TMI Blog2023 (3) TMI 1090X X X X Extracts X X X X X X X X Extracts X X X X ..... y adopting internal CUP method - HELD THAT:- We note that in identical facts and circumstances in the case of Firmenich Aromatics Production (India) Pvt. Ltd [ 2018 (11) TMI 862 - ITAT MUMBAI] held that CUP Method could not be adopted as most the appropriate method. In the present case the TPO has accepted application of Internal TNMM for transactions of 65% of exports from Nagda Plant. Therefore, we hold that internal TNMM should also be adopted for benchmarking the balance 35% of the export transactions pertaining goods from Nagda Plant. Accordingly, we set aside the transfer pricing adjustment and direct the TPO/Assessing Officer to re-compute ALP using internal TNMM. Unexplained expenditure and undisclosed income - Admission of additional evidence - HELD THAT:- The Appellant was not able to produce evidence before lower authorities due to paucity of time and partly for the reason that the information/evidence was also not in the knowledge/possession of the Appellant at the relevant time. Accepting the reasons failure to furnish this evidence before the Assessing Officer and DRP provided by the Appellant, we admit the additional evidence in terms of Rule 29 of the Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Appellant prays that the aforesaid additions be deleted. 4. Without prejudice to Ground 3 above, on the facts and in the circumstances of the case and in law, the AO erred in invoking section 69C of the Act in respect of addition of Rs. 4,86,49,361/-. 5. Without prejudice to Ground 3 above, on the facts and in the circumstances of the case and in law, the AO erred in treating Rs. 3,85,29,119/- as income from undisclosed sources. The above grounds are without prejudice to each other. 3. Brief facts of the case are that the Appellant, a subsidiary of Lanxess Deutschland GmbH, is a private limited company engaged in the business of manufacturing and trading of various chemicals and chemical intermediaries. The Appellant filed its return of income for the Assessment Year 2010-11 on 25.10.2011 declaring total loss of INR (-) 33,85,13,905/-. The case of the Appellant was selected for scrutiny. During the assessment proceedings, the Assessing Officer noted that the Appellant has entered into international transactions with its Associated Enterprises (AEs) and therefore, a reference was made under Section 92CA(1) to the Transfer Pricing Officer (TPO) for the det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,119/- undisclosed income. 6. Being aggrieved the Appellant is now in appeal before us against the Final Assessment Order, dated 10.12.2014 on the ground reproduced in paragraph 2 above which are taken up in seriatim hereinunder. Ground No. 1 7. Ground No. 1 is directed against the transfer pricing addition of INR 54,62,391/- made in respect of export of finished goods from Thane Plant by adopting internal TNMM. 8. The Ld. Authorised Representative for the Appellant submitted that it is reasonably well established that the economic circumstances around export sales and domestic sales would be materially different and hence, exports should be compared with exports alone, especially where reliable data is available for comparison. There would be various differences between the functional, asset and risk (FAR) profiles between a domestic sale and an export sale. For example, the difference on account of foreign exchange fluctuation, marketing and business development strategy employed, the intensity of risks in relation to transportation and logistics functions is different for export segment vis-a-vis the domestic segment. 9. Per contra, Ld. Departmental Representa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf of the Appellant that the segment of export to AEs should have been compared with the segment of export to non-AEs since the data was available and the margins were not disputed. Under TNMM broad similarity in FAR is acceptable since the net margins, which are tested, are more tolerant to the differences. Contention of the Appellant before Assessing Officer and DRP was that exports made to different geographical location to non-AEs could be considered to benchmark export sales to AEs by adopting internal TNMM method since the transactions undertaken with the AEs and Non-AEs were in the same industry, and had high level of similarity with respect to products, cost of goods sold, manufacturing processes, etc. In our view, the DRP erred in adopting the aforesaid reasoning given by the Appellant to include even the domestic sales made by the Appellant for benchmarking the export sales made to AEs from Thane Plant. Accordingly, we set aside the transfer pricing addition of INR 54,62,391/- and direct the TPO/Assessing Officer to re-compute ALP of the international transaction of export of goods from Thane Plant by taking OP/OC of the export sales to non-AEs. In view of the aforesaid d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 145/Mum/2017), and Intervet India Pvt. Ltd Vs. DCIT (70 Taxmann.com 163 Pune-Trib). 14. Per contra, the Ld. Departmental Representative relied upon the order passed by TPO and the DRP. She submitted that in the case of the Appellant, CUP can be applied considering internal comparable uncontrolled transactions entered into by the Appellant with unrelated parties. The most direct comparison has been provided by the TPO by comparing uncontrolled transactions of sale of similar products by the Appellant to unrelated parties in India. The aforesaid internal comparison undisputedly provided the most reliable and direct benchmark for establishing the ALP of the international transactions of exports of goods from Nagda Plant. She further submitted that the decision of the Hon ble Bombay High Court was distinguishable on facts. 