ASST CIT 9(2)(1), MUMBAI vs. BILLION WELTH MINERALS P.LTD, MUMBAI

order of the TPO, he proposed an upward adjustment of Rs.9.84 crores to the income of the assessee. Aggrieved by the order of the AO/TPO,the assessee filed objections before the DRP.Considering the available material,the DRP directed the AO to follow its instructions to work out the TP adjustments . Accordinlgy,he reworked the adjustment to Rs.3.89 crores. 3.Effective ground of appeal is about adopting the most appropriate method to benchmark the IT.s.During the Transfer Pricing (TP) proceedings,the TPO found that the assessee had adopted

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3.1.After considering the submissions of the assessee,the TPO observed that iron ore was commonly exported from all the ports of India. He directed the assessee to benchmark the transaction applying external CUP method and to collect the data regarding export of iron ore from authentic sources like TIPS. As the assessee did not file the details required,the TPO collected the data as per the TIPS software. He further issued a notice to the assessee to explain as to why adjustment should not be made based on the TIPS data.After considering the reply of the assessee dated 29/ 01/2014 he made following adjustments:-

Dt. of Quantity in Amount in Assessee Rate of ALP Sales (B) Adjustment (B- shipme DMT INR(A) rate comparables A) nt 4-Aug- 59343.72 143,861,748.00 2424.03 2877.03 170,733,662.75 26,871,914.75 09 15- 33656.40 105,184,385.00 2980.34 2980.34 100,307,515.18 NIL Dec.- 09 31- 128703.77 427,809,896.00 3323.99 3879.78 499,342,312.77 71,532,416.77 Mar-10 TOTAL 98,404,331.52 4.2.The AO,on receipt of order of the TPO, issued a draft order, that was challenged before the DRP,as stated above.It made detailed submissions and relied upon certain case laws.After deliberating upon the orders of the TPO/AO and the submissions of assessee,the DRP held that the quality of iron ore, as per the TIPS database, was classified into three categories, that the exact iron content was not mentioned.Considering the various factors,the DRP held that TNMM adopted by the assessee was not the correct method to benchmark the AE transactions, that it was 1818/M/15 M/s. Billion Wealth Minerals Pvt.Ltd. the method of last resort and required strict functional similarity, that the data used by the assessee were not for the trading export of iron ore or at least for trading exports of minerals for function similarly and comparability, that the TPO had rightly rejected the TNMM, that the principles of law on CUP method were well settled, that the comparables had to be perfect of realistic, that while using it, reasonable and accurate adjustments should be allowed,that quality of iron ore had a substantial bearing on its price, that in the absence of details regarding actual iron content it would be unfair to compare such prices with the price at which the iron ore had been exported by the assessee to its AE, that the assessee had pointed out various instances in the TIPS data wherein unit prices of a specific category of iron ore varied widely, that among the assessees own transactions export prices for different categories varied widely, that the assessee had only exported iron ore fines, that for the purpose of comparability analysis the TPO had considered iron ore fines and iron ore lumps, that the price of iron ore lumps was higher than price of iron or iron ore fines, that that the assessee had exported iron ore to its AE’s on FOB basis, that the price for export by third parties was not mentioned in the data provided by the TPO, that the variation in price and terms would have a significant impact on the price, that the price of iron ore would fluctuate by quantum of sales also, that the price for bulk purchase/sales were usually negotiated/bargain, that sales in smaller quantities could not be compared with bulk sales, that the source and destination port were important factors in determining the price, that it was a critical deciding factor for the purpose of comparability analysis,that the TPO had consider -ed the transaction in relation to export from Visakhapatnam port, that the assessee had made the export from Krishnapatnam port or from Goa,that in absence of appropriate mechanism to adjust for about differences it would be inappropriate to compare the prices at which the iron ore exported by the assessee to its AE’s vis a vis prices charged from third-parties,that the TIPS data used by the TPO was not complete and reliable, that it did not capture all export transactions,that the assessee’s own transaction undertaken in the month of February was not captured in the data,that the assessee had exported iron ore having iron content 63.01%, 61.38%, 60.16% and 50.60% in the months of August 2009, December 2009, March 2009 and March 2009 respective -ly,that three export consignments had content less than 62%, that in one case the iron content was more than 62%, that out of the three consignments having iron content less than 62% the iron content was near 62% in two cases and in the third case it was about 50%.

