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TMI Blog2020 (10) TMI 504X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee that the adjustment, if any, has to be restricted to the AE transaction is acceptable as it is supported by a number of judicial precedents. In view of the aforesaid, the addition made on account of transfer pricing adjustment to the trading in industrial chemical deserves to be deleted. Adjustment made in trading in agro chemicals and public health chemicals - Assessee benchmarked the transaction by applying RPM. Whereas, the Transfer Pricing Officer has benchmarked them by applying TNMM - HELD THAT:- It is fairly well settled that in a case of import of goods for resale in domestic market merely as a reseller/distributor, the most appropriate method to benchmark is RPM. Even, a reading of rule 10B(1)(b) makes the aforesaid position clear. The decisions relied upon by the learned Counsel for the assessee also clearly support this view. In contrast, the Department has not brought any material on record to either show that the assessee has made any value addition to the products imported from AEs or establish the nature of such value addition. Prima facie, it appears, RPM has been rejected merely on unsubstantiated allegation. The decisions cited by assessee suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The captioned appeal has been filed by the assessee challenging the order dated 29th August 2017, passed under section 143(3) r/w section 144C(13) of the Income Tax Act, 1961 (for short the Act ) for the assessment year 2013 14, in pursuance to the directions of the Dispute Resolution Panel 2, (for short the DRP ). 2. The additional grounds raised by the assessee since do not require investigation into fresh facts and can be decided on the basis of facts available on record, they are admitted for adjudication. 3. Grounds no.1 and 2, of the main grounds being general in nature do not require adjudication. 4. In grounds no.3 to 6 of the main grounds, the assessee has challenged the addition made as a result of adjustment to arm s length price of trading segment. Whereas, in ground no.9, the assessee has raised an alternative contention to restrict the adjustment to the transaction with the Associated Enterprises (AE) only. 5. Brief facts are, as stated by the Assessing Officer, the assessee, a resident company, is primarily engaged in the business of manufacturing and trading of industrial chemicals, manufacturing and trading of agro chemicals, manufacturing and tradin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, such as, agro chemicals, public health and fine chemicals, learned DRP held that while considering identical issue in assessee s own case in the preceding year, they have rejected RPM as the most appropriate method since the assessee has not merely sold the goods/products imported from the AEs but has made value addition and has also taken various risks. Accordingly, learned DRP upheld the decision of the Assessing Officer with slight modification regarding adjustment in fine chemical segment. 7. The learned Counsel for the assessee submitted, in the facts of assessee s case, internal TNMM is the most appropriate method vis a vis external TNMM to benchmark the transaction relating to trading in industrial chemicals. She submitted, while the Transfer Pricing Officer has not provided any reason for rejecting internal TNMM, the reasons provided by learned DRP are factually incorrect. She submitted, firstly, the assessee has not compared two controlled transactions. She submitted that the assessee has compared its AE segment with non AE segment. She submitted, audited segmental details of both the AE and the non AE segments are available. Drawing our attention to Page 321 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... com 131 (Bom.); viii) PCIT v/s Bunge India Pvt. Ltd., (2019) 107 taxmann.com 131 (Bom.); and ix) CIT v/s Lanxess India Pvt. Ltd., (2016) 74 taxmann.com 167 (Bom.). 9. The learned Counsel for the assessee submitted, in case such proportionate adjustment is made, there would be no addition as assessee s margin will be within 3%. 10. As regards the adjustment made to agro chemicals, public health chemicals and other segments, she submitted, while applying external TNMM and rejecting RPM, the Transfer Pricing Officer has not provided any reason. She submitted, since the assessee is a mere distributor of goods imported from AEs without making any value addition, the most appropriate method to benchmark such transaction is RPM. She submitted, learned DRP has also wrongly rejected RPM by relying upon its earlier order. Referring to the observations of the DRP in the earlier order, she submitted, the functions carried out and the risks borne by the assessee are normal for any distributor, therefore, for that reason alone, RPM cannot be rejected. In support of such contention, the learned Counsel relied upon the following decisions: i) CIT v/s L oreal India