M/S. MADURA COATS PVT. LTD.,MDURAI vs. ACIT, CORPORATE CIRCLE, MADURAI

आयकर अपीलीय अिधकरण “डी” �ायपीठ चे�ई म�। IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, CHENNAI

माननीय ,ी वी.दुगा2 राव, �ाियक सद4 एवं माननीय ,ी मनोज कुमार अ9वाल ,लेखा सद4 के सम;। BEFORE HON’BLE SHRI V. DURGA RAO, JM AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकरअपील सं./ IT(TP)A No.50/Chny/2021 (िनधा2रण वष2 / Assessment Year: 2006-07) & आयकरअपील सं./ IT(TP)A No.52/Chny/2021 (िनधा2रण वष2 / Assessment Year: 2007-08) M/s. Madura Coats Pvt. Ltd. ACIT बनाम/ Post Box No.35, New Jail Road, Corporate Circle, Vs. Madurai-625 016. Madurai. �थायीलेखासं./जीआइआरसं./PAN/GIR No. AABCM-8297-K (अपीलाथ�/Appellant) : ("#थ� / Respondent) अपीलाथ�कीओरसे/ Appellant by : Shri Ajay Rotti (C.A) – Ld.AR "#थ�कीओरसे/Respondent by : Dr. S.Palanikumar (CIT) – Ld. DR सुनवाईकीतारीख/Date of Hearing : 08-06-2023 घोषणाकीतारीख/Date of Pronouncement : 12-06-2023 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. The captioned appeals are in second round of appeal before us. The sole issue in both the appeals is transfer adjustments made by revenue on export of threads. In the first round, the appeals were disposed-off vide common order ITA Nos.2207, 2212-13/Mds/2007, ITA Nos.19 & 2032/Mds/2011 for AYs 2002-03 to 2004-05 and 2006-07 to

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2008-08 dated 21.12.2012. In para 12 of the order, the issue was restored back to the file of Ld. DRP for adjudicating the matter afresh, inter-alia, talking into account external comparable while determining the Arm’s Length price (ALP) of international transactions. The DRP was also directed to consider different market conditions also. These directions have been carried out by Ld. DRP vide directions dated 28.02.2020 which has been given effect to BY Ld. AO. Aggrieved, the assessee is in further appeal before us. 2. The Ld. DRP held that TNMM method adopted by the assessee was not most appropriate method. Further, the assessee did not produce external comparable as undertaken before ITAT. In AY 2009-10, the DRP rejected the assessee’s plea and Tribunal upheld TPO’s approach. Similarly, for AY 2011-12, DRP rejected the assessee’s objections and held that benchmarking by employing internal comparability of transactions with AEs and non-AEs could not be held to be correct approach. In the present case, the assessee did not choose to submit any external comparable and merely argued that the application of CUP was not justified in spite of its undertaking given before ITAT to produce external comparable. Therefore, application of CUP was justified and the adjustment as made earlier, were upheld. Similar directions were issued for both the impugned years. Aggrieved, the assessee is in further appeal before us. 3. The Ld. AR, at the outset, drew attention to ground no. 6 of appeal for AY 2006-07 and submitted that lower authorities erred in applying CUP method for 3.19% of export transactions wherein TNMM was adopted for the balance 96.81% of the transactions. The Ld. AR

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submitted that similar ground has been allowed by Tribunal in its latest decision for AYs 2011-12 and 2002-03, ITA Nos.548/Chny/2016 & ITA No.3281/Chny/2019 order dated 12.08.2022. The attention was drawn to para-8 of the order. The Ld. AR further submitted that the department’s misc. application against the same has also been dismissed by Tribunal vide MA Nos.46-47/Chny/2023 common order dated 10.04.2023. The copies of all these orders have been placed on record. The Ground No. 6 read as under: - 6.The learned TPO, AO and the Hon'ble DRP erred in applying Comparable Uncontrolled Price ("CUP") as the method of determination of ALP for 0.39% of transactions pertaining to export of threads (i.e. adopted on selective basis) wherein TNMM was adopted for the balance 99.61% of transactions.

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for AY 2011-12. By way of this appeal, the assessee assailed the decision of the Tribunal rendered in ITA No.548/Chny/2016 dated 05.04.2018 for AY 2011-12. The Hon’ble Court noted the decision rendered in assessee’s appeal TCA No.739 of 2017 for AY 2009-10 against the order of Tribunal dated 16.11.2016. In the said decision, Hon’ble Court held that the application of correct method would depend on the facts and circumstances of each case. It was further observed that there was misreading of Tribunal order dated 21.12.2012. In this Tribunal order dated 21.12.2012, there was an open remand to the authorities below to decide as to which was the appropriate method to be adopted (CUP or TNMM). Therefore, Tribunal in order dated 16.11.2016 for AY 2009-10 had fallen into error in holding that the CUP method was the most appropriate method and this issued was already decided by the Tribunal. However, the same was not correct reading of previous order dated 21.12.2012. The Hon’ble Court further observed as under: - 15. A bare reading of paragraph 12 of the order passed by the learned Tribunal for the previous years dated 21.12.2012 would also show that it was an open remand and no specific method was finalized by the Tribunal in the previous order of the appeal for previous assessment years. The misreading of the previous order of the learned Tribunal while passing the present impugned order on 16.11.2016 ahs resulted in multiplicity of the litigation and after remand also, as stated by the learned counsel for the department before us, a second round of appeals has again come up before the learned Tribunal itself which appeals are said to be pending before the learned Tribunal as of now.

