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2019 (12) TMI 1626 - AT - Income TaxTP Adjustment - selection of MAM - assessee has benchmarked its transaction by applying TNMM method that has been changed by the TPO and he determined ALP by following CUP method - HELD THAT - Since there is no disparity on facts more particularly when the ld.CIT(A) has not made any detailed analysis except putting reliance upon the order of his predecessor in the Asstt.Year 2007-08 and 2008-09 therefore we are of the view that the issue is squarely covered in favour of the assessee by the order of the Tribunal passed in the Asstt.Year 2008-09 2019 (5) TMI 174 - ITAT AHMEDABAD Respectfully following the order of Co-ordinate Bench we delete the impugned ALP adjustment - Since we have upheld the computation of ALP of international transaction of sale of finished goods according to TNMM method consequently ground no.1 and 2 of the Revenue s appeal would be redundant. ALP adjustment - payment made for availing of sales promotion and marketing services - TPO worked out ALV of this expenditure at NIL. He has assigned three reasons for taking ALP of this transaction as NIL - HELD THAT - We find that the assessee has produced evidence in the shape of agreement between it and the AE showing that AE would charge commission at the rate of 5% on non-AE export sales for rendering these services. The assessee has not debited other expenditure for marketing and sales with regard sales made to non-AE. It is also pertinent to note that turnover of the assessee has increased with regard to non-AE sales also. Its export sales to non-AE have increased from Rs. 9 crores approx. in F.Y.2005- 06 to Rs. 44.56 crores in the F.Y.2008-09. We are of the view that no adjustment could have been made at the recommendation of the TPO on this issue because it was not in the jurisdiction of the TPO to question requirement of services and also ascertain rendition of services and on these two reasoning he cannot benchmark the ALP of these services at NIL. It is also pertinent to observe that in A.Y.2010-11 assessee has paid Rs. 160, 16, 780/- to its AE for these services and that transaction was referred to the TPO. The ld.TPO did not recommend any adjustment in A.Y.2010-11. Therefore no adjustment is required in the Asstt.Year 2009-10. We allow this ground also and delete adjustment recommended at Rs. 2, 24, 01, 998/-. Accordingly ground no.2 of the assessee s appeal in the Asstt.Year 2009-10 is allowed. Disallowance of depreciation - HELD THAT - As expenditure was allowed to be capitalized in the cost of plant machinery and depreciation was granted. In view of the above Tribunal s order in the Asstt.Years 2007-08 and 2008-09 we are of the view that no interference is called for in the finding of the ld.CIT(A). This ground of appeal is rejected. Appeal of the Revenue is rejected.
Issues Involved:
1. Deletion of volume discount adjustment in the price paid by NTDCL. 2. Splitting the time period for price comparison in case of ANH product. 3. Disallowance of depreciation of Rs. 15,46,130. 4. Rejection of Transactional Net Margin Method (TNMM) and adoption of Comparable Uncontrolled Price (CUP) method. 5. Non-allowance of comparability adjustments. 6. Determining NIL arm's length price for sales promotion and marketing services. 7. Initiation of penalty proceedings under section 271(1)(c). Detailed Analysis: 1. Deletion of Volume Discount Adjustment: The Tribunal noted that the AO applied a 10% volume discount adjustment to the rate of ANH chemicals sold to non-AE (NTDCL). The CIT(A) did not uphold this adjustment, and the Tribunal confirmed that the adjustment was unnecessary. The Tribunal referenced its decision in the previous assessment year (2008-09), where it was held that CUP method should not be applied for benchmarking transactions of sale of finished goods, and TNMM should be used instead. 2. Splitting the Time Period for Price Comparison: The Tribunal reviewed the AO's decision to split the time period between April 2008 to January 2009 and February 2009 to March 2009 for price comparison of ANH products. The CIT(A) upheld the TPO's decision, but the Tribunal found this approach inconsistent with its previous rulings and deleted the adjustment. 3. Disallowance of Depreciation: The AO disallowed depreciation on the ground that the reimbursement of capital expenditure from Gulbrandsen Chemicals Inc., USA should not be capitalized. The CIT(A) allowed the capitalization of the expenditure, and the Tribunal upheld this decision, referencing its earlier rulings in the assessee's favor for the assessment years 2007-08 and 2008-09. 4. Rejection of TNMM and Adoption of CUP Method: The Tribunal rejected the TPO's adoption of the CUP method over the TNMM for benchmarking international transactions of sale of finished goods. The Tribunal emphasized that the TNMM was more appropriate given the facts and circumstances, and this approach was consistent with previous years' rulings. 5. Non-Allowance of Comparability Adjustments: The Tribunal reviewed the TPO's refusal to allow adjustments for business volume differences, advance payment, marketing and selling expenses, credit risk, and interest-free ECB loan. The Tribunal found that these adjustments should be considered, and the TPO's rejection was not justified. 6. Determining NIL Arm's Length Price for Sales Promotion and Marketing Services: The TPO determined the ALP for sales promotion and marketing services at NIL, citing lack of documentary evidence. The Tribunal found that the TPO exceeded his jurisdiction by questioning the requirement and rendering of services. The Tribunal referenced multiple judgments, including those from the Delhi and Bombay High Courts, to support that the TPO's role is limited to quantifying the ALP, not questioning the necessity or genuineness of services. 7. Initiation of Penalty Proceedings: The Tribunal deemed the grounds related to the initiation of penalty proceedings under section 271(1)(c) as premature. The Tribunal noted that the assessee could contest these proceedings independently if they were undertaken. Conclusion: The Tribunal allowed the assessee's appeals partly, deleting the ALP adjustment and the disallowance of depreciation, and rejecting the Revenue's appeal. The Tribunal's decisions were consistent with its previous rulings and upheld the use of TNMM over CUP for benchmarking international transactions. The Tribunal also emphasized the TPO's limited role in determining ALP without questioning the necessity of services.
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