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Income Tax Appellate Tribunal, “K” BENCH, MUMBAI
Before: SHRI S. RIFAUR RAHMAN & SHRI RAVISH SOOD
The captioned appeals have been filed by the assessee challenging the order dated 19th December 2016, for the assessment year 2012–13, and order dated 28th September 2017, for the assessment year 2013–14, passed u/s 144C(5) of the Income Tax Act, 1961 (for short "the Act") in pursuance to the directions of the leaned Dispute Resolution Panel (DRP)–1(WZ), Mumbai.
These appeals pertain to the same assessee involving common issues arising out of materially similar set of facts and circumstances and were heard together. As a matter of convenience, therefore, all the three appeals are being disposed off by way of this consolidated order.
At the outset, we wish to place on record that the learned Counsel, Shri Rajan R. Vora, appearing for the assessee submitted before us that most of the grounds of appeal raised for the captioned assessment years under consideration are identical and covered by assessee’s own case for preceding assessment year, wherein the Co– ordinate Bench of this Tribunal has been consistently decided these issues on merit. In support of this contention, he filed a chart showing each ground of appeal which is covered by the decision of the Tribunal
3 Dow Chemical International Pvt. Ltd. in preceding assessment years. The learned Departmental Representative also fairly conceded the submissions of the learned Counsel for the assessee. Consequently, this Bench was of the considered opinion that since identical issues raised in these appeals has already been decided in preceding assessment year, therefore, we deem it fit and appropriate to avoid discussing repetitive facts of each issue.
IT(TP)A no.1474/Mum./2017 Assessee’s Appeal – A.Y. 2012–13
Facts in brief:– The assessee is engaged in manufacturing speciality chemicals, distribution of chemicals and undertaking marketing support activities for overseas group companies. The assessee’s business operations of manufacturing speciality chemicals can be divided into the following three areas namely; (i) Paint and coating materials; (ii) Packaging and building materials; and (iii) Performance chemicals and biocides. For the year under consideration, the assessee filed its return of income on 29th November 2012, declaring total loss of ` 14,07,34.861. Along with its return of income, the assessee also filed Accountant's Report in Form 3CEB [in accordance with the provisions of section 92E of the Income-tax Act. 1961 (for short 'the Act')] reporting, inter–alia, the particulars of the 4 Dow Chemical International Pvt. Ltd.
international transactions undertaken with its Associated Enterprises ('AEs') during the year.
The Transfer Pricing Officer, vide order dated 28th January 2016, 5. passed under section 92CA(3) made an adjustment of ` 58,27,32.529, to the international transaction of import of raw materials, of the assessee. Further, the learned Transfer Pricing Officer made an alternate adjustment of ` 24,96,88,475, on the transaction of export of finished goods transaction made by the assessee to its A.Es.
The Assessing Officer thereafter passed the draft assessment order dated 31st March 2016, under section 144C(1) r/w section 143(3) of the Act. Against the said order, the assessee had filed objections before the Dispute Resolution Panel-1 on 2nd May 2016, which were disposed off by the DRP, vide its order dated 19th December 2016. Based on these directions of the DRP, the Assessing Officer passed the final assessment order dated 31st January 2017, under section 143(3) read with section 144C(13) of the Act and determined the assessee’s total income at ` 58,27,32,529, resulting raising a demand of ` 22,05,78,740. The assessee being aggrieved is in further appeal before the Tribunal raising following grounds of appeal.
