GST Helpdesk Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
What's New Case Laws Highlights Articles News Forum Short Notes Statutory TMI SMS More ...
Extracts
Home List
← Previous Next →

2017 (7) TMI 425 - ITAT BANGALORE

2017 (7) TMI 425 - ITAT BANGALORE - Tmi - TPA - forward contract with the AE - forward market price to be considered as ALP - Value addition by the assessee in the process of purchase and sale of cotton bales to the AE - assessee has entered into forward contract for sale to AE as well as purchase of cotton bales from local market - Held that:- The assessee has raised this plea that the forward market price as on the date of contract between the assessee and AE has to be taken as ALP. It is pert .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

AE are taken into consideration. Therefore for the purpose of determining the ALP and in view of our finding on the issue above, we do not find any substance in these additional grounds of the assessee. - Working capital adjustment - Held that:- We find that the assessee did not claim working capital adjustment either before the TPO or before the DRP nor the assessee has given any working in the TP study regarding working capital adjustment. The learned Authorised Representative of the asses .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

/loss as operating in nature - Held that:- If the foreign exchange fluctuation gain or loss is arising from the sales realization then it will be operating in nature. However, it would be considered as part of the operating revenue or cost only when such gain or loss is arising from the realization of the sale made during the year. Accordingly, the TPO/A.O. is directed to verify the relevant details and then treat the foreign exchange gain/loss as operating in nature and recompute operating prof .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

short 'the Act') in pursuant to the directions of the Dispute Resolution Panel (in short DRP ) dt.26.11.2015 for the Assessment Year 2011- 12. 2. First we take up the appeal of the assessee wherein the assessee has raised the following grounds : 1. On the facts and in the circumstances of the case the order passed by the LAO based on the directions issued by the Hon'ble DRP is bad in law as the Hon'ble DRP has not considered the objections raised by the Appellant against the ord .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nd hence should be excluded in computing the operating profit margin of the AE-export segment. 4. The Hon'ble DRP and the LAO erred in confirming the order of the Learned TPO which had held that the most appropriate method to determine the arm's length price of the international transaction of export of cotton bales (AE-export segment) is the internal Transactional Net Margin Method ('internal TNMM') without recognizing that the AE-export segment is not comparable with the domest .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

3 are regarding rejection of Transfer Pricing documentation of the assessee by the Transfer Pricing Officer ( TPO ) The assessee is engaged in the business of trading in cotton bales. The assessee purchased cotton bales from various factories in India and sold to its Associated Enterprises (AEs) as well as in domestic market. The international transactions as well as segment results have been reproduced by the TPO in paras 3 & 3.2 as under : 3. International Transactions (as mentioned in 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

07 Cost of goods sold 644,795,552 1,179,017,307 Other operating cost 19,393,498 42,816,838 Bank Charges 821,318 1,624,969 Depreciation 315,912 625,027 Total Operating Expenses 665,326,280 1,224,084,141 Net Profit/Loss -79,218,590 52,902,666 OP/OC -11.91% 4.32% As it is clear from the above details the TPO has recomputed the results of the assessee after exclusion of foreign exchange gain treating the same as nonoperative. The assessee adopted Transactional Net Margin Method (TNMM) as Most Approp .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t. The TPO was of the view that the assessee is dealing in the purchase and sale of cotton bales to AE as well as non-AE segments. The purchase for both the segments are made from various vendors in India at prevailing market price. The TPO took the average sale price of cotton bale as furnished by the assessee for AE segment as well as non-AE segment @ ₹ 13,141 per cotton bale and ₹ 14,723 per cotton bale respectively as against the average purchase price of cotton bale of ₹ 1 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hod. In view of the above reason the TPO rejected the TP document as well as the external TNMM method adopted by the assessee. The TPO adopted the internal TNMM as the assessee is also selling the cotton bales to non-AE. The TPO determined the Arm s Length Price ( ALP )/mean margin of cost at 4.32% being the profit on non-AE segment and consequently proposed an adjustment under Section 92CA of ₹ 10,79,60,685. The assessee challenged the action of the TPO/A.O. before the DRP but could not s .....

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 the forward contract. Thus the learned Authorised Representative has submitted that the assessee has suffered a loss on account of default of forward purchase contract. He has referred to the arbitration proceedings in respect of default by the vendors of forward purchase contract. The learned Authorised Representative has also referred to the various forward contracts with the AE and submitted that the assessee has agreed to supply the cotton bales to the AE as per the rate agreed in the fo .....

