Subscription   Feedback   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Articles Highlights TMI Notes SMS News Newsletters Calendar Imp. Links Database Experts Contact us More....
Extracts
Home List
← Previous Next →

DCIT, Circle 12 (1) , New Delhi. Versus High Polymer Labs Ltd

Transfer pricing adjustment on account of international transactions - CIT(A) deleted the addition - Held that:- Both the assessee as well as the TPO/CIT(A) have adopted incorrect approach in determining the ALP under the CUP method.

Whether the price of ADC-L-5 charged by the assessee from its AE was different because of different formulations/specifications given by the Italy party? - Held that:- When the mandate of Rule 10B is vivid which provides for, firstly, bringing the produc .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rcumstances, we overturn the impugned order on this issue and send the matter back to the file of AO/TPO for a fresh determination of ALP of this transaction under the CUP method in accordance with our above directions/observations. Needless to say, the assessee will be allowed a reasonable opportunity of hearing in such fresh proceedings.

Polymerization Catalysts named DBH - AR before us in justifying the reasons for the price charged at ₹ 134/- per kg. from its AE, being the l .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

om its AE nor the authorities below could justify their viewpoint in making or deleting the addition as per the parameters of Rule 10B. The position before us on this product is similar to ADC-L-5 discussed above. Following the view taken hereinabove, we set aside the impugned order on this score and send the matter to the file of AO/TPO for a fresh determination of the ALP of this transaction in accordance with our above guidelines.

Blowing Agent named TSSC - Held that:- The assessee .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nces, we set aside the impugned order and remit the matter to the file of AO/TPO for a fresh determination of ALP of the sale of TSSC to its AE in accordance with our above observations. It goes without saying that the assessee will be allowed a reasonable opportunity of being heard in such fresh determination.

Chemical Blowing Agent OBSH - Held that:- AR tried to justify the price charged from its AE at ALP by contending that such product sold to non-AEs was having different formulat .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

uthorities below have dealt with the matter as per law. Following the view taken in respect of the product Blowing Agent ADC-L-5 above, we set aside the impugned order and remit the matter to the file of AO/TPO for fresh determination of the ALP of the instant transaction in conformity with our directions given hereinabove. - ITA No.2120/Del/2010 - Dated:- 20-5-2015 - SHRI R.S. SYAL AND SHRI C.M. GARG, JJ. For The Assessee : Shri R.K. Mehra, CA and Shri Manish Kumar, Advocate For The Department .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Blowing Agents, which include Polymer Additives, Speciality Chemicals and Industrial Chemicals. The assessee has a subsidiary in USA which acts as its marketing agent. The assessee reported an international transaction of sale of Blowing Agents & Antioxidants to its Associated enterprise (AE) with the transacted value of ₹ 5,36,16,103/. This international transaction reported by the assessee in Form No.3CEB consisted of sale of Blowing Agent worth 297617 kgs. and that of Antioxidants .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e formulations done by the assessee are proprietary in nature and the final products vary as per requirements of various customers. To cater to the requirements of various customers, the assessee stated that sometimes, it needs to alter the chemical compositions and undertake research, so that the final product suits the customers processing parameters. The formations of the products were stated to be varying by application depending upon the processing technique, polymer used and articles manuf .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n behalf of the assessee and the material gathered during the course of proceedings, the TPO inferred that (i) the price charged from the AE in various transactions was lower than the priced charged from unrelated enterprises for similar items and, (ii) in case of material difference between the control and uncontrolled transactions, the assessee failed to establish or quantify any adjustment which could affect the determination of the ALP on this count. The TPO analyzed the sale of various prod .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ommendation for a transfer pricing adjustment. The addition so proposed by the TPO was made by the AO. The ld. CIT(A) was pleased to delete the addition, against which the Revenue has come up in appeal before us. We shall deal with such additions/deletions individually to ascertain if the AO was right in making the additions or the ld. CIT(A) in deleting these additions. Blowing Agents ADC-L-5 4. The first product is Blowing Agents ADC-L-5, a modifier, called Chemical Blowing Agent for plastic a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

2003, then on 6.12.2003. The assessee sold the same product to M/s Maricell SRI, Italy, on 17.12.2003. Noticing not much variation in the sale volume made to AE and Italy party, the TPO treated the price of ₹ 126 per kg. as the ALP of this transaction. That is how the differential amount between the ALP and the actual price charged amounting to ₹ 10,78,347/- was proposed as a transfer pricing adjustment. The AO made the addition which came to be deleted in the first appeal. 5. We hav .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

urse of hearing, our attention was drawn towards the product ADC-L-5 having been sold by the assessee to various related and unrelated parties in the form of a Table given on page 49 of the paper book. From such tabulation, it can be seen that the assessee sold this product to its AE, firstly, on 14.10.2003, then on 6.12.2003 and, lastly, on 22.03.2004 @ ₹ 97/-, 98/- and ₹ 87/- per kg. respectively. Apart from that, the assessee also sold this product in Bangladesh to certain parties .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

