MADURA COATS PVT. LTD.,KARNATAKA vs. JCIT, RANGE-1, MADURAI

आदेश / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: These two appeals filed by the assessee are directed against separate but identical orders of Dispute Resolution Panel-2, Bangalore, dated 24.11.2015, for the AY 2011-12 and order of the Commissioner of Income Tax(Appeals)-1, Madurai, dated 30.09.2019, for the AY 2002-03. Since, facts are identical and issues are common, for the sake of

Sl.No. Nature of Transaction Amount(Rs.) 1 Import of Raw Material 47,667,120 2 Import of Shade Cards 347,475 3 Export of Threads 2,407,837,982 4 Import of Machinery 21,736,129 5 Payment of Royalty 340,435,147 6 Payment of Management Service fee 44,668,113

ITA No.548/Chny/2016 & 3 ::

7 Payment of Commission on exports 1,560,648 8 Reimbursement of expenses paid 105,987,436 9 Reimbursement of expenses received 2,868,009 The assessee has bench marked transactions with its AEs by adopting TNMM as most appropriate method. During the course of assessment proceedings, a reference was made to TPO to determine ALP of international transaction of the assessee with its AEs. The TPO has rejected TNMM method applied by the assessee and has substituted CUP method and worked out an upward adjustment of Rs.50,35,211/- only in respect of export of threads to AEs.

ITA No.548/Chny/2016 & 4 :: the arguments of the assessee and sustained additions made by the AO towards TP adjustment in respect of export of threads to AEs.

ITA No.548/Chny/2016 & 5 :: further referring to the decision of ITAT Pune Bench, in the case of Amphenol Interconnect India Pvt. Ltd. v. DCIT in argued that the Tribunal held that when the TPO has accepted 90% of transactions under TNMM method is erred in applying CUP method for remaining 10% transactions by cherry picking few transactions out of total transactions of the assessee with its AEs. The Ld.AR for the further assessee submitted that the Hon’ble Bombay High Court in the case of PCIT v. Amphenol Interconnect India (P.) Ltd., reportedin [2018] 91 taxmann.com 441 (Bombay), has upheld the decision of ITAT Pune Bench and held that when the TPO has accepted TNMM as most appropriate method for majority of export to AE, erred in applying CUP method for balance transactions. He further submitted that in the present case, the TPO has accepted 99.95% transactions under TNMM. However, cherry picked 0.05% transactions and applied CUP method without there being any reason to justify his stand.

ITA No.548/Chny/2016 & 6 :: adoption of CUP method for few transactions and said findings are not intervened by the Hon’ble Madras High Court. Therefore, the question of now going into the aspect, what is the appropriate method to bench mark transactions is outside the scope of the powers of the Tribunal and thus, the issue may be decided in line with the direction of the Hon’ble High Courts.

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 has ITA No.548/Chny/2016 & 7 :: 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 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 ITA No.548/Chny/2016 & 8 :: 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.

Therefore, for similar reasons, we direct the AO/TPO to delete TP adjustment made towards few international transactions by adopting CUP as most appropriate method.

ITA No.548/Chny/2016 & 9 ::