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TMI Blog2013 (1) TMI 867X X X X Extracts X X X X X X X X Extracts X X X X ..... national transactions with its associated enterprises. A reference, therefore, was made by the AO to the TPO u/s 92CA(1) of the Act for determining the arm s length price of the said transactions. The said transactions, inter alia, involved commission income received by the assessee from two of its associated enterprises, namely, M/s Fuchs Europe Schemierstoffe GmbH, Germany and M/s Fuchs Lubritech GmbH, Germany amounting to ₹ 3,36,923/- and ₹ 2,06,721/- respectively. As noted by the TPO, the commission of ₹ 3,36,922/- was received by the assessee company from M/s Fuchs Europe Schemierstoffe GmbH, Germany in respect of direct sales made by the said company to SKF Bearings and the amount of such commission was determined as the difference between FOB price to SKF Bearings and the list price of M/s Fuchs Europe Schemierstoffe GmbH, Germany. According to the TPO, the commission income determined was quite fair and reasonable as the assessee company was duly rewarded for negotiating better price with SKF Bearings. He, therefore, treated the commission so received by the assessee from M/s Fuchs Europe Schemierstoffe GmbH, Germany as at arm s length. He, however, notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the FOB price of the associated enterprises was not acceptable to the AO/TPO, they should have at best taken commission calculated at the rate of 5% on the FOB value of the transactions to Grasim Industries as arm s length price and not the difference between the two FOB prices as taken by them. The working in this regard was also prepared and furnished by the assessee before the learned CIT(Appeals) showing that the commission calculated at the rate of 5% of the FOB value of the transactions to Grasim Industries comes to ₹ 2,74,068/- as against ₹ 2,03,507/- received by the assessee. 4. After considering the submissions made on behalf of the assessee and the material available on record, the learned CIT(Appeals) restricted the addition made by the AO/TPO on account of TP adjustment to ₹ 70,561/- for the following reasons given in paragraph No. 5.5 of his impugned order : I have perused the assessment order, TPO s order and the written submissions. The facts of the case is that the Appellant has provided marketing support functions to its Associated enterprise, namely Fuchs Lubritech GMBH Germany, and it has been compensated at the rate of 5 percent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (C) (D) 274,068.03 203,507 Amount of Adjustment (C D) 70,561.03 Based on the above computation, the arm s length price is determined at ₹ 274,086. Since the Appellant has already earned commission of ₹ 203,507, the amount of adjustment is restrivcted to be ₹ 70,561. Thus this ground is partly allowed. Aggrieved by the order of the learned CIT(Appeals), the Revenue has preferred this appeal before the Tribunal. 5. The learned DR submitted that similar international transactions were entered into by the assessee company with two of its associated enterprises which resulted in the earning of commission income. He submitted that even the services rendered by the assessee company in relation to these transactions to both the associated enterprises was similar but still the method of determining the commission adopted in case of these two associated enterprises was found to be entirely different. He contended that as the method adopted by the assessee for determining t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he transactions involving commission payment to the assessee company by its AE, namely, Fuch Lubritech GMBH Germany was made by the AO/TPO on the basis of the method of commission adopted by the assessee in determining the commission receivable in the case of other AE, namely, Fuchs Europe Fuchs Europe Schemierstoffe GmbH, Germany for the similar transactions. However, since the commission so determined in the case of Fuch Lubritech GMBH Germany taken as internal CUP to benchmark the similar transactions with other was also in relation to the controlled transactions entered into by the assessee with its AE, the learned CIT(Appeals) did not accept the same as CUP for benchmarking the transactions with other AE. The question that arises before us, therefore, is whether the rate of commission realized by the assessee from a transaction with its associated enterprise can be taken as an internal comparable uncontrolled price (CUP) for the computation of ALP of other international transaction with another AE. It is observed that a similar issue had arisen for consideration of the Third Member in the case of Tecnimont ICB Private Limited (supra) and the same has been decided in favour of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween two AEs, instead of third parties, it may demonstrate the same cooked results in both the situations, thereby leaving no scope for any adjustment. In this eventuality, the very object of such provisions will be frustrated. Thus it follows that the ALP can be determined only by making comparison with a comparable uncontrolled transaction and not a comparable controlled transaction. In our opinion, the above judgment of the Third Member in the case of Tecnimont ICB Private Limited (supra) is squarely applicable to the issue under consideration before us in the present case and respectfully following the same, we hold that the AO/TPO was not justified in applying the rate/method of commission realized by the assessee from the transactions with one AE, namely, Fuchs Europe Fuchs Europe Schemierstoffe GmbH, Germany as internal CUP for computing/determining the ALP of the commission receivable by the assessee from the transactions with another AE, namely, Fuch Lubritech GMBH Germany. The rate of commission of 5%, therefore, was rightly adopted by the learned CIT(Appeals) as at arm s length and by applying the same to the FOB value of transactions to the third party, namely, G ..... X X X X Extracts X X X X X X X X Extracts X X X X
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