“Based on the facts and circumstances of the case. Dow Chemical International Private Limited, as successor of Rohm
5 Dow Chemical International Pvt. Ltd. and Haas (India) Private Limited, (hereinafter referred to as The Appellant') respectfully craves to prefer an appeal against the assessment order issued by the Deputy Commissioner of Income-tax - 14(1)(2), Mumbai (hereinafter referred to as the 'Assessing Officer') under section 143(3) read with section 144C(13) in pursuance of directions issued by the Hon'ble Dispute Resolution Panel - 1 and order of Joint Commissioner of Income Tax, Transfer Pricing -3(3). (hereinafter referred to as the learned TPO') on the following grounds , each of which are without prejudice to one another: On the facts and in the circumstances of the case and in law, the learned AO/ TPO on fact and in law has: GENERAL
1. Erred in determining the Appellant's total income at Rs 44,19,97.670 as against the loss of Rs 14,07.34,861 disclosed in the return filed. TRANSFER PRICING ADJUSTMENTS I. IMPORT OF RAW MATERIAL FROM ASSOCIATED ENTERPRISES ('AEs) General 2. erred in making an adjustment of Rs 58,27.32.529 to the total income of the Appellant under Section 92CA(3) of the Act on account of adjustment in the arm's length price of the international transaction of import of raw materials for manufacturing by the Appellant from AEs. Inappropriate rejection of Cost Plus Method ('CPM) and instead adopting Transactional Net Margin Method (TNMM) 3. erred in not accepting the economic analysis undertaken by the Appellant under CPM, in accordance with the provisions of the Income Tax Act. 1961 ('Act) read with the Income Tax Rules, 1962 ('Rules') for determination of the arm's length price and instead adopted TNMM as most appropriate method (MAW). Inappropriate rejection of comparable companies adopted by Appellant 4. erred in inappropriately rejecting the companies adopted as comparable by the Appellant in relation to the international transaction of import of raw materials and sale of finished goods. Inappropriate acceptance of non-comparable companies
6 Dow Chemical International Pvt. Ltd.
Inappropriate acceptance of non–comparable companies 5. erred in considering non-comparable companies as comparable to the Appellant for benchmarking the international transaction of import of raw materials and sale of finished goods without providing any cogent reason for rejecting Appellants argument on non- comparability of these companies. Inappropriate rejection of additional comparable companies proposed by the Appellant 6. erred in inappropriately contending that since the additional companies were not a part of transfer pricing study report, they cannot be considered now. 7. erred in inappropriately rejecting additional comparable companies submitted by the Appellant (on a without prejudice basis) in response to the new companies introduced by the transfer pricing officer as comparables during the course of the assessment proceedings. Non-consideration of Comparable Uncontrolled Price (CUP) available in the form of market prices published by Independent Chemical Information Services (ICIS) 8. erred in inappropriately rejecting CUP available in case of import of raw materials (i.e. monomers) available on ICIS website (relied upon by chemical industry), furnished by the Appellant for justifying the arm's length nature of the transaction of import of raw materials (monomers). 9. without prejudice to the above, erred in not taking cognizance of Appellants contention that there will be no transfer pricing adjustment in case of import of raw material (i.e. monomers) based on comparison with market prices published by ]CIS, in case the value of adjustment for each raw materials imported is aggregated. Non-consideration of CUP available in the form of market prices published by TIPS database 10. erred in inappropriately rejecting CUP available in case of import of raw materials available on TIPS database (compiled based on customs data), furnished by the Appellant for justifying the arm's length nature of the transaction of import of raw material by stating that TIPS database prices are available for only 85 percent import of raw materials.
7 Dow Chemical International Pvt. Ltd.
11. without prejudice to the above, erred in not taking cognizance of Appellant's contention that there will be no transfer pricing adjustment in case of import of raw materials (to the extent comparable data is available on TIPS database) based on comparison with market prices published by TIPS database, in case the value of adjustment for each raw materials imported is aggregated. Adjustment on export of finished goods 12. without providing an opportunity of being heard to the Appellant, erred in making an adjustment of Rs 24,96.88,475 on the international transaction of sale of finished goods as an alternate analysis, by applying TNMM as the most appropriate method and applying the comparables as per ground 4 above. II. SET OFF BUSINESS LOSS AND UNABSORBED DEPRECIATION BROUGHT FORWARD 13. The Appellant prays that the AO be directed to set oft the brought forward business toss and unabsorbed depreciation against the assessed income of AY 2012-13. III. PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT 14. erred in initiating penalty proceedings under section 271 (1)(c) of the Act without appreciating the fact that the Appellant has neither concealed nor furnished any inaccurate particulars of income. The Appellant craves leave to add, alter, amend, delete or withdraw any or all of the grounds of appeal at or before the hearing of the appeal so as to enable the Income-tax Appellate Tribunal to decide the appeal according to law.
