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PPG Coatings India Private Limited (Now merged with PPG Asian Paints Private Limited) Versus Dy. CIT Circle-9 (2) Mumbai

2016 (5) TMI 40 - ITAT MUMBAI

Transfer pricing adjustment - Held that:- The object of the TP provisions is to make adjustment if it is found that the international transactions were not at Arm’s length. The provisions were not incorporated to make adjustment at any cost and ignoring the basic facts. If the correct figure of GP margin is taken it works out to 19. 35%. The assessee’s gross margin(28. 45%) is higher than the margin of 19. 35% of the comparables. Therefore in our opinion the transaction in question is at arm’s l .....

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ai dt. 10. 12. 13 the assessee has filed the present appeal. 2. Assessee-company engaged in the business of trading in marine and protective paints filed its return of income 30. 9. 2009 declaring total income at Rs. Nil. During the assessment proceedings the AO found that the assessee has entered unto international transactions. So he made a reference u/s. 192CA(1) of the Act to the Transfer Pricing Officer(TPO)for determining Arms-Length-Price (ALP). The TPO found that PPG Industries Inc USA h .....

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sion income advance received cost sharing expenses reimbursement of expenses that the operating margin of the assessee was taken at 1. 2% that it had benchmarked the international transactions on an aggregate basis that Transactional Net Margin Method (TNMM)was adopted as the most appropriate method that it had conducted search in prowess data base to identify the comparable companies that fhe final comparables selected by the assessee included Incokem Ltd. Jaysynth Dyestuff(India) Ltd. Mahalaxm .....

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5 NA 1. 67 3. Mahalaxmi Dyes & Chemicals Ltd. 0. 59 2. 61 NA 1. 60 4. Vipul Dye Chem Ltd. 4. 86 5. 29 NA 5. 08 Average 2. 82% PLI of the assessee 1. 12% During the course of TP proceedings the assessee was called upon to update the margin of the above four comparable companies using AY 2009-10 data on standalone basis. The assessee vide its letter dt. 7. 11. 2012 submitted the updated margin for the AY 2009-10 was as under : Sr. No. Company Name Updated PLI using data for FY 2008-09 1. Indok .....

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inion that assessee was not into trading of protective and marine coatings therefore the transaction had to be benchmarked applying Re-sale Price Method (RPM). In its replies dt. 7. 12. 2012 and 14. 12. 2012 the assessee submitted that ideally RPM should have been applied that sufficient reliable information was not available that TNMM was used as benchmark. The assessee objected to application of RPM. After considering the submission of the assessee the TPO held that a transaction by transactio .....

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hat the assessee was a trader that the principal transactions were of purchase and sale of finished goods. The TPO conducted a fresh search and identified four comparables namely Hard Castle and Waud Mfg Co. Ltd. Castrol India Ltd. Hindustan Petroleum Ltd. and Indian Oil Corpn. Ltd. He required assessee to furnish a detailed reasoning so as to why the above referred 4 companies should not be considered as valid comparables. Vide its letter dt. 11. 1. 13 the assessee made elaborate submissions be .....

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5. Indokem Ltd. Synthetic Organic and dyes 22. 34 6. Jaysynth Dyestuff (India) Ltd. Organic colourants pigments and reactive dyes 20. 80 7. Mahalaxmi Dyes & Chemicals Ltd. Solvents as well as specialty chemicals 6. 12 8. Vipul Dye chem Ltd. Dyes chemicals and intermediates 18. 55 Average 31. 68 The TPO held that the gross margin earned by the assessee was 28. 45% that it was less than the gross margin earned by the comparable companies that ALP of the purchase and sale of finished goods coul .....

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assessee. 3. Aggrieved by the draft order of the AO the assessee filed objections before the Dispute Resolution Panel(DRP). Before it the assessee submitted that the international transaction on purchase and sale of finished goods purchase of SAP license commission income cost sharing expenses were inexplicably linked to its trading activities that same had to be bench marked on an aggregate basis considering the TNMM as the most appropriate method that it had consistently benchmarked its trans .....

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y words similar to the words used by the assessee that the TPO had selected four comparables engaged in other businesses like manufacturing lubricating oil grease oil and gas that they were not comparables to the assessee that he had erroneously computed the gross margin at of the comparable companies at 31. 68% that it had filed rectification letter dated 18. 2. 2013 u/s. 154 of the Act that the TPO had not passed the order till filing of the objections that the revised gross margin of the comp .....

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e assessee and TPOs order the DRP held that assessee had entered into seven different kind of transactions that same were different in nature and scope that the assessee had aggregated all the transactions worth ₹ 14. 26 crores for bench - marking at entity level that the transactions were different in their nature and their scope and that their separate evaluation and benchmarking was possible that the TPO was justified in rejecting entity level benchmarking that the TPO had used the iden .....

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s. 92C(3)of the Act it was held that those sections empowered the TPO to determine the ALP on the basis of such material which was available to him that non availability of data at the time of TP study could be a reason for not considering it for the study that it could not act as a bar on use of the data subsequently by the TPO if the same was available that every selected comparable had to stand the test of FAR analysis that the TPO had used contemporaneous data of the assessee to bench mark .....

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d that during the year under consideration the assessee had entered into four international transaction i. e. purchase of finished goods(Rs. 3. 19crores) sale of finished goods (Rs79. 22 lakhs) purchase of SAP license(Rs. 47. 80lakhs)and expenses incurred (Rs. 60 364/-) that it had benchmarked the transaction applying TNMM on an aggregate basis that the assessee had selected 4 comparable companies under TNMM that the arithmetic mean was 2. 82% that the PLI of the assessee worked out at 1. 12% th .....

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the purpose of benchmarking that the TPO had considered eight comparables as the final set that the assessee had submitted a chart and had claimed that correct gross margin of comparable companies should have been 19. 35% instead of 31. 68% that the gross margin of the assessee was 28. 45% . We find that the assessee had filed an application u/s. 154 of the Act before the TPO to rectify the mistakes in his order that same was never disposed off. It is observed that the TPO had computed GP margin .....

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