TMI Blog2016 (1) TMI 1366X X X X Extracts X X X X X X X X Extracts X X X X ..... ial Member and Shri Anil Chaturvedi, Accountant Member For The Assessee Shri Tushar Hemani, A.R. For The Revenue Smt. Smiti Samant, Sr. D.R. ORDER PER : Shri Anil Chaturvedi, Accountant Member These two appeals of which one is filed by Assessee and the other by Revenue are against the order of CIT(A)-VIII, Ahmedabad, dated 30.12.2009 for the assessment year 2002-03. 2. The relevant facts as culled out from the materials on record are as under: 3. The Assessee is a Company stated to be engaged in the business of manufacturing bulk drugs and chemicals. The Assessee filed its return of income for A.Y. 02-03 on 31.10.2002 declaring total income at Rs.Nil. The assessment was initially framed u/s.143(3) vide order dated 22.03.2005 and the total income was determined at ₹ 20,51,93,078/-. On giving the appeal effect of Hon ble ITAT s order, the income was determined at ₹ 28,15,711/-. Subsequently, the case was reopened by issuing notice u/s.148 of the Act dated 31.07.2006 and thereafter the assessment was framed u/s.147 r.w.s. 263 r.w.s. 254 r.w.s. 148(3) of the Act vide order dated 31.12.2007 and the total income was determined at ₹ 5,46,52 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. 5.1 On the other hand, the grounds raised by the Revenue in its appeal i.e. ITA No.1234/Ahd/2010 read as under: 1. The Ld. CIT(A) erred in law and on facts in partly deleting the addition to the extent of ₹ 4,51,02,696/- without appreciation of the fact that the assessee has not submitted details justifying proper application of TNMM and has not submitted details for the purpose of computing adjustments for CUP methods. 2. On the facts and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer since the assessee has failed to disclose his true income. 6. We first take up assessee s appeal in ITA No.903/Ahd/2010. 6.1 Before us, ld. A.R. at the outset submitted that ground no. 1 is general ground and therefore, needs no adjudication and that ground nos.2 to 4 of assessee s appeal and grounds raised by the Revenue are inter connected and therefore, can be considered together. 7. The TPO had made adjustment in sale price in respect of 8 products by rejecting the TNM method selected by assessee and adopted CUP as the most appropriate method and the aforesaid adjustment resulted into addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and any variation or change in said method by the TPO and secondly the quantification of transfer pricing addition in respect of ALP adopted by him. 5.7 There is a dispute between the TPO and the appellant with regard to selection of method for arriving at the appropriate ALP. The appellant has adopted Transactional Net Margin Method (TNMM) whereas the TPO is of the view that in the given circumstances Comparable Uncontrolled Price Method (CUP) is most appropriate to determine ALP. 5.8 In terms of Rule 10B of the IT Rules the TNMM requires establishing comparability at a broad functional level. It requires comparison between net margins derived from the operation of the uncontrolled parties and net margin derived by an associated enterprise on similar operation. Under this method, the net profit margin realized by an associated enterprise from an international transaction is computed in relation to a particular factor such as costs incurred, sales, assets utilized, etc. The net profit margin realized by an associated enterprise is compared with net profit margin of the uncontrolled transactions to arrive at the ALP. TNMM requires comparison between net marg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f public data, it is provided in Regulation 1.482-3(b)(5) that following requirements must be met: The data is widely and routinely used in ordinary course of business in the industry to negotiate prices for uncontrolled sales. The data is used to set prices in the controlled transaction in the same way that it is used by uncontrolled taxpayers in the industry; and The amount charged in the controlled transaction is adjusted to reflect product and service variations. The US regulations further warn that data from public exchanges, quotation media should not be used in extraordinary situations such as war period, economic depression, natural calamities period. We are of the considered view that above principles are of universal application and there is no good reason why they should not be applied in transfer pricing determination in India. 5.10 I find considerable force in the arguments of the Ld. A.R that the appellant has a larger say so far as selection of method for determination of ALP is concerned. The provisions direction 92C of the Act are very clear in this regard. The appellant has a right to choose the best applicable method for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or ready reference: Statement of average % of Profit before Interest and Tax of various companies in the Group of Organic Chemicals having turnover of over ₹ 50 crores during Financial year 2001-2002 and have profits earned during the same year. . As can be seen the overall PBIT of the appellant is better than the industry average PBIT. The only reason, apart from some general reasons, why the AO has rejected the said method was the absence of break-up of PBIT between transactions with associated enterprise and