The assessee has also filed additional grounds of appeal bearing number 15 to 18, which are reproduced below:–
“Ground 15 Without prejudice to other grounds of appeal, the learned AO/ DRP ought to have considered CUP method available for export of finished goods on various databases (including TIPS database, wherein data for 95.13 percent of total exports to AEs is 8 Dow Chemical International Pvt. Ltd. available), for justifying the arm's length nature of the international transaction of export of finished goods. Ground 16 Without prejudice to other grounds of appeal
, the learned AO/ DRP ought to follow portfolio approach for application of CUP method, thereby setting off the positive and negative adjustments while determining the arm's length price of export of finished goods. Ground 17. Without prejudice to ground nos 3 and 12 of the appeal and the above grounds, the learned AO! DRP ought to consider the Appellant's segmental results pertaining to export to AEs segment while benchmarking the said international transaction applying TNMM wherein it is evident that operating margin is at arm's length. Ground no.18 Without prejudice to the other grounds, the Learned Assessing Officer erred in continuing assessment proceedings and passing the final assessment order in the name of a non– existent / amalgamating entity i.e., Rohm and Haas India Private Limited instead of Dow Chemical International Private Limited (Successor of Rohm and Haas India Private Limited), thus rendering the entire proceedings null and void, liable to be quashed.”
Since the aforesaid grounds of appeal and additional grounds of appeal are inter–connected and consequential to certain issues to be decided on merit, therefore, we are proceeding to dispose off the issues on merit randomly and not on chronological order.
9. The issue arising out of grounds no.1 and 2 being general in nature, no separate adjudication are required.
10. The issue arising out of ground no.3, which relates to inappropriate rejection of cost plus method (CPM) and instead
9 Dow Chemical International Pvt. Ltd. adopting Transactional Net Margin Method (TNMM) and grounds no.10 and 11, relates to applicability of direct method in the form of CUP method due to availability of data using TIPS database.
Learned Counsel for the assessee submitted before us that the issue arising out of the aforesaid grounds of appeal is now well settled which is covered in favour of the assessee by the decision of the Tribunal rendered in assessee’s own case for the assessment year 2010–11 and 2014–15. He accordingly prayed that similar directions may be issued in this year also.
The learned Departmental Representative relied upon the observations of the authorities below.
Having considered the rival contentions of the learned Counsels appearing for the parties and having perused the material on record, we find that, except variation in figures, the facts and circumstances of the issue arising out of the aforesaid grounds of appeal are mutatis mutandis materially identical to the facts and circumstances relating to the issue decided by the Co–ordinate Bench of this Tribunal in assessee’s own case in M/s. Rohm and Haas India Pvt. Ltd. v/s ACIT, ITA no.2199/Mum./2015 & ITA no.6577/Mum./2018, for the A.Y. 2010–11, order dated 25th September 2019, wherein the issue has been decided in favour of the assessee and against the Revenue. For 10 Dow Chemical International Pvt. Ltd.
better appreciation of facts, the relevant findings of the Tribunal are reproduce below:–
“6. We have heard rival submissions and perused the materials available on record including the judicial pronouncements relied upon by the parties before us at the time of hearing. It is not in dispute that assessee had been consistently following CPM as MAM in the earlier years. It is not in dispute that assessee had indeed adopted CPM as MAM in its TP study report and even before the ld. TPO. The said method has been rejected by the ld. TPO on the ground that assessee has incurred loss from its manufacturing business during the year under consideration. From the elaborate arguments narrated hereinabove of the ld. AR, we are convinced that the assessee had incurred losses during the year not on account of import transactions from its AEs, but on account of commercial reasons by having lower sales price realization from a third party customer i.e., Asian Paints Ltd., pursuant to MOU entered into by the assessee with Asian Paints Ltd., The reasoning given by the ld. AR in this regard for the incurrence of loss during the year are quite convincing and hence, we dismiss the rejection of CPM as MAM by the ld. TPO in the instant case. However, we find that assessee had given up the claim of CPM before the ld. DRP and had prayed for adoption of CUP in view of the fact that CUP being a direct method and the comparable data was available for almost 68% of the total value of import transactions using ICIS software. We find that this plea of the assessee was rejected by the ld. DRP for the reasons narrated hereinabove and the ld. DRP upheld the action of the ld. TPO in applying the TNMM as MAM. We find that the ld. DRP had categorically accepted the fact of fluctuating prices both upward and downward pricing for the same product at or near to the relevant date of transactions using CUP method. We find that ultimately the purpose of TP analysis is to benchmark the international transactions carried out by the assessee with AEs with comparable cases using any one of the prescribed methods. When the CUP method using ICIS software covers 68% of the total transactions that too being a direct method and a traditional transaction method, the ld. DRP ought to have accepted the same. Before us, we find that assessee by way of additional evidences had produced comparable data using TIPS Data Base which covers even more higher percentage of total value of import transactions from the AEs. We hold that CUP is a direct method. We find that assessee has raised additional grounds of appeal for adoption of CUP to be MAM which we are inclined to accept in the facts of the instant case. We find that assessee had also filed additional evidences
