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TMI Blog2024 (12) TMI 627X X X X Extracts X X X X X X X X Extracts X X X X ..... ational transaction. It was held that TPO is not justified in making adjustment to the entire segment of manufacturing activity and it was accordingly restricted to the international transaction of import of oil only even if TNMM is held to be as Most Appropriate Method is applied then TP adjustment should be restricted to international transaction only and benefit of tolerance range of +/-5% has to be granted to the assessee. SInce this issue has been settled from the stage of Hon ble High Court [ 2019 (6) TMI 1529 - BOMBAY HIGH COURT] holding that TPO cannot make adjustment to the entire segment of manufacturing activity and only to the extent of international transactions, which is also in conformity with the earlier judgments of Tara Jewels Exports Pvt. Ltd [ 2015 (12) TMI 1130 - BOMBAY HIGH COURT] and Alstom Projects India Ltd. [ 2016 (12) TMI 1408 - BOMBAY HIGH COURT] then consistent with the view, we hold that adjustment should be made only on international transaction. Further, as per law, assessee should be given benefit of proviso to Section 92C (2) of +/-5%. And if that is so, then no adjustment is left to be made then, transaction is at arm s length. Assessee appeal all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fining and producing solvent oil, refined oil and Vanaspati. The assessee in his form 3CEB has reported various international transactions and adjustment has been made on the transaction of import of soyabean oil, palm oil etc., from Bunge Singapore for manufacturing activity. In the TP study report, assessee applied CUP as MAM for determining the ALP for import of crude oil, that is, the price at which the same product were sold by Bunge Singapore to independent third parties in India. The ld. TPO observed that in the earlier years CUP method has been rejected and TNMM has been applied as Most Appropriate Method and accordingly, the ld. TPO by taking external comparables under TNMM made upward adjustment of Rs. 40,46,74,637/- in the A.Y.2010-11 and Rs. 10,90,79,024/- in the A.Y.2011-12. The ld. TPO has searched for comparable companies dealing in vegetable oil and proposed to apply mean operating margin of 1.79% of these comparables on the assessee which was arrived by adopting operating profit upon sales (OP/ Sales) at entity level and applied the same on entire operating sales of Rs. 1426.13 Crores for A.Y. 2010-11; and by taking arithmetic mean of 2.33% OP/Sales on entire sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee's own case for AY 2005-06. The Ld. DR, on the other hand, assailed the impugned order by supporting the benchmarking done by Ld. TPO by adoption TNMM method. The Ld. DR drew our attention to para-10 of the Tribunal order. 7. We find that the impugned issue is recurring in nature in assessee's case. The dispute as to adoption of most appropriate method as well as computation of margins etc. using TNMM method was the subject matter of revenue's appeals as well as assessee's cross-objections before this Tribunal in AYs 2005-06 to 2007-08 (ITA Nos. 4336/M/2009 ors, common order dated 18/05/2016). Upon perusal of the same, we find that this issue has been adjudicated by the Tribunal for AY 2005-06 in the following manner: 7 Next two grounds deal with deleting of additions by the FAA with regard to import of raw material and related issues including the treatment to be given to the segmental accounts. During the TP proceedings, the TPO found that the assessee had entered into International Transaction relating to import of soyabean oil, palm oil and Palmoline oil as well as export of soya bean meal and rapeseed meal, that it had used CUP method with regard to the int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssible for the assessee to identify specific shipment with consumption in manufacturing or re-sale, that the TPO had failed in applying CUP, that he had not brought any evidence or document to reject other comparable transaction as provided by the assessee, that while applying the TNMM he had not accepted all the adjustment proposed by the assessee, that the unutilized capacity in respect of power, fuel etc, was considered at nil as against 20% claimed by the assessee, that it resulted in a higher operating loss by Rs. 3.81 crore, that factory, salary and wages on account of under utilisation capacity was also taken at nil by the TPO as against 70% claimed by the assessee, that it resulted in a higher operating loss by about Rs. 5.46 crore, that the depreciation on tangible assets and under utilisation resulted in higher loss of Rs. 2.20 crore, that the deferred revenue expenditure of Rs. 1.05 crores resulted in a reduction of operating expenses by Rs. 1.05 crores, that the claim made by the assessee to accept revised margin of 1.07% was not conceded by the TPO. The FAA held that the computation of revised margin was not considered by the TPO, that TPO was not correct in his