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TMI Blog2014 (4) TMI 621X X X X Extracts X X X X X X X X Extracts X X X X ..... ions by comparing same with internal uncontrolled transactions undertaken in same or similar economic scenario. No attempt has been made by TPO to make FAR analysis and give necessary adjustments required to make them comparable. Even the calculations made by the TPO are found to be wrong by the DRP - DRP's working in determining the ALP amount is also not correct - Once the amount of imported material is taken in its entirety for its comparison, why there is a requirement to add further amount for the amount utilised in the production is not explained – thus, selection of CUP is the appropriate method and the assessee has both details for internal CUP as well as external CUP - CUP method should have been adopted as most appropriate method for comparing purchase price of the raw materials of Molybdenum acquired by the assessee from AE - Assessee justified the price paid by way of internal CUP in relation to actual price paid to third parties by M/s. KTC Korea and the mark-up invoice wise and also compared with reference to the external CUP in relation to Asian Metal Quotations – thus, the matter is remitted back to the TPO to examine the assessee’s contention and for fresh adjud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easons : (a) The details of transactions with reference to geographies are not known from the results of the website. The details of the contracting parties are not known i.e., the information of buyers and sellers are not available for further verification and analysis. (b) The terms of trade are not verifiable from the information given on the website. Whether the contracts are on CIF basis or FOB basis are not known. (c) The tax payer has taken average of high and low prices on a particular day. The average price cannot be benchmarked against the price at which taxpayer imported the Molybdenum as the CUP method has to be applied on transaction to transaction basis. (d) The quality and content of molybdenum compared between the price of the products available in the website and the product of the tax payer are significantly different. The level of impurities in the molybdenum imported is not comparable with the molybdenum traded in Asian Metal Exchange. 4. The TPO, thereafter, selected TNMM as method and after a search process of comparable companies under the head Ferro Alloys , selected 10 companies which he considered as comparable companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on three major areas. First one being selection of most appropriate method. The second one being selection of comparables and the third one pertains to the calculation undertaken by the DRP. 10. The learned Counsel submitted that CUP method is the most direct method and appropriate method for considering the assessee's transactions. It was submitted that assessee-company purchased imported Molybdenum from its AE for the manufacture and processing of final product i.e., roasted molybdenum concentrate oxide. The finished product is sold in the domestic market. The learned Counsel explained the process of manufacture undertaken by way of a floor chart to submit that molybdenum concentrate oxide would undergo a process of milling, flotation, roasting and rhenium recovery, smelting of Ferromolybdenum and upgrading to Tech Oxide etc. It was submitted that lot of process is involved in manufacturing final product and since the process was not stabilised by the Indian Company, the company incurred loss and at present is not in the manufacture at all. 11. Coming to the selection of CUP, the Learned Counsel submitted that the methodology, application and determination of CUP as M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and serves over 100,000 companies from close to 200 countries worldwide. Asian Metal's mission is to help companies in the metal' and steel industry make informed business decisions, by providing accurate concluded prices, up to date news and comprehensive analysis. Asian Metal's price assessments for metals are taken as benchmark prices for contracts signed by major players of the industry in the world market. Asian Metal provides comprehensive and up-to-date review and analysis on metals, which is well-sought after by, including but not limited to, producers, end-users, financial institutions, and other allied stakeholders. Asian Metal is a leading source for accurate and reliable metal prices and to which reference is made by producers, end-users, credit-lending institutions and researchers alike. (6) The whole method of selection of comparables ensured that products are similar, time of sale is comparable and most importantly, are prone to a world market demand and supply dynamics and the very essence of Rule 10B (2) is reflected in the way we have carried out the search for comparables. It may be highly appreciated that each of such comparables are a separ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rks price. So, the TPO's objection that price do not content the parties who are contracting and the terms of contract has no bearing. It was further submitted that price given on Asian Metal Website are Ex-China, since most of the mines are located in China. Non-availability of purchases and sellers details cannot be a reason for not relying on quotations available on exchange. Since the price quoted are Ex-works, the parties buying have to bear the other expenses of freight, insurance etc., from works to the destination point. Likewise, assessee has given comparable figures based on Asian Metal quotes which can be compared as external CUP. Not only that the assessee has also justified the prices on the basis of internal CUP. 11.4 It was submitted by the learned Counsel, without prejudice to his submissions made, that molybdenum concentrate ore purchased