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TMI Blog2016 (7) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... ost appropriate method. Thus, in view of the facts of the case and the decision of Co-ordinate Bench in the case of Amphenol Interconnect India Private Limited [2014 (5) TMI 1066 - ITAT PUNE ], we accept ground in favour of assessee X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 2845/Mum/2006 before the Tribunal. The assessee apart from other grounds, had also challenged the action of lower authorities in not considering the geographical conditions of the market to which assessee is catering. The Tribunal vide order dated 31-03-2010 remitted the file back to Commissioner of Income Tax (Appeals) for deciding the issue afresh by widening the scope of adjustment and inter alia considering the demographic conditions of the market. In second round of litigation, the Commissioner of Income Tax (Appeals) after analyzing the contentions of the assessee in respect of geographical difference in the market rejected the same. Aggrieved by the order of Commissioner of Income Tax (Appeals), the assessee is in second appeal before the Tribunal. 3. Shri Danesh Bafna appearing on behalf of the assessee submitted that the total exports made by the assessee to its AEs is to the tune of ₹ 8,91,06,681/-. Out of above, the value of export of five common products which are sold to the AEs as well as third parties is ₹ 1,46,59,056/-. The assessee for benchmarking the ALP of its products selected TNM method as the appropriate method. In respect of all products th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parable Uncontrolled Price (CUP) Method; - Resale Price Method; - Cost Plus Method; - Profit Split Method; - Transactional Net Margin Method (TNMM); or - Such other method as may be prescribed by the Board. • Further, Section 92C(2) of the Act provides that the most appropriate method shall be applied in accordance with the provisions of Rule 1 OC of the Rules to determine the arm's length price of an international transaction. The relevant extract of the Act and the Rules have been reproduced below for ease of reference: Rule 1 0C(1) and Rule 10C(2) of the Rules provide the following: "Rule 10C(1) For the purposes of sub-section(1) of Section 92C, the most appropriate method shall be the method which is best suited to the facts and circumstances of each particular international transaction, and which provides the most reliable measure of an arm's length price in relation to the international transaction." "Rule 10C(2) In selecting the most appropriate method as specified in sub-rule (1), the following factors shall be taken into account, namely:- (a) the nature and class of the international transaction; (b) the class or classes of associated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market, then the uncontrolled transactions could not be considered as comparable to international transactions resulting into failure in application of CUP method. • Based on above, if CUP is to be considered to be the most appropriate method, the following factors should be considered: Particulars Remarks Geographical difference The price at which a product is sold in one country cannot be compared with the price at which the same product is sold in another country because of the impact on account of geographical differences i.e. country specific demand/ supply factors, market conditions, regulations and government orders in force, level of competition, availability of substitute products, consumer purchasing power, etc. which have a bearing on the price. Difference in Credit risk The Appellant faces minimal credit risk on sale of finished products to its AEs, because the risk of default on account of non-realisation of sales proceeds is very negligible. Whereas, the Appellant bears the credit risk when it sells the finished goods to third part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accurate adjustments cannot be made to iron out such differences and make the transactions comparable; - When 95% of the exports to the AEs are considered to be at ALP by applying TNMM as the most appropriate method, there is no reason to apply CUP method for benchmarking part of the export transaction. • In the Appellant's case also since reliable and accurate adjustments cannot be made to make the transactions of export of finished goods to third parties comparable to the transaction of export of finished goods to AEs, such a comparison cannot be made at all. Further, in Appellant's case also, 98.13% of the transaction has been accepted at ALP by choosing TNMM as the most appropriate method and hence, there is no reason to apply CUP method for benchmarking part of the export transaction. • Given the above, the Appellant submits that the CUP method cannot be considered as the most appropriate method to demonstrate the arm's length nature of international transaction pertaining to export of finished goods, and the adjustment proposed by the Ld. TPO / should be deleted." 4. Per contra Shri Subhash Chandra and Shri Hitendra Ninawe representing the Departmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f export of Floxidin 10% (50ml), disregarding TNMM applied by the assessee for benchmarking the ALP. A perusal of the records show that during the period relevant to the assessment year under appeal the assessee has manufactured and exported 5 products to its AEs and third parties in various countries. The details of the products manufactured by the assessee and the country of export along with the prices charged per unit are as under: Name of Product Export to AEs Export to third parties Country Price Country Price Decivac Oil Adj 100ml Turkey 15.00 Italy 11.75 Amnovit 250 gm Indonesia 1.62 Bangladesh 1.47 and 1.62 Hog Cholera 50D Neithelands 5.00 Belarus 5.00 Berenil 7% 20ml Malaysia 1.25 Sri Lanka 0.93 Floxidin 10% (50ml) Thailand 1.24 Vietnam 3.81 7. The assessee applied TNMM as the most appropriate method for determining ALP. The TPO accepted the TNM method adopted by the assessee in respect of 4 products except Floxidin 10% (50ml). The TPO applied CUP method as the most appropriate method in respect of Floxidin 10% (50ml) on the ground that the price charged by the assessee from its AEs is far less than the price charged from the third parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id reason for adopting CUP method as the most appropriate method for benchmarking the transactions. The assessee has discharged its onus by giving the detailed reasons for difference in price. Thereafter, the onus is on the TPO to show that the method adopted by the assessee for benchmarking the transactions with AEs is not the most appropriate method. 10. In the case of Amphenol Interconnect India Pvt. Ltd. Vs. DCIT (supra) similar issue had come up before the Co-ordinate Bench of the Tribunal. In the said case the assessee had entered into an international transaction for purchase of raw material and export of finished goods. In the TP study report the assessee had applied TNMM as the most appropriate method for computing the ALP of international transactions. The TPO did not accept the contention of the assessee and applied CUP method. The assessee contended that the difference in the price is on account of volume, geographical locations, time difference, risk factor, functional difference etc. The Tribunal after considering the facts of the case observed as under: "3.3 Considering the above differences, CUP method was claimed to be not the most appropriate method to determine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts of the present case. The learned CIT DR had also stated that the onus is on the assessee to demonstrate that the method selected by it, was most appropriate. There is no dispute regarding this proposition as well. However, once, the TPO has tried to select a different method, the onus is on the TPO to demonstrate that the other method is the most appropriate method. This principle has been laid down by Special Bench in the case of Aztec Software Ltd. [107 ITD 141 (Bang)(SB)]." 11. The Co-ordinate Bench after considering various decisions relied upon by both the sides concluded that the TPO had wrongly applied CUP method for determining ALP in respect of some of the transactions pertaining to export of finished goods especially when the TPO had accepted more 90% of the export to the AEs. The Tribunal deleted the additions made by applying CUP method. In the present case, we find that the TPO has accepted substantial part of the transactions with AEs (more than 80%), it is only on the minor part of the transactions in respect of one product that the TPO has applied CUP method even though the reasons were given by the assessee for difference in the rate at which the produ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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