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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 ..... t. 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 trading of public health chemicals and manufacturing of fine chemicals. During the year under consideration, the assessee entered into various international transactions with its overseas AEs involving both import and export of chemicals for trading. All these transactions were reported by the assessee as per the statutory mandate and were also benchmarked to ascertain the arm's length nature of transaction. As regards industrial chemicals, the assessee benchmarked the transaction by applying Transactional Net Margin Method (TNMM) with internal comparable transactions as the most appropriate method. Since, assessee's margin shown at 0.6% was within the acceptable range of net margin of comparable transaction worked out at 1.69%, the transaction with AE was claimed to be at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 paper book, the learned Counsel submitted, apart from the fact that assessee had imported industrial chemicals from the AE for sale to third parties in domestic market, it had also purchased industrial chemicals from domestic third parties and exported to AEs. In this context, she also drew our attention to Pages-314 to 316 of the paper book to emphasize that availability of audited segmental results of both AE and non-AE segments make internal TNMM the most appropriate method. Further drawing our attention to such statement, the learned Counsel submitted, the margins of AE and non-AE segments clearly demonstrate arm's length nature of the transaction. Further, she submitted, the allegation of learned DRP that inbound and outbound transactions cannot be compared is untenable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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., (2015) 53 taxmann.com 432 (Bom.); ii) ITO v/s L'oreal India Ltd., (2012) 24 taxmann.com 192 (Mum.); iii) Videojet Technologies India Pvt. Ltd. v/s ACIT, ITA no.6956/Mum./2012, dated.28.05.2019; iv) DCIT v/s Hazira LNG Pvt. Ltd., ITA no.1056/Ahd./2014, dated 27.12.2016; v) CIT v/s Luxottica India Eyewear Pvt. Ltd., ITA no.852/2015 (Del. HC); vi) Luxottica India Eyewear Pvt. Ltd. v/s DCIT, ITA no.1115/Del./2014, dated 05.11.2014; vii) Airport Retail Pvt. Ltd. v/s JCIT, (2017) 80 taxmann.com 165 (Mum.) (Trib.); viii) Ecolab Food Safety & Hygiene Pvt. Ltd. v/s ACIT, (2019) 108 taxmann.com 381 (Mum.); ix) Randox Laboratories India Pvt. Ltd. v/s ITO, (2019) 107 taxmann.com 136 (Mum.); and x) Mattel Toys India Pvt. Ltd. v/s DCIT, [2013] 34 taxmann.com 203 (Mum.). 11. Without prejudice, the learned Counsel for the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ternal 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's length price of the transaction with the AE. The decisions relied upon by the learned Counsel for the assessee, referred to above, clearly support this view. Even otherwise also, the contention of the learned Counsel for 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. Accordingly, we do so. 14. As regards the adjustment made in trading in agro chemicals and public health chemicals, it is evident, the assessee has benchmarked the transaction by applying RPM. Whereas, the Transfer Pricing Officer has benchmarked them by applying TNMM without ascribing any reason why RPM cannot be treated as most appropriat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied 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 material on record to demonstrate that the assessee has made any value addition to the imported goods. Thus, the reasoning on the basis of which learned DRP has sustained rejection of RPM as the most appropriate method is not valid, at least, in the impugned assessment year. 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 unsubsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 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 considered rival submissions and perused the material on record. Prima facie, we find that the assessee has not benchmarked the transaction relating to payment of management and accounting service fee independently, but, has allocated such payment to all the segments. This, in our view, is not a correct approach. The assessee should have benchmarked the aforesaid transaction independently. On the other hand, the Transfer Pricing Officer has determined the arm's length price at nil purely on ad-hoc basis without following any prescribed method. This, in our view, is also not acceptable, as held in various decisions cited by the learned Counsel for the assessee. 29. Though, the assessee may not be required to prove the benefit derived by it, however, it is required to furnish the basic documentary evidences as well as proper benchmarking to show the arm's length nature of the transaction. Since, the aforesaid ex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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