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4.3.The DRP further observed that Resale Price Method(RPM)would be appropriate to determine as to whether the AE transactions were at ALP,that the mean of GP realised in the non-AE transactions would be appropriate benchmark to examine arm’s length price of each of the AE- transactions,that GP realised on non-AE exports would be an appropriate internal cup for the AE exports.It directed the assessee to furnish the details of all AE and non-AE transactions as to the purchase price and sale price of each transaction and the GP earned in such transactions.Based on the purchase and sale details,the DRP computed the transaction wise GP as under:-

SN. Name of consignee Whether Quantity MT Sale rate/MT Purchase %GP AE/Non AE rate/MT 1. General Nice AE 61643 2,424.20 1,793 35.20% Resource (Hong Kong) Ltd. HK 2. Shanxi Dajin Non AE 49000 3,283.11 2,001 64.07% International (Group) Co. Ltd.

1818/M/15 M/s. Billion Wealth Minerals Pvt.Ltd. transactions and to ascertain as to whether the assessee had realised at least said mean GP-rate in each of the AE-transactions separately. 5.Before us,the Departmental Representative(DR)supported the order of the TPO and stated that RPM could be used only for imported goods,that TIPS data was a reasonable source for determining the ALP.He relied upon the case of Tilda Riceland Pvt.Ltd(ITA/No/6279/ Del/ 2012;dated 21/2/2014 A.Y.08-09);M/s.Livingstones (ITA No/7303 & 7460/Mum/2011 dated 23/ 10/13,A.Y.07-08);and M/s.Suprehouse Leather Limited(ITA No/127/LKW/2012 dated 11/6/15 A.Y.07-08). As stated earlier,none appeared on behalf of the assessee.

6.We have perused the material on record and heard the submissions of the DR. we find that the assessee had adopted TNMM as the most appropriate method to determine the arm’s length nature of its IT.s,that it had submitted the transaction wise details of export of iron ore,that the TPO rejected the TP analysis made by it, that he adopted CUP method for benchmarking the IT.s using the TIPS database,that the DRP held that the CUP method could not be applied in assessee’s case,that it applied RPM as appropriate method to determine the ALP of the transactions,that it directed the TPO/AO to verify the purchase and sale price of each consignment and to compute the GP rate of each transaction. 6.1.In our opinion,the method adopted by the TPO was faulty from the very beginning. The TIPS data contained price of iron ore exported from Vishakhpatanm port for two categories- i.e. having iron content 62% and having iron content 62% or less.The assessee had exported iron ores to its AE.s having FE contents of 63.01%,63.38%,60.16% and 50.60%.Export details clearly show that in three consignments FE content was less than 62% and only in on consignment FE was more than 62%.Even in three consignments having FE content less than 62% in one case iron ore content is 50.60%.There is no need to quote any authority to hold that market value of the ore having 50.60% FE would be less than the ore having 62% FE.Besides,price of iron ore,like any other exported commodity,is highly sensitive and has wide fluctuation depending upon demand and supply.Considering these peculiar facts,we are of the opinion that the DRP had rightly held that TIPS data was not a reliable tool to determine the ALP of the IT.s of the assessee.

