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TMI Blog2021 (4) TMI 452X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. TPO to apply TNMM but restrict the adjustments only to the extent of international transactions carried out by the assessee and not to entire segment of manufacturing activity. TPO is directed to verify the computations made by the assessee and decide accordingly. The benefit of tolerance range of +5%, as provided in law, would be available to the assessee. Consequently, the revenue s ground, to that extent, stands allowed which would render assessee s cross-objection infructuous. So far as the issue of market research expenses is concerned, we find that this issue is squarely covered in assessee s favor by the decision of this Tribunal for AYs 2005-06 to 2007-08 [ 2016 (6) TMI 100 - ITAT MUMBAI] . In view of this uncontroverted fact, this ground stand dismissed. - I.T.A. No.7738/Mum/2012 And I.T.A. No.4771/Mum/2015 And Cross Objection No.234/Mum/2014 And Cross Objection No.149/Mum/2015 - - - Dated:- 8-4-2021 - Hon ble Shri Saktijit Dey, Jm And Hon ble Shri Manoj Kumar Aggarwal, Am For the Assessee : Shri Vispi T. Patel Ld. AR For the Revenue : Shri Sunil Deshpande-Ld. Sr. DR ORDER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. Aforesaid appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter of appeal would be as given in succeeding paragraphs. Assessment Proceedings 3.1 The material facts are that the assessee being resident corporate assessee is stated to be engaged in manufacturing and trading of various edible oils. An assessment was framed for the year u/s 143(3) on 23/12/2011 wherein the assessee was saddled with certain Transfer Pricing Adjustment of ₹ 1141.76 Lacs. This was in view of the fact that the assessee carried out certain international transactions with its Associated Enterprises (AE). Accordingly, these transactions were referred to Ld. Transfer Pricing Officer (TPO) u/s 92CA(1) for determination of Arm s Length Price (ALP). The Ld. TPO proposed impugned adjustment of ₹ 1141.76 Lacs vide its order u/s 92CA(3) on 20/11/2011 against import transactions of ₹ 6571.86 Lacs. The assessee imported soyabean oil, Palm Oil from Singapore AEs and benchmarked the transactions using comparable uncontrolled price (CUP) method. For the said purpose, the price at which the imported products were sold by its AE (Bunge Singapore) to independent parties in India was compared to the import prices paid by the assessee. 3.2 Another set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Before Ld. CIT(A), the assessee elaborated the benchmarking methodology adopted for three categories of import viz. (i) Import of Crude Degummed Soyabean Oil (6 contract with AEs); (ii) Import of Crude Degummed Soyabean Oil (4 contract with AEs); (iii) Import of sunflower seed oil. The same has been summarized by Ld. CIT(A) in para 5.3(iv) of the impugned order. On the basis of the same, the assessee contended that it had fulfilled the conditions prescribed in Transfer Pricing (TP) provisions while applying CUP. This method was most direct method as supported by various decisions of the Tribunal. Similar methodology was accepted by learned first appellate authority in AY 2007-08. The assessee also submitted that keeping in view the benefit of tolerance range of +5%, all the three categories of transactions were at Arm s Length and therefore, no adjustment could be made. 4.2 The Ld. CIT(A), with respect to first category of transactions, observed that since valid internal CUP was available, this method would be most appropriate method (MAM). In respect of transactions nos. 1, 4 6, difference in rates were found. Since the benefit of tolerance range of +5%, as per Section 92C(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd not to the entire segment of manufacturing activity. The Ld. AR submitted that it the adjustments were so restricted, the margin would be within permissible limit of +5% and therefore, the additions would not be sustainable. The working of the same has been placed on record. The Ld. AR submitted that no adjustment shall remain as per the above calculation, duly following the Tribunal order in assessee s own case for AY 2005-06. The Ld. DR, on the other hand, assailed the impugned order by supporting the benchmarking done by Ld. TPO by adoption TNMM method. The Ld. DR drew our attention to para-10 of the Tribunal order. 