11 Dow Chemical International Pvt. Ltd. before us by producing data from TIPS Data Base maintained by the Customs Department, for the purpose of comparability of the prices of import transactions carried out by the assessee vis-à- vis comparable prices on the relevant date or nearer to the date of transactions. This according to the ld. AR covers 94.69% of the total value of import transaction from AEs, which according to the ld. DR covers only 70% of the total transactions. We hold that in either case, substantial amount of transactions gets covered using TIPS Data Base under CUP method. Hence, we admit the entire additional evidences filed by the assessee before us in this regard and deem it fit and appropriate to restore the entire issue to the file of the Ld. AO with the following directions:- (a) CUP should be adopted as MAM being the direct method and being a traditional transaction method which should be preferred over traditional profit method such as RPM and TNMM. (b) TIPS Data Base maintained by the Customs Department which has also been accepted by the Delhi Tribunal in the case of Tilda Riceland Pvt. Ltd. vs. ACIT reported in 161 TTJ 213 supra, should be accepted as a valid database. (c) While comparing the data at or near to the relevant date of transactions with the comparable prices using TIPS Data Base, the ld. TPO is directed to adopt portfolio approach to take both the prices that are favourable to assessee as well as that are adverse to assessee in view of a categorical finding of fluctuating prices for the same product already given by the ld. DR which is not disputed by the ld. DR before us. We hold that the revenue cannot do cherry picking of those transactions which are favouring them and ignore those transactions that are detrimental to them while benchmarking the transactions of the assessee with comparable cases. This has already been upheld by the decision of this Tribunal in the case of Boskalis International Dredging C.V vs. DDIT reported in 67 SOT 118 , which decision has been subsequently approved by the Hon’ble Jurisdictional High Court reported in TS-1310-HC-2018 (MUM). 6.1. Based on the aforesaid directions, the ld. TPO is directed to work out the arm’s length price and make adjustment thereon, if necessary in respect of import of raw materials made by the assessee from its AEs. Accordingly, the Revised ground Nos.1-7 raised by the assessee in respect of transfer pricing adjustment together with additional grounds thereon are allowed for statistical purposes.”
12 Dow Chemical International Pvt. Ltd.
Since the issue for our adjudication is similar to the issue decided in assessee’s own case as aforesaid, respectfully following the same, similar directions are issued for the year under consideration also. Consequently, these grounds no.3, 10 and 11, are allowed for statistical purposes.
The issue arising out of additional grounds no.15 and 16, relates to applicability of direct method in due to availability of data using TIPS database for export of finished goods.
Learned Counsel for the assessee submitted before us that the issue arising out of the aforesaid grounds of appeal is now well settled which is covered in favour of the assessee by the decision of the Tribunal rendered in assessee’s own case for the assessment year 2010–11 and 2014–15. He accordingly prayed that similar directions may be issued in this year also.
The learned Departmental Representative relied upon the observations of the authorities below.
Having considered the rival contentions of the learned Counsels appearing for the parties and having perused the material on record, we find that, except variation in figures, the facts and circumstances of the issue arising out of the aforesaid grounds of appeal are mutatis mutandis materially identical to the facts and circumstances relating to 13 Dow Chemical International Pvt. Ltd.
the issue decided by the Co–ordinate Bench of this Tribunal in assessee’s own case in M/s. Rohm and Haas India Pvt. Ltd. v/s ACIT, ITA no.6577/Mum./2018, for the assessment year 2014–15, order dated 25th September 2019, wherein the issue has been decided in favour of the assessee and against the Revenue. For better appreciation of facts, the relevant findings of the Tribunal are reproduce below:–
“13.8. We have heard rival submissions. Before us, the assessee filed additional evidence in the form of datawise comparison of export prices and market prices using TIPS Data Base under CUP method using aggregation / portfolio approach for 94.23% of the total exports made to AE’s and pleaded for acceptance of the same. This was filed in addition to vehemently objecting to the adoption of TNMM as MAM. The ld. AR on without prejudice basis, vide letter dated 08/02/2019 also submitted that even if TNMM is to be adopted as MAM, the assessee segmental results pertaining to export of finished goods is required to be considered for benchmarking the international transaction of export of finished goods wherein assessee has earned operating margin of 25.14% on operating cost. Accordingly, the operating margin earned by the assessee in respect of export to AEs was higher than the arithmetic mean of the operating margin earned by comparable companies selected in TP study (i.e. 2.55% companies selected by the ld. TPO for computing disallowance i.e. 17.86%, additional companies selected by the ld. TPO from emulsions companies i.e. 10.78%) 13.9. Per contra ld. DR vehemently objected to the admission of additional evidences filed before this Tribunal and reiterated the findings of the ld. DRP. We have already held in A.Y.2010-11 that additional evidences filed by the assessee for import of raw materials using TIPS Data Base under CUP method is to be admitted as it covers majority of the international transactions carried out by the assessee. In the instant case in respect of export of finished goods, the comparable data using TIPS Data Base under CUP method covers 94.23% as stated by the ld. AR of the total value of the transactions. However, since this data requires factual examination of comparable prices by the ld. TPO, we deem it fit and appropriate to remand this issue to the file of 14 Dow Chemical International Pvt. Ltd. the ld. TPO in the same directions as was given by us for import of raw materials from AEs for A.Y.2014-15 supra.”
