9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2016 (7) TMI 249 - AT - Income TaxAddition by recomputing the arm s length price of the international transactions under sec. 92 - selection of MAM - CUP or TNMM - Comparable Companies selected by the TPO in the application of TNMM to determine the arm s length price - international transaction pertaining to purchase of DAP - Held that - We fully concur with the contention of the assessee that Rule of Consistency needs to be respected in the approach of the Revenue in the application of CUP method as the most appropriate method particularly when there is no change in either the profile of the assessee or in the nature of the transaction. We also agree with the submission of the assessee that TNMM method is not an appropriate method since the sale price in the present case is regulated by the government and the margin of net profit is not under the control of the tax payers. It is not appropriate to apply TNMM method also for the reason that merely 40% to 45% of the receipts are by way of subsidy from the government and not from sale of the product. The submission of the assessee that the relevant data for the application of CUP method is available in public domain has not been disputed by the Revenue. It is an undisputed position as well that crucial factor for determining the appropriateness of the method to be applied are the availability and reliability of the data. In view of these material facts, we come to the conclusion that CUP is the most appropriate method in order to benchmark the transaction pertaining to purchase of DAP Fertilizers and direct the learned TPO to apply the same for the benchmarking the transaction in question. In view of the above findings, the alternative plea of the Learned AR that the comparable chosen by the learned TPO are not at all the right comparable as these entities are engaged in manufacturing and sale of the product and not in the trading of the product as the assessee is, does not need consideration
Issues Involved:
1. Validity of the addition of ?30,99,75,553 by recomputing the arm’s length price of international transactions under Section 92 of the Income-tax Act, 1961. 2. Validity of rejection of the Comparable Uncontrolled Price (CUP) method selected by the assessee and application of the Transaction Net Margin Method (TNMM) by the authorities. 3. Validity of denial of the benefit of a 5% margin by the authorities. 4. Validity of initiation of penalty proceedings under Section 271(1)(c). Issue-wise Detailed Analysis: 1. Validity of the Addition of ?30,99,75,553: The assessee, engaged in the distribution of fertilizers, contested the addition of ?30,99,75,553 made by recomputing the arm's length price (ALP) of international transactions. The assessee argued that the ALP was determined using the CUP method, which was previously accepted by the ITAT for the assessment year 2005-06 and subsequent years. The authorities below, however, applied the TNMM method, which the assessee contended was inappropriate due to the government-regulated sale price and the significant portion of revenue derived from subsidies. 2. Validity of Rejection of the CUP Method and Application of TNMM: The assessee used the CUP method, relying on the Fertecon Report to determine the ALP for the purchase of DAP fertilizer. The authorities rejected this method and applied the TNMM method, selecting companies engaged in both manufacturing and trading as comparables. The assessee argued that the selected comparables were functionally different, as the assessee was solely a distributor, not a manufacturer. The ITAT found merit in the assessee's argument, noting that the CUP method had been consistently accepted in previous and subsequent years and that the TNMM method was inappropriate due to the regulated sale price and substantial subsidies. 3. Validity of Denial of the Benefit of 5% Margin: The assessee did not advance any arguments in support of this ground. Consequently, the ITAT rejected this ground as not pressed. 4. Validity of Initiation of Penalty Proceedings Under Section 271(1)(c): The assessee questioned the DRP's failure to examine the validity of the initiation of penalty proceedings under Section 271(1)(c). The ITAT deemed this ground premature and did not adjudicate on it. Conclusion: The ITAT concluded that the CUP method was the most appropriate method for benchmarking the transaction pertaining to the purchase of DAP fertilizers. The authorities were directed to apply the CUP method for benchmarking. The grounds related to the addition of ?30,99,75,553 and the rejection of the CUP method were allowed. Grounds related to the general nature of the order and the denial of the 5% margin were rejected. The ground questioning the initiation of penalty proceedings was deemed premature and not adjudicated. Order Pronounced: The appeal was partly allowed, and the order was pronounced in the open court on 11.05.2016.
|
