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TMI Blog2023 (9) TMI 1337X X X X Extracts X X X X X X X X Extracts X X X X ..... ich has ready to eat different packaged products using individually quick frozen technology. This company has also installed the breeding line instruments producing ready to eat value added seafood in Unit No.2. These facts indicate that this company was rightly excluded by the ld. CIT(A) from the list of comparables. We, therefore, countenance the same. Nekkanti Sea Foods Ltd - this company is in the business of processing and exporting. It has got state of art processing plants in four locations by integrating functions of deep-sea trawling and processing seafood. These facts indicate that it is substantially different from the assessee, which is engaged only in trading of fish and seafood products. We, therefore, approve the view point of the ld. CIT(A) on this score. Asvini Fisheries Private Limited is in the business of processing and export of shrimps. It has a processing facility at Bhimavaram, Andhra Pradesh and Tuticorin, Tamilnadu. It has a huge fixed asset base of Rs. 62.94 crore. As against it, the assessee is only in trading of fish and seafood products without having any manufacturing facility. We, therefore, approve the action of the ld. CIT(A) in excluding thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6th amendment rules. Sub-rule (1) of rule 10CA provides that the ALP of the international or SDTs `shall be computed in accordance with the provisions of this rule . This shows that where there are more than one comparable, then the ALP for the relevant years, including the year under consideration 2016-17, should be governed by rule 10CA. The assessee benchmarked the SDT with three comparables. The TPO expanded the list of comparables to twelve. The ld. CIT(A) reduced it to four, which we have countenanced above. As the surviving comparables are four, which is less than six, the case gets covered under sub-rule (7) of 10CA. Going with this sub-rule, the ALP shall be the arithmetical mean of the PLI of the comparables computed by considering the weighted values of current plus two preceding years, which will be further subjected to the benefit enshrined in the proviso. In our considered opinion, the ld. CIT(A) was not justified in taking recourse to rules 10B(4) and 10B(5), when the ALP was required to be mandatorily computed as per rule 10CA. The direction of the ld. CIT(A) that the assessee adopted a correct approach by using the current year data and taking the mean mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... domestic as well as overseas markets and not carrying out any processing activity. The final product of the assessee is not ready to cook and eat but needs to be processed by its customers till it reaches that stage. The assessee made specified domestic transactions of purchase of frozen fish and seafood from its three Associated Enterprises. During the course of transfer pricing proceedings, the assessee adopted the Resale Price Method (RPM) as the most appropriate method for benchmarking these transactions. Its own Profit Level Indicator (PLI), i.e. Gross Profit/Turnover was computed at 7.99%. Three companies were chosen as comparables with their mean PLI of 8.32% for demonstrating that the specified domestic transactions were at ALP. The TPO did not dispute the application of the RPM as the most appropriate method. He, however, excluded one company from the assessee s list of comparables, namely, Phillips Foods India Pvt. Ltd. and added ten new companies making a total of twelve comparables. The assessee went in appeal before the ld. CIT(A), challenging, inter alia, the inclusion of companies by the TPO and also one of its own comparables, namely, Tolar Ocean Products Pvt. Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocessing and export of ready to eat fish with large shelf life did not weigh with the TPO, who included it in his list. The ld. CIT(A) deleted the same. 11. This company is engaged in the business of manufacturing and export of fish and fish products which has ready to eat different packaged products using individually quick frozen technology. This company has also installed the breeding line instruments producing ready to eat value added seafood in Unit No.2. These facts indicate that this company was rightly excluded by the ld. CIT(A) from the list of comparables. We, therefore, countenance the same. (iii) Nekkanti Sea Foods Ltd. : 12. This was comparable chosen by the TPO. The assessee objected to its inclusion along with five other companies proposed by the TPO. Such common objections anent to the six companies have been noted by the TPO at page 23 of his order, who did not agree and proceeded to include in the list of comparables. The ld. CIT(A) removed this company from the list. 13. It is observed that this company is in the business of processing and exporting. It has got state of art processing plants in four locations by integrating functions of deep-sea tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company is engaged in diverse activities of manufacturing shrimps and squids. As the assessee is not into manufacture of shrimps and only in their marketing, we hold that the ld. CIT(A) was right in excluding it from the list of comparables. (viii) Gadre Marine Exports Pvt. Ltd. : 22. This company was included by the TPO in the list of comparables, which got excluded at the hands of the ld. CIT(A). 