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TMI Blog2022 (9) TMI 867X X X X Extracts X X X X X X X X Extracts X X X X ..... 83%. As observed from the financials submitted by the AR that 71% of the elastic produced during the FY has been exported to AEs. AR also in his submissions accepted that the production price is similar and the ultimate finished goods are similar in properties and hence are comparable. Since the ultimate finished goods are similar in nature and properties, the submission of AR contradicts on the fact that the price per meter charged for AEs is far below the price per meter charged to non-AEs, where the difference is significant. TNMM adopted by the Ld. Revenue Authorities would be Most Appropriate Method for determining the ALP of the international transactions entered into by the assessee with the AE. We do not find any infirmity in the order of the DRP on this issue and the same is confirmed. Appeal of the assessee is dismissed. - I.T.A. No. 167/Viz/2017 I.T.A. No.05/Viz/2018 - - - Dated:- 27-7-2022 - SHRI DUVVURU RL REDDY , HON BLE JUDICIAL MEMBER And SHRI S BALAKRISHNAN , HON BLE ACCOUNTANT MEMBER Appellant by : Sri P.V.S.S. Prasad, CA and Sri A. Vamsi Rajesh, CA Respondent by : Sri MN Murthy Naik, CIT-DR ORDER PER S. BALAKRISHNAN, Accountant Member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. DRP, the assessee is in appeal before us. Though the assessee has raised several grounds with regard to Transfer Pricing addition, the only effective issue to be decided in this appeal is with regard to Most Appropriate Method (MAM) and based on which whether the consequential adjustment to ALP was justified under the facts and circumstances of the case. The other grounds raised in the grounds of appeal were not pressed by the Ld. Authorized Representative (Ld. AR) for both the AYs under consideration. The Ld. AR argued that the purchases are made from the Associated Enterprises (AEs) on back-to-back basis. The Ld. AR also further submitted that the third party quotation has been submitted before the Ld. TPO to determine the ALP against which the purchases from AE were made by the assessee. The LD.AR submitted that the materials were purchased from third parties and hence at ALP. The Ld. AR also further submitted that the Ld. AO has erred in not considering the Cost Plus Method (CPM) adopted by the assessee for the export sales made to AEs is not correct. The Ld. AR further pointed out that the gross margin with respect to international transaction is positive whereas t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are that during the FY 2011-12 relevant to the AY 2012-13 the company has entered into the following international transactions with AE: AE Nature of transaction Amount (Rs.) MAM Pioneer Elastic (Hongkong) Limited Freight Charges of Purchase of elastic / sale of elastic and capital items 8,81,089 CUP Purchase of packing material 19,12,535 CUP Purchase of spares 1,51,351 CUP Purchase of Chemical 99,84,622 CUP Purchase of consumables 2,93,562 CUP Purchase of Elastic Webbing 8,25,29,345 CUP Purchase of Yarn 68,60,726 CUP Other purchases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... follows: Description Amount (Rs) Operating revenue 13,69,21,158 Operating cost 18,28,83,863 Operating profit (-)4,59,62,705 OP/OR (%) (-) 33.57 OP/OC (%) (-) 25.13 The assessee has also objected to the comparables analyzed by the Ld. TPO but has come up with an alternative search under TNMM and selected the following 7 comparables: Sl No. Name of the company OR OC OP OP/OC% 1 Gem Spinners Ltd 35.07 36.16 -1.09 -3.01 2. Vogue Textiles Ltd 2.94 2.88 0.06 2.08 3. Mallcom (India) Ltd 135.02 128.89 6.13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee also submitted that the elastics manufactured by Pioneer Elastic India were intended for both domestic as well as international sales. The sales made to unrelated domestic parties accounted for 45.29% of the total sales. The assessee in his submissions also stated the CPM determines the ALP of goods supplied or services provided in controlled transactions by benchmarking the normal gross profit mark-up on the direct and indirect cost of production incurred by the enterprise in respect of goods supplied or services provided to an Associated Enterprise against the margin that would have been charged in an uncontrolled transaction. The mark-up of the comparable uncontrolled transaction must be computed as per the accounting norms of the tested party and should be adjusted taking into consideration the functional and other differences between the international transactions and the comparable uncontrolled transaction or between the enterprises entering into such transactions. Therefore the assessee has justified that the Cost Plus Method is MAM for benchmarking the sales made to AEs. The assessee has also submitted that since the price paid for purchase of goods (other than el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic supplied to unrelated parties. Unlike the CUP method, TNMM does not require that comparable companies as to manufacture exactly the same product as that manufactured by the tested party. In TNMM what is to be seen is the functional comparability and not the product comparability. Further, it is observed that the Ld. AR has not objected to the comparables made by TPO under TNMM, but the assessee has come up with a set of 7 comparables under TNMM wherein the average OP/OC works out to 2.83%. We also observed from the financials submitted by the Ld. AR that 71% of the elastic produced during the FY has been exported to AEs. The Ld. AR also in his submissions accepted that the production price is similar and the ultimate finished goods are similar in properties and hence are comparable. Since the ultimate finished goods are similar in nature and properties, the submission of the Ld. AR contradicts on the fact that the price per meter charged for AEs is far below the price per meter charged to non-AEs, where the difference is significant. Therefore, we are of the considered view that in the given facts and circumstances of the case, the TNMM adopted by the Ld. Revenue Authorities wou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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