Ltd., (201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21 as well as the segmental details at Pages 314 and 316, as well as the transfer pricing study report (TPSR), we have noticed that the assessee had imported industrial chemicals from AE for resale to domestic third parties. Similarly, assessee had also purchased industrial chemicals from domestic third parties and exported them to AEs. Further, the audited segmental results of such transactions both with AEs and non AEs are available. As per the segmental details, while the net profit margin of purchase from AE for resale to domestic third parties is 0.6%, it has earned a net profit margin of 1.69% in respect of purchases made from domestic third parties and exported to AE. However, it is within the acceptable range. Therefore, the observations of learned DRP do not reflect the correct factual position. The legal principle is fairly well settled that if internal comparables are available, then they have to be preferred over external comparables. Therefore, when the assessee has sold products both to AEs and non AEs and audited segmental results of the AE and non A.E. segments are available, then, the net margin earned on non AE transaction can be considered for determining the arm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Indian market. Therefore, they upheld rejection of RPM. We find the aforesaid reasoning of learned DRP quite vague and general in nature. Undisputedly, the assessee is importing these chemicals in bulk and selling them to customers by re packaging in small quantities. These functions carried out by the assessee certainly do not add any value to the products imported from the AE. Further, inspection of chemicals to ensure their quality or desired specification does not add value to the product. Even, the risks undertaken by the assessee, as noted by learned DRP, would normally be taken by any other distributor. Though, learned DRP has observed that the assessee is making some value addition to the products sold in Indian market, however, they have not elaborated or substantiated the nature of such value addition. In our considered opinion, the trading functions carried out by the assessee as per TPSR do not amount to value addition, unless, there are some other functions carried out by the assessee either to change the nature of product imported from the AE or improve its quality. We may observe, in the facts of the present appeal, the revenue has failed to bring any materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her the services were not rendered or they were not received. Accordingly, he determined the arm s length price at nil, thereby, making adjustment of entire amount of ₹ 60,60,104. 18. Learned DRP also upheld the decision of the Transfer Pricing Officer. 19. The learned Counsel for the assessee reiterating the submissions made before the DRP submitted that the Transfer Pricing Officer cannot determine the arm s length price at nil, that too, on ad hoc basis without following any prescribed method. In this context, she relied upon the following decisions: 20. CIT v/s Merck Ltd., (2016) 389 ITR 70 (Bom.); 21. CIT v/s Lever India Exports Ltd., (2017) 78 taxmann.com 88 (Bom.); 22. CIT v/s Johnson Johnson Ltd.,(2017) 80 taxmann.com 337 (Bom.); 23. Wartsila India Ltd. v/s ACIT, (2018) (10) TMI 1669, ITAT, Mumbai; 24. CIT v/s Kodak India Pvt. Ltd. (2016) 288 CTR 46 (Bom.); 25. Kodak India Pvt. Ltd. v/s ACIT, (2013) 155 TTJ 697 (Mum.); and 26. UT Worldwide India Pvt. Ltd. v/s DCIT, (2019) 103 taxmann.com 422. 27. The learned Departmental Representative relied upon the observations of the Transfer Pricing Officer and DRP. 28. We have co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regards ground no.10, the learned Counsel for the assessee submitted that she would not like to press the ground in the impugned assessment year, however, the issue should be left open to be agitated by the assessee in future. 34. In view of the aforesaid submission of learned Counsel for the assessee, the ground is dismissed as not pressed. However, it is open for the assessee to raise the issue if it arises in any other assessment year in future. 35. In ground no.11, the assessee has challenged the action of the Assessing Officer in not allowing the set off of brought forward business loss and unabsorbed depreciation, whereas, in ground no.12, the assessee has raised the issue of non granting credit for advance tax and TDS. 36. Having considered rival submissions, we direct the Assessing Officer to verify assessee s claim and decide the issue of set off of brought forward loss and unabsorbed depreciation as well as proper credit to advance tax and TDS by verifying relevant records and in accordance with law. These grounds are allowed for statistical purposes. 37. In the result, assessee s appeal is partly allowed. Order pronounced by placing in the notice board und ..... X X X X Extracts X X X X X X X X Extracts X X X X
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