Since the issue for our adjudication is similar to the issue decided in assessee’s own case as aforesaid, respectfully following the same, similar directions are issued for the year under consideration also. Consequently, these grounds no.15 and 16 are allowed for statistical purposes.
Grounds no.4 to 7 & 12, and Additional ground no.17, relates to consideration of separate segment for TNMM analysis for export of finished goods.
Considered the rival submissions and perused the material on record. We find that since ground no.3, and ground no.17 are inter– connected and ground no.3, has been decided by us on merit vide Para–13 and 14 above, the issue arising out of grounds no.4 TO 7 and 12 and additional ground no.17, becomes academic, hence remained un–adjudicated.
Ground no.13 and additional ground no.18, relates to the dispute in granting set–off brought forward unabsorbed depreciation and business losses of the A.Y. 2012–13.
Considered the rival submissions and perused the material on record. Both the learned Counsel appearing of the parties conceded
15 Dow Chemical International Pvt. Ltd. before us that the issue arising out of these grounds of appeal needs to be restored to the file of the Assessing Officer for denovo adjudication. Consequently, we set aside the impugned order passed by the authorities below and restored the issue to the file of the Assessing Officer and direct him to verify the issue of set–off of brought forward unabsorbed depreciation and business losses of the year 2012–13 and decide the issue afresh in accordance with law. Thus, these grounds no.13 and additional ground no.18, are allowed for statistical purposes.
24. Ground no.14, relates to initiation of penalty proceedings under section 271(1)(c) of the Act.
This issue being pre–mature in nature, hence dismissed.
Grounds no.8 and 9, are reproduced below:–
“8. erred in inappropriately rejecting CUP available in case of import of raw materials (i.e. monomers) available on lOIS website (relied upon by chemical industry), furnished by the Appellant for justifying the arms length nature of the transaction of import of raw materials (monomers). 9. without prejudice to the above, erred in not taking cognizance of Appellant's contention that there will be no transfer pricing adjustment in case of import of raw material (i.e. monomers) based on comparison with market prices published by lOIS, in case the value of adjustment for each raw materials imported is aggregated.”
During the course of hearing, the learned Counsel for the assessee has not made any arguments and not pressed these grounds 16 Dow Chemical International Pvt. Ltd.
on merit. Consequently, we are of the view that these grounds are not sustainable. Accordingly, these are dismissed.
In the result, assessee’s appeal is partly allowed.
IT(TP)A no.305/Mum./2018 Assessee’s Appeal – A.Y. 2013–14 29. The assessee has filed this appeal on the following grounds:–
“Based on the facts and circumstances of the case, Dow Chemical International Private Limited, as successor of Rohm and Haas (India) Private Limited, (hereinafter referred to as 'the Appellant') respectfully craves to prefer an appeal against the assessment order issued by the Deputy Commissioner of Income-tax - 14(1)(2). Mumbai (hereinafter referred to as the 'Assessing Officer') under section 143(3) read with section 144C(13) in pursuance of directions issued by the Hon'ble Dispute Resolution Panel - 1 and order of Joint Commissioner of Income Tax, Transfer Pricing -3(3), (hereinafter referred to as the learned TPO') on the following grounds , each of which are without prejudice to one another: On the facts and in the circumstances of the case and in law, the learned AO/TPO on fact and in law has: GENERAL Erred in determining the Appellant's total income at Rs 44,19,97,670 as against the loss of Rs 1407.34.861 disclosed in the return filed. TRANSFER PRICING ADJUSTMENTS
1. IMPORT OF RAW MATERIAL FROM ASSOCIATED ENTERPRISES ('AEs') General 2. erred in making an adjustment of Rs.58,27,32,529 to the total income of the Appellant under Section 92CA(3) of the Act on account of adjustment in the arm's length price of the international transaction of import of raw materials for manufacturing by the Appellant from AEs.
