TMI Blog2019 (11) TMI 1419X X X X Extracts X X X X X X X X Extracts X X X X ..... n facts and law. In the present case, we find that there is no such case has been made out. Rather the Transfer Pricing Officer has proceeded to examine the issue on the basis of TNMM method. He has ordered for updated data of comparable. Thereafter, when even on the basis of updated data, the international transaction was found to be at arm's length, he laconically held that CUP method would be preferred. The DRP had summarily upheld the change from TNMM to CUP method without assigning any cogent reason whatsoever. By no means it is justified to keep on finding a method for addition by trial and error method. Transfer Pricing officer has changed the consistently applied TNMM method to the cup method. While doing so he has blandly held that TNMM method is not full proof. Furthermore the assessee's objection that the comparison of other transactions have to be considered by adjustment of various factors is also not fully dislodged. We hold that the change in method from TNMM to CUP method is not justified. - I.T.A. No. 8148/Mum/2010, I.T.A. No. 2305/Mum/2012, I.T.A. No. 1821/Mum/2011 - - - Dated:- 20-11-2019 - Shri Shamim Yahya (AM) Shri Amarjit Singh (JM) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 42,10,25,864 TNMM 48,32,87,438 USA, France and Singapore TNMM 4 Royalty 10,88,88,386 TNMM 11,57,86,095 USA TNMM Import of finished goods 1,52,01,954 TNMM 1,33,32,339 France TNMM Total Payments 54,51,16,204 61,24,05,872 Exort of chemical additives ₹ 22,55,18,766 :- 6. During the year under consideration the assessee company has exported chemical additives aggregating to ₹ 22,55,18,766. To determine the arms length price of this transaction, the TNMM has been used. During course of TP proceedings the assessee company was asked to furnish the details regarding purchase and sale of products as under: a. Name of the material/chemical sold/purchased b. Rate charged to the third party c. Quantity d. Total value 7. In reply to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be compared without considering the factors that affect the comparability:- a. Geographical market:- The controlled transactions have taken place with enterprises located in France, Japan, Singapore, Brazil etc while the uncontrolled transactions have been entered into in the domestic market of India. b. Volume of sale of products:- Product Qty sold to AE Qty sold to non-AE LZ 9222 362.57 MT 100.97 MT LZ 6499 1757.19 MT 93.28 MT The volume of the products sold to the related parties is substantially higher than that sold to the domestic customers. The impact of such volumes on determination of prices needs an adjustment. c. Export benefits:- The assessee has received export benefits by way of advance licenses on account of sales to related party which are not available in case of sales to domestic customers. d. Risk adjustment:- There is no bad debt risk of the exports made to related parties as opposed to sales to unrelated customers. No marketing function carried out on sales to relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f facts along with various documentary evidences furnished by the Appellant. The observations made by the TPO in his order have also been considered. 10. TPO erred in not appreciating that, the assessee during the relevant period had performed a scientific analysis for selection of the Most Appropriate method having regard to the provisions of the rule 10B of the Income Tax Rules, 1962 (Rules). The TPO has further erred in considering CUP as the Most Appropriate method to benchmark the export of Chemical Additives disregarding the rules laid down in Rule 10B (2) and Rule 10B (3) of the Rules, which are a prerequisite, were not considered for application of CUP method. The TPO failed to take into account the huge difference in volume between sales to AE and Nor AE. In respect of one product, it is more than 300% times while in another it is more than 1700%. Such huge difference in volume pre-empts any application of CUP. Besides the TPO also failed to take into account the geographical difference in sales to AE and Non AE. A market price depends on identical product and same geographical region. In the present case, the regions too are different. While the A.E's are in Fra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d upheld the action of TPO. As regards assessee s objection to change of the method from consistently applied TNMM method to the cup method, learned DRP without any elaboration simply upheld the TPO order. However, it provided some directions accepting the assessee s plea for adjustment for packing cost. 15. Against the above order assessee and Revenue have filed appeal before the ITAT. We have heard both the counsel and perused the records. We find that assessee has been consistently applying TNMM method for transfer pricing benchmarking as in the past earlier years. The same has been duly accepted by the Department. In the present assessment year the Assessing Officer has rejected the same without brining on record any cogent material as to why the facts are different from earlier assessment years. The main reason for the Assessing Officer in rejecting the TNMM method is his finding that the assessee has also transactions with unrelated parties. However he has summarily rejected the assessee s contention that there are various factors which have to be taken into account and adjustment thereof will have to be required for a comparable analysis with those parties. The Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the transaction was found to be at arm's length. At this juncture, the Transfer Pricing Officer changed his tracks. He observed that no verifiable data has been provided to substantiate the method used. He further held that CUP would be a more appropriate method to bench mark the sale transaction. The assessee objected to the same. In the objections, the assessee also relied upon the OECD guidelines and the ITAT decision in the case of Welspun Zucchi Textiles Ltd. Vs ACIT. However, the Transfer Pricing Officer summarily rejected and held that the application of TNMM is the method of last resort when the comparable price method cannot be applied. However, he noted that in the assessee's case since the comparable price for the same or similar products to the third parties has been provided by the assessee, the same has to be considered for bench-marking this transaction. Accordingly, Transfer Pricing Officer proceeded to apply the CUP method for bench marking. The assessee's objection in this regard was also by the DRP when it held that it was of the opinion that when internal CUP is easily available, the TNMM is to be treated as method of last resort. 28. From the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng into account assets employed or to be employed and risks assumed by such enterprises; (c) the availability, coverage and reliability of data necessary for application of the method; (d) the degree of comparability existing between the international transaction and the uncontrolled transaction and between the enterprises entering into such transactions; (e) the extent to which reliable and accurate adjustments can be made to account for differences, if any, between the international transaction and the comparable uncontrolled transaction or between the enterprises entering into such transactions; (f) the nature, extent and reliability of assumptions required to be made in application of a method. iii. Rule 10B of the Income-Tax Rules, 1962 ( Rules ) states that: (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely :-- (e) transactional net margin method, by which,-- (i) the net profit margin realised by the enterprise from an international transaction entered into with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Transfer Pricing Officer while justifying the change stated that in T.P. report assessee has bench marked the transaction under TNMM, verifiable data has been provided to substantiate the method used. Hence, from the above discussion, we find that no cogent reason has been pointed out by the authorities below that the TNMM method applied earlier was not in accordance with the mandate of law as above. It is settled law that resjudicata does not apply to taxation proceedings but it has fairly often been held by the higher courts including by the Hon'ble Apex Court that the consistency should be maintained in the assessment proceedings. A consistently applied method can be changed only if there is a change in facts and law. In the present case, we find that there is no such case has been made out. Rather the Transfer Pricing Officer has proceeded to examine the issue on the basis of TNMM method. He has ordered for updated data of comparable. Thereafter, when even on the basis of updated data, the international transaction was found to be at arm's length, he laconically held that CUP method would be preferred. The DRP had summarily upheld the change from TNMM to CUP met ..... X X X X Extracts X X X X X X X X Extracts X X X X
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