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TMI Blog2016 (7) TMI 249X X X X Extracts X X X X X X X X Extracts X X X X ..... .O. erred in making an addition of Rs. 30,99,75,553 to the returned income of the Appellant by re-computing the arm's length price of the international transactions under section 92 of the Act. 4. That on the facts and in the circumstances of the case and in law, the Ld. Assessing Officer/Ld.TPO/Ld.Dispute Resolution Panel ("DRP") erred in rejecting Comparable Uncontrolled Price (CUP) method selected by the Appellant as the most appropriate method, under sec. 92C(1), wherein the appellant had relied on the data available in the Fertecon Report to determine the arm's length price in relation to its international transactions. 5. That on the facts and in the circumstances of the case and in law, the Ld. A.O./Ld.TPO/Ld.DRP erred in disregarding the internal CUP details submitted by the appellant wherein the product characteristics, origination, and nature of the transaction is same/similar to the appellant thereby revealing the arm's length price of its international transactions. 6. That on the facts and in the circumstances of the case and in law, the Ld. A.O./Ld.TPO/ Ld. DRP erred in rejecting the CUP as the most appropriate method, despite accepting the same during prior assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned TPO to be at arm's length. The assessee questioned the action of the learned TPO before the learned DRP that could not succeed on the issues raised in the above grounds. Hence, present appeal has been preferred. 5. In support of the grounds, the learned AR has furnished following submissions: "Mosaic India Private Limited ("the Appellant / MIPL") was incorporated on June 1, 2004 and is engaged in the business of distribution and marketing of fertilizers in India. The Appellant operates as a 100% subsidiary of GNS II Corp USA which, in turn, is owned by The Mosaic Company, USA. (page 141 of the paper book) The appeal is directed primarily against the addition made to the arm's length price charged/paid by the Appellant, with respect to international transactions undertaken by it, during the year under consideration i.e. FY 2005-06. During FY 2005-06,the Appellant had undertaken the following international transactions with its Associated Enterprises ('AEs') (page 47-101 - Form 3CEB, and page 153- TP documentation of the paper book): S. No. Description of International Transactions Value of International Transactions Method used by the Appellant for the determination ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ol over the sale price and is forced to sell at a price fixed by the regulators, which may be lower than the purchase price. The Government of India (GOI) has a system of compensating the fertilizer companies through a subsidy mechanism. Herein, it may not be out of place to mention that the GOI also uses data published in Fertecon Report to compute the amount of subsidy to be granted to companies engaged in manufacture and trade of DAP fertilizers. The significant impact exerted by these regulations on the market price and market forces can be gauged from the fact that the subsidy amount, received by MIPL for FY 2005- 06 constituted about 40-45% of total revenue. Summary of Transfer Pricing approach followed by the Appellant CUP Analysis As discussed above, the main international transaction undertaken by the Appellant, during the year, was import of fertilizers. The Appellant imported DAP fertilizer from its AEs and resold the same in India at the price fixed by the GOI. Based on the functional, asset and risk profile of theAppellant, Comparable Uncontrolled Price ('CUP') was selected as the Most Appropriate Method for establishing the arm's length nature of its internatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Hon'ble ITAT in its order dated December 18th, 2013. b) The Appellant would like to highlight that there is no change in the functional, asset and risk profile of the Appellant in the current year i.e. AY 2006-07 as compared to that from AY 2005-06 and the TPO has not challenged the same in his order for AY 2006-07. c) In AY 2005-06 the Appellant had applied CUP as the most appropriate method in order to benchmark the transaction under the dispute which has been accepted by the TPO. d) The Differential factor in the application of CUP by the Appellant and TPO in AY 2005-06 was that the Appellant had used US FOB price (plus US to India freight, as mentioned in the Fertecon report) in order to arrive at the arm's length price of the purchase of DAP. On the other hand, the TPO had used India CFR price (as mentioned in the Fertecon report) in order to arrive at the arm's length price of the purchase of DAP. i. US Gulf FOB prices indicate the Free On Board ('FOB') prices for DAP fertilizers for the goods exported from US Gulf region ii. India CFR prices indicate an average of purchase price of DAP from different parts of the world plus and average of freight to purchase DAP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... izer Segments Deals in cereals, micro nutrients, primary and secondary nutrients whereas DAP is a multi-nutrient fertilizer 3 Others DAP fertilizer is a commodity of which MRP, subsidies, restrictions, import and even choice of technology, feedstock etc are all control by Government of India. Thus the importer has no control over sale price and is forced to sell at a price fixed by regulators which is lower than purchase price Urea production by Indian manufacturers is governed by group financing schemes which guarantees a return of 12% on net sales at 90% capacity utilization. This is in contrast to Phosphate and Potash fertilizers where retention pricing scheme was discontinued in 1992 Related Party transactions are 56% of total sales. 4 Turnover (In INR cr.) 641.23 2,758.43 41.28 11.44 In view of the above, the CUP method used by the appellant could not be rejected by the TPO. The following factors need be considered: (1) The TPO has himself accepted CUP as the most appropriate method in the preceding year as also in all the subsequent years. A chart was place before the Hon'ble Bench to demonstrate the same. Thus, for AY 05-06 and from AY07-08 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been furnished for the perusal of the bench. He submitted that though principle of res-judicata is not applicable in the tax matter but consistency in the approach of Revenue on an issue under similar facts of the case is required to be maintained. In support, he placed reliance on the following decisions: i) Radhasoami Satsang vs. CIT- 193 ITR 321 (SC); ii) CIT vs. ARJ Security Printers - 266 ITR 276 (Del.) - SLP filed by Revenue has been dismissed - 266 ITR 4. 7. In support of the alternative plea that comparables apply by the authorities below are not proper as they are functionally different, the Learned AR referred page Nos. 442 and 443 of the paper book - volume-2. He submitted that Chambal Fertilizers & Chemicals Ltd.- manufactures fertilizers segments which includes manufacture and marketing of urea which is a controlled commodity, the price and distribution of which is regulated by the Government of India. The company is engaged in manufacturing and trading of fertilizers in the proportion of 64% and 23% respectively while the assessee is 100% distributor of fertilizers and is not engaged in any manufacturing activity. They deal in several products whereas the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the ITAT, the learned TPO has accepted the application of CUP method as an appropriate method in order to benchmark the transaction under the dispute. We find that for the assessment year 2005-06 and from assessment years 2007-08 to 2011-12, the application of CUP as the most appropriate method in order to benchmark the transaction under dispute has been accepted by the learned TPO. In the assessment year 2005-06, the ITAT (supra) has set aside the matter to the file of the Assessing Officer on the issue of adopting CFR bulk price from the same report and not the FOB price. In compliance, the learned TPO has found it appropriate to apply CUP method. We thus fully concur with the contention of the assessee that Rule of Consistency needs to be respected in the approach of the Revenue in the application of CUP method as the most appropriate method particularly when there is no change in either the profile of the assessee or in the nature of the transaction. We also agree with the submission of the assessee that TNMM method is not an appropriate method since the sale price in the present case is regulated by the government and the margin of net profit is not under the control of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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