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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, AM
This appeal is filed by Torrecid India Private Limited (the Appellant/ Assessee) against the Assessment order passed by the learned Assistant Commissioner of Income Tax, 11(3) (1), Mumbai (the learned Assessing Officer) u/s 143(3) read with section 144C of the Income-tax Act, 1961 (the Act) dated 30th October, 2017, in pursuance of the direction issued by the Dispute Resolution Panel -2, Mumbai [The Ld DRP].
Assessee has preferred this appeal raising following grounds of appeal:-
“Based on the facts and circumstances of the case, and in law, Torrecid India Private Limited (hereinafter referred to as 'the Appellant) respectfully craves leave to prefer an appeal against the order passed by learned Assessing Officer (ld. AO") / learned Transfer Pricing Officer ("ld. TPO (dated 13 October 2017 received on 16 October 2017) in pursuance to the directions issued by Hon'ble Dispute Resolution Panel ("DRP") (dated 23 August 2017) under Section 143(3) read with Section 144C(13) of the Income-tax Act, 1961 (the Act) on the following grounds:
1. Transfer Pricing Adjustment: INR 29,906,541/
On the facts and in the circumstances of the case and in law, the learned AO erred in making an addition of Rs. 29,906,541/- to the appellant's total income by virtue of re computation of arm's length price of the international transaction under section 92 of the Act.
Rejection of methodical Transfer Pricing analysis and selection of Most Appropriate Method for Benchmarking Analysis
On the facts and in the circumstances of the case and in law, the ld. AO/ ld. TPO erred in and the Hon'ble
3. Without prejudice erred in not appreciating the economic adjustment made due to devaluation of currency
On the facts and in the circumstances of the case and in law, the Hon'ble DRP erred in not appreciating the economic adjustment made due to devaluation of Indian currency vis-à-vis foreign currency as appellant majorly imports its finished goods from associated enterprises in foreign currency.
4. Without prejudice erred in not appreciating the business reasons for losses
On the facts and in the circumstances of the case and in law, the Hon'ble DRP erred in not granting the benefit of commercial expediency for incurring business losses as the same are incurred on account of commercial factors which are beyond the appellant's control.
5. Erred in initiating penalty proceedings
The above grounds of appeal are mutually exclusive & without prejudice to each other.
The appellant prays for appropriate relief based on the said grounds of appeal and the facts and circumstances of the case.
The appellant craves leave to add, amend, alter and/or rescind any of the above grounds of appeal and to submit such statements, documents and papers as may be considered necessary at the time of or before the hearing of this appeal as per law.”
Brief fact of the case shows that assessee is a subsidiary of a foreign company engaged in manufacturing products for ceramic industries. Holding company is engaged in the business of ceramic frits, glazes, colour, and ceramic liquid colour.
Assessee filed its return of income on 27th November, 2013 at a loss of ₹5,08,81,923/-. During the course of assessment proceedings, the learned Assessing Officer noted that assessee has entered into certain international transactions and
Assessee benchmarked the international transaction of a. Import of finished goods adopting the resale price method taking the profit level indicator of gross profit/sales where margin of the assessee was 15.35%, margin of the third parties was 14.60%, and therefore the import of finished goods transaction was stated to be at arm’s-length.
b. With respect to the transaction of import of from material from clichés SA Mexico AE, assessee adopted CUP method taking the foreign AE as a tested party compared with the prices charged by the comparable companies and stated that the prices charged to the assessee is less than the price charged by them to the comparable companies and therefore same is at arm’s-length. c. With respect to the transaction of import of raw material from Toreecid SA, Al fabren SA, Torrecid Suzhou, assessee adopted the foreign AES tested party adopted profit level indicator of operating profit/total cost and found that tested party results are less than the result of comparable companies and concluded that the international transactions are at arm’s-length.