17 Dow Chemical International Pvt. Ltd.
Inappropriate rejection of Cost Plus Method ('CPM) and instead adopting Transactional Net Margin Method ('TNMM) 3. erred in not accepting the economic analysis undertaken by the Appellant under CPM, in accordance with the provisions 01 the Income Tax Act. 1961 ('Act') read with the Income Tax Rules. 1962 (Rules') for determination of the arm's length price and instead adopted TNMM as most appropriate method (NAM'). Inappropriate rejection of comparable companies adopted by Appellant 4. without prejudice to the above, erred in inappropriately rejecting the companies adopted as comparable by the Appellant in relation to the international transaction of import of raw materials and sale of finished goods. Inappropriate acceptance of non-comparable companies 5. erred in considering single non-comparable company as comparable to the Appellant for benchmarking the international transaction of import of raw materials and sale of finished goods without providing any cogent reason for rejecting Appellants argument on non-comparability of these companies.
6. Erred in considering only single comparable for benchmarking the international transaction of import of raw materials and sale of finished goods. Inappropriate rejection of additional comparable companies proposed by the Appellant (without prejudice) 7. erred in inappropriately rejecting additional comparable companies submitted by the Appellant (on a without prejudice basis) in response to the adoption of new companies as comparables by the TPO. Alternate benchmarking analysis carried out by the TPO 8. without prejudice to the above, erred in proposing a secondary benchmarking analysis and proposing an adjustment of ` 23,90,36,440, by considering the international transaction of import of raw materials and export of finished goods, without providing any appropriate reasons for rejecting Appellant’s argument on non–comparability of these additional companies. Calculation of arm's length price based on incorrect Profit Level Indicator (PLI)
18 Dow Chemical International Pvt. Ltd.
erred in calculating arm's length price of international transaction of import of raw material (as per the primary as well as secondary analysis both) by considering incorrect PLI i.e., operating profit/operating cost whereas PLI used for comparability was Operating Profit/Operating Revenue. Non-consideration of Comparable Uncontrolled Price (CUP) available in the form of market prices published by Independent Chemical Information Services (ICIS) 10. erred in inappropriately rejecting CUP available in case of import of raw materials (i.e. monomers) available on ICIS website (relied upon by chemical industry), furnished by the Appellant for justifying the arms length nature of the transaction of import of raw materials (monomers). 11. erred in not taking cognizance of Appellant's contention that there will be no transfer pricing adjustment in case of import of raw material (i.e. monomers) (61.85 percent) based on comparison with market prices published by lCIS, in case the value of adjustment for each raw materials imported is aggregated. Non-consideration of CUP available in the form of market prices published by TIPS database 12. erred in inappropriately rejecting CUP available in case of import of raw materials available on TIPS database (compiled based on customs data), furnished by the Appellant for justifying the arms length nature of the transaction of import of raw material by stating that TIPS database prices are available for only approximately 86 percent import of raw materials. 13. erred in not taking cognizance of Appellant's contention that there will be no transfer pricing adjustment in case of import of raw materials (to the extent comparable data is available on TIPS database) based on comparison with market prices published by TIPS database, in case the value of adjustment for] each raw materials imported is aggregated. Rejection of CUP to the extent available 14. without prejudice, erred in not considering CUP as the most appropriate method to benchmark the international transaction of import of raw materials (to the extent CUP data is available) and TNMM for the balance amount; and instead applying TNMM for the entire international transaction of import of raw materials
