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2017 (4) TMI 1535 - AT - Income TaxTP Adjustment - Volume Discount allowed by the AE for sale to third parties - assessee explained to the TPO that the AE has allowed 5% volume discount to non ITAAE enterprises depending on the turnover AND profit margin of non-AE Company has increased to that extent and accordingly sought for an adjustment of 5% volume discounts on the prices of Non AE - HELD THAT - Assessee is a joint venture company M/s. Hyundai Corporation and there is every reason to extend all the concessions to the assessee by AE - AR also did not place any agreement entered in to by AE with Non AE companies for such volume discounts. Arms Length price is determined on transaction to transaction or on number of transactions basis in cup method. In the absence of bill to bill or invoice to invoice details of discounts allowed and the prices of comparable company such adjustments are not permissible. The purpose of transfer pricing is to plug the diversion and transfer profits outside the country without payment of due taxes. The assessee company is a joint venture company of AE which expects more concessions than unrelated companies. In the instant case, the assessee has not demonstrated that it did not get volume discount with relevant bills of the comparable companies. The ALP is determined to arrive at the reasonable and fair price to the assessee from AE to plug diversion of profits. Since the assesse failed to prove that the Non AE company was allowed volume discount with relevant bill or account copy, we are unable to accept the adjustments sought by the assessee on account of volume discount andaccordingly dismissed the appeal of the assessee on this issue. Addition on account of difference in SPCEN and SPCD Trading Grades - assessee argued that both the SPCEN and SPCD Trading Grades are different degrees in comparability, characteristics for applying the CUP method - HELD THAT - As we observe that the assessee has raised this ground before the Ld. CIT(A) but the Ld. CIT(A) has not adjudicated this ground. Therefore, we remit the matter back to the file of the Ld. CIT(A) to decide this ground on merits. The assessee s appeal on this ground is allowed for statistical purposes. Selection of Most Appropriate Method - assessee has adopted Comparable Uncontrolled Price Method as the most appropriate methods to arrive at Arm s Length Price - HELD THAT - On the basis of the TP study conducted by the assessee, the AO after making analysis, collecting the information, completing the enquiries, accepted the method adopted by the assessee and determined the ALP and suggested for downward adjustment of purchases. After completing the proceedings and passing the assessment orders u/s 143(3) making argument for substitution of another method as most appropriate method amounts to reopening of assessment. Re-opening of assessment is possible as per the provisions of Sec.147 of IT Act in the specific facts and circumstances provided in the relevant provisions of IT Act. Merely to suit the needs of the assesse, the completed assessments cannot be allowed to re-open. The Transfer Pricing provisions are not an exception. Since, the assessee itself has adopted the CUP method and made TP study which was accepted by the TPO/AO we do not find any infirmity in the Orders of the Ld. CIT(A) and the assessee s ground on this issue is dismissed.
Issues Involved:
1. Determination of Arm's Length Price (ALP) for international transactions. 2. Application of Comparable Uncontrolled Price (CUP) method. 3. Consideration of volume discount in ALP determination. 4. Comparability of different steel grades (SPCEN and SPCD). 5. Selection of the most appropriate method for transfer pricing (CUP vs. TNMM). 6. Granting of the 5% standard deduction under Section 92C(2) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Determination of Arm's Length Price (ALP) for International Transactions: The assessee contested the ALP determined by the Commissioner of Income Tax (Appeals) [CIT(A)] and the Transfer Pricing Officer (TPO) for the import of steel coils. The TPO had made a transfer pricing adjustment of INR 2,99,05,100, which was confirmed by the CIT(A). The TPO used the Comparable Uncontrolled Price (CUP) method to determine the ALP, which the assessee argued was erroneous and contrary to the principles of natural justice. 2. Application of Comparable Uncontrolled Price (CUP) Method: The assessee argued that the CIT(A) and TPO erred in using the CUP method without properly applying the principles of Rule 10B(1)(a) and Rule 10B(2) of the Income Tax Rules, 1962. The assessee claimed that the TPO failed to account for material differences between controlled and uncontrolled transactions, specifically the 5% volume discount granted by the Associated Enterprise (AE) to third parties. 3. Consideration of Volume Discount in ALP Determination: The assessee sought a 5% volume discount adjustment, arguing that the AE granted this discount to non-AE entities like Mahendra Intertrade Ltd. The TPO and CIT(A) rejected this adjustment, reasoning that the prices of non-AE companies were lower even after the volume discount. The Tribunal upheld this decision, stating that the assessee failed to provide specific agreements or bills to substantiate the volume discount claim. 4. Comparability of Different Steel Grades (SPCEN and SPCD): The assessee contended that the TPO and CIT(A) erred in comparing dissimilar goods (SPCEN and SPCD grades) under the CUP method. The Tribunal noted that the assessee did not provide evidence to support this claim. However, since the CIT(A) did not adjudicate this ground, the Tribunal remitted the matter back to the CIT(A) for a decision on merits. 5. Selection of the Most Appropriate Method for Transfer Pricing (CUP vs. TNMM): The assessee argued that the Transactional Net Margin Method (TNMM) should be used instead of the CUP method, citing limitations in applying the CUP method. The CIT(A) and TPO rejected this argument, stating that internal comparables were available, making the CUP method more appropriate. The Tribunal agreed, noting that the assessee had initially chosen the CUP method and that changing the method post-assessment would amount to reopening the assessment, which is not permissible without specific grounds under Section 147 of the Income Tax Act. 6. Granting of the 5% Standard Deduction under Section 92C(2) of the Income Tax Act: The assessee sought the benefit of a 5% standard deduction as per the proviso to Section 92C(2) of the Act. However, this issue was not specifically addressed in the Tribunal's decision, as the primary focus was on the method of determining the ALP and the comparability adjustments. Conclusion: The Tribunal partly allowed the appeal for statistical purposes, remitting the issue of comparability of SPCEN and SPCD grades back to the CIT(A) for adjudication. The Tribunal upheld the use of the CUP method for determining the ALP and rejected the assessee's request to switch to the TNMM method post-assessment. The appeal regarding the volume discount adjustment was dismissed due to a lack of substantiating evidence.
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