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Facts
The assessee, engaged in manufacturing and trading of ceramics, filed an appeal against the CIT(A)'s order concerning a transfer pricing adjustment. The assessee, a subsidiary of foreign Associated Enterprises, used the CUP method for benchmarking its international transactions, which was contested by the revenue.
Held
The tribunal held that Golden Chemicals Pvt. Ltd. should be excluded as a comparable due to its 9-month reporting period not aligning with the assessee's 12-month period. The tribunal also directed the inclusion of Nilchem Industries Ltd. as a comparable, noting it was not disputed by the parties and had been accepted by the TPO in remand proceedings.
Key Issues
Whether the exclusion of Golden Chemicals Pvt. Ltd. and inclusion of Nilchem Industries Ltd. as comparables were justified in the transfer pricing adjustment.
Sections Cited
143(3), 144(3), 250, 92CA(3), 143(2)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
1. This appeal is filed by Torrecid India Pvt. Ltd,[ assessee / appellant], for A.Y. 2012-13 against the appellate order passed by The Commissioner Of Income Tax (Appeals)-58, Mumbai [the learned CIT (A)] dated 9th May, 2022, wherein the appeal filed by the assessee against the assessment order passed under Section 143(3) read with section 144(3) of The Income-Tax Act, 1961 (The Act) dated 26th may, 2016, was partly allowed.
2. The assessee aggrieved with the same has raised following grounds of appeal:-
Transfer Pricing Adjustment: INR 1,66,15,022/-
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in making an adjustment of INR 1,66,15,022/- by virtue of computation of arm's length price of international transaction of import of raw materials and import of finished goods and spares from AEs vide its impugned order dated May 09, 2022.
Unjust rejection of Comparable Uncontrolled Price Method as the most appropriate Method:
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding/confirming the action of the Id. TPO in unjust/erroneous rejection of Comparable Uncontrolled Price ("CUP") Method as the most appropriate method for purchase of raw materials and finished goods and adopting Transactional Net Margin Method ("TNMM") for the purpose of benchmarking the international
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) further erred in rejecting the details submitted in support of CUP method by placing reliance on the observations made by the Ld. TΡΟ.
Rejection of Foreign Associated Enterprise as the Tested party
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding/confirming the action of the Id. TPO in unjust/erroneous rejection of Foreign AEs as the tested party for the international transaction.. of import of raw materials and finished goods.
4. Erred in rejecting Nilchem Industries Ltd. and accepting Golden Chemicals Pvt Ltd. as comparable companies to the appellant
On a without prejudice basis, based on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in rejecting Nilchem Industries Ltd, which was selected by the assessee in its Transfer Pricing Study report.
On a without prejudice basis, based on the facts and in the circumstances of the case and in law,
Brief facts of the case shows that assessee is a company engaged in the business of manufacturing and trading of ceramics, crits, glazes, colors and digital inks. It filed its return of income on 30th November, 2012, at a loss of ₹4,00,81,644/-. The case of the assessee was picked up for scrutiny by issue of notice under Section 143(2) of the Income-tax Act, 1961 (the Act) on 13th September, 2013.
As the assessee has entered into international transaction reference was made to the Dy. Commissioner of income Tax, transfer pricing, 4(2)(2), Mumbai [ the ld TPO] for determination of Arm's Length Price of the international transaction. According to the form no.3CEB filed by the assessee, it has entered into international transaction of (i) purchases of raw material and samples of ₹14,76,42,030/-, (ii) purchase of finished goods of ₹84,879,789/-, (iii) purchase of spare parts of ₹1,18,52,081/-, (iv) sale of Ceramic Frits of ₹16,51,121/-,
The learned Assessing Officer examined the detail of sales as well as copies of the invoices raised by Associated Enterprises on assessee as well as non-Associated Enterprises. He found that transactions are geographically located differently, the description in the invoices differs and assessee did not furnish comparable prices of the material purchased by it. Further, the invoices raised are in different currencies, whereas, the chart furnished to support the Comparable Uncontrolled Price (CUP) and its conversion is different. Therefore, show cause notice was issued to the assessee and after considering the reply of the assessee, the learned Transfer Pricing Officer proposed to adopt the Transaction Net Margin Method (TNMM), as The Most Appropriate method. Assessee, however,
The assessee is aggrieved with the same. Before us, it was contested that assessee is aggrieved with inclusion of one comparable in the comparability analysis namely Golden Chemical Private Limited having PLI of 8.88%. The assessee also aggrieved with exclusion of one comparable Nilchem Industries Ltd. Confirmed by the learned CIT (A).
With respect to both the comparables, a written submission was placed on record. The learned Departmental Representative is also heard. 012. We have carefully considered the rival contentions and perused the orders of the lower authorities. Briefly stated
By ground no.2, assessee has also challenged that CUP method selected by it should be considered as the most appropriate method and further foreign Associated Enterprises selected by the assessee as a tested party is not accepted by the learned Transfer Pricing Officer. However, both these ground are not contested before us.
Therefore, now the only issue remains is with respect to the inclusion and exclusion of comparables accepting the Transactional Net Margin Method and PLI of OP/Sales as the correct parameters for benchmarking.
The assessee has objected the inclusion of Golden Chemicals Pvt. Ltd. in the comparability analysis having PLI of 8.88% by showing the annual report of Golden Chemicals Ltd. that the reporting period for that company for this assessment year is only for 9 months starting from 1st April, 2011 to 31st December, 2011. As the relevant financial data of comparable company is available only for 9 months, whereas, the accounting period of the assessee is for 12 months and in absence of non-availability of the data in case of comparable company from 1st January, 2012, to 31st march, 2012, as same being Private Limited
The second argument of the assessee is with respect to comparable Nilchem Industries Ltd. The assessee’s appeal is that should be included whereas; the learned CIT (A) has rejected the same. We find that in paragraph no.6.3.1, the learned CIT (A) on request of the assessee rejected this comparable by excluding it. Now before us, the assessee pleads that this comparable company should be accepted as it was not at all argued before the LD CIT (A) for its exclusion but only with respect to accepting correct margin. PLI of Nilchem Industries Ltd. is -3.27% and therefore, assessee wants the same to be included in the comparability analysis. The claim of the assessee is that the assessee has accepted the same in its transfer pricing submission which was also accepted by the learned Transfer Pricing Officer in its order. Further, it is the claim of the assessee that assessee does not file any claim before the learned CIT (A) for exclusion of Nilchem Industries Ltd. We find that in the remand report proceedings, the learned Transfer Pricing Officer included the above comparable company i.e. Nilchem Industries Ltd. having the margin of 10.78%. The assessee did not object to this comparable company for its exclusion but provided the correction in the margin. The learned Transfer Pricing Officer recomputed the margin of (-)
In the result, ground no.4 of the appeal of the assessee is allowed and ground nos.1 to 3 are dismissed.
Assessee has also raised an additional ground on the validity of the assessment order which is not pressed before us and therefore, same is dismissed.
In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 20.03. 2024.