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2015 (5) TMI 302

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..... ge based in Chicago in USA facilitates trading in commodities, inter-alia, vegetable oils also. Therefore, the quotations appearing on such exchanges would reflect the prices at which the commodities are being traded in the market place. The price publication of Oil World, which was also pressed into service by the assessee, would be reflective of the prices prevailing in the market at a particular point of time. Undoubtedly, the rate quotations of CBOT and Oil World can be said to be a data published by independent organizations, which reflect the prevailing market rates. These prices have been adopted by the assessee as comparable uncontrolled transaction prices and the tested transactions have been benchmarked vis-à-vis such prices. The stand of the TPO in rejecting the aforesaid data as being mere quotations and not actual transactions, in our view, is not justified. It is evident that the Hon’ble High Court of Gujarat in Commissioner of Income Tax Versus Adani Wilmar Limited [2014 (4) TMI 563 - GUJARAT HIGH COURT ] held that the price publications are also relevant material for the purposes of carrying out the comparability analysis in the course of application of CUP me .....

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..... O have: International transaction pertaining to import of edible oil from the AE 1. General ground challenging the transfer pricing adjustment of ₹ 29,70,31,153 Erred in making transfer pricing adjustment by rejecting the analysis undertaken by the Appellant to determine arm's length price for its international transaction pertaining to import of edible oil from the AE. 2. Rejection of Comparable Uncontrolled Price ('CUP') as the most appropriate method Erred in making an adjustment to the international transaction of the Appellant, rejecting CUP as the most appropriate method considered by the Appellant to determine the arm's length price. 3. Non consideration of additional external CUP, internal CUP and other data Erred by not considering the additional external CUP, internal CUP data and other data supporting that the Appellant's international transaction with its AE is at arm's length. 4. Inappropriately considering Transactional Net Margin Method ('TNMM') as the most appropriate method Without prejudice to the grounds above, erred in inappropriately considering TNMM as the most appropriate method in spite of submitt .....

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..... 4C(13) of the Act without considering brought forward losses and unabsorbed depreciation for previous years amounting to ₹ 50,85,49,369, while determining the total income of the Appellant for AY 2006-07 at ₹ 20,00,42,071. 11. Applicability of +1-5% range Erred in law in not applying the Proviso to section 92C of the Act and has failed to allow the Appellant the benefit of lower variation of 5 percent in determining the arm's length price. 12. Erroneous levy of penalty under section 271AA of the Act Erred on the facts and in law in initiating the penalty proceedings under section 271AA of the Act without considering the fact that the Appellant has maintained and furnished all the documentation that were required for the purpose of assessing the value of international transaction entered into by the Appellant and the Appellant has complied with the transfer pricing provisions. 13. Erroneous levy of penalty under section 271(1)(c) of the Act Without prejudice to the grounds above, if the transfer pricing adjustment is sustained then the learned AO has erred in proposing to levy penalty under section 271(1)(c) of the Act, without considering the fact .....

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..... s and Credit Note for purchases made in the earlier year, etc. On account of assessee having entered into certain international transactions with its associated enterprises, Assessing Officer made a reference to the Transfer Pricing Officer under section 92CA(1) of the Act in order to determine the arm's length price of such international transactions. Notably, the income arising from the international transactions was required to be computed having regard to their arm's length price in view of section 92(1) of the Act. The Transfer Pricing Officer, after allowing assessee an opportunity of being heard, has passed an order under section 92CA(3) of the Act dated 28.10.2009 determining the arm's length price of the international transactions. As per the Transfer Pricing Officer, an adjustment of ₹ 29,70,31,153/- was required to be made to the stated value of the international transactions relating to import / purchase of oil from associated enterprises in order to bring it to the level of their arm's length price. At this point, it is to be noted that in so far as the other international transactions with the associated enterprises are concerned, the TPO has acc .....

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..... nterprises. This aspect of the matter is the genesis of the dispute between assessee and the Revenue before us. 6. It was explained that Soyabean and sunflower oils amounting to ₹ 71,58,54,414/- were imported from its associated enterprises out of the total purchases of ₹ 787.50 crores i.e. about 9.09% of the total purchases. Justifying the adoption of the CUP method as the most appropriate method, assessee pointed out that external uncontrolled comparable prices were available in order to benchmark the price paid by the assessee for import of Soyabean and sunflower oils from the associated enterprises. In support, assessee referred to the Broker Price Notes issued by a reputed broker Murji Meghan Services Pvt. Ltd., (MMSPL) which showed the prices prevailing in the market on the respective dates when assessee transacted the import of Soyabean and sunflower oils from its associated enterprises. Apart from the aforesaid, in the course of the proceedings before the TPO, assessee also obtained sample quotes from Sunvin group, the price publications of Oil World, an independent publication, and justified before the TPO that the prices so published were appropriate to ben .....

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..... r to benchmark the price paid for transaction of import of oils from the associated enterprises. Explaining the nature of the Broker Notes, it is pointed out that MMSPL is a brokerage firm which is dealing in edible oils and other commodities. The said concern provides essential information and recommendations to its customers by providing upto date information on market movements, daily market reports and trend analysis. It is also pointed out that the price quotes of MMSPL are in turn, based on the prices prevalent in the commodity exchanges and other markets including Chicago Board of Trade (CBOT). Therefore, it is sought to be pointed out that the price quotes or the Broker Notes are prepared on the basis of the prevailing market prices of the products and the actual transactions being undertaken during the relevant period of time. Therefore, in this manner, it is sought to be pointed out that the TPO has erred in rejecting the price Notes of the Broker as not being a good external CUP data. Furthermore, the learned representative also referred to the price publication of Oil World and sample quotes from Sunvin group, which are independent parties and not related to MMSPL. The .....

