon'ble DRP/ Ld. TPO/ Ld. AO has erred by completely disregarding the specific directions of the Hon'ble Income Tax Appellate Tribunal ("Hon'ble Tribunal") while proposing the TP adjustments and giving effect to the order of the Hon'ble Tribunal. 4.1. That on facts and circumstances of the case and in law, the Hon'ble DRP/ Ld. TPO/ Ld. AO....
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....s and circumstances of the case. Factual Grounds - without prejudice to the above Legal Grounds 6. Ground on Rejection of the bona-fide TP Documentation/ Economic Analysis maintained by the Appellant. 6.1. That the Hon'ble DRP/ Ld. TPO/ Ld. AO erred on the facts and in law, in rejecting the economic analysis in the TP documentation filed by the Appellant in terms of the Section 92D of the Act read with Rule 10D of the Income Tax Rules, 1962 ("the Rules") and proceeded to make the TP addition based on re-determination of the arm's length price ("ALP") of the following international transactions namely: a) International transaction (aggregated); and b) Interest on Outstanding Receivables. (Hereinafter referred as 'impugned transactions') 7. Grounds on Rejection of TP documentation of the Appellant by not considering the economic adjustment made by the Appellant. 7.1. The Hon'ble DRP/ Ld. TPO/ Ld. AO has erred, in rejecting the economic adjustment claimed for the manufacturing operations of the Appellant. 7.2. That on facts and circumstances of the case and in law, the Hon'ble DRP/....
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.... of the comparable companies 10.1. The Hon'ble DRP/ Ld. TPO/ Ld. AO has erred, by failing to make appropriate adjustments to account for differences in the level of working capital employed by the Appellant vis-à-vis of the comparable companies while redetermining the arm's length price of the impugned transaction carried on by the Appellant, when fresh comparables were introduced by the Ld. TPO. 11. Grounds on Incorrect Economic Analysis in relation to interest on outstanding receivables undertaken by the Ld. TPO - INR 1,08,670. 11.1. The Hon'ble DRP/ Ld. TPO/ Ld. AO has erred in treating the outstanding receivables as international transaction and making an adjustment on account of notional interest. 11.2. The Hon'ble DRP/ Ld. TPO/ Ld. AO has erred in computing interest on outstanding receivables for the entire period of one year. 11.3. The Hon'ble DRP/ Ld. TPO/ Ld. AO has failed to appreciate that receivables period of 60 days in export sales would be considered normal considering the modalities involved in the shipment. 11.4. That on facts and circumstances of the case and in law, Hon'ble DRP/L....
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....ot appreciating the principles laid down in the Organisation for Economic Co-Operation and Development guidelines ('OECD Guidelines'). 3.2. The learned AO/ learned TPO/ Hon'ble DRP erred in rejecting the economic adjustments (on account of lower sales realisation, higher cost of goods sold and other operating costs) claimed in the TP documentation maintained by the Appellant. 3.3. The Hon'ble DRP had disregarded the extensive evidence filed by the Appellant demonstrating that the losses incurred during the year were due to economic and political factors which have specifically affected the Appellant. 4. Technical know-how and related services fee - INR 18,93,17,767 4.1. The learned AO/ learned TPO/ Hon'ble DRP erred in concluding that the Arm's Length Price ('ALP') of the technical know-how and related service fee is Nil and thereby arriving at the TP adjustment amounting to INR 18,93,17,767/-. 4.2. The learned AO / learned TPO / Hon'ble DRP erred in questioning the commercial expediency of the Appellant in making such payment. 4.3. The learned AO/ learned TPO/ Hon'ble DRP erred in not tak....
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....arable Uncontrolled Transaction ('CUT') search performed by the Appellant to justify the ALP of the international transaction pertaining to the payment of sub-license fee without giving any cogent reasons. 5.5. The learned AO/ learned TPO/ Hon'ble DRP further erred by inappropriate application of Comparable Uncontrolled Price ('CUP') method, without furnishing details of any CUP transactions. 5.6. Without prejudice, the learned AO/ learned TPO/ Hon'ble DRP having accepted Transactional Net Margin Method ('TNMM') for all the international transactions ought to have adopted TNMM for sub-license fee also, as per the supplementary analysis performed by the Appellant. 5.7. Without prejudice, the learned AO/ learned TPO/ Hon'ble DRP ought to have excluded the payment towards sub-license fee from the operating cost while proposing the adjustment under TNMM especially considering that separate transfer pricing adjustment has been made with the application of CUP method. 5.8. The learned AO / learned TPO / Hon'ble DRP erred in not following the Hon'ble ITAT's judgment on sublicense fee in Appellant's own....
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...., the assessee had raised 8 grounds before the ITAT and the ITAT had allowed all the 8 grounds in favour of assessee. The order of the ITAT in the first round of appeal are reproduced as under : " ITA NO. 66/HYD/2019 78. Now, we will deal with ITA No.66/Hyd/2019 for the A.Y. 2014-15. GROUND NOS. 1 TO 8 In this appeal, assessee has raised as many as eight transfer pricing issues and five non-transfer pricing issues. We have already allowed transfer pricing grounds in our lead appeal for A.Y. 2011-12. Following the earlier orders for A.Y. 2009-10 and 2010-11 and the reasoning given while deciding appeal for A.Y. 2011-12, we allow the transfer pricing issues. Accordingly, ground nos. 1 to 8 are allowed." 3.2 The Ld. AR further submitted that, inspite of the allowance of all grounds on TP issues by the ITAT, the Learned Transfer Pricing Officer ("Ld. TPO")/Ld. AO again made fresh TP analysis and made upward adjustment of Rs. 24,20,33,970/-, which is in violation of the order passed by the ITAT. 3.3 The Ld. AR also submitted that, they have raised 12 grounds in this appeal and following issues are involved out of their 12 grounds : a) t....
