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TMI Blog2020 (8) TMI 509X X X X Extracts X X X X X X X X Extracts X X X X ..... t of 5% variation is to be calculated with reference to the ALP determined from the comparable uncontrolled transactions or at the price at which the assessee exported the goods? - HELD THAT:- Company shall become the associate enterprise of another company if at any time during the relevant previous year such company meets the criteria specified under the provisions of section 92A of the Act. Admittedly, the Dyestar Group of companies became the AE of the assessee in the year under consideration i.e. 4th February 2010. Thus, to our understanding such company cannot be taken as comparable company for the purpose of determining the ALP under rule 10A of the Rules. What is left is the non-AE party transactions carried out by the assessee during the year under consideration for the purpose of determining the ALP which works out at ₹ 191.52 which is much more than the price charged by the assessee with the associated enterprise. It is not issue arising from the order of the authorities below and similarly neither the learned AR nor the learned DR brought to our notice at the time of hearing. No infirmity in the order of the authorities below for making such upward adjustment to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2/03/2014 relevant to Assessment Year (AY) 2010- 11. 2. The assessee has raised the following grounds of appeal:- 1. The ld.CIT(A) has erred in law and on facts of the case in upholding the action of ld. AO in making upward transfer pricing adjustment amounting to ₹ 41,18,700/-. 2. The ld. CIT(A) has erred in law and on facts of the case in upholding the action of ld. AO in referring the case of the Appellant to the Transfer Pricing Officer. The ld. CIT(A) ought to have considered that under the facts and circumstances of the case, there was no reasons to interfere with the pricing adopted by the Appellant as the same is falling within the parameters of transfer pricing laid down under the scheme of the Act. 3. The ld. CIT(A) has erred in law and on facts of the case in upholding the action of ld. AO in invoking the provisions of Chapter X without prima facie demonstrating that there was some tax avoidance. 4. The ld. CIT(A) has erred in law and on facts of the case in upholding the action of ld. AO in making a reference to the Transfer Pricing Officer u/s.92C(3) r.w.s. 92CA(1) of the Act without providing any opportunity of being heard to the Appellant. 5. The ld. CIT(A) oug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. As per the assessee, the actual average price prior to 4th February 2010, with respect to its product namely Reactive Blue 250 comes at ₹ 177.10 per kg whereas the actual average price post 4th February 2010, with respect to its product namely Reactive Blue 250 comes at ₹169.19 per piece. Accordingly, the assessee claimed that it has charged the price from its AE after 4th February 2010 at the arm length price and therefore no adjustment is required to be made. 3.3. However, the TPO observed that price charged from its AE are varying significantly as evident from invoice wise details available on record. Therefore, TPO was of the view that each invoice should be compared separately. The TPO was also of the view that uncontrolled price of other non AE should also be included for calculating the ALP of the comparables. Accordingly, TPO worked out the revised ALP of the comparables i.e. average of price charged form Dyestar group pre 04th February 2010 and price charged from other non AE. The TPO Compared the same with each invoice of exports made to different units of Dyestar group after 04th February 2010. During the proceedings, the TPO found that in case of two i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rged from its AE Well Prospering Limited are at arm length. 3.10. However, the TPO was of the view that the assessee should have also considered the transactions carried out by it with respect to the export of goods to Dyestar Group before 04th February 2010 while determining the ALP for its international transactions with the present AE. Thereafter, the average price of the comparable should have been compared with each invoice raised by the assessee to its associated enterprises. Accordingly, the TPO worked out revised ALP of the comparables after considering price charged from Dyestar Group before acquisition i.e. 4-2-2010 along with price charged from other non AE. The revised ALP was compared with the actual price charged by the assessee for each invoices raised to its AE. It was found that some of the invoice issued for the product namely Reactive Red 195 and Reactive Black 5 were varying significantly. The relevant details are available on the pages 5 and 6 of the TPO order. 3.11. Accordingly, the TPO issued a show cause notice vide letter no. DCIT(TPO-II)/AHD/Kri Dyes/92CA(1)/12-13 dated 18th October 2013 purposing addition of ₹ 38,97,996/- for the upward adjustment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at which the material was sold to those companies prior to becoming the associated enterprise with the rates at which the material ahs been subsequently sold by the appellant company. He has also taken into account various objections reqgarding location and quantity of the dye. It is noted that no new objection or line of analysis has been pointed out by the appellant during the course of appellate proceedings. Further, the TPO has duly taken into account all the objections taken by the appellant at the stage before him. I am in complete agreement with his findings, and it is noted that the order of the TPO is well reasoned and detailed. The comparability analysis also has been properly done by him. The claim of the appellant that when the purpose of comparison of the same entity (post acquisition) was available comparison with other non-AE was not required is without any basis. The method which has been adopted by the TPO is CUP and the comparison would be better, if the broader base of comparable uncontrolled transactions is taken. Therefore, the action of the AO was justified. It is noted that the appellant is charging different rate to the same company, prior to acquisition and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;169.19 whereas the ALP of the comparable comes out at ₹168.85 only. 6.2. The learned AR, for the associated enterprises namely Well Prospering Ltd, contended that Dyestar group of companies being associated enterprise cannot be considered as comparables. The learned AR in support of his contention placed his reliance on the order of this tribunal in the case of Gemstone Glass Pvt Ltd. 6.3. The learned AR also contended that the TPO has taken the average price of the comparables which was compared with the individual invoices raised by the assessee to the associated enterprises. As per the learned AR the TPO should have taken the same yard stick by taking the average price charged by the assessee instead of individual invoice. 