19 Dow Chemical International Pvt. Ltd.
Alternate analysis for adjustment on sale of finished goods 15. erred in making an adjustment of Rs 2.00,70.488 on the international transaction of sale of finished goods as an alternate analysis, by applying TNMM as the most appropriate method and applying the comparables as per ground 5 above. II. PROVISION OF TECHNICAL SUPPORT SERVICES Denial of natural justice 16. erred in proposing an adjustment to the arm's length price of the international transaction of provision of technical support services without providing adequate opportunity to the Appellant to rebut the same, thereby violating the principles of natural justice. Inappropriate rejection of economic analysis 17. erred in rejecting the economic analysis undertaken by the Appellant with respect to international transaction pertaining to the provision of technical support services without providing cogent reasons for the same. Inappropriate rejection of comparable companies adopted by Appellant 18. erred in inappropriately rejecting the companies adopted as comparable by the Appellant in relation to the international transaction of provision of technical support services. Inappropriate acceptance of non-comparable companies 19. erred in considering non-comparable companies as comparable to the Appellant for benchmarking the international transaction of provision of technical support services without providing any appropriate reasons for rejecting Appellant’s argument on non–comparability of these companies. 20. erred in comparing full–fledged risk bearing entities with the Appellant’s captive operations without making any risk adjustment on account of differences between the risk profile of comparable companies vis–a–vis the risk profile of the Appellant. Economic adjustments 21. without prejudice to the above, the appellant should be allowed economic adjustments to allow for various differences existing between the Appellant and the set of comparable
20 Dow Chemical International Pvt. Ltd. companies adopted by the TPO. III. SET OFF OF BROUGHT FORWARD BUSINESS LOSS AND UNABSORBED DEPRECIATION 22. erred in not setting off brought forward business loss and unabsorbed depreciation. IV. PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT 23. erred in initiating penalty proceedings under section 271(1)(c) of the Act without appreciating the fact that the Appellant has neither concealed nor furnished any inaccurate particulars of income.
The issue arising out of grounds no.1 and 2 being general in nature, no separate adjudication are required and hence remained un– adjudicated.
The issue arising out of additional grounds no.24 and 25, relates to applicability of direct method in due to availability of data using TIPS database for export of finished goods.
Considered the submissions of both the learned Counsel appearing for the parties and perused the material on record. Both the parties agree before us that, except variation in figures, the facts and circumstances of the issue arising out of the aforesaid grounds raised in the present appeal are mutatis mutandis identical to the facts and circumstances relating to the issue arising out of the additional grounds no.15 and 16, raised by the assessee in its appeal being ITA no.1474/Mum./2017, for the assessment year 2012–13, wherein the 21 Dow Chemical International Pvt. Ltd.
said issue is allowed for statistical purposes for the reason stated therein vide Para–13 and 14 of this order. The issue before us being identical, consistent with the view taken therein, we set aside the impugned order passed by the DRP and allow these grounds of appeal for statistical purposes.
33. The issue arising out of grounds no.12 to 15 and additional grounds no.24 and 25, which relates to inappropriate rejection of cost plus method (CPM) and instead adopting Transactional Net Margin Method (TNMM) and applicability of direct method in the form of CUP method due to availability of data using TIPS database.
Before us, the learned Counsel appearing for both the parties conceded before us that, except variation in figures, the facts and circumstances of the issue arising out of the aforesaid grounds raised in the present appeal are mutatis mutandis identical to the facts and circumstances relating to the issue arising out of the grounds no.3, 10 and 11, raised by the assessee in its appeal being ITA no.1474/Mum./ 2017, for the assessment year 2012–13, wherein the said issue is allowed for statistical purposes for the reason stated therein vide Para–8 and 9 of this order. The issue before us being identical, consistent with the view taken therein, we set aside the impugned order passed by the DRP and allow these grounds of appeal no.12 to 15 and additional grounds no.24 and 25, for statistical purposes.
22 Dow Chemical International Pvt. Ltd.
Since we have allowed assessee’s grounds no.12 to 15 and additional grounds no.24 and 25, consequently, ground no.3, 4 to 9 and 15 and additional ground no.26, being academic in nature, hence dismissed.
The issue arising out of grounds no.16, 17, 18, 19, 20 and 21, relates to provision of technical support service.
During year ended 31 March 2013, the assessee provided technical support services to its A.Es for ` 9,00.85,303, through its process centre in Taloja, which acts as an interface between the R&D centres overseas and the plants owned by Dow Group (Rohm & Haas Group) in various jurisdictions. The technical support services provided by the assessee relates to activities done to facilitate scaling up of plants for manufacturing new products. This entails reviewing and analyzing the size of the plant, cooling and heating process etc., would help in scaling up the size of the plant. The aforesaid services are rendered in relation to the various products used in industries such as coatings, adhesives, paper and leather industry. The assessee has selected TNMM as most appropriate method with 16 comparables, where its PLI margin (i.e., 14.19%) was higher than the 16 comparable companies which earned an average margin of 8.08% and updated single year average margin of 6.18%.