15. We have considered the rival submissions and perused the material on record. We note that in identical facts and circumstances, the Mumbai Bench of the Tribunal has, in the case of Firmenich Aromatics Production (India) Pvt. Ltd vs. ITO [ITA No. 7145/Mum/2017, Assessment Year 2013-14, pronounced on 13.11.2018], held that CUP Method could not be adopted as m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th sales made to AEs. In fact the difference in quantities is to the extent of 1,294 times to 11 times. It is noteworthy that the CUP analysis of common products sold to AE and Non-AE, one of the example taken from the facts of the case is that w.r.t. product 'Damascenone Total', the assessee had sold 25 kg to a Non-AE at the rate of INR 38,000 per kg and sold 1,260 kg and 16,299 kg at the rate of INR 9,800 and INR 9,664 respectively to its AE namely, Firmenich Aromatics (China) Company Limited and Firmenich SA. Similarly, the assesee has sold 50 kg of the same product at the rate of INR 36,408 to other AE. Thus, TPO erred in comparing small; quantities with large quantities, thereby ignoring the volume difference. We also noted that when the quantity sold to a Non-AE is higher than that sold to an AE, then the price charged from the AE is more than non-AE. The assessee also explained that this would show that the comparison done by the TPO is wholly erroneous. 10. Further according to us, differences in the geographic markets - export prices of same products are bound to be different in different geographical locations / markets, as these prices are factor of raw mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is covered by the decision of the Coordinate Bench of this ITAT in the case of M/s. Amphenol Interconnect India Pvt. Ltd., in ITA No. 477/Pun/2015 [TS-201-ITAT2014(PUN)-TP], wherein it is held as under: xx xx 13. Further, Hon ble Bombay High Court dismissed the appeal of the Department filed by the Department against the ITAT s order and noted that in this case, since the finished goods are customized goods and the geographical differences, volume differences, timing differences, risk differences and functional differences, the CUP method would not be the most appropriate method to determine the ALP. It upheld the stand of the assessee that TNMM is the most appropriate method to arrive at ALP. This judgement is reported as PCIT Vs. M/s. Amphenol Interconnect India Pvt. Ltd., (supra). 14. In view of the above facts of the case and the issue being covered by the decision of the Co-ordinate Bench of the Tribunal in the case of PCIT Vs. M/s. Amphenol Interconnect India Pvt. Ltd., (supra) and which is affirmed by the Hon ble Bombay High Court, respectfully following the same we delete the addition and allow this issue of assessee s appeal. (Emphasis Supplied) 16. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... djustment made in earlier year has been decided by the Tribunal in favour of assessee. However, since the Department has preferred an appeal to the Hon'ble Bombay High Court for assessment years 2005-06 and 2006-07 to 2008-09, the plea of assessee was not accepted. Further, in respect of imports from associated enterprises, the TPO noted that the said raw materials were used for manufacture and also sold to third party and associated enterprises. On total turnover of about Rs. 42 lakhs, the TPO suggested an upward adjustment of Rs.13,05,812/-. 7. We find that similar issue has arisen in the case of assessee starting from assessment year 2005-06. The Tribunal vide order dated Amphenol Interconnect India (P.) Ltd. v. Dy. CIT [2015] 64 taxmann.com 424 (Pune - Trib), relating to assessment year 2009-10 on similar issue had referred to the order of Tribunal in earlier years relating to assessment years 2006-07 to 2008-09 decided vide consolidated order dated 30.05.2014 and had extensively deliberated upon the issue whether CUP method is to be applied for benchmarking international transactions of assessee and/or whether the assessee was correct in aggregating the transactions u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orts to associated enterprises, the TPO has accepted the TNMM method for arriving at the arm's length price and hence, there was no reason why for balance of export of finished goods, TNMM method should not be applied. Similar direction was also given in respect of imports of finished goods, which were sold to third parties and the associated enterprises and by applying FAR analysis, it was held that where the finished goods were customized goods and the geographical differences, volume differences, timing differences, risk differences and functional differences were there, then CUP method would not be the most appropriate method to determine arm's length price. The TNMM method was held to be most appropriate method. Further, the Hon'ble High Court has applied similar reasoning while deciding appeal of assessee relating to assessment year 2005-06 in ITA No.1388/2015, vide judgment dated 18.04.2018 and the appeal of Revenue has been dismissed. In the totality of the above said facts and circumstances, where the issue stands covered by the order of jurisdictional High Court in the case of assessee itself, there is no merit in the orders of authorities below in making afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e notice, dated 07.03.2014, (received by the Appellant on 10.03.2014), the Assessing Officer had provided to the Appellant a list of 25 parties which included (a) parties which had not replied to the notices issued by the Assessing Officer seeking balance confirmations and (b) parties which had replied to the notices but there existed differences between the amounts reported by the Appellant and as confirmed by these parties. The Appellant was effectively granted only 4 days time to collate the details and provide reconciliation as the Appellant was directed to file reply by 14.03.2014. The Ld. Authorised Representative for the Appellant submitted that in such short time span, the Appellant was not able to provide necessary documents and reconciliation in respect of 7/8 parties. The Appellant had, vide letter dated 19.03.2014, written to the Assessing Officer sought for a copy of confirmations received from various parties so that the Appellant could provide reconciliation. However, the aforesaid request was rejected by the Assessing Officer. Subsequently, on receipt of the assessment order passed, the Appellant commenced the exercise of reconciliation for the balance 7 parties for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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