TMI Blog2019 (4) TMI 1380X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered if such data reveals facts which could have an influence on the determination of transfer prices in relation to the transactions being compared . The fact about profit in the financial year 2010-11, as also in the financial year 2015-16 onwards, is not even disputed by the revenue authorities below. In view of these discussions, the exclusion of DCW Ltd from the list of final comparables is not justified on the ground that it is a persistent loss making company. In the event of DCW Ltd being accepted as a valid comparable, there will be no need to deal with other issues raised with respect to this arm s length price determination, as, in that event, the profitability of the tested party will be well within acceptable range. TP Adjustment relating to availing of management services - ALP determination of payments tp AEs - as per TPO assessee has clubbed the payment of management service charges with manufacturing/ trading and benchmarked such aggregated transactions together using Transactional Net Margin Method as the Most Appropriate Method, using the assessee as the tested party - HELD THAT:- relied on decision in own case [ 2017 (3) TMI 1727 - ITAT AHMEDABAD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nternational transaction pertaining to manufacturing operation of SABIC Innovative Plastics India Private Limited ( the Appellant ) 1. The Learned Assessing Officer ( Ld. AO ) [along with the Learned Transfer Pricing Officer ( Ld. TPO )] under the directions of Hon'ble DRP erred on facts and in law in determining the arm's length price for purchase of raw material pertaining to manufacturing activity at INR 3,874,663,557 instead of INR 4,081,684,747 under the provisions of section 92CA(4) of the Income Tax Act, 1961 ( the Act ) and thereby making an upward adjustment of INR 207,021,190 to the taxable income of the Appellant. 2. The Ld. TPO, Ld. AO and Hon'ble DRP erred on facts and in law in proposing to modify the economic analysis carried out by the Appellant in the Transfer Pricing ( TP ) documentation maintained under section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ( the Rules ), without providing any cogent reasons. 3. The Ld. TPO, Ld. AO and Hon'ble DRP erred on facts and in law in rejecting various comparable companies based on certain parameters and ignoring the that the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , this comparable cannot be taken into account. It was further noted that so far as DCW Limited is concerned, its product profile is totally different from product profile of the assessee company, and DCW Ltd is also in the manufacturing of caustic soda, liquid chlorine, HCL, Feeric Chloride, i.e. chemicals while the assessee is into manufacturing of plastics and hence DCW Ltd is also rejected from the list of final comparables . The final comparables were thus Finolex Ltd and Supreme Petrochem Ltd. The average margin OP/OR of these two comparables worked out to 7.97% as against the margin of the manufacturing segment computed at 5.58%.. It was on this basis that an arm s length expenses were computed at ₹ 561,93,77,896 as against the actual related expenses of ₹ 582,63,99,086, and, accordingly, an arm s length price adjustment of ₹ 20,70,21,190 was recommended by the Transfer Pricing Officer. When the Assessing Officer proposed to make the resultant addition, assessee did raise a grievance before the Dispute Resolution Panel, but without any success. The DRP confirmed the action of the authorities below and declined to interfere in the matter. The assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s preceding the current year are also to be taken into account. Viewed thus, it would appear that in order to disqualify from being taken into account, a comparable unit must be a loss making unit in the present year as also two immediately preceding year. Viewed in this perspective, when we examine the facts of this case, we find that the while there is PVC segment loss in the financial year 2012-13 (i.e. current year) @ 4.53%, and in the immediately preceding year 2011-12 (5.87%), there is in fact profit in the financial year 2010-11 at 2.88% net profit margin. The fact about profit in the financial year 2010-11, as also in the financial year 2015-16 onwards, is not even disputed by the revenue authorities below. In view of these discussions, the exclusion of DCW Ltd from the list of final comparables is not justified on the ground that it is a persistent loss making company. As regards the automation and debottlenecking program in the DCW Ltd in the relevant financial years, that is an ongoing process and cannot result in comparability. In view of these discussions, in our considered view, the exclusion of DCW Ltd was not justified. We, therefore, direct the Assessing Officer to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lled Price method as prescribed under Rule 10B(l)(a) for determining the arm's length price for management services, in the absence of any finding of the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction. 12. The Ld. TPO, Ld. AO and Hon'ble DRP erred on facts and in law in ignoring the fact that the associated enterprises filed their return of income in India and offered to tax their taxable income in India. 9. So far as this grievance of the assessee is concerned, the relevant material facts are as follows. In the course of proceedings before the Transfer Pricing Officer, it was noticed that the assessee has made payments of (i) ₹ 1,27,70,479 to Sabic Innovative Plastics US LLC USA; (ii) ₹ 7,20,92,912 to Sabic Innovative Plastic Management (Shanghai) Co Ltd China; and (iii) ₹ 13,02,53,476 to Sabic Innovative Plastics (SEA) Pte Ltd, Singapore. When the TPO probed the arm s length price determination of these transactions, he found that the assessee has clubbed the payment of management service charges with manufacturing/ trading and benchmarked such aggre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... independent enterprise would have paid for the same. This process of determination of arm's length price has to be done on the basis of a recognized method of determining arm's length price, rather than on the basis of subjective perceptions, divorced from ground realities of business, of the TPO. While on this issue, we may also refer to the following observations made by a coordinate bench of this Tribunal in the case of AWB India (P.) Ltd. v. Dy. CIT [2014] 50 taxmann.com 323/[2015] 152 ITD 770 (Delhi - Trib.) and which are equally applicable in the present context: 15. One of the very basic pre condition for use of CUP method is availability of the price of the same product and service in uncontrolled conditions. It is on this basis that ALP of the product or service can be ascertained. It cannot be a hypothetical or imaginary value but a real value on which similar transactions have taken place. Coming to the facts of this case, the application of CUP is dependent on the market value of the arrangements under which the present payments have been made. Unless the TPO can identify a comparable uncontrolled case in which such services, howsoever toke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments. 18. We are also of the considered view that in the absence of prerequisites for application of CUP methods being absent in the present case, it was not open to the TPO to disregard the TNMM employed by the assessee. No defects have been pointed out in application or relevance of TNMM in this case. Under these circumstances, the TPO's impugned action cannot meet our judicial approval. 19. For the detailed reasons set out above, we uphold the grievance of the assessee and direct the AO to delete the impugned ALP adjustment of ₹ 31,23,325. The assessee gets the relief accordingly. 9. The only justification for taking ALP of services at NIL is under CUP but then there has to be something on record to show that in an arm's length situation these services are rendered without consideration. The worth of services cannot be decided by the TPO, nor is it open to him to question, as such an approach implicitly does, the commercial expediency of these services. It is only elementary that how an assessee conducts his business is entirely his prerogative and it is not for them to decide what is necessary for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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