23 Dow Chemical International Pvt. Ltd.
Accordingly, the transaction was held to be at arm's length.
The learned A.R. submitted that the Transfer Pricing Officer rejected the economic analysis undertaken by the assessee without providing an adequate opportunity of being heard and the assessee as not provided reasonable time to respond to the show cause notice. The Transfer Pricing Officer rejected assessee's comparable companies stating that they are either engaged in the business support or marketing support services whereas process centre at Taloja is purely engaged in R&D activities and the assessee is engaged in high end technical support services. The Transfer Pricing Officer considered companies as comparables which were rejected by the assessee in its transfer pricing analysis and having an average operating margin of 51.50% (OP/OC) and proposed an adjustment of ` 2.94,29,062.
The DRP upheld the order of the Transfer Pricing Officer making an adjustment of ` 2,94,29,062, on transaction of provision of technical support services.
Before us, the learned Counsel for the assessee submitted that the technical support services provided by the assessee relates to activities done to facilitate scaling up of plants for manufacturing new products. This entails reviewing and analyzing the size of the plant, cooling and heating process, etc., that would help in scaling up the size
24 Dow Chemical International Pvt. Ltd. of the plant. He submitted that the aforesaid services are rendered in relation to the various products used in industries such as coatings, adhesives, paper and leather industry. The learned Counsel further submitted that the assessee commenced providing these services since assessment year 2010-11 and has been providing the said services in subsequent years as well wherein the assessee's set of comparables have not been scrutinized and the said transaction has been considered to be at arm's length. As there have been no change in the facts and circumstances in assessment year 2013-14 vis-à-vis the previous and subsequent assessment years and no additional facts have emerged in the proceedings in assessment year 2013-14 which would have a bearing on the outcome of the previous assessment years by applying the principle of res judicata, the Transfer Pricing Officer cannot adopt a different view/position for determination of the arm's length price for provision of technical support services. In support of his contentions, the learned Counsel for the assessee relied upon the following documents:– Copy of Form 3CEB (Placed at Page no.33 to 45 of the paper Book) Copy of relevant extract of Transfer Pricing study report (Placed at Page no.4.6 to 254 of the Paper Book) Brief write-up on international transaction of provision of technical supp: services by Assessee (Placed at Page no.632 to 633 of the Paper Book) Summary of Assessee's margins and single year updated
25 Dow Chemical International Pvt. Ltd. margins of comparable companies selected from the assessment year 2010-11 to 201 5-16 (Placed at Page no.634 if the Paper Book)
The learned Departmental Representative relied upon the observations of the orders passed by the authorities below.
Considered the rival submissions and perused the material on record. We find that the assessee has a separate technical support services which deals with the activities to facilitate scaling up of plants for manufacturing new products. These services are rendered by the assessee in relation to various products used in the quoted adhesives, paper and leather industries. The assessee started providing these services from the assessment year 2010–11 and the assessee has selected set–off of comparables separately and the Assessing Officer / Transfer Pricing Officer has not scrutinized these transactions in order to benchmark these transactions. Therefore, we deem it fit and proper to restore this issue to the file of the Assessing Officer / Transfer Pricing Officer to determine the arm's length price afresh for provisions of technical support service as per law. Accordingly, grounds no.16, 17, 18, 19, 20 and 21, raised by the assessee are allowed for statistical purposes.
The issue arising out of grounds no.22, relates to not granting set–off for brought forward unabsorbed depreciation and business losses.
26 Dow Chemical International Pvt. Ltd.
Considered the rival submissions and perused the material on record. Both the learned Counsel appearing of the parties conceded before us that the issue arising out of these grounds of appeal needs to be restored to the file of the Assessing Officer for denovo adjudication. Consequently, we set aside the impugned order passed by the authorities below and restored the issue to the file of the Assessing Officer and direct him to verify the issue of set–off of brought forward unabsorbed depreciation and business losses of the year 2012–13 and decide the issue afresh in accordance with law. Thus, these grounds no.22, is allowed for statistical purposes in terms indicated above.
45. Ground no.23, relates to initiation of penalty proceedings under section 271(1)(c) of the Act.
This issue being pre–mature in nature, hence dismissed.
In the result, assessee’s appeal is partly allowed.
To sum up, both the appeals are partly allowed. Order pronounced open court on 05.08.2021