TMI Blog2021 (10) TMI 1206X X X X Extracts X X X X X X X X Extracts X X X X ..... n the premises that Ld. TPO was bound to determine the ALP by following any one of the prescribed method and determination of ALP on adhoc basis could not be sustained. It was also held that CUP method could not be applied since comparable agreements were between entities located outside India. In AY 2014-15[ 2019 (7) TMI 1314 - ITAT MUMBAI] , Ld. TPO applied CUP method to benchmark the transactions. However, the coordinate bench, in its order for AY 2014-15, held that CUP was not most appropriate method for benchmarking the transactions because of geographical differences. We find that in this year, Ld. TPO has followed same methodology as in AY 2014-15 and applied CUP method which has already been rejected by Tribunal in AY 2014-15. Therefore, following consistent view of Tribunal, we delete this adjustment. The ground thus raised stands allowed. TP Adjustment against payment of interest on ECB Loan - HELD THAT:- ALP of such transaction could be more accurately determined by following rate of interest fixed by RBI in respect of ECB loan. This decision has subsequently been followed in AY 2014-15[ 2019 (7) TMI 1314 - ITAT MUMBAI] - The assessee has followed the same RBI rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dispute Resolution Panel-1, WZ, Mumbai (DRP) u/s 144C(5) dated 22/08/2019. The grounds raised by the assessee read as under: - i. Ground No. i: Transfer Pricing ('TP') adjustment in relation to export of finished products 1.1. On the facts and circumstances of the case, and in law, the Hon'ble DRP has erred in upholding the action of the Ld. AO/TPO in determining the Arms' Length Price ('ALP') of the international transaction of export of finished products at ₹ 8,34,22,404 instead of ₹ 7,59,14,928 thereby, computing a TP adjustment of ₹ 75,07,476. 1.2. While doing so, the Hon'ble DRP/ Ld. AO/ Ld. TPO erred in: (a) Disregarding the aggregation approach adopted by the Appellant thereby, rejecting the application of entity level Transactional Net Margin method ('TNMM') as the Most Appropriate Method ('MAM'); (b) Applying Comparable Uncontrolled Price ('CUP') Method as the MAM vis-a-vis the products sold to both Associated Enterprises ('AEs') and Non-AEs; and (c) Applying two methods i.e., CUP and TNMM at the same time for benchmarking the impugned international transaction. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble DRP erred in upholding the action of the Ld. AO/ TPO in determining the ALP of the international transaction of payment of interest on ECB at ₹ 48,53,007 instead of ₹ 1,06,58,345, thereby computing an adjustment of ₹ 58,05,338. 3.2. While doing so, the Hon'ble DRP/ Ld. AO/ Ld. TPO erred in: (a) Not following a structured/ methodical search process in selecting the comparable companies for arriving at the arm's length interest rate; (b) Not appreciating the fact that the interest paid by the Appellant on ECB loan is as per the circular issued by Reserve Bank of India ('RBI'); and (c) Disregarding the fact that the effective rate of interest paid by the appellant is lower than the SBI Prime Lending rate ('PLR') for the relevant year. 3.3. On the facts and circumstances of the case, and in law, the Hon'ble DRP/ Ld. AO/ Ld. TPO has erred in not following the order of the Hon'ble ITAT for AY 2013-14 and AY 2014-15. The Appellant prays that the aforesaid adjustment of ₹ 58,05,338 be deleted. 4. Ground No. 4: Transfer Pricing ('TP') adjustment in relation to payment of Inform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Addition Adjustment (in Rs.) 1. TP adjustment on Export of finished products ₹ 75.07 Lacs 2. TP adjustment against payment for technical know-how ₹ 329.13 Lacs 3. TP adjustment against payment of interest on ECB loan ₹ 58.05 Lacs 4. TP adjustment against payment of IS services ₹ 166.33 Lacs 4. The assessee being resident corporate entity is stated to be engaged in manufacturing of various types of chemicals / compounds / ingredients / derivatives etc. Since the assessee carried out certain international transaction with its Associated Enterprises (AE), the same were referred u/s 92CA(1) to Ld. Transfer Pricing Officer [TPO] for determination of Arm s Length Price (ALP). The Ld. TPO, vide its order dated 24/10/2018, proposed certain adjustments which are the subject matter of appeal before us. These adjustments were incorporated by Ld. AO in draft assessment order dated 21/12/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 dated 22/02/2019 wherein the bench held as under:- 7. We have considered rival submissions and perused material on record. As far as the primary facts are concerned, there is no dispute that out of the sales turnover