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TMI Blog2012 (11) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Enterprises (AE) was in excess of Rs. 5 Crores and therefore, a reference was made to Transfer Pricing Officer under Section 92CA of Income-tax Act, 1962 (in short 'the Act'). Assessee had for its transactions with AE, arrived at the arms's length price, adopting Transactional Net Margin (TNM) method. Assessee's submission before the TPO was that Comparable Uncontrolled Price (CUP) method could not be applied since materials purchased from AE and from unrelated entities were technically different. AE part numbers were custom made, manufactured to specifications of vehicles produced in India, whereas non-AE part numbers had to undergo further processing. As per the assessee, it could procure small quantities of certain part numbers from AEs, which was not possible in the case of purchases from unrelated entities, and quality rejections were less when items were procured from AEs, whereas such rejections were larger in the case of items procured from unrelated parties. Further, as per the assessee, it had acquired more than 1,100 components from AEs and there were only 82 instances where goods purchased from AE and unrelated parties had the same part number. A deta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ily comparable to the assessee since they were in the same business of fuel injection equipment. Based on the analysis of the net margin of such companies on its sales, assessee justified its prices for imports from AEs. According to assessee, margin on sales for the assessee was much higher than of its comparables and therefore, no adjustment whatsoever was required in the arm's length price adopted. 3. However, the TPO was not impressed by the arguments of the assessee. According to him, TNM method could not be adopted on account of following reasons:- (i) MICO Bosh and SKF India Ltd. though engaged in similar business as that of assessee, had substantial related party transactions and such transactions took it out of the purview of a comparable entity. M/s Exide Industries Ltd. and Gabriel India Ltd., were original equipment manufacturers and were not having a business line comparable with the business of the assessee. (ii) Assessee had imported some items from AEs which were also purchased from companies other than AEs. Assessee itself had compared these purchase transactions and complete list of such transactions were available. (iii) Price comparison ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l (DRP). Grounds taken were improper selection and application of CUP method, and rejection of TNM method. Assessee also objected to the rejection of comparable companies identified by it for TNM method. More or less same objections as taken before the TPO were reiterated before the DRP. Reliance was also placed on the decision of Mumbai Bench of this Tribunal in the case of Cheminova India Ltd. v. ACIT [I.T. Appeal No. 4865 (Mum) of 2005] wherein certain observations were made by the said Bench with regard to application of CUP method for determining arm's length price. However, DRP was not impressed. According to it, TPO had dealt with each of the objections taken by the assessee against rejection of the TNM method and adoption of CUP method for determining arm's length price. As per DRP, assessee-company could make adjustment to the prices for factors having material effect on prices but it had not done so. Assessee also could not substantiate its argument that it was not possible to make a comparison of purchase from AEs and non-AEs. DRP also distinguished decision of Mumbai Bench in the case of Cheminova India Ltd. (supra) noting that the said decision was given in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the possibility of a direct comparison. According to him, none of the authorities gave the assessee an opportunity to carry out adjustment in prices so as to make a meaningful comparison for determining the arm's length price. 8. Per contra, learned D.R. submitted that TNM method was rightly rejected and CUP method was rightly adopted. According to him, assessee itself had prepared a list of items wherein items imported from AE and non-AEs were comparable, and based on such list alone, TPO had made a transaction wise comparison. The amount of Rs. 55,93,380/- suggested for upward adjustment was based on these transactions where AEs parts were acquired at a much higher value than non-AE parts. 9. We have perused the orders and heard the rival submissions. The crux of the contentions of the assessee was that the TNM method was most appropriate method and not CUP method. As per assessee's admission itself there were 82 instances where the goods purchased from AE and unrelated parties had same part number. At paper-book page 9, against item No.4, giving assessee's points against specific finding of the Assessing Officer, this was clearly mentioned. When a transaction to tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h AEs and non-AEs. In our opinion, adoption of CUP method was appropriate especially when such items could be identified. It is also true that assessee had imported a number of items from AEs and non-AEs and in some of the items prices of AEs and non-AEs were comparable, and in some of the items, prices from AEs were more than the prices of non-AEs and in some other items prices charged by AEs were less than that from non-AEs. The lower authorities had not addressed the question as to whether in such circumstances it would be appropriate to select those items where transaction values were higher when compared to that of non-AEs, while ignoring those transactions where transfer values were same or lower when compared to non-AEs. There is substance in the argument of the assessee that items imported from AEs required further processing, since the processing required at least in the case of 4 items have been identified and described at paper-book page 157. These items have been referred by us at para two of the order. Of course, assessee was unable to prove the actual effect of such processing on the prices, by producing evidence in support. Similarly, claim of the assessee that the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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