by the assessee from KTC Korea was originally sourced by AE from Chile. The invoices raised by the Chile company on assessee's AE -KTC Korea are given in the paper book. The supplies were made directly by the Chile party to India only and not to his AE in Korea. As per the invoices raised by the Chile company on assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein with the price paid in this year to submit that in the two later years, no adverse inference were drawn in respect of international transactions entered into by and between assessee and AE and assessee was purchasing the Molybdenum Concentrate Ore from M/s. KTC Korea after mark-up of an average 10.87% on an average over the price M/s. KTC Korea purchased from third parties. This mark-up is due to credit provided to the assessee and also due to insurance and other reasons undertaken. These two factors were also accepted in later years by the A.O./TPO. Therefore, since facts are similar, the later years orders do indicate that assessee's transactions are at arms length. Learned Counsel for the assessee relying on the Coordinate Bench decision of ITAT, Delhi Bench-C in the case of Hosley India (P.) Ltd. ITA. No. 5904/Del/2010 dated 25.10.2012 to submit that 'Rule of Consistency' has to be followed. In that case, it was held as under : 11. After hearing both the parties on this issue and taking into consideration the peculiar facts of the present case that in subsequent years the department has relied upon fresh set of comparables and also keeping in view the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appropriate method. 12. Coming to the selection of comparables and determination of operating profits, learned Counsel objected to various companies selected by the TPO. The main objection is with reference to the comparables is that, those companies are functionally different and they do not process Molybdenum at all. Most of the companies selected may be in the Ferro Alloys business but they use different raw materials like Lam Coke, Copper, and Coal etc. and referred to the various details of respective companies to submit that they are not at all comparable to the assessee. It was also submitted that Hinduja Foundries Ltd. is using raw materials like Aluminium Alloy, carboriser, ferro alloys, iron scrap, steel scrap etc., and not ore. Likewise, Sarda Energy and Minerals Ltd. The material used by this company in its manufacturing process are coal, iron and steel scrap, manganese ore. From these raw materials the company manufactures ferro alloys, sponge iron etc., and this company does not use molybdenum in any of its products, whereas, the assessee company imports only molybdenum which is the only raw material used and therefore, it is not a comparable company. In the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 622,444.04 69,394.33 11.15% 32,47,654 Corporacion Naciona Del Cobre De Chile 02.07.2006 27,600 621,959.11 69,340.71 11.15% 32,45,145 Corporacion Naciona Del Cobre De Chile 02.07.2006 27,600 622,686.50 55,301.40 8.88% 25,88,105 Corporacion Naciona Del Cobre De Chile 02.07.2006 27,646 619,578.58 69,108.36 11.15% 32,34,271 Minera Los Pelambres 24.01.2006 17,500 402,441.00 36,356.71 9.03% 16,30,598 Corporacion Naciona Del Cobre De Chile 31.12.2005 22,800 477,398.59 62,206.38 13.03% 27,77,514 TOTAL 3,366,507.82 361,707. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso provided in the OECD guidelines that application of CUP method is justifiable even with some differences between international transactions and Comparable Uncontrolled Transactions, subject to proper adjustments for removing the differences. CUP method should not be denied on the basis of differences. In this regard, the relevant portion of the text of para 29 is reproduced. Where differences exist between the controlled and uncontrolled transactions or between the enterprises undertaking those transactions, it may be difficult to determine reasonably accurate adjustments to eliminate the effect on price. The difficulties that arise in attempting to make reasonably accurate adjustments should not routinely preclude the possible application of the CUP method. 20. Adopting the CUP method towards import of raw material, has been upheld by the various Coordinate Benches. (a) In the case of Destination of the World (Subcontinent)(P.) Ltd. Vs. ACIT, Circle 10(1), New Delhi (2011) 12 Taxmann.com 310 (Del.wherein the Delhi Tribunal held that in the first instance, attempt should be made to determine arm's length price of controlled transactions by comparing sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thod and accordingly, we are of the opinion that TPO should have based his analysis on the basis of the CUP method alone, as in later years. Rule of consistency also applies to the facts of this case. 22. As briefly stated above, assessee justified the price paid by way of internal CUP in relation to actual price paid to third parties by M/s. KTC Korea and the mark-up invoice wise and also compared with reference to the external CUP in relation to Asian Metal Quotations. This aspect has to be examined by the A.O. and since he has rejected the CUP method by giving extraneous considerations, we direct the TPO to examine the assessee's contentions vis-a-vis data available keeping the most appropriate method, being CUP method. Therefore, for analysing the transactions again, keeping in mind TPO's order in later two years, we restore the issue to the file of TPO by setting aside his order and also the order of A.O/ and DRP for T.P. analysis afresh. With these directions, assessee's grounds are allowed for statistical purposes. 23. Ground No.7 pertain to application of (+) or (-) 5% variation once ALP was determined. Even though the variation can not be claimed as stand ..... X X X X Extracts X X X X X X X X Extracts X X X X
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