of finished products sold to the AE amounting to ₹ 10,13,28,211, benchmarked by the assessee applying TNMM, the Transfer Pricing Officer has accepted a major part of the sales of finished products to the AEs to be at arm's length. He has only raised objections in respect of the turnover relating to specific finished products sold both to AEs and non AEs. Upon verifying the price charged for such products to AEs and non AEs, he has observed that the price charged to non AEs is more than the price charged to AEs. Thus, he has made an upward adjustment of ₹ 73,04,480, to the price charged to AEs for sale of finished products. On a perusal of Annexure 1 to the order passed by the Transfer Pricing Officer, wherein, he has made comparative analysis of price charged to AEs and non AEs for common products, it is noticed that he has short listed eight common products which were sold both to AEs and non AEs. On a critical examination of the details mentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... priate method. In this regard, the detailed finding of the Co ordinate Bench is reproduced hereunder: XXXXX 9. The principle/ratio laid down by the Co ordinate Bench in the aforesaid decision squarely applies to the facts of the present appeal as well. Therefore, we hold that CUP method applied by the Transfer Pricing Officer to determine the arm's length price of the price charged for sale of finished products to the AEs is invalid. Accordingly, accepting assessee s claim we delete the addition made by the Assessing Officer. Ground raised is allowed. In the above decision, the bench has rejected the application of CUP method. The aforesaid decision has subsequently been followed by another coordinate bench in AY 2014-15, ITA No.6081/Mum/2018 order dated 07/06/2019 (para nos. 10-11). It has been held that while considering the issue of comparability with an uncontrolled transaction, the condition prevailing in the market in which the respective parties to the transaction operate, including the geographical location along with other factors would be relevant to decide which method would be suitable for benchmarking the transactions. Finally, the application of CU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital assets. The ECB Loan was taken on 10th June 2012 vide RBI approval at interest rate of 6 months USD LIBOR rate + 350 basis points. The assessee benchmarked the same relying upon RBI circular No. 12/2012-13 which allow ECB loan on automatic route at those rates. However, Ld. TPO computed benchmarking rate of LIBOR+143.62 basis points as per the Bloomberg database. Therefore, the differential of 206.38 basis points (350 bps 143.62 bps) was considered as excess payment and TP adjustment of ₹ 58.05 Lacs was proposed. This adjustment, upon confirmation by Ld. DRP, is in further challenge before us. Our findings and Adjudication 10. We find that this issue is covered by Tribunal s order for AY 2013-14 (para-24) wherein it has been held that ALP of such transaction could be more accurately determined by following rate of interest fixed by RBI in respect of ECB loan. This decision has subsequently been followed in AY 2014-15. The assessee has followed the same RBI rate to benchmark the transactions in this year. Therefore, respectfully following earlier stand of Tribunal, we delete the impugned adjustment. The grounds thus raised stand allowed. 11. TP ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis of number of IS users and it pertained to period 1st July 2013 to 30th June 2014 only. 11.3 The other charge viz. S3 charge pertained to SAP software cost which was allocated on the basis of SAP licenses. The software was installed at the server of its AE who maintained, controlled and managed the same. Accordingly, proportionate costs were allocated to the assessee on actual basis. In support of cost allocation, the assessee furnished third part audit certificate along with sample third party invoices raised by the vendors on its AE. 11.4 In support of benefits, the assessee submitted a flowchart of the manufacturing operations, depicting the inter-linkage between the manufacturing operation and application provided /services received as part of IS and S3 services. The details of the same have been extracted in the order of TPO. It was also submitted that the cost benefit analysis was never questioned or litigated before the tax authorities in earlier years. Therefore, the assessee justified the said amount and relied on the Tribunal s order in its own case for Assessment Year 2012-13. 11.5 The Ld.TPO, after considering assessee s submissions, accepted the S3 ch ..... X X X X Extracts X X X X X X X X Extracts X X X X
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