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 vendors. The TPO also did not consider the forward purchase contract primarily pertaining only to the AE segment and not to the non-AE segment on account of which the loss arising to the assessee from the default of forward contract. Thus the learned Authorised Representative has submitted that the TPO ignored all these facts on record. The TPO incorrectly proceeded to anlayse the sales and purchase price per cotton bale for the AE segment and non-AE segment without appreciating the fact that .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

xtra-ordinary in nature for the purpose of determining the ALP. 6. On the other hand, the learned Departmental Representative has relied upon the orders of the authorities below and submitted that in the case of the assessee the economic and financial scenario of AE and non-AE are similar and comparable. Therefore when an internal comparable is available which is direct and close relationship to the transaction then as per the OECD Guidelines the internal comparable should be preferred than 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

g the same goods to the non-AE clients and therefore it is an undisputed fact that an internal uncontrolled comparable price is available in the case of the assessee. Further the assessee is exporting the same goods/articles to AE and non-AE. Therefore the internal price is more reliable and comparable and therefore preferable in comparison to the external uncontrolled price. The assessee chose to select external comparables to bench mark its international transactions and while doing this exerc .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sis has been done by the TPO in para 6.1 as under : 6.1 TPO's Views On deeper analysis of the segmental profits the following points emerge: a. The taxpayer has two segments namely AE and Non AE segments dealing in purchase and sale of Cotton bales. b. The purchases for both the segments are made from various vendors in India at prevailing market rate on forward contract basis. c. The taxpayer furnished the quantitative details of the bales sold. d. The average sales price of Cotton bales as .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

obligation and therefore the assessee had to purchase cotton bales from the market at the prevailing price and supply the same to the AE at a lesser rate as per the forward contract. It is pertinent to note that the concept of forward contract is to hedge the fluctuation of the price in future and is adopted when the parties are dealing independently without any mutual interest. Therefore to avoid the risk due to the fluctuation of the price in future the parties enter into forward contract for .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ion in the price in future if protects the interest of the parties independently in any of the situation whether it is high or low price of the particular goods/commodity on the date of supply. Thus the gain of one party will be the loss of the other party but this principle does not work when the transaction is between the related parties. Even otherwise when the assessee purchased cotton bales from market at a higher price then the sale price to the AE at a lower rate and that too lower than t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

endent and unrelated price. Thus the export price has to be compared with the price between the two independent and unrelated parties. The assessee has undisputedly exported to the non-AE clients and therefore the export price to non-AE is an internal comparable price. Hence we do not find any error or illegality in the order of the TPO to apply the internal TNMM which is most appropriate in comparison to the external TNMM. 9. The assessee has also raised the additional grounds as under : 1. Wit .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the forward market price of cotton as prevailing on the date of the forward contract as comparable to the forward contract prices agreed with the AE. 3. Without prejudice to the appropriateness of the transfer pricing documentation maintained by the appellant, and assuming butnot admitting that the domestic unrelated party sales segment is comparable to the export AE-segment, the margin of the AE segment should be compared only with the margin of the segment where the appellant sold goods to dom .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

esentative of the assessee has submitted that the assessee raised advance from the AE and therefore an appropriate working capital adjustment has to be granted. We find that this claim of the assessee is not supported by the agreement as there is no clause for giving any advance against the purchase price payable by the assessee. Therefore if the assessee received loan or other advance which is not an advance against the export then the claim of the assessee cannot be accepted. Accordingly in th .....

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 price was fixed as per the forward contract therefore the forward market price to be considered as ALP for the purpose of bench marking the international transactions of export of cotton bales to AE. 13. On the other hand, the learned Departmental Representative has submitted that the forward market price cannot be taken into consideration when the contract was between the related parties and only price charged by the assessee to the AE has to be compared with the price to unrelated party. 14 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

stage. Further we have already decided the issue of determination of ALP and taken a view and actual price to the non-AE during the year are relevant. The international transactions involving export to the AE and a comparable price being export to non-AE are taken into consideration. Therefore for the purpose of determining the ALP and in view of our finding on the issue above, we do not find any substance in these additional grounds of the assessee. Revenue s Appeal (IT(TP)A No.240/Bang/16) 15. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

Latest Notifications:

    Dated      Category

20-7-2017 Cus (NT)

18-7-2017 IT

18-7-2017 CE (NT)

18-7-2017 CE

18-7-2017 GST CESS Rate

15-7-2017 Kerala SGST

14-7-2017 Andhra Pradesh SGST

14-7-2017 Cus (NT)

14-7-2017 Cus

13-7-2017 Co. Law

13-7-2017 Co. Law

13-7-2017 ADD

13-7-2017 ADD

12-7-2017 Jammu & Kashmir SGST

12-7-2017 Gujarat SGST

12-7-2017 Gujarat SGST

12-7-2017 CGST Rate

12-7-2017 UTGST Rate

12-7-2017 UTGST Rate

12-7-2017 IGST Rate

More Notifications


Latest Circulars:

19-7-2017 Income Tax

18-7-2017 Customs

17-7-2017 Customs

14-7-2017 Income Tax

13-7-2017 Central Excise

13-7-2017 Customs

13-7-2017 Central Excise

13-7-2017 Customs

7-7-2017 Income Tax

7-7-2017 Goods and Services Tax

More Circulars



|| 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