23. It is a manufacturer and exporter of frozen seafood and manufactures a wide range of products including marinated, ready to cook fish and cut-n-clean raw fish. This company has factories across four locations of west coast of India. Its main business is manufacture and sale of Surimi value added products and fish meal. This company has operational wind mill at its facility at Sadawaghapur, Patan, Satara. These points eminently show its incomparability with the assessee company. This company is also held to have been rightly excluded. II. COMPUTATION OF ALP UNDER DATASET 24. The sum and substance of the grievance of the Revenue through the last ground is against the direction of the ld. CIT(A) in upholding the assessee s contention of using the current year data an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs, including the year under consideration 2016-17, should be governed by rule 10CA. 27. Sub-rule (2) of Rule 10CA provides that dataset shall be constructed by placing the values of comparables in ascending order. The first proviso to this sub-rule is relevant for our purpose, which reads as under:- `Provided that in a case referred to in clause ( i ) of sub-rule (5) of rule 10B, where the comparable uncontrolled transaction has been identified on the basis of data relating to the current year and the enterprise undertaking the said uncontrolled transaction, [not being the enterprise undertaking the international transaction or the specified domestic transaction referred to in sub-rule (1)], has in either or both of the two financial years immediately preceding the current year undertaken the same or similar comparable uncontrolled transaction then, ( i ) the most appropriate method used to determine the price of the comparable uncontrolled transaction undertaken in the current year shall be applied in similar manner to the comparable uncontrolled transaction or transactions undertaken in the aforesaid period and the price in respect of such uncontrolled transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rule (4) of 10CA, which provides that where the most appropriate method is, inter alia , the RPM `and the dataset constructed in accordance with sub-rule (2) consists of six or more entries, then the arm s length range beginning from 35th percentile of the dataset and ending with 65th percentile of the dataset shall be constructed and the arm s length price shall be computed in accordance with sub-rule (5) and sub-rule (6) . These two sub-rules provide for computing the ALP, with which there is no dispute in the extant case. 30. Sub-rule (7) of 10CA is relevant for our purpose, which provides that : `In a case where the provisions of sub-rule (4) are not applicable , the arm s length price shall be the arithmetical mean of all the values included in the dataset.. . Sub-rule (4) covers the cases of a dataset consisting of six or more comparable uncontrolled transactions. The sequitur is that sub-rule (7) will govern the cases where the dataset consists of comparables numbering between two to five. When a case falls under sub-rule (7), the ALP is determined by considering the arithmetical mean of the values included in the dataset. While discussing sub-rule (2) of rule 10CA, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apply mandating the determination of the ALP by considering the arithmetical mean of the PLI of the four comparables computed by taking weighted average of the figures of the current plus two preceding years. 32. Ground No.3 of the Departmental appeal is against the ld. CIT(A) computing the gross profit considering direct costs, such as, expenditure on power and fuel, freight, labour cost and processing charges etc. The ld. DR fairly admitted that this ground does not arise from the impugned order. Further, he could not point out any relevant discussion of the TPO on this issue. As such, this ground is dismissed as infructuous. 33. The ld. AR did not press the Cross objection. 34. In the ultimate analysis, we set aside the impugned order and remit the matter to the file of the AO/TPO with a direction to recompute the ALP of the SDT of `Purchase of Frozen fish and sea food in the hue of the discussion made above. Needless to say, the assessee will be allowed a reasonable opportunity of hearing. 35. In the result, the appeal of the Revenue is partly allowed and the Cross objection of the assessee is dismissed. Order pronounced in the Open Court on 27th September, 202 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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