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6.2.If we analyse the directions of the DRP it depth,it becomes clear that though it had used term RPM to decide the fair market value of the transactions,but actually it had approved the method adopted by the TPO to a certain extent. Using the term RPM at one place in itself is not such a grave mistake which would make the order untenable.What has to be seen is the detailed directions given by it.The TPO had used an external source i.e.TIPS data for determining the ALP of the IT.s,whereas the DRP directed him and the AO to consider the mean GP-rate realised in the exports to non-AE.s to benchmark the AE-transactions.It clearly held that mean of GP- rates realised from each of the non-AE-transactions would be appropriate to determine the arm’s length gross margin from each AE-transaction. In our opinion, methodology adopted by the DRP was most appropriate way to determine the ALP. 6.3.The basic purpose of the TP provisions is to ensure that transactions entered in to by an assessee with its AE.s should be at par with the transactions of non-AE.s.To curb the malpractice of some of the assessees of not reporting the fair market value of the IT.s.entered into with their AE.s,for purchase/sale of good or for rendering /availing of services,provisions of section 92 of the Act were introduced.Proximity of both the parties would allow them to show the profit of the controlled transactions in the manner they preferred.Therefore,it was mandated that uncontrolled transactions with the non-AEs.,of similar types,should be taken in to consideration for determin - ing the fact as to whether the AE-transactions were executed at the same price/profit margin.The comparison of AE and non-AE transactions entered into in almost similar conditions and circumstances reduce the possibilities of transferring of profits out -side India or paying lesser taxes than the due taxes.In short,the TP provisions try to bring parity between the controlled and uncontrolled IT.s of similar nature.For that matter some methods have been incorporated in the IT Rules,1962.The method is procedural part of the TP exercise,but the substantive law is Chapter X of the Act.What has to be seen in such proceedings that IT.s are valued in a reason - ably fair manner.TP provisions are not based on some arithmetic or scientific formulas that would always give similar results in similar conditions.They find place in statute to take care of various and different situations and circumstance of dynamic business world.The method adopted by the DRP,in our opinion,was quite appropriate considering the peculiarities of the facts of the case.It did not result in deleting the entire adjustment proposed by the TPO/AO-it resulted in lower adjustment. The AO had used the TIPS data but it had so many lacunas.The DRP,therefore,after obtaining details of all the seven AE and non-AE transactions,directed the 1818/M/15 M/s. Billion Wealth Minerals Pvt.Ltd.

AO to follow a particular method.Thus,there is no basic difference in the approach of the TPO and DRP.Certain modifactions,were made by it and we hold that same were required to decide the ALP. 6.4.We would also like to mention that the cases relied upon by the DR are not relevant to decide the issue before us.In the case of Tilda Riceland Private Ltd.(supra)it was held that TIPS data can also be used for TP purposes.There is no doubt about it but the issue is how it should be utilised.The DRP had specifically pointed out as to how the TIPS data in the case under consideration was not applicable.It pointed out the deficiencies of the data and the factors that vitiated the comparability.Thus,facts of both the cases are totally different.In the case of Living - stones(supra),the Tribunal has dealt with the method to be adopted for the AE and non- AE international transactions.Considering the peculiar facts of diamond industries it had dealt with the issue of TNMM and CUP methods.In the case of Super House Leather Limited(supra),the matter had been decided considering the facts of that case.In short,none of these cases are of any help to hold that the method adopted by the DRP was not fair. Considering the above,we confirm the directions of the DRP and hold that same are not suffering from any legal or factual infirmity.Effective ground of appeal,filed by the AO,is decided against him.

As a result,appeal filed by the Assessing Officer stands dismissed. फलतः िनधा�रती अिधकारी �ारा दािखल क� गई अपील नामंजूर क� जाती है. Order pronounced in the open court on 19th January , 2018. आदेश क� घोषणा खुले �यायालय म� �दनांक 19 जनवरी , 2018 को क� गई । Sd/- Sd/- (अमरजीत �सह / Amarjit Singh ) (राजे�" / Rajendra) �याियक सद�य / JUDICIAL MEMBER लेखा लेखा सद�य सद�य / ACCOUNTANT MEMBER लेखा लेखा सद�य सद�य मुंबई Mumbai; �दनांक/Dated :19.01.2018. Jv.Sr.PS. आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : आदेश आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत 1.Appellant /अपीलाथ� 2. Respondent /��यथ� 3.The concerned CIT(A)/संब� अपीलीय आयकर आयु�, 4.The concerned CIT /संब� आयकर आयु� 5.DR “K ” Bench, ITAT, Mumbai /िवभागीय �ितिनिध, खंडपीठ,आ.अ.�याया.मुंबई 6.Guard File/गाड� फाईल स�यािपत �ित //True Copy// आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपीलीय अिधकरण, मुंबई /ITAT, Mumbai. 7

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Date Initials Initial 1. Draft dictated on-dictation sheets attached/direct on PC 2. Draft placed before author 3. Draft proposed & placed before the Second Member 4. Draft discussed/approved by Second Member 5. Approved draft comes to the Sr.PS 6. Kept for pronouncement 19/1/18 7. Date on which the file goes to the Bench Clerk 8. Date on which file goes to the A.R. for signature of the Order 9. Date of dispatch of the Order