7. We find that the impugned issue is recurring in nature in assessee s case. The dispute as to adoption of most appropriate method as well as computation of margins etc. using TNMM method was the subject matter of revenue s appeals as well as assessee s cross-objections before this Tribunal in AYs 2005-06 to 2007-08 (ITA Nos.4336/M/2009 ors. common order dated 18/05/2016). Upon perusal of the same, we find that this issue has been adjudicated by the Tribunal for AY 2005-06 in the following manner: - 7. Next two grounds deal with deleting of additions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see, of ₹ 29.54 crores and made an adjustment of ₹ 48.65 crore to the import price. As a result there was an overall reduction in the import price of the assessee . As it was more than 5% (54.27%) allowable under the proviso to section 92C(2) of the Act, so, the assessee was not given the benefit. Before the FAA, it was argued that CUP was MAM, that the imports made were for its own consumption, that it was not possible for the assessee to identify specific shipment with consumption in manufacturing or re-sale, that the TPO had failed in applying CUP, that he had not brought any evidence or document to reject other comparable transaction as provided by the assessee, that while applying the TNMM he had not accepted all the adjustment proposed by the assessee, that the unutilized capacity in respect of power, fuel etc, was considered at nil as against 20% claimed by the assessee, that it resulted in a higher operating loss by ₹ 3.81crore, that factory, salary and wages on account of under utilisation capacity was also taken at nil by the TPO as against 70% claimed by the assessee, that it resulted in a higher operating loss by about ₹ 5.46 crore, that the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it was applied to international transaction of sale to the AEs, that same resulted in adjustment of 6.24% of the value, that the TPO had denied the benefit of proviso to section 92C(2),that when comparable trading companies operating margin on cost of 0.94%was applied it was clear that assessee s OPM was higher than comparable margin, that the export to AEs was at arm s length, that the ALP for export was lower than the export recorded in the books of account, that the TPO had made adjustment vis-a-viz only the import of goods from the AEs, that manufacturing operations had resulted in loss after the assessee acquired various businesses during the year under consideration. The assessee had requested that adjustment of ₹ 43.07crore should be spared over the total operating cost of ₹ 790.44 crore after giving effect to 5% range. Finally, the FAA concluded that the adjustment made by TPO resulted in overall reduction to the import price of goods by 54%, that even after providing additional relief there was only partial reduction in the TP adjustment, that it went against the very principle of profit based method, that the adjustment had no consonance to the realit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tial years of acquisition, it was not able to fully utilise its manufacturing capacity, that there was extraordinary unutilised capacity, that it had calculated revised margin of 20 comparables selected by the TPO and had arrived at the arithmetic mean of 1.07% (page 222 of the paper book),that the same was not considered by the TPO, that though the FAA had stated that revised margin (1.07%) had to be taken he had erroneously, by oversight, took 2.36% while calculating the adjustment, that if the correct margin(1.07%) of comparables was taken then the international transactions of the assessee of import of oil would be within the permissible limit of +/-5%, that TP adjustment should have been made only on international transactions, that the FAA had calculated the amount of adjustment to ₹ 3.55 crores, that if the correct margin of 1.07% of the comparables was adapted then the assessee s international transaction of import of oil would be within the permissible limit of+/-5%. 10 .We find that the TPO had made an adjustment of ₹ 48.65 crores to the entire segment of manufacturing activities instead of making the adjustment to only international transactions, that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n before the FAA pointing out the apparent mistake in adopting the revised margin i.e. adopting the rate of 2.36% instead of rate of 1.07%.Considering these facts, we are of the opinion that matter should be restored back to the file of the AO/TPO to verify the fact and decide the value of the adjustment by taking appropriate revised margin rate. Grounds No 2 and 3 are decided accordingly. 8. We find that revenue assailed the aforesaid adjudication of Tribunal before Hon ble Bombay High Court vide ITA Nos.445 of 2017, AY 2005- 06; dated 03/06/2019 wherein Hon ble Court has refused to admit substantial question of law with following observations: - 2. The issues arise out of the Tribunal's judgment concerning the correct method to be applied for determining arm's length price of the international transaction between the assessee and the associated enterprise. The Transfer Pricing Officer ( TPO for short) had made the adjustment to the entire segment of the manufacturing activity instead of making the adjustment for only international transaction. The Tribunal held that the TPO was not justified in making adjustment to the entire segment of manufacturing activity witho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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