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matter was restored back to the file of Tribunal. Pursuant to the same, the Tribunal decided the issue in assessee’s favor vide order dated 12.08.2022. The department’s misc. application, against the same, has also been dismissed on 10.04.2023. Thirdly, the Tribunal order dated 16.11.2016 for AY 2009-10 also stood reversed by Hon’ble High Court and the matter was restored back to the Tribunal to consider the issue of most appropriate method and transfer pricing adjustments made therein. This being so, the issue would stand squarely covered in assessee’s favor by para-8 of Tribunal order dated 12.08.2022 for AY 2011-12 which read as under: - 8. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The assessee entered into various international transactions with its AEs right from import of raw materials, export of finished goods, payment of royalty payment of management service fee and import of machinery etc. The assessee has aggregated all transactions and applied TNMM as most appropriate method and considered to be a tested party. The TPO has accepted TNMM as most appropriate method in respect of all transactions including export of threads to AEs to the extent of 99.95% transactions of export of threads. However, in respect of 0.05% of transactions pertains to export of threads, he has applied CUP method by cherry picking few transactions and made TPO adjustment of Rs.50,35,211/-. The TPO has never disputed TNMM method adopted by the assessee and has accepted the fact that the TNMM as most appropriate method in respect of 100% of transactions, except few transactions of export of threads. Further, in respect of export of threads to AEs, the assessee entered into a transaction worth Rs.240.78 crores and the TPO has accepted 99.95% transactions pertains to export of threads to AE without suggesting any adjustment towards ALP. However, cherry picked about 12-13 transactions of export of threads to AEs and then compared with export of threads to non-AEs to make adjustment of Rs.50,35,211/- without assigning any reasons, as to why, and how a small portion of transactions are not at ALP. It is a well settled principles of law by the decision of various Courts & Tribunal that most appropriate method should be selected to bench mark international transactions of the assessee with its AEs based on nature of transaction. However, it is incorrect to adopt two methods for one class of transactions and bench mark such transactions by cherry picking few transactions out of a lot of transactions undertaken by the assessee with its AEs and this principle is supported by the decision of ITAT Pune Bench in the case of Amphenol Interconnect India Pvt. Ltd. (supra), where an identical issue has been decided by the Tribunal and after considering relevant facts held that when the TPO has accepted 90% of export to the AEs are at ALP, there is no reason to apply CUP method for remaining part of the exports. The Hon’ble Bombay High Court in the

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case of Amphenol Interconnect India (P.) Ltd., has held that when the TPO has accepted TNMM as most appropriate method for an overwhelming majority of exports to AEs, then there is no reason why for the balance of exports of goods, TNMM method should be not be applied. In this case, the TPO has accepted 99.95% of export of threads to AEs under TNMM method, but he had cherry picked 0.05% of transactions and applied CUP method without there being any valid reason. Therefore, we are of the considered view that the TPO is erred in adopting CUP method for few transactions when he has accepted overwhelming majority of transactions under TNMM method. The DRP without appreciating the above facts, simply sustained TP adjustment suggested by the TPO. Hence, we direct the AO/TPO to delete TP adjustment made towards few transactions by adopting CUP as most appropriate method. 9. In the result, the appeal filed by the assessee in ITA No.548/Chny/2016 for the AY 2011-12 is allowed.

The position that similar facts exist in both the years under appeal, remain undisputed before us. Therefore, we would hold that application of CUP method by revenue for small percentage of transaction while accepting TNMM method for substantial percentage of transactions was not justified. The assessee’s TNMM method was to be accepted. Therefore, we delete the impugned adjustments, in both the years. 7. Both the appeal stands allowed. Order pronounced on 12th June, 2023

Sd/- Sd/- (V. DURGA RAO) (MANOJ KUMAR AGGARWAL) �ाियक सद4/JUDICIAL MEMBER लेखा सद4 / ACCOUNTANT MEMBER चे6ई Chennai; िदनांक Dated : 12.06.2023 DS आदेश की Yितिलिप अ9ेिषत/Copy of the Order forwarded to : 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3 आयकर आयु�त/CIT 4. �वभागीय ��त�न�ध/DR 5. गाड� फाईल/GF