2015 (8) TMI 1035 - AT - Income Tax

Transfer pricing adjustment on account of international transactions - CIT(A) deleted the addition - Held that - Both the assessee as well as the TPO/CIT(A) have adopted incorrect approach in determining the ALP under the CUP method. Whether the price of ADC-L-5 charged by the assessee from its AE was different because of different formulations/specifications given by the Italy party? - Held that - When the mandate of Rule 10B is vivid which provides for, firstly, bringing the product sold to a non-AE at par with the product sold to AE by making adjustment due to the differences in the characteristics of the products sold and then to make adjustments on account of contractual terms and geographical location, etc., then, there can be no logic in determining the ALP under the method by breaching the express provision of Rule 10B. In our considered opinion, the view taken by the ld. CIT(A), which does not conform with the mandate of the Rule, cannot be sustained. Under such circumstances, we overturn the impugned order on this issue and send the matter back to the file of AO/TPO for a fresh determination of ALP of this transaction under the CUP method in accordance with our above directions/observations. Needless to say, the assessee will be allowed a reasonable opportunity of hearing in such fresh proceedings. Polymerization Catalysts named DBH - AR before us in justifying the reasons for the price charged at ₹ 134/- per kg. from its AE, being the lowest price charged in comparison with all the uncontrolled transactions. Here again, the ld. AR put forward the same submissions that the specifications of this product sold to non-AEs were different from those sold to its AE. Neither any difference in such specifications was specifically pointed out nor the effect of such differences was brought to our notice. Here again, we find that neither the assessee brought on record any comparable uncontrolled transaction to justify the price charged from its AE nor the authorities below could justify their viewpoint in making or deleting the addition as per the parameters of Rule 10B. The position before us on this product is similar to ADC-L-5 discussed above. Following the view taken hereinabove, we set aside the impugned order on this score and send the matter to the file of AO/TPO for a fresh determination of the ALP of this transaction in accordance with our above guidelines. Blowing Agent named TSSC - Held that - The assessee has not placed on record any effective comparable uncontrolled transaction to demonstrate that its international transactions with AE of the same product were at ALP. The TPO chose an altogether different product for making comparison under the CUP method, which is not legally sustainable because of the inherent differences in the quality of two products. The ld. CIT(A) also deleted the addition without making any comparison with a valid comparable uncontrolled transaction. Under such circumstances, we set aside the impugned order and remit the matter to the file of AO/TPO for a fresh determination of ALP of the sale of TSSC to its AE in accordance with our above observations. It goes without saying that the assessee will be allowed a reasonable opportunity of being heard in such fresh determination. Chemical Blowing Agent OBSH - Held that - AR tried to justify the price charged from its AE at ALP by contending that such product sold to non-AEs was having different formulations and specifications, which resulted in a difference in the sale price. Neither such differences in the specifications were pointed out nor their effect on the price charged was specifically shown. The TPO too adopted ₹ 289/-, being one of the highest prices as the ALP. The ld. CIT(A) chose to delete the addition by accepting the assessee s contentions which, in our considered opinion, do not properly justify the ALP. Under such circumstances, we find that neither the assessee nor the authorities below have dealt with the matter as per law. Following the view taken in respect of the product Blowing Agent ADC-L-5 above, we set aside the impugned order and remit the matter to the file of AO/TPO for fresh determination of the ALP of the instant transaction in conformity with our directions given hereinabove.

Summary

Issues Involved:
1. Deletion of transfer pricing adjustments on international transactions for various products.
2. Admission of fresh evidence by the CIT(A) without confronting the TPO.

Detailed Analysis:

1. Deletion of Transfer Pricing Adjustments on International Transactions:

Blowing Agents ADC-L-5:
The assessee sold Blowing Agents ADC-L-5 to its AE at different rates, which were lower than the rate charged to an unrelated Italian party. The TPO used the highest rate charged to the Italian party as the ALP, resulting in a proposed adjustment of Rs. 10,78,347/-. The CIT(A) deleted this addition. However, the Tribunal found that neither the assessee nor the TPO/CIT(A) correctly applied the CUP method as per Rule 10B. The Tribunal remitted the matter back to the AO/TPO for fresh determination of the ALP, emphasizing the need for adjustments based on product specifications and geographical differences.

Polymerization Catalysts named DBH:
The assessee sold this product to its AE at the lowest price among all transactions. The TPO used the highest price charged to a Belgium party as the ALP, proposing an adjustment of Rs. 8,17,295/-. The CIT(A) deleted this addition, noting differences in product formulations. The Tribunal remitted the matter back to the AO/TPO, as no specific differences in specifications or their price effects were provided by the assessee.

Blowing Agent named TSSC:
The assessee sold this product to its AE at varying rates, with only one comparable transaction of 1 kg to a Japanese party. The TPO used a different product for comparison, resulting in an adjustment of Rs. 48,46,928/-. The CIT(A) deleted this addition. The Tribunal found no effective comparable uncontrolled transaction and remitted the matter back to the AO/TPO for fresh determination of the ALP.

Chemical Blowing Agent OBSH:
The assessee sold this product to its AE at lower rates compared to rates charged to an Italian company. The TPO used the highest rate charged to the Italian company as the ALP, proposing an adjustment of Rs. 72,63,326/-. The CIT(A) deleted this addition. The Tribunal noted that neither the assessee nor the authorities provided specific differences in product specifications or their price effects. The matter was remitted back to the AO/TPO for fresh determination of the ALP.

2. Admission of Fresh Evidence by CIT(A):
The Tribunal noted that the issue of fresh evidence admitted by the CIT(A) without confronting the TPO does not require separate adjudication, as the matter of determination of ALP was already remitted back to the AO/TPO.

Conclusion:
The appeal was allowed for statistical purposes, with the Tribunal remitting the matters back to the AO/TPO for fresh determination of the ALP for all the products in accordance with the guidelines provided. The order was pronounced in the open court on 20.05.2015.