remand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of account, that the TPO had made adjustment vis-a-viz only the import of goods from the AEs, that manufacturing operations had resulted in loss after the assessee acquired various businesses during the year under consideration. The assessee had requested that adjustment of Rs. 43.07 crore should be spared over the total operating cost of Rs. 790.44 crore after giving effect to 5% range. Finally, the FAA concluded that the adjustment made by TPO resulted in overall reduction to the import price of goods by 54%, that even after providing additional relief there was only partial reduction in the TP adjustment, that it went against the very principle of profit based method, that the adjustment had no consonance to the reality of the situation, that the TPO had approached an incorrect method, that the application of CUP analysis showed that fluctuation in prices of agricultural commodities was at maximum 5%, that adjustment of high discount of 54% or lower could not be said to be in justifiable, that transfer pricing was not an exact science, that it was an art wherein principles of law, economics and business were applied to achieve equitable results, that application of CUP and TNMM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount of adjustment to Rs. 3.55 crores, that if the correct margin of 1.07% of the comparables was adapted then the assessee's international transaction of import of oil would be within the permissible limit of+/-5%. 10. We find that the TPO had made an adjustment of Rs. 48.65 crores to the entire segment of manufacturing activities instead of making the adjustment to only international transactions, that it had an effect of reducing the import price by 54.27%, that the FAA had reworked the adjustment after considering the extra ordinary items that would affect the profit margin of the assessee for the year under consideration, that the factors like underutilisation of capacity and non-operating expenditure was given due importance by the FAA, that the assessee had calculated revised margin of the 20 comparables selected by the TРО, that the arithmetic mean arrived at by the assessee was not considered by him, that FAA had held that TPO was incorrect in not considering the revised calculation of margins, that the FAA had objected to the treatment given to the six comparable where the TPO had not taken the segments based on their economy profile, that the FAA ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g arm's length price of the international transaction between the assessee and the associated enterprise. The Transfer Pricing Officer ( TPO for short) had made the adjustment to the entire segment of the manufacturing activity instead of making the adjustment for only international transaction. The Tribunal held that the TPO was not justified in making adjustment to the entire segment of manufacturing activity without restricting the same to the manufacturing transaction. The Tribunal in the process relied upon and referred to the decision of the Division Bench of this Court in case of Commissioner of Income Tax Vs. Tara Jewels Exports P. Limited. The principles laid down in the said decision have been followed consistently in later decisions such as in cases of Commissioner of Income Tax Vs. ThyssenKrupp Industries India P. Ltd. and Commissioner of Income Tax Vs. Alstom Projects India Ltd. In the result, do not find any error in view of the Tribunal. The appeal is dismissed. Therefore, we find that the issue of adoption of TNMM and the issue of manner of TP adjustment which is to be done, as of now, has attained finality and the aforesaid decision is binding upon us. 9. Proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d raised either by Revenue or by the assessee and segmental accounts (in respect of AE and non-AE transactions were not available in the case? (ii) Whether on the facts and circumstances of the case and in law, the ITAT was correct in facts Priya Soparkar 225 itxa 445-17-o and circumstances of case and in law, in terms of Rule 10B(1)(e), under the Transaction Net Margin Method (TNMM), it is permissible to apply the net profit margin realized by the assessee from the entity as a whole in place of the net profit margin realized by the assessee from the international transaction entered into with the AE? Hon ble High Court in ITA No.445/Mum/2017, judgment and order dated 03/06/2019, had observed and held as under:- 2. The issues arise out of the Tribunal's judgment concerning the correct method to be applied for determining arm's length price of the international transaction between the assessee and the associated enterprise. The Transfer Pricing Officer ( TPO for short) had made the adjustment to the entire segment of the manufacturing activity instead of making the adjustment for only international transaction. The Tribunal held that the TPO was not justified in making adjus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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