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2012 (11) TMI 462 - AT - Income TaxAdjustment to ALP - CUP v/s TNMM method - assessee trader of coffee - Held that - As considered in AY 2006-07 TPO as well as the DRP have not considered the objections raised by the assessee against the comparables selected by the TPO for arriving at the ALP. As seen from the submissions of the assessee, the glaring differences that appears that comparable used by TPO is in the business of processing and trading in spices, whereas the assessee is in the business of trading in Coffee. As the facts of present year are same as above it would be appropriate to consider as to which the most appropriate method for determining the ALP to the TPO for fresh consideration. The fact the assessee adopted CUP method as the most appropriate method will not be conclusive and the endeavour of the assessee and the revenue should be to arrive at the correct ALP. Assessee also submitted that the price at which the Coffee Board sells Coffee seeds should not be taken as bench mark - remand the matter to the TPO for fresh consideration.
Issues:
1. Transfer pricing adjustment under section 92C of the Income Tax Act, 1961. 2. Selection of the most appropriate method for determining the Arm's Length Price (ALP). 3. Comparison of prices for green Coffee beans sold to associated enterprises. 4. Dispute Resolution Panel's role in upholding the Transfer Pricing Officer's adjustment. 5. Application of the Comparable Uncontrolled Price (CUP) method. 6. Consideration of industry-specific factors in determining ALP. 7. Judicial precedent on the selection of ALP determination method. Transfer Pricing Adjustment under Section 92C: The case involved an appeal by the assessee against the order of the DCIT under section 143(3) of the Income Tax Act, 1961, regarding a transfer pricing adjustment. The TPO proposed an addition to the total income of the assessee due to discrepancies in pricing green Coffee beans sold to an associated enterprise, resulting in a demand raised by the DCIT. Selection of the Most Appropriate ALP Method: The assessee selected the Comparable Uncontrolled Price (CUP) method for determining the Arm's Length Price (ALP) and relied on monthly prices quoted by the Coffee Board. However, the TPO found shortcomings in the application of the CUP method and proposed an adjustment based on benchmarking with prices from the Coffee Board, leading to the addition to the total income. Comparison of Prices for Green Coffee Beans: The TPO's adjustment was based on the difference between the prices charged by the assessee to the associated enterprise and the prices at which the Coffee Board supplied green Coffee. This discrepancy led to the proposed addition to the income of the assessee. DRP's Role in Upholding TPO's Adjustment: The Dispute Resolution Panel (DRP) upheld the TPO's adjustment, rejecting the assessee's argument against the CUP method. The DRP emphasized the justification for accepting the method chosen by the assessee and highlighted the common pricing dynamics in agricultural products markets. Application of the CUP Method: The DRP confirmed the addition proposed by the TPO, emphasizing the reliability of the Coffee Board's monthly price list as a comparable price in the CUP method for agricultural products like Coffee beans. Consideration of Industry-Specific Factors: The DRP highlighted the homogenous market nature of agricultural products, supporting the use of the Coffee Board prices as a reliable benchmark. It differentiated this approach from the software sector, emphasizing the unique pricing dynamics in different industries. Judicial Precedent on ALP Determination Method: The Tribunal referred to a previous judgment in the assessee's case, where the method for computing the ALP was remitted for fresh consideration. In line with this precedent, the Tribunal set aside the order and remanded the matter to the TPO for a reevaluation of the ALP determination method, considering the observations and directions from the previous assessment year. This detailed analysis of the judgment provides insights into the intricacies of transfer pricing adjustments, the selection of ALP determination methods, and the significance of industry-specific factors in such assessments.
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