- per kg. The ld. Counsel for the assessee, in an attempt to justify the price charged from AE at ALP, submitted that the sale price of this product largely depends on the formulations and specifications given by individual customers which entails varying costs and the resultant varying sales prices. He tried to justify the price charged from its AE at ALP by claiming it as comparable with the sales made to Bangladesh parties. However, no material was placed on record to show that the product su .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ecific and one general method for determining the ALP of an international transaction. This sub-section provides that the ALP of an international transaction shall be determined by any of the given methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed or such persons or such other relevant factors, as the Board may prescribe. Rule 10B of the Income-tax Rules, 1962, contains modus operan .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

is identified ; (ii) such price is adjusted to account for differences, if any, between the international transaction and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the price in the open market ; (iii) the adjusted price arrived at under sub-clause (ii) is taken to be an arm s length price in respect of the property transferred or services provided in the international transaction ; 7. A bare perusal of the p .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

adjusted is taken as ALP in respect of the property transferred under the third step. Thus, it is patent that the international and uncontrolled transactions are compared with each other to find out the differences in them, if any, and thereafter adjustments are made in the price of the uncontrolled transaction due to such differences. Sub-rule (2) of Rule 10B provides that for the purposes of sub-rule (1) , the comparability of an international transaction with an uncontrolled transaction shall .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

are to be divided between the respective parties to the transactions ; (d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail. Sub-rule (3) of Rule 10B stipulates that an uncontrolled transaction shall be .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

manifest that the international transaction and the uncontrolled transaction with which comparison is sought to be made for determining the ALP, in the first instance, must have overall similar products. It is obvious that if the products are different, then, there can be no question of making an effective comparison between the prices charged. Once the products under both the transactions are broadly similar but there is a difference in them because of certain specific characteristics; and/or .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

made due to such differences, then, such uncontrolled transaction should not be considered as a comparable transaction. If, after eliminating such transaction(s), there remains no other comparable uncontrolled transaction, then, the CUP method cannot be considered as the most appropriate method which should be discarded and substituted with another more suitable method. 9. Adverting to the facts of the instant case, we find that both the assessee as well as the TPO/CIT(A) have adopted incorrect .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

y convincing reply. A generalized statement was made that the price charged from the AEs conformed to the price charged from non-AEs, if the specifications of the two transactions had been similar. No material worth the name was placed on record to show, firstly, the difference in the specifications of the two sets of transactions and, secondly, the extent of adjustment in the price from uncontrolled transactions to be made on account of such differences. Coming to the TPO, we find that the asse .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he extent of adjustment to be made in respect of price charged by the assessee from Italy/Bangladesh parties due to difference in the formulations/specifications of products. When the mandate of Rule 10B is vivid which provides for, firstly, bringing the product sold to a non-AE at par with the product sold to AE by making adjustment due to the differences in the characteristics of the products sold and then to make adjustments on account of contractual terms and geographical location, etc., the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ss to say, the assessee will be allowed a reasonable opportunity of hearing in such fresh proceedings. Polymerization Catalysts named DBH. 10. The assessee sold 13500 kgs. of this product to its AE at a total price of ₹ 18,15,205/-, giving the average unit sale price of ₹ 134/-per kg. The assessee also sold this product to Belgium and Japanese parties. Total seven transactions of this product were undertaken by the assessee which have been tabulated on page 50 of the paper book, with .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

om the impugned order that the ld. CIT(A) has recorded a categorical finding that this product exported to non-AE is different in formulations and costs from product exported to AE. Similar contention was put forth by the ld. AR before us in justifying the reasons for the price charged at ₹ 134/- per kg. from its AE, being the lowest price charged in comparison with all the uncontrolled transactions. Here again, the ld. AR put forward the same submissions that the specifications of this pr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

is product is similar to ADC-L-5 discussed above. Following the view taken hereinabove, we set aside the impugned order on this score and send the matter to the file of AO/TPO for a fresh determination of the ALP of this transaction in accordance with our above guidelines. Blowing Agent named TSSC. 12. The assessee sold this product to its US AE on different dates during the year at the price charged varying from ₹ 233/- per kg. to ₹ 266 per kg. Only one transaction of this product w .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

er pricing adjustment of ₹ 48,46,928/- on this score. Such addition made by the AO was deleted in the first appeal by giving the same reasoning as given for the earlier products. 13. We have heard the rival submissions and perused the relevant material on record. It is noticed from page 54 of the paper book that the assessee sold 73710 kgs. of this product to its AE and only 1 kg. of sale to a Japanese party at ₹ 125/- per kg. It is obvious that the transaction of sale of 1 kg. to no .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d transaction with similar uncontrolled transaction(s). Such comparable uncontrolled transactions can be internal as well as external. Usually, preference is given to internally comparable transactions. If, however, internal comparables are not available and the assessee seeks to apply CUP as the most appropriate method, then, the onus is upon him to put forward certain externally comparable uncontrolled transactions for enabling the TPO to make a logical comparison with the international transa .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s available, then, the CUP cannot be applied as the most appropriate method. 15. Coming to the facts of the instant case, we find that the assessee has not placed on record any effective comparable uncontrolled transaction to demonstrate that its international transactions with AE of the same product were at ALP. The TPO chose an altogether different product for making comparison under the CUP method, which is not legally sustainable because of the inherent differences in the quality of two prod .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ssee sold 75600 kgs. of this product to its AE at a total value of ₹ 1,45,85,074/-, giving the average unit sale price of ₹ 192/-per kg. The TPO observed that the assessee sold similar product to an Italian company on two occasions @ ₹ 290 and ₹ 289/- per kg. respectively. Considering the rate of ₹ 289/- per kg. as its ALP, the TPO proposed a transfer pricing adjustment of ₹ 72,63,326/-, which was made by the AO but deleted in the first appeal. 17. We have hea .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

what is new what is new
  ↓     bird's eye view     ↓  


|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version