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2020 (8) TMI 509 - AT - Income TaxTP Adjustment - whether the TPO is right in comparing the average price of the comparables with the individual invoices raised by the assessee to the associated enterprises for determining the ALP? - HELD THAT - Provision of rule 10B(1)(a)(i) authorized to identify the comparable uncontrolled transaction or a number of such transactions. Provisions of the rule permits to aggregate the comparable uncontrolled transactions for determining the ALP. Rule does not permit to aggregate the international transactions carried out by the assessee to work out the average price for the purpose of the comparison. As relying on TILDA RICELAND PVT LTD 2014 (3) TMI 63 - ITAT DELHI we are not impressed with the argument of the learned counsel for the assessee that the TPO erred in comparing the ALP of the comparable companies with the individual invoices raised by the assessee to the associated enterprise. Accordingly, we reject the same. ALP determination - whether the benefit of 5% variation is to be calculated with reference to the ALP determined from the comparable uncontrolled transactions or at the price at which the assessee exported the goods? - HELD THAT - Company shall become the associate enterprise of another company if at any time during the relevant previous year such company meets the criteria specified under the provisions of section 92A of the Act. Admittedly, the Dyestar Group of companies became the AE of the assessee in the year under consideration i.e. 4th February 2010. Thus, to our understanding such company cannot be taken as comparable company for the purpose of determining the ALP under rule 10A of the Rules. What is left is the non-AE party transactions carried out by the assessee during the year under consideration for the purpose of determining the ALP which works out at ₹ 191.52 which is much more than the price charged by the assessee with the associated enterprise. It is not issue arising from the order of the authorities below and similarly neither the learned AR nor the learned DR brought to our notice at the time of hearing. No infirmity in the order of the authorities below for making such upward adjustment to the total income of the assessee. International transactions carried out by the assessee with Well Prospering Ltd , - whether the transactions carried out with the AE can be considered as one of the comparable for determining the ALP for the purpose of the comparison? - HELD THAT - Admittedly, the Dyestar Group of companies became the AE in the year under consideration dated 4th of February 2010. The provisions of section 92A(2) clearly states that a company shall become AE of another company at any time during the year under consideration if it meets the criteria provided under section 92A of the Act. Once the comparable company becomes the AE of the assessee in the year under consideration, then such company cannot be considered for the purpose of comparable. We hold that the assessee has mistakenly considered one of its AE (Dyester Group) as the comparable in its transfer pricing study report for the transaction carried out with the Dyester Group only as discussed above, but the income tax authorities were duty-bound to rectify such mistake as discussed in the preceding paragraph. Coming on the merit of the case, if we exclude the Dystar Group as 1 of the comparable for determining the ALP, then the arm length price comes out at ₹ 115.5 and ₹ 122.66 for product namely Reactive Red 195 and Reactive Black 5 respectively whereas the price charged by the assessee from the AE ranges between ₹ 108.75 to 128.12 for product Reactive Red 195 and ₹ 110.06 to ₹ 115.22 for Reactive Black 5 . We direct the AO/TPO to compare the ALP with the each invoice raised by the assessee and wherever he finds the difference exceeding 5% of the actual price, make necessary adjustments. Hence the ground of appeal of the assessee is partly allowed.
Issues Involved:
1. Upward transfer pricing adjustment of ?41,18,700. 2. Referral to the Transfer Pricing Officer (TPO). 3. Invocation of Chapter X provisions without demonstrating tax avoidance. 4. Reference to TPO without providing an opportunity of being heard. 5. Legality of the approval granted by the Commissioner of Income Tax. 6. Consideration of submissions, evidence, and documents by lower authorities. 7. Charging of interest under sections 234A/B/C/D. 8. Initiation of penalty proceedings under section 271(1)(c). Issue-wise Detailed Analysis: 1. Upward Transfer Pricing Adjustment of ?41,18,700: The Tribunal examined the assessee's method of determining the Arm's Length Price (ALP) using the Comparable Uncontrolled Price (CUP) method. The assessee compared average prices pre and post-4th February 2010 for transactions with Dyestar Group. The TPO, however, found significant price variations and insisted on comparing each invoice separately. The Tribunal upheld the TPO’s approach, stating that Rule 10B(1)(a) of the Income Tax Rules permits aggregation of comparable uncontrolled transactions but not the international transactions carried out by the assessee. The Tribunal rejected the assessee's argument that the TPO erred in comparing the ALP with individual invoices. 2. Referral to the Transfer Pricing Officer (TPO): The Tribunal noted the TPO’s comprehensive analysis and rejected the assessee’s contention that the referral to the TPO was unwarranted. The Tribunal agreed with the TPO's method of including prices from non-AE entities and Dyestar Group transactions before 4th February 2010 to determine the ALP. 3. Invocation of Chapter X Provisions Without Demonstrating Tax Avoidance: The Tribunal did not find merit in the assessee's argument that Chapter X provisions were invoked without demonstrating tax avoidance. The Tribunal upheld the TPO's findings and the CIT(A)'s agreement with those findings. 4. Reference to TPO Without Providing an Opportunity of Being Heard: The Tribunal found that the assessee was given adequate opportunities to present its case and respond to show-cause notices issued by the TPO. Therefore, the Tribunal dismissed the argument that the reference to the TPO was made without providing an opportunity of being heard. 5. Legality of the Approval Granted by the Commissioner of Income Tax: The Tribunal upheld the approval granted by the Commissioner of Income Tax for the reference to the TPO, rejecting the assessee's claim that the approval was granted mechanically and without due diligence. 6. Consideration of Submissions, Evidence, and Documents by Lower Authorities: The Tribunal found that both the TPO and CIT(A) had duly considered the submissions, evidence, and supporting documents provided by the assessee. The Tribunal noted that the TPO's order was well-reasoned and detailed, and the CIT(A) had carefully reviewed the facts and objections raised by the assessee. 7. Charging of Interest Under Sections 234A/B/C/D: The Tribunal did not provide a detailed analysis on this issue, implicitly upholding the lower authorities' decision to charge interest under sections 234A/B/C/D of the Income Tax Act. 8. Initiation of Penalty Proceedings Under Section 271(1)(c): The Tribunal did not specifically address the initiation of penalty proceedings under section 271(1)(c), indicating that the lower authorities' decision to initiate such proceedings was upheld. Conclusion: The Tribunal partly allowed the appeal for statistical purposes, directing the AO/TPO to compare the ALP with each invoice raised by the assessee and make necessary adjustments if the difference exceeded 5% of the actual price. The Tribunal upheld the upward adjustment of ?2,20,704 for transactions with Dyestar Group and provided detailed guidance on the determination of ALP for transactions with Well Prospering Ltd, excluding Dyestar Group as a comparable for post-4th February 2010 transactions.
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