9911796707
TMI Blog2023 (10) TMI 1057X X X X Extracts X X X X X X X X Extracts X X X X ..... INR 23,28,67,886/- in the arm's length price of international transactions entered by the Appellant with its associated enterprises ("AEs"). 2. That in making the aforesaid addition, the Ld. AO has erred in making a reference under section 92CA(1) of the Act to the Ld. Transfer Pricing Officer ("TPO") on the following amongst other grounds, rendering the order of the Ld. TPO as unsustainable both in law and on facts: 2.1. As the reference made by the Ld. AO to the Ld. TPO is not in accordance with the provisions of Section 92CA(1) of the Act; and 2.2. As no opportunity of being heard was granted at any stage of the proceedings for this purpose, whether at the proposal stage or even later at the time of grant of approval. 3. The Ld. TPO has erred in making the transfer pricing adjustment without establishing the existence of any one of the four preconditions provided in section 92C(3) of the Act, which is a mandatory requirement for making an adjustment under section 92CA(3) of the Act. 4. The Ld. TPO has disregarded the transfer pricing approach adopted by the Appellant to determine the arm's length price ("ALP") of its international transactions. The Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppropriate method; 6.3. the directions of the Hon'ble High Court of Delhi in Appellant's own case for AY 2007-08 to AY 2010-11 that in case the average rate of commission earned from third parties was to be considered as arm's length price for indenting transactions with the AEs, it had to be established that there is no significant variation in the rate of commission between different products and without conducting any such enquiry, such average rate of commission could not be adopted as arm's length; and 6.4. the transfer pricing approach agreed upon in the Bilateral Advance Pricing Agreement ("BAPA") signed between the Appellant and the Central Board of Direct Taxes ("CBDT"), where TNMM has been selected as the most appropriate method with OP/OPEX as the PLI for similar transactions with Sumitomo Corporation Japan. 7. The Ld. DRP / TPO has erred in applying and computing ALP for indenting transactions by applying 3.29 per cent commission rate (by first applying 2.92 per cent and then adding 0.37 per cent based on OP/OPEX of comparable companies). While doing so, the Ld. DRP / TPO erred in: 7.1. alleging that the functions performed by the Appellant were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit and operating expenses are undisputed, the operating expenses should be allocated in the ratio of gross profit of each segment and not by assuming an arbitrary OP/OPEX for non-AE segment. 9. The addition of INR 1,59,18,332/- to the total income of the Appellant on protective basis is completely misconceived both in law and on facts. The Ld. DRP / TPO erred in making an adjustment on protective basis in respect of an issue on which substantive addition has also been made, which is not permissible in law as the concept of substantive and protective adjustment is relevant only when an income is to be added in the hands of more than one taxpayer. This is without prejudice to the contention that TNMM with Berry ratio (modified form of OP/OPEX) as the PLI should be accepted as the most appropriate method for determining ALP of the international transactions entered into by the Appellant in a proper manner, as has been upheld by the Hon'ble ITAT in earlier years, rather than the CUP method. 10. That on the facts and circumstances of the case and in law, the AO have erred in levying / charging interest under sections 234B and 234C of the Act. The above grounds of appeal are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LP for the commission rate of numerous products in the AE segment under CUP method, which warrants a very high degree of similarity between controlled and uncontrolled transactions. The relevant extract of the order of the Tribunal are reproduced hereunder:- "15. We have heard the parties at length and also perused the material referred to before us as discussed herein above. The approach of determining the ALP on the basis of average per cent of commission reported by the assessee in respect of indenting transactions with the non-AEs as held by the Tribunal has not found judicial favour with the Hon'ble High Court and matter has been remanded back for further examination of similarity between the two transactions and to conduct further in depth inquiry to examine the high degree of comparability of relevant control and uncontrolled transactions. Further, if the average rate of commission on such transactions was to be applied to the FOB value of goods involved in the indenting transactions with the AEs, then this Tribunal has to satisfy itself that there is no significant variation in the rate of commission between different products. From the perusal of the indenting transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee of similarity has to be seen between the control and uncontrolled transactions not only in terms of products, contractual terms, volume, value but also market and geography locations. The reason being under CUP, price charged or paid for the property transferred has to be identified and the differences between the international transaction and the comparable uncontrolled transactions has to be seen which could materially affect the price in the open market. The price of different products cannot be the same as it depends upon the negotiation based on volumes, value and other contractual terms. Further different market and geographical location also affects the pricing factors and therefore, if there are differences on account of these factors CUP cannot be held to be the most appropriate method for bench marking the arm's length price. Here in this case, under the indenting segment there are various dissimilarities in the transaction with the AE and non AE as discussed above and for this reason alone the average commission earned cannot be the benchmarking factor for determining the ALP, and therefore, we hold that neither the CUP method can be applied nor the transaction wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being heard. Accordingly, Grounds of Appeal No. 4, 6 & 7 are allowed for statistical purpose. 10. The Ground No. 5 is regarding the directions of the Ld. DRP to the Ld. Assessing Officer/TPO to ascertain whether an appeal has been filed against the order of the Tribunal in the assessee's own case for AY 2012-13, 13-14 or 2014-15 and in case no appeal has been filed against the aforesaid order, the benchmarking of the A.E indent segment has to be in line of the aforesaid orders of the Tribunal and that the adjustment made by the TPO in its original order on protective basis has to be dropped. The Ld. Counsel submitted that while making the adjustment based on the direction of the Ld. DRP, the Ld. A.O/TPO has assumed that an appeal has been filed against the order of the Tribunal for AY 2012-13, AY 2013-14 or AY 2014-15 but not provided any evidence to substantiate the same. Therefore, the order of the A.O/TPO should be considered as null and void-ab-initio. Due to noncompliance of Section 144C(10) and Section 144C (13). 11. The similar ground of appeal was also raised before the Tribunal in Assessment Years 2015-16 & 2016-17, however, since in those Assessment Yeas, the Tribunal h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so held that/FO be value of goods is the cost and revenue of the buyer and the seller and not ''the commission asent. Therefore, such an adjustment could not have been made. " 13. By respectfully following above said ratio laid down by the Tribunal in earlier years, we are of the opinion that FOB value of the goods is the cost and revenue of the buyer and the seller and not the commission agent. Therefore, such an adjustment could not have been made. 14. Ground No. 8.2 & 8.3 are regarding comparables selected by the TPO. The Ld. Counsel for the assessee submitted that the assessee in TP report selected 8 comparable companies, but the TPO has rejected all the 8 comparables and selected fresh comparable set off 8 new Companies. Without giving any cogent reason whatsoever. The Ld. Counsel for the assessee further submitted that the new set of comparables includes three companies which are fully dissimilar on product functions risks and business model. The Ld. DR has justified the action of the Lower Authorities. Since the Ld. DRP and the Ld. TPO has rejected all the 8 comparables and selected a fresh comparables set of 8 new companies. The observation made by the Ld. TPO whi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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