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..... hird parties is higher than the per unit price paid for purchase of Soyabean and sunflower oils from associated enterprises. Therefore, in conclusion, the learned representative submitted that in whatever way the CUP method is applied, the price paid by the assessee for purchase of Soyabean and sunflower oils from associated enterprises is at an arm's length price. 10. Another pertinent point made by the learned representative was that in the subsequent assessment year of 2007-08, the TPO has accepted that assessee s transaction of import of oils from the associated enterprises are at an arm's length price, having regard to similar comparative analysis of internal CUP as well as external CUP data done in this year. Therefore, on the principle of consistency also it is sought to be pointed out that the action of the TPO in rejecting the CUP method in order to benchmark the transaction of import of oils from the associated enterprises, is not justified. 11. In the course of hearing, the learned Departmental Representative appearing for the Revenue has primarily relied upon the stand of TPO, which has been noted by us in the earlier part of this order. Pertinently, the l .....

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..... the arm's length price of the international transactions. The methods prescribed in subsection (1) of section 92C of the Act, are:- (a) Comparable Uncontrolled Price method (CUP); (b) Resale Price Method (RPM); (c) Cost Plus Method (CPM); (d) Profit Building Method (PBM); (e) Transactional Net Margin Method (TNMM); and (f) Such other method as may be prescribed by the Board. 13. Rule 10B of the Rules enumerates the mechanism, in terms of which the arm's length price in relation to international transactions is to be determined by applying the most appropriate method out of the methods prescribed in section 92C(1) of the Act. Sub-rule (1) of Rule 10B contain clauses (a) to (e) which provides the operational mechanics of the various methods enumerated in sub-section (1) of section 92C of the Act. Sub-rule (2) of Rule 10B prescribes that the comparability of international transactions with uncontrolled transactions shall be judged with reference to the factors prescribed therein. Similarly, sub-rule (3) prescribes that uncontrolled transactions shall be comparable to international transactions if none of the differences if any, between the transaction .....

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..... methods prescribed in section 92C(1) of the Act can be a matter of elaborate discussion. So however, for the present, it would suffice to observe that in a case where a comparable uncontrolled transaction is possible to identify and locate, it would be the most reliable measure of an arm's length price in relation to the tested international transaction. Consequently, in such a situation, the CUP method would be a preferable method. We are saying so for the reason that in the present case, plea of the assessee has been that the tested transaction of import of oil from associated enterprises has also been undertaken with third parties. In other words, assessee has purchased Soyabean and sunflower oils from its associated enterprises as well as from third parties. Apart therefrom, it is also a peculiar fact in the present case that the product being transacted is a commodity which is recognized for trading in Commodities Exchanges. For instance, the Chicago Board of Trade (CBOT), which is an internationally recognized and accepted commodity exchange based in Chicago in USA facilitates trading in commodities, inter-alia, vegetable oils also. Therefore, the quotations appearing on .....

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..... h may include the following: (a) official publications, reports, studies and data bases from the Government of the country of residence of the associated enterprise, or of any other country; (b) reports of market research studies carried out and technical publications brought out by institutions of national or international repute; (c) price publications including stock exchange and commodity market quotations; (d) published accounts and financial statements relating to the business affairs of the associated enterprises; (e) agreements and contracts entered into with associated enterprises or with unrelated enterprises in respect of transactions similar to the international transactions; (f) letters and other correspondence documenting any terms negotiated between the assessee and the associated enterprise; (g) documents normally issued in connection with various transactions under the accounting practices followed. 18. Ostensibly, the rules pertaining to the transfer pricing assessment refer to information, being price publications including stock exchange and commodity market quotations. It is a common knowledge that for the products which are listed on th .....

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..... s well as the Tribunal have accepted the reliability and authenticity of the organisation and its publication of rate-list, such objection of the TPO must be overruled. Learned advocate Mr.Bhatt for the Revenue, however, strenuously attempted to persuade us that the Oil World is a forecasting agency and further that such rates were not based on actual transactions. Quite apart from the observations of the CIT (Appeals) and Tribunal being to the contrary, these were not the objections of the TPO. We would, therefore, focus on the grounds on which the TPO desired to reject such price quotations. 19. It is evident that the Hon ble High Court of Gujarat held that the price publications are also relevant material for the purposes of carrying out the comparability analysis in the course of application of CUP method; so however, such price publications ought to be authentic and reliable. It is also noteworthy that the Hon ble High Court of Gujarat was considering an objection of the Transfer Pricing Officer, which is similar to that being raised before us, which is to the effect that the price publication of Oil World only reflect quotations and not actual transactions. The said argu .....

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..... proceedings, assessee, inter-alia, referred to and produced the price publications of Oil World and sample quotations from Sunvin group to justify its claim that the prices mentioned in the price notes of MMSPL are reliable and was a valid CUP data. Sunvin group is a commodity broker and assessee obtained sample quotes from it during the course of proceedings before the TPO. Another set of evidence produced was the price publications from Oil World, which is an independent agency providing reliable information on market prices. Pertinently, the same publication was a subject matter of challenge before the Hon ble High Court of Gujarat in the case of Adani Wilmar Limited (supra). The reliability and authenticity of the price publication of Oil World was upheld and found to be a relevant material while testing the international transactions of the assessee in the course of application of CUP method. In the face of the aforesaid, we are unable to acquiesce ourselves to the objections of the TPO in rejecting the external CUP data sought to be used by the assessee in order to benchmark its transaction of import of oils from its associated enterprises. We hold so. 21. At this point, .....

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