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TMI Blog2021 (6) TMI 1111X X X X Extracts X X X X X X X X Extracts X X X X ..... process technology. Atagencer, LLC; Mehmet Gencer an individual and Polymer Energy LLFC Rate 3.75% the assessee has submitted that this agreement is identical to Sr. No. 1. Thus we are of the considered view that the lower authorities should have accepted TNMM as the most appropriate method on the business profile qua the international transaction of the assessee as was accepted in A.Y.2009-10 to 2014-15. We accordingly direct the AO/ TPO to delete the TP adjustment of Rs.361320620/- appeal filed by the assessee is accordingly allowed. - ITA No.454/Del/2021, S.A. No.49/Del/2021 (In ITA No. 454/Del/2021) - - - Dated:- 8-6-2021 - Sh. N. K. Billaiya, Accountant Member And Sh. Sudhanshu Srivastava, Judicial Member For the Appellant : Sh. Ajay Vohra, Sr. Advocate, Sh. Aditya Vohra, Advocate For the Respondent : Sh. Sunil Kumar, CIT DR ORDER PER N. K. BILLAIYA, AM: This appeal by the assessee is directed against the order dated 31.03.2021 framed u/s. 143 (3) read with section 144 C (13) of the Act. 2. Simultaneously the assessee has also filed application for the stay of the demand arising out of the aforementioned assessment order. We dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal before or at the time of hearing of the appeal. 4. Representatives of both the sides were heard at length. Case record carefully perused and the judicial decisions referred to during the course of the arguments have been duly considered. 5. The profile of the appellant and its group read as under :- 2. Profile of the Group and Assessee The SABIC Group holding company, Saudi Basic Industries Corporation ( Sabic ), is a public company, headquartered in Riyadh, Saudi Arabia, and has been listed on Tadawul, the Saudi Arabian stock exchange, since 1984. SABIC has operations in over 50 countries with a global workforce of approximately 40,000 individuals and manufactures on a global scale in Saudi Arabia, the Americas, Europe, and Asia Pacific. SABIC is among the world's market leaders in the production of polyethylene, polypropylene and other advanced thermoplastics, glycols, methanol, and fertilizers. With regard to ownership, 70 percent of SABIC's share are owned by the Saudi Arabian government, while the remaining 30 percent of shares are held by private investors in Saudi Arabia and other countries of the Gulf Cooperation Council. Sabic In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (per cent.) of comparable companies Sl. No. Company name FY 2015-16 FY 2014-15 FY 2013-14 Weighted average 1 ABM International Ltd. -37.81 % -104.91 % -228.88 % -100.26 % 2 Metroglobal Limited -38.38 % 7.49 % -16.32 % -7.92 % 3 Heetu Chemicals 8.03 % 11.30 % -1.23 % 6.09 % 4 P H Trading Ltd. -4.38 % 17.81 % 3.91 % 6.35 % No. of comparables 4 Mean -23.94 % Our operating margins (OP/VAE) 369.39 % Berry ratio (GP/VAE per cent.) of comparable companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 Mean 21.38 % Our operating margins (OP/OC) 369.39 % 11. It would be pertinent to mention here that this practice has been adopted by the assessee since A.Y. 2009-10 to A.Y. 2014-15. It is equally pertinent to mention that TNMM has been accepted as the most appropriate method in assessment year 2009-10 to 2014-15. 12. We find that the TPO has discarded the TNMM method adopted by the assessee summary. We further find that without assigning any specific reason the TPO proceeded by using the other method as the most appropriate method and finally came to the set of following comparables for making the ALP adjustment :- S. No. Ref. Agreement Title Agreement Type Industry Cost Base Exclusivity Rate 1 L22581 Non Compete Agreement Asset Purchase, Patent, technology, trademark Chemicals Net Sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earch process, the TPO may also discard the comparables used by the assessee but cannot discard the method which is accepted by the revenue since A.Y. 2009-10 onwards. 15. In our considered view before adopting the other method the TPO has to give reason for discarding the five methods mentioned in the rules. We find that the order of the TPO/AO/DRP are devoid of such finding. 16. The Hon ble Delhi High Court in the case Sumitomo Corporation India Private Limited in ITA No.381/2013, 382 /2013, 738/2015 and 702/2014 vide judgment dated 22.07.2016 at para 31 of its order has observed as under :- 31. The Assessee had, for reasons indicated in its transfer pricing report, adopted TNMM as the most appropriate method with Berry ratio as the PLI. Although, the TPO found fault in the use of Berry ratio - according to him, the same was not permissible under Rule 10B(1)(e) of the Rules he did not proceed to select the most appropriate method for computation of ALP. This, in our view, would be essential as the reliability of the determination of the ALP is in turn dependent on the effectiveness of the method in relation to the controlled transaction being tested. In the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s overall trade across the world. However, it is not necessary that the trading arrangement between Sogo Shosha enterprises and their affiliates/ subsidiaries in India be identical or similar. It is also not possible to assume - without it being established as a fact - that all international transactions entered into by Indian enterprises with their related Sogo Shosha enterprises would be on identical footing. Thus, it is not apposite to determine the ALP without examining the nature of international transaction in each case. 38. Insofar as the use of Berry ratio as a PLI is concerned, the TPO had rejected the same for three reasons. First of all, he held that the same is not permissible under Rule 10B(1)(e) of the Rules; secondly, he held that the Assessee had acquired substantial intangibles in the form of supply chain intangibles and human resources intangibles and Berry ratio was not an apposite PLI in cases where an Assessee used substantial intangibles for its business. Thirdly, the TPO held that the rate of commission on indenting transaction was determined in reference to the value of goods and not on the basis of any cost incurred by the Assessee. 