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2023 (3) TMI 1090 - AT - Income TaxTP Adjustment - MAM selection - export of finished goods from Thane Plant by adopting internal TNMM - Contention of the Appellant before AO and DRP was that exports made to different geographical location to non-AEs could be considered to benchmark export sales to AEs by adopting internal TNMM method since the transactions undertaken with the AEs and Non-AEs were in the same industry, and had high level of similarity with respect to products, cost of goods sold, manufacturing processes, etcHELD THAT - DRP erred in adopting the aforesaid reasoning given by the Appellant to include even the domestic sales made by the Appellant for benchmarking the export sales made to AEs from Thane Plant. Accordingly, we set aside the transfer pricing addition and direct the TPO/Assessing Officer to re-compute ALP of the international transaction of export of goods from Thane Plant by taking OP/OC of the export sales to non-AEs. In view of the aforesaid directions, Ground No. 1 raised by the Appellant allowed. TP addition - export of finished goods from Nagda Plant by adopting internal CUP method - HELD THAT - We note that in identical facts and circumstances in the case of Firmenich Aromatics Production (India) Pvt. Ltd 2018 (11) TMI 862 - ITAT MUMBAI held that CUP Method could not be adopted as most the appropriate method. In the present case the TPO has accepted application of Internal TNMM for transactions of 65% of exports from Nagda Plant. Therefore, we hold that internal TNMM should also be adopted for benchmarking the balance 35% of the export transactions pertaining goods from Nagda Plant. Accordingly, we set aside the transfer pricing adjustment and direct the TPO/Assessing Officer to re-compute ALP using internal TNMM. Unexplained expenditure and undisclosed income - Admission of additional evidence - HELD THAT - The Appellant was not able to produce evidence before lower authorities due to paucity of time and partly for the reason that the information/evidence was also not in the knowledge/possession of the Appellant at the relevant time. Accepting the reasons failure to furnish this evidence before the Assessing Officer and DRP provided by the Appellant, we admit the additional evidence in terms of Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 and remand issue raised to the file of Assessing Officer for adjudication afresh.
Issues Involved:
1. Transfer pricing adjustment of INR 54,62,391/- for export of finished goods from Thane Plant using Transactional Net Margin Method (TNMM). 2. Transfer pricing adjustment of INR 50,80,855/- for export of finished goods from Nagda Plant using Comparable Uncontrolled Price (CUP) method. 3. Addition of INR 4,86,49,361/- under Section 69C of the Income Tax Act as unexplained expenditure. 4. Addition of INR 3,85,29,119/- as income from undisclosed sources. Issue-wise Detailed Analysis: Ground No. 1: Transfer Pricing Adjustment for Thane Plant The appellant contested the transfer pricing adjustment of INR 54,62,391/- made by the Assessing Officer (AO) by adopting internal TNMM for exports from the Thane Plant. The appellant argued that the economic circumstances surrounding export sales and domestic sales differ materially, and thus, exports should be compared with exports alone. The appellant suggested that the internal TNMM method should compare the margins earned from exports to Associated Enterprises (AEs) with those earned from exports to non-AEs, as these transactions were in the same industry and had similar functional, asset, and risk (FAR) profiles. The Departmental Representative countered by stating that the appellant failed to provide data specific to the geographical location of exports to AEs and third parties. The Dispute Resolution Panel (DRP) rejected the appellant's objection, noting that internal comparability based on segments of sales to all AEs and all third parties would suffer from similar differences. The Tribunal agreed with the appellant, noting that under TNMM, a broad similarity in FAR is acceptable. The Tribunal directed the AO to re-compute the Arm's Length Price (ALP) of the international transaction of export of goods from the Thane Plant by comparing the Operating Profit/Operating Cost (OP/OC) of export sales to non-AEs. Consequently, the transfer pricing adjustment of INR 54,62,391/- was set aside, and Ground No. 1 was allowed. Ground No. 2: Transfer Pricing Adjustment for Nagda Plant The appellant challenged the transfer pricing adjustment of INR 50,80,855/- made by adopting the CUP method for exports from the Nagda Plant. The appellant argued that the CUP method requires a high degree of comparability, which was not met due to significant differences in volume and geography between transactions with AEs and non-AEs. The appellant cited decisions from higher courts supporting the use of TNMM over CUP in cases with such differences. The Departmental Representative argued that the CUP method provided the most reliable benchmark, given the internal comparable uncontrolled transactions. However, the Tribunal noted that in similar cases, TNMM was preferred due to the inability to eliminate or adjust differences in volume and geography under the CUP method. The Tribunal held that the CUP method could not be adopted as the most appropriate method and directed the AO to re-compute the ALP using internal TNMM. Consequently, the transfer pricing adjustment of INR 50,80,855/- was set aside, and Ground No. 2 was allowed. Ground Nos. 3 to 5: Additions under Section 69C and Income from Undisclosed Sources The appellant sought remand of the issues related to additions of INR 4,86,49,361/- and INR 3,85,29,119/-, arguing that additional evidence was now available to support their case. The appellant explained that they were unable to produce this evidence earlier due to time constraints and the unavailability of certain documents. The Tribunal admitted the additional evidence, noting that the appellant had provided details for 18 out of 25 parties listed in the AO's notice. The Tribunal found the additional evidence relevant and accepted the appellant's reasons for the delay. The issues were remanded to the AO for fresh adjudication, considering the new evidence. Consequently, Ground Nos. 3 to 5 were disposed of with the direction for a fresh assessment. Conclusion: The appeal was partly allowed, with the Tribunal setting aside the transfer pricing adjustments for both the Thane and Nagda Plants and remanding the issues related to unexplained expenditure and undisclosed income for fresh adjudication. The order was pronounced on 06.12.2022.
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