The learned Transfer Pricing Officer examined and found that assessee has not produced the audited accounts of the tested party therefore, PLI determined by assessee is not verified, and hence, benchmarking by the assessee was rejected. The learned transfer pricing officer combined the transactions of
Assessee filed reply to that which was not found acceptable. However, the objection to the margin with respect to the comparables was accepted and OP / sales margin of the comparables was scaled down from 14.60% to 3.07%. Accordingly, on the total purchases from Associated Enterprises of ₹43,86,47,813/-, Arms Length Price was computed at ₹39,27,40,921/- resulting in to an adjustment of ₹ 4,59,06,891/- made by order under Section 92CA (3) of the Act on 14th October, 2016.
Consequently, a draft assessment order was passed on 25 November 2016 against which assessee filed objections before the learned Dispute Resolution Panel.
The learned Dispute Resolution Panel considered the objection no. 2 of the assessee, it accepted that the assessee is engaged in trading as well as manufacturing activities noting that assessee has an individual manufacturer and also engaged in trading activity for procurement of finished goods from Associated Enterprises and sale to local customers. Thus, assessee is engaged in separate business activity, which cannot be clubbed for the benchmarking of international transaction. The learned Dispute Resolution Panel also looked into the fact that trading and manufacturing activities have been separately segmented and the gross profit can be arrived at. Further, the overheads can be allocated appropriately and therefore, it cannot be said that assessee is not maintaining any segmented
As per the direction of the Dispute Resolution Panel, the original adjustment to the Arms Length Price import of furnished goods was determined at ₹2,99,06,541/-. The assessment order determined the total loss at ₹2,09,75,382/-.
The learned Authorized Representative submitted that objection no. 3 decided by the learned Dispute Resolution Panel is the solitary ground of appeal no. 2, which is contested. This ground is the grievance of the assessee that learned Assessing Officer applied TNMM method instead of resale price method adopted by the assessee for import of finished goods. He submitted that assessee has categorically argued before the learned dispute resolution panel that on identical facts and circumstances in case of L’Oreal India Pvt. Ltd. (supra) with respect to distribution and marketing activities resale price method is held to be the most appropriate method. He submitted that there is no difference in the facts of that case as well as the case of the assessee. He referred to the direction of the learned Dispute Resolution Panel at paragraph no. 7.2.5 as well as at 7.3.1. He specifically stated that the learned Dispute Resolution Panel rejected the reliance on the above decision stating that L’Oreal India (P.) Ltd. (supra) was having only trading business, whereas, the assessee is having trading and manufacturing activities. He submitted that assessee [L’Oreal] was also engaged in manufacturing and trading in cosmetics. For this proposition, he referred to the decision of the co-ordinate Bench in case of L’Oreal India (P.) Ltd. (supra), which travelled before the Hon'ble High Court. Therefore, he submitted that the decision of the L’Oreal India
The learned Departmental Representative supported the orders of the lower authorities.
We have carefully considered the rival contentions and perused the orders of the lower authorities and direction of the learned dispute resolution panel. Facts at the cost of the reiteration are stated that assessee is subsidiary of a foreign company engaged in the manufacture of products for the ceramics and glass industry. Company purchases the finished goods for distribution in India. It also imports raw material, which is used in the manufacturing activity. The international transaction shown by the assessee as Under:-
serial nature of transaction Value of the Most number transaction appropriate method selected by assessee
Import of raw 14,02,80,914 Transactional materials from net margin 1 Torrecid SA , Al method farben SA and taking foreign
2 Import of raw 74,07,971 CUP materials from Chilches materials SA Torrecid Maxico
3 Import of finished 29,09,58,928 Resale price goods from Torrecid method SA and Digital taking Services Ceramics SL assessee as a tested party
Now there is no dispute with respect to the benchmarking of transaction stated at serial number 1 and 2 of the above table.
Only issue that remains for our adjudication is whether the transactions listed at serial number 3 being import of finished goods from associated enterprises amounting to ₹ 290,958,928/– benchmarked by the assessee adopting the resale price method where the profit level indicator is determined of gross profit ratio and the gross profit ratio of assessee was found to be at 15.35% whereas of the other comparable companies was 14.64% which is stated to be at arm’s-length by the assessee, is proper or not.
The assessee submitted before the lower authorities that assessee does not undertake any value addition to the goods
In view of our above decision with respect to ground number 1 is general in nature and ground number 3 – 5 are only consequential in nature and hence dismissed.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 22. 07.2022.