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....the aforesaid finding of the ITAT, it is evidently clearly that, the ITAT had made a direction to Ld. AO/Ld. TPO to bench mark the international transactions by applying Transaction Net Margin Method ("TNMM") as Most Appropriate Method ("MAM") instead of Comparable Uncontrolled Price ("CUP"). Hence, there was no restriction made by the ITAT for making any fresh TP analysis by selecting different comparables and applying different filters. Accordingly, the Ld. AO/Ld. TPO has rightly followed the directions of ITAT and bench marked the international transactions by applying TNMM as MAM. Therefore, the Ld. DR prayed before the bench to uphold the order of Ld. AO/Ld. TPO. 4.3 We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. As far as the first argument of the Ld. AR is concerned, we have gone through the grounds of appeal and order of the ITAT for A.Y. 2014- 15 in first round of appeal. We have also gone through the findings of the ITAT for A.Y. 2011-12 passed by the ITAT on 22.06.2022 (as reproduced above). On going through these documents, it is abundantly clear that, the ITAT had made a direction to Ld. AO/L....
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....ctions of Ld. DRP in this regard. 5.1 Per contra, the Ld. DR relied on the order of Ld. AO/Ld. TPO. 5.2 We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. We have gone through the para no.2.2.24.2 of the order of Ld. DRP, which are to the following effect : " 2.2.24.2 Having considered the submission, the report of TPO and the rebuttal of the Assessee, the Panel perused the Annual report of the company and saw that it does not contain the Profit /Loss account and related schedules. In the absence Conclude of such data, it is not possible to compute the margins as well as conclude whether the company passes the applied filters of the TPO. Hence, the TPO is directed to exclude this company as a comparable." 5.3 On going through the above findings of Ld. DRP, it is abundantly clear that, the Ld. DRP has made the direction to Ld. AO/Ld. TPO to exclude Sagar Cements (M) Pvt. Ltd. from the list of comparables. Accordingly, we direct the Ld. AO/Ld. TPO to exclude Sagar Cements (M) Pvt. Ltd. from the list of comparables. 5.4 In the result, the second issue of the assessee is allowed. 6. With rega....
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...., the Appellant had to develop new market in those areas thereby incurring high advertisement costs also. However, the increase in costs due to change in market was not passed on to the customers and the entire burden was borne by the Appellant during the year. In support of the above contentions placed by the Appellant, the year-wise comparison of sales realization per metric ton, cost per metric ton and profit before interest and taxes as reported in the financial statement of the Appellant is provided below for better understanding - Year 2011 2012 2013 2014 2015 Sales realization per metric ton 3,267.22 3,717.67 3,838.00 4,139.00 4,8600.00 Cost per metric ton 3,267.22 3,717.67 3,838.00 4,139.00 4,860.00 Financial Year 2011-12 2012-13 2013-14 2014-15 2015-16 Profit before interest and taxes as reported in financial statement of ZCL (in INR lakhs) 21,261.98 14,639.75 (440.05) 6,501.14 13,291.67 Therefore, the Appellant wishes to submit that it is clearly evident from the above table that the profitability of the Appellant was affected very badly in FY 2013-14 due to difficu....
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.... operate on a campaign basis mainly due to the unrest in the localities and low demand in South Indian region. Among the plants that halted operations temporarily was Panyam Cements' 400,000 ton per year capacity plant in Nandyal, Andhra Pradesh whereas the Appellant did not halt its operations and continue to produce at the same capacity. As a result, the fixed costs of the Appellant could not be recovered fully thereby contributing to the loss incurred by the Appellant. To support the above, the industry report is attached (refer item 8 of the paper book - Page 205). Thus, the primary reasons for the losses were not international transactions, but the economic factors which were domestic and could not be attributed to the related party transactions." 6.1 The Ld. AR, on the basis of their aforesaid reproductions, submitted that, the reasons as cited above, causes the reduction of overall profit of the company during the year under consideration. Therefore, the assessee had made economic adjustment in their TP documentation. However, Ld. AO/Ld. TPO did not allow the economic adjustment while calculating the PLI. In support of their submission, the Ld. AR pl....
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.... from OC while calculating the PLI. 7.1 Per contra, the Ld. DR relied on the order of the Ld. AO/Ld. TPO. 7.2 We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. We have gone through the para no.2.4.1 of Ld. DRP, wherein, the Ld. DRP, relying on the decision of Bangalore Bench of ITAT in the case of Sap Lab India (P) Ltd. Vs. ACIT (2011) 8 taxmann.com 207, rejected the claim of the assessee. We have also gone through the decision of ITAT in the case of Sap Lab India (P) Ltd. Vs. ACIT (supra), wherein, at para no.42 of the order, the ITAT held that, the foreign exchange fluctuations gain is nothing but an integral part of the sale proceeds of an assessee carrying on export business and the same cannot be excluded from the computation of operating margin. Further, no evidences have been produced by the assessee that the loss arising on account of forex foreign exchange fluctuations is not in the nature of OC. Respectfully following the decision of ITAT in the case of Sap Lab India (P) Ltd. Vs. ACIT (supra), we hold that, the loss arises to the assessee on account of foreign exchange fluctuation is in the natu....