TMI Blog2021 (10) TMI 877X X X X Extracts X X X X X X X X Extracts X X X X ..... ods purchases from its German AE as well as Italian AE. In order to benchmark these transactions, the assessee relied on a transaction of sale made by its Italian AE to German non-AE - As fairly conceded that no comparable data of the sales made by German AE to non-AE is available. Geographical differences, as noted above, do not justify the adoption of the price charged by Italian AE from a German non-AE as a good comparable for the purposes of benchmarking the international transactions in India. The raison d etre given in the context of purchase of raw materials supra applies with equal force to the purchase of finished goods from the AEs for which no worthwhile comparable uncontrolled transaction is available. No separate argument was advanced qua the remaining part of the transaction under consideration, namely, Purchase of Stores, spares and consumables from the AEs.We, therefore, approve the view point taken by the authorities below to the effect that the CUP is not the most appropriate method in the facts and circumstances of the case. Application of the TNMM - transfer pricing addition proportionate to the international transactions - HELD THAT:- As AR submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Transfer Pricing Officer (TPO) for determining the Arm s Length Price (ALP) of the international transactions. In this appeal, we are concerned only with the first international transaction viz., `Purchase of raw materials, finished goods, spares and consumables with transacted value of ₹ 18,05,55,266/-. The assessee applied the Comparable Uncontrolled Transaction (CUP) method for demonstrating that the international transaction was at ALP by mentioning in its Transfer Pricing Study Report that : `MSIL has purchased raw material, finished goods and spares and consumables from its group entities for the F.Y. 2011-12. Mubea Group entities have sold identical or similar raw material/finished goods/spare parts/consumables to third parties as sold to MSIL and data for such transactions is available . The TPO misjudged the transaction of purchase of raw materials and finished goods etc. as that of sales and rejected the CUP method with the observations given in para 6.1., which fairly indicate that the entire exercise done by him is in the realm of the assessee having made sales of raw materials and finished goods etc. to the Associated Enterprises (AEs) as against the actu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 18.05 crore from its AEs. The major component is purchase of raw material from four AEs, namely, each from Spain, USA, China and Germany, totaling ₹ 15.08 crore. The assessee purchased finished goods from two AEs, namely, each from Germany and Italy amounting to ₹ 2.87 crore. The assessee purchased Stores, spares and consumables for the remaining trivial amount from its AEs. 6. Firstly, we espouse the purchase of raw materials. The assessee purchased different types of raw materials from the four AEs situated in different countries and then in order to prove that the purchase transactions of raw material were at ALP, it applied the CUP method by comparing the price paid in transactions with all the four AEs with the price charged by German AE from a German non-AE, namely, `H R Spezialfedern . The purchase by the assessee from its German AE is only worth 1,224 Euros as against the sale made by German AE to a German non-AEs at 20,85,856 Euros. It is on the basis of this price charged by the German AE from a German Non- AE that the assessee tried to show that its purchases of raw materials from all the four AEs were at the ALP. We have examined some of the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration before jumping to the veracity of conclusion of comparability. Rule 10B(2) of the Income-tax Rules, 1962 categorically provides that: `the comparability of an international transaction with an uncontrolled transaction shall be judged with reference to the four broader parameters given in clauses (a) to (d). Clause (d), which assumes significance in the extant case, provides as follows conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail . On going through the mandate of clause (d) of Rule 10B(2), it becomes graphically overt that the comparability of an international transaction with an uncontrolled transaction has to be judged, inter alia, by considering conditions prevailing in the markets in which respective parties to the transaction operate including the geographical locations. Rule 10B(3) states that: `An uncontrolled transaction shall be comparable to an international tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided no basis to crease out the effect of geographical differences in the transaction so chosen as comparable in terms of rule 10B(3). In such circumstances, we fail to comprehend as to how the sale transactions made by German AE to non-German AEs constitute valid comparable uncontrolled transactions insofar as the assessee s purchases of raw material from Spain, USA, China and Germany are concerned. 9. Now we come to the remaining part of the international transaction of purchase of finished goods. It is seen that the assessee made finished goods purchases from its German AE as well as Italian AE. In order to benchmark these transactions, the assessee relied on a transaction of sale made by its Italian AE to German non-AE. It has been fairly conceded that no comparable data of the sales made by German AE to non-AE is available. Geographical differences, as noted above, do not justify the adoption of the price charged by Italian AE from a German non-AE as a good comparable for the purposes of benchmarking the international transactions in India. The raison d etre given in the context of purchase of raw materials supra applies with equal force to the purchase of finishe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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