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TMI Blog2023 (6) TMI 761X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions despite judicial pronouncements on the issue. The order of CIT (A) deserves to be set aside and the order of the TPO/A.O. shall be upheld by allowing the Ground No. 1 of the Revenue. Violation of Rule 46A - Revenue is aggrieved by the acceptance of additional evidence by CIT-A - HELD THAT:- Considering additional evidence admitted by the CIT(A) has not been helped the assessee in making the decision by the CIT(A), the Ground No. 2 urged by the Revenue has become only academic. Further, considering the fact that the ld. CIT(A) has recorded its reasons while admitting the additional evidence submitted by the Assessee and also considering the fact that the Ld. CIT(A) has provided opportunity to the TPO to examine the evidence submitted by the assessee, we find no violation of Rule 46A of the Income Tax Rules. - ITA No.5225/Del/2011 - - - Dated:- 11-5-2023 - SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SHRI YOGESH KUMAR U.S., JUDICIAL MEMBER For the Appellant : Shri Rajesh Kumar, CIT-DR For the Respondent : Ms. Shashi M. Kapila, Advocate Shri R.R.Maura, Pravesh Sharma and Sushil Kumar, Advs. ORDER PER YOGESH KUMAR U.S., JM: This appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ger Technologies (Asia) Ltd, Hong Kong (hereafter HK-AE ) at different rates while the product (8k SIM Card) are sold in the Indian market at almost the same rate. This difference regarding 8K SIM Cards is summarized as under: Purchase Quantity Amount Average rate HK-AE 22,52,550 Rs. 15,00,51,640 Rs. 66.614 US-AE 20,43,614 Rs. 20,59,06,967 Rs. 100.756 6. While the average rate of purchase of 8k SIMs from the HKAE is around Rs.66.60, the purchase price of 8k SIMs from USAE is around Rs. 100.75. These SIMs were sold in India at an average price of Rs.104. On this count, the TPO calculated the adjustment using Resale Price Method to be Rs.11,83,33,940/-. The total adjustment was calculated by the TPO to be Rs.13,21,88434/- as under: Item Difference between ALP and transaction 8K Sim Cards value Rs. 11,83,33,940 E-Cards Rs. 50,21,903 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfluence over the current year prices in this case. On the contrary, the evidence only show that the prices of the product i.e. 8K card is in the decline. Comparison of the price of the current year to the price of the earlier years will certainly give a misleading answer. This is all the more true because the same 8K card is being purchased by the assessee at a lower price from its own AE at Hong Kong in the same financial year. Therefore, comparing the earlier year data is not appropriate in case of such products. In view of this the additional evidence in the form of CUP data sales made by US-AE to unrelated parties cannot be used in this case. Even though the additional evidence is admitted in principle, they are of no help to the assessee. 6.8. 8K card was passing through the end of a product cycle is clear. I hold that due to this factor alone, the bench marking of the transactions should be done on a different footing. I hold that the peculiarity of the market and the efforts of the assessee to hold on to the market share are real life situations which cannot be wished away. It is possible that the assessee would have continued to sell 8K card even in subsequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, selling price of the 8K cards of Hong Kong AE to the unrelated parties should be taken as a CUP. They should be used to evaluate .the arm s length nature of the purchases made from the US-AE. 6.10. Next question is the geographical/ market difference that has to be encountered if the price of 8K card sold by HK-AE is compared to the price of 8K cards sold by US-AE. It is important to keep it in mind that (1) the product being compared is exactly same, comparing the item with the same product code, same utility, same size (2) The value/ price is Free On Board (FOB) (3) for the same year i.e. FY 2001-02 (4) AE has sold the same product to 3rd parties who are unrelated. The cost of production in US may not be the same as in Hong Kong, There is no need to elaborate on the difference between US market and Hong Kong market which is well known. But according to me, they are not material to the comparison since CUP method is used. It is common knowledge that electronic items have world market. The traditional geographical differences are immaterial in case of many new technology items. To illustrate, commodity market quotes are accepted as a CUP in case of commodity trade. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present Appeal on the grounds mentioned above. 10. Ground No. 1 of the Revenue is directed against deletion of addition of Rs.11,33,95,067/- out of TP Adjustment of Rs. 13,21,99,434/- and the Ground No. 2 is regarding admission of additional evidence by the ld. CIT(A) against provisions of Rule 46A Income Tax Rules . 