18. The ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that there was no cogent material for the TPO to hold that the Assessee had developed supply chain and human resources intangibles. In any event, there was no material to conclude that costs of such intangibles were not captured in the operating expenses. 47. In our prima facie view, the third reason stated by the TPO, that is, the rate of commission paid to the Assessee is based on the value of the goods, would be a valid reason to reject the use of Berry ratio because Berry ratio can only be applied where the value of the goods are not directly linked to the quantum of profits and the profits are mainly dependent on expenses incurred. The fundamental premise being that the operating expenses adequately represent all functions performed and risks undertaken. For this reason Berry ratio is effectively applied only in cases of stripped down distributors; that is, distributors that have no financial exposure and risk in respect of the goods distributed by them. 21. We find that the CBDT circular No.14 referred to in the judgment (supra) also clearly mentions that if any, of such circumstances mentioned in the said circular exists then the AO may reject the price adopt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while selecting the other method as the most appropriate method. 24. In the light of the aforestated discussion and keeping in mind the past history of the assessee in so far as the TP adjustment and the most appropriate method let us now see the finding of the DRP on the objections raised by the assessee :- 3.2.1 The Panel has considered the submission. It is noticed that this Panel during the AY 2015-16 rejected the assessee's objection to the 'CUP' method adopted by the TPO/AO and its request to accept TNMM as MAM. Following the same, we uphold the TPO's action of using the 'CUP' approach and employing the other method and selecting the comparables after considering the functional profile. No argument has been advanced regarding the defects in the other method employed by the TPO and it is merely stated that the TPO has not followed the direction of the Panel on the principle of res judicata. The Panel, however, does not find the argument acceptable as every assessment year is an independent assessment year and the decisions may vary in view of the facts obtaining .in that case. The TPO in para 9 of his order has given sufficient reasons just ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee to benchmark the international 3.3.1 The Panel directs -the: TPO/AO to verify the contention and late necessary 'actions accordingly. 3.4 Ground no 1.4 relates to the consideration of external comparables which according to the assessee do not meet the comparability criterion. The decision of the Panel in respect of these comparables is as follows: L17961 Maciej Zalewski Trustee; Maciej Zalewski, an individual and Polymer Energy / ILC Rate-3.75% 3.4.1 This comparable was already rejected by this Panel during AY 2015-16 on the ground that licensee is a manufacturer of machinery and equipment, using polymer recycling and related technology and compensation is for technology and continuous technical assistance to licensee. Following its order for AY 2015-16, the Panel directs the TPO/AO to exclude this comparable. L11144 Bioshield Technologies Inc and Sanitary Coating Systems, LLP Rate - 10% 3.4.2 This comparable was already rejected by this Panel during AY 2015-16 on the ground that there was nothing to indicate that agreement survived and existed during the relevant period arid that involves antimicrobial a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces are inherent and, therefore, the agreement cannot be distinguished on that ground. Further, the TPO has clearly recorded the industry as 'business services' and thus, the Panel has no reason to interfere with the selection of this comparable by the TPO. The objection is, accordingly, rejected. L23918 Longman Group UK Ltd and Future media PLC Rate-15.00% 3.4.7 The assessee contests this agreement on the ground of the product being incomparable (i.e. interactive courseware). The contention, however, is not acceptable as the TPO has categorically recorded that this agreement is/relating to distribution, trademark and tradename and the industry is educational services and business services. The TPO, therefore, .correctly included this comparable in the final set of comparables. The objection of the assessee, accordingly, stands rejected. 25. A perusal of the finding of DRP show that the DRP had put the onus on the assessee whereas the onus lies on the TPO to justify the adoption of other method as the most appropriate method and not on the assessee. Further the comparable used by the TPO and accepted by the DRP related the payment of royalty relating k ..... X X X X Extracts X X X X X X X X Extracts X X X X
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