unrelated entities. If the PBIT with the associated enterprise is higher than the overall PBIT, the very ground for rejecting the said TNMM method goes away. The following chart placed before the AO as well as before me puts this issue at rest as it is very clear that the PBIT with AE was as high as 30.98% which is higher than both the PBIT of the appellant at 20.19% and overall industry average PBIT of 15.83%. Particulars DEL Others Total Total Income 263,332,635.00 476,746,306.00 740,078,941.33 PB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not provide any marketing, technical or after sales services. As against this, the AE provides all these services and therefore the prices are rot comparable as provided under Rule 10C. In any case the important factor of demand and supply situations have been given B go by. There is a marked difference in the volumes with AE vis-a-vis non-AE. 2. Cetyl Pryidinium C Rs.32,38.026/- Comparisons have been made with sales made to non-AEs which are not at all comparable inasmuch as these entities do not provide any marketing, technical or after sales services. As against this, the AE provides all these services and therefore the prices are not comparable as provided under Rule 1 0C. Moreover the quantity sold to DEL was 34,550 kgs as against 1,591 kgs sold to different non-AE parties. 3. Ethyl Triphenyl Ph RS.66,65,863/- Comparisons have been made with sales made to non-AEs which are not at all comparable inasmuch as these entities do not provide any marketing, technical or after sales services. As against this, the AE provides all these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the appellant had sold 1,91,125/- Kg of this product for ₹ 4,37,07,708/-. The appellant has sold the same material to unrelated parties in Europe Namely La Porte Performance, Netherland of 1,07,100 kgs at average price of 282 per Kg. The same product is sold to the entities in Japan and Israel also, the price to those entities are more than ₹ 315 per Kg. The La Porte Performance of Netherland is very regular customer of the appellant and it has purchased bouquet of products from it and for this product also the quantities are comparable. The appellant has charged ₹ 228 per K.G to its AE Dishman Europe 95% of 282 i.e 267.9 per kg. therefore the process charged is outside the Arm's Length Price Range. Accordingly, the transaction under reference requires an upward adjustment keeping in view the provisions of Sec. 92C of the Act. 5.17 During the appellate proceedings when this discrepancy was brought to the notice of Ld. A.R, he submitted that the ALP has to be worked out on the basis of a single method for all the transactions carried out by the appellant during the relevant period. The contentions made by the Id. A.R in this regard cannot be accepte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.4 Before us, at the outset, ld. A.R. reiterated the submissions made before the CIT(A). He further submitted that while deciding the issues namely the most appropriate method for determining ALP quantification of TP adjustment, ld. CIT(A) held that TNMM method to be the most appropriate method and not the CUP method. However, while quantifying ALP adjustment, CIT(A) held that for transaction with one particular product, CUP to be the most appropriate method and accordingly TP addition was confirmed to the extent of ₹ 49,31,625/- and balance addition of ₹ 4,51,23,696/- was deleted. Ld. A.R. further submitted that the issue in the present case is covered by the decision of Tribunal in assessee s favour by the Tribunal s order in assessee s own case for A.Ys. 2003-04 2004-05 in ITA Nos. 154 587/Ahd/2007 ITA Nos. 2180 3213/Ahd/2007, wherein Hon ble ITAT has held that TNMM method is the most appropriate method. He further submitted that similar view has been taken in the case of assessee s associate concern i.e. DCIT vs. Schutz Dishman Bio-tech Pvt. Ltd. in ITA Nos. 2060/Ahd/09, ITA No.3141/Ahd/11 and others. He also placed on record the copy of the aforesaid o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue to the file of Assessing Officer and directed the assessee to produce the necessary evidence to substantiate the claim. Assessing Officer noted that in pursuance to the directions of Tribunal, assessee did not file necessary evidences. He, therefore, disallowed the expenditure. In second round, CIT(A) upheld the order of Assessing Officer by following the decision of Hon ble Gujarat High Court in case of Dhall Enterprise and Engineers Pvt. Ltd. vs. CIT 295 ITR 481 and held that assessee has to prove the debts have become bad and that it had become bad during the relevant period. He, accordingly, upheld the disallowance made by the Assessing Officer. 8.2 Aggrieved by the order of CIT(A), assessee is now in appeal before us. 8.3 Before us, ld. A.R. submitted that for claiming bad debts the only condition is its write off in the books of account and that once the assessee writes off debts as recoverable, assessee is eligible for claiming deduction u/s.36(1)(vii) of the Act. He also placed reliance on the decision of Hon ble Apex Court in case of TRF Ltd. vs. CIT 323 ITR 397 (SC) and submitted that the ratio laid down in the case of Dhall Enterprise (supra) is no more ..... X X X X Extracts X X X X X X X X Extracts X X X X
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