11. The Ld. DR vehemently submitted that the CIT(A) has committed error in adopting the CUP method for benchmarking the purchase of 8K SIM cards by the assessee from its AEs and rejecting the RPM method adopted by the TPO without any justification. The Ld. DR further submitted that the CUP method was rejected by the assessee itself in its TP report and also that the assessee did not take any ground before the CIT(A) for selection of incorrect method (RPM) by the TPO. Therefore, the ld. DR submitted that the CIT(A) committed an error in adopting the CUP method for benchmarking, without even providing an opportunity to the TPO/A.O. The Ld. DR has also filed detailed written submissions on merit in support of the contentions. Further, the Ld. DR has also submitted on the Ground No. 2 that the Ld. CIT(A) has committed an error in accepting the additional eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessee if 8K : 6.34% segment included 14. It is not in dispute that the assessee Company itself chose Resale Price Method ( RPM ) as the Most Appropriate Method in the TP Analysis. Further, the Ld. DR had also brought our attention to the TP Auditor s report produced at Page No. 114 of Paper Book 2, wherein it is clearly remarked that CUP cannot be applied in the absence of internal or external comparables . The relevant portion of the TP auditor s findings is reproduced here under:- However, due to lack of reliable, detailed and accurate information on specific items dealt in by those companies, risks assumed, assets employed and functions performed by contracting parties, we found it unfeasible to compare sale prices charged by those companies to those ranged by SMSIL for its products in India. Further analysis revealed that it was rather impossible to extract sales prices charged by these companies for specific items, being comparable to those sold by SMSIL per data available in the public domain. Conclusion on CUP Based on the above discussion, in view of the absence of external comparables, it is not possible to apply C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of sale etc. The said aspects are important factors in determining the sale price and the comparability cannot be decided in the absence of such details. 19. On the issue of comparability method to be employed, we find that during the TP Proceedings or during the appeal proceedings before the CIT(A), the assessee has not raised the issue that there was an incorrect selection of method (i.e., RPM) by the TPO. However, the Ld. CIT(A) adopted CUP based on incomplete data and ignoring geographical differences, which is contrary to TP Auditor s findings and contrary to TP Analysis wherein the Assessee Company itself chose Resale Price Method ( RPM ) as the Most Appropriate Method. 20. On the issue of aggregation of transactions, we find that the ld. CIT(A) has clubbed the non-8k SIM purchase transactions and benchmarked them at an entity level. It is a settled proposition that the international transactions should be segregated for the purpose of benchmarking unless they are inextricably linked. Reliance is placed on the judgment of Hon ble Punjab and Haryana High Court in case of Knorr-Bremse India (P.) Ltd. v. Assistant Commissioner of Income-tax, Circle-I, Faridabad [2015] [6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the context of AMP expenses. The principles laid down in this case are universally applicable and are not confined to the peculiar facts of that case alone. It has been held that 'transaction includes the number of closely linked transactions.' Dealing with AMP expenses, it held vide paras 80 and 81 that inter-connected international transactions can be aggregated and section 92(3) does not prohibit the set off. Further, in paras 91, 121 and others, it held that the ALP of AMP expenses should be determined preferably in a bundled manner with the distribution activity. Vide paras 194 (i), (ii), (viii) and others it held that for determining the ALP of these transactions in a bundled manner, suitable comparables having undertaken similar activities of distribution of the products and also incurring of AMP expenses should be chosen. It still further held in paras 100, 121, and 194 (Hi), (vi) and (xi) that if adjustment is not possible or comparables are not available, then, TNMM on entity level should not be applied and the international transaction of AMP should be viewed in a defunded or a segregated manner. In separately determining the ALP of the AMP expenses, the Hon& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.2 (Violation of Rule 46A) 25. Further in the Ground No. 2, the Revenue is aggrieved by the acceptance of additional evidence. It is the case of the Revenue that though the conditions laid down in Section 46A (1) were not satisfied, the CIT(A) has committed an error in accepting the additional evidence. On the other hand, the Ld. AR has drawn our attention to the order of the CIT(A) wherein the Ld. CIT(A) while dealing with the admission of additional evidence held as under:- Therefore, comparing the earlier year data is not appropriate in case of such products. In view of this the additional evidence in the form of CUP data sales made by US-AE to unrelated parties cannot be used in this case. Even though the additional evidence is admitted in principle, they are of no help to the assessee. 26. It was before the CIT (A) that the assessee, for the first time, produced additional evidence in the form of details of sales made by its US-AE to unrelated parties and submitted that CUP method should be applied in its case. The documents were sent to the TPO for remand report through a letter dated 23.01.2006, and the remand report was submitted on 24.08.2009. The TPO submi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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