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TMI Blog2015 (8) TMI 1035X X X X Extracts X X X X X X X X Extracts X X X X ..... for a fresh determination of ALP of this transaction under the CUP method in accordance with our above directions/observations. Needless to say, the assessee will be allowed a reasonable opportunity of hearing in such fresh proceedings. Polymerization Catalysts named DBH - AR before us in justifying the reasons for the price charged at ₹ 134/- per kg. from its AE, being the lowest price charged in comparison with all the uncontrolled transactions. Here again, the ld. AR put forward the same submissions that the specifications of this product sold to non-AEs were different from those sold to its AE. Neither any difference in such specifications was specifically pointed out nor the effect of such differences was brought to our notice. Here again, we find that neither the assessee brought on record any comparable uncontrolled transaction to justify the price charged from its AE nor the authorities below could justify their viewpoint in making or deleting the addition as per the parameters of Rule 10B. The position before us on this product is similar to ADC-L-5 discussed above. Following the view taken hereinabove, we set aside the impugned order on this score and send the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e first effective ground is against the deletion of addition of ₹ 1,40,05,896/-, being the transfer pricing adjustment on account of international transactions. 3. Briefly stated, the facts of the case are that the assessee is an Indian company engaged in the production of various chemicals, such as, Blowing Agents, which include Polymer Additives, Speciality Chemicals and Industrial Chemicals. The assessee has a subsidiary in USA which acts as its marketing agent. The assessee reported an international transaction of sale of Blowing Agents Antioxidants to its Associated enterprise (AE) with the transacted value of ₹ 5,36,16,103/. This international transaction reported by the assessee in Form No.3CEB consisted of sale of Blowing Agent worth 297617 kgs. and that of Antioxidants worth 4360 kgs. In order to demonstrate that this international transaction was at arm s length price (ALP), the assessee employed Comparable Uncontrolled Price (CUP) method. In the proceedings initiated by the Transfer Pricing Officer (TPO), on a reference made by the Assessing Officer (AO), the assessee submitted that the price charged from its AE for the products sold was higher than the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was right in making the additions or the ld. CIT(A) in deleting these additions. Blowing Agents ADC-L-5 4. The first product is Blowing Agents ADC-L-5, a modifier, called Chemical Blowing Agent for plastic and rubber. The assessee sold 3622 kgs. of this Blowing Agent to its AE at a total value of ₹ 34,86,003/-, thereby giving the average selling rate of ₹ 96.23 per kg. There were three international transactions with the rates charged at ₹ 97/-, ₹ 98/-and ₹ 87/- per kg. respectively. It was observed by the TPO that the same item was sold by the assessee to Maricell SRI, Italy, at a price of ₹ 126 per kg. The first sale was made by the assessee to its AE on 14.10.2003, then on 6.12.2003. The assessee sold the same product to M/s Maricell SRI, Italy, on 17.12.2003. Noticing not much variation in the sale volume made to AE and Italy party, the TPO treated the price of ₹ 126 per kg. as the ALP of this transaction. That is how the differential amount between the ALP and the actual price charged amounting to ₹ 10,78,347/- was proposed as a transfer pricing adjustment. The AO made the addition which came to be deleted in the first ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s length price. Section 92C deals with the computation of the ALP. Sub-section (1) of section 92C enlists five specific and one general method for determining the ALP of an international transaction. This sub-section provides that the ALP of an international transaction shall be determined by any of the given methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed or such persons or such other relevant factors, as the Board may prescribe. Rule 10B of the Income-tax Rules, 1962, contains modus operandi for the determination of the ALP of an international transaction under these specified methods. The first prescribed method is Comparable uncontrolled price (CUP) method. Clause (a) of Rule 10B(1), dealing with the mechanism for the determination of ALP under CUP method, provides as under:- (a) comparable uncontrolled price method, by which,- (i) the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, is identified ; (ii) such price is adjusted to account for differenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an uncontrolled transaction shall be comparable to an international transaction if (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market ; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences. 8. On a conjoint reading of sub-rules (1), (2) and (3) of Rule 10B, it is manifest that the international transaction and the uncontrolled transaction with which comparison is sought to be made for determining the ALP, in the first instance, must have overall similar products. It is obvious that if the products are different, then, there can be no question of making an effective comparison between the prices charged. Once the products under both the transactions are broadly similar but there is a difference in them because of certain specific characteristics; and/or the products in both the transactions are identical, but still there are certain differences due to the contractual terms or the geographical location, etc., t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harged by the assessee from Italy/Bangladesh parties due to difference in the formulations/specifications of products. When the mandate of Rule 10B is vivid which provides for, firstly, bringing the product sold to a non-AE at par with the product sold to AE by making adjustment due to the differences in the characteristics of the products sold and then to make adjustments on account of contractual terms and geographical location, etc., then, there can be no logic in determining the ALP under the method by breaching the express provision of Rule 10B. In our considered opinion, the view taken by the ld. CIT(A), which does not conform with the mandate of the Rule, cannot be sustained. Under such circumstances, we overturn the impugned order on this issue and send the matter back to the file of AO/TPO for a fresh determination of ALP of this transaction under the CUP method in accordance with our above directions/observations. Needless to say, the assessee will be allowed a reasonable opportunity of hearing in such fresh proceedings. Polymerization Catalysts named DBH. 10. The assessee sold 13500 kgs. of this product to its AE at a total price of ₹ 18,15,205/-, giving th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AE at the average rate of ₹ 253.10 per kg. The TPO refused to consider the sale to a non-related enterprise of 1 kg., as a benchmark. In the absence of any other comparable transaction of the same product, the TPO picked up the sale transaction of ZBS with some unrelated party with the average rate of ₹ 318.86 per kg. That is how, he proposed transfer pricing adjustment of ₹ 48,46,928/- on this score. Such addition made by the AO was deleted in the first appeal by giving the same reasoning as given for the earlier products. 13. We have heard the rival submissions and perused the relevant material on record. It is noticed from page 54 of the paper book that the assessee sold 73710 kgs. of this product to its AE and only 1 kg. of sale to a Japanese party at ₹ 125/- per kg. It is obvious that the transaction of sale of 1 kg. to non-AE is a solitary and exceptional in nature and hence cannot constitute the bedrock for making comparison with 73710 kgs. sold to AE. If we exclude this lonely exceptional transaction of sale to non-AE, there remains no other comparable uncontrolled transaction, which can be compared with the international transaction under conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany on two occasions @ ₹ 290 and ₹ 289/- per kg. respectively. Considering the rate of ₹ 289/- per kg. as its ALP, the TPO proposed a transfer pricing adjustment of ₹ 72,63,326/-, which was made by the AO but deleted in the first appeal. 17. We have heard the rival submissions and perused the relevant material on record. Page 52 of the paper book is a Tabulation of the product OBSH sold by the assessee during the year to different parties, including AE. This chart depicts the rate of ₹ 189, ₹ 191/-, ₹ 197/-, ₹ 198/- charged by the assessee from its AE as against the rate charged from non-AEs ranging between ₹ 192 to ₹ 290/- per kg. Here again, the ld. AR tried to justify the price charged from its AE at ALP by contending that such product sold to non-AEs was having different formulations and specifications, which resulted in a difference in the sale price. Neither such differences in the specifications were pointed out nor their effect on the price charged was specifically shown. The TPO too adopted ₹ 289/-, being one of the highest prices as the ALP. The ld. CIT(A) chose to delete the addition by accepting the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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