7. On the other hand, the learned DR vehemently supported the order of the authorities below. 8. We have heard the rival contentions of both the parties and perused the materials available on record. The facts of the case are not in dispute which have been elaborated in the preceding paragraph. Therefore we are not inclined to repeat the same for the sake of brevity and convenience. 8.1. In the present case, the issue relates to the determination of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the property transferred or services provided in the international transaction [or the specified domestic transaction] ; 8.5. A plain reading of the above provision reveals that the provision of rule 10B(1)(a)(i) authorized to identify the comparable uncontrolled transaction or a number of such transactions. In other words the provisions of the rule permits to aggregate the comparable uncontrolled transactions for determining the ALP. However, the rule does not permit to aggregate the international transactions carried out by the assessee to work out the average price for the purpose of the comparison. In holding so we draw support and guidance from the order of the Delhi tribunal in the case of Tilda Riceland (P) Ltd vs. ACIT reported in 42 Taxmann.com 400 wherein it was held as under: The first thing as noticed is that the assessee has determined arm's length price of its transactions with the AEs by comparing average export price charged by the assessee to its AEs with the average uncontrolled export price. This approach is patently incorrect inasmuch as while under rule 10B (1)(a)(i), it is indeed open to compute ALP on the basis of price charged in a comparable controlle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ference to the actual price charged by the assessee to work out the percentage. 8.9. For example, the rate of the ALP of the comparable uncontrolled transaction works out at ₹104 whereas the price charged by the assessee stands ₹100 leading to a difference of ₹4 only. Now this difference of ₹4 has to be seen in connection with the actual price charged by the assessee. As such percentage works out at 4% in this example. 8.10. Before parting, it is also pertinent to note that even assuming for the sake of understanding, the contention of the assessee is correct then also the difference between the ALP and the price charged by the assessee exceeds 5% therefore there cannot be any benefit to the assessee on account of such variation. For the ready reference, we calculate the difference as detailed below: ALP of the comparable uncontrolled transactions ₹ 177.74 Less : benefit of 5% variation ₹ 8.89 8.11. The ALP after 5% variation comes to ₹ 168.85 whereas the price charged by the assessee stands at ₹167.81 and ₹165.59 for the invoices which are in dispute. 8.12. At this juncture, it is also important to understand that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to theSTA. This aspect is relevant only to the extent that at the time of transfer ofcall centre business, the assessee was subsidiary of HTIL or VIH BV. As perthe clause 8.8 (j) of the SPA, the HTIL was under the obligation to deliveror procure the delivery to the purchaser (VIH BV), the GSPL transferagreement duly executed by the parties thereto. GSPL transfer agreement isdefined in the definition and interpretation clause 1 of the SPA as under 8.15. In view of the above, and after considering the facts in totality, we do not find any infirmity in the order of the authorities below for making such upward adjustment of ₹ 2,20,704/- to the total income of the assessee. 8.16. Moving to the international transactions carried out by the assessee with Well Prospering Ltd, the 1st issue arises for our consideration whether the transactions carried out with the AE can be considered as one of the comparable for determining the ALP for the purpose of the comparison. Admittedly, the Dyestar Group of companies became the AE in the year under consideration dated 4th of February 2010. The provisions of section 92A(2) clearly states that a company shall become AE of another company at an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Going forward, we also note that the assessee in itself has taken Dyestar Group of companies as 1 of the comparable in its transfer pricing study which was also not disputed either by the TPO or learned CIT (A). Now the question arises, whether such issue can be raised by the assessee before us. In this regard we note that it is the duty of the income tax authorities to implement the provisions of Income Tax Act while framing the assessment. In other words, if the assessee has made a mistake in the interpretation of the provisions of the Act then it is the duty of the authorities to rectify such mistake. Accordingly, it is inferred that assuming the assessee has paid the taxes on the items of income which were not chargeable to tax under the misconception of the provision of the Act. The income tax authorities are duty-bound to correct such mistake and extend the necessary relief to the assessee. Thus the income tax authorities cannot exercise their jurisdiction with respect to the matters which has not been authorized under the provisions of law despite the fact that the assessee has given his consent. 8.18. In holding so, we draw support and guidance from the order of Delhi tri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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