ASANDAS & SONS PRIVATE LIMITED,MEHSANA V. THE DY.CIT, CIRCLE- GANDHINAGAR, GANDHINAGAR

ITA 1854/AHD/2024

AI Insights

The case involves Asandas & Sons Pvt. Ltd. (ASPL), a company engaged in manufacturing frozen French fries, which appealed against the final assessment order passed by the Deputy Commissioner of Income Tax (DCIT), Gandhinagar. The dispute centered on the transfer pricing adjustments made by the Transfer Pricing Officer (TPO) and upheld by the Dispute Resolution Panel (DRP), which applied the Comparable Uncontrolled Price (CUP) method and made an upward adjustment of INR 15.99 crores to ASPL's income for the assessment year 2021-22. ASPL contested the applicability of the CUP method, arguing for the Transaction Net Margin Method (TNMM) instead, citing differences in transaction volumes, product quality, and business models between ASPL and its associated enterprise, Hyfun Agrilink Pvt. Ltd. (HAPL). The Tribunal found that the CUP method was inapplicable due to fundamental differences and that TNMM was more appropriate.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 669126 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2021-2022
• Other Referred Cases: CIT Vs. Cargill Food India Ltd., Malco Energy Ltd. Vs.ACIT, Star India Pvt Ltd -Vs- ACIT, PCIT -Vs- Gulbrandsen Chemicals (P) Ltd
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Opportunity of being heard; Transfer pricing; International transaction; Principle of natural justice; Valuation report; Initiation of penalty proceedings; Transactions in derivatives; Wholly owned subsidiary
• Section: 92; 115JB; 92C

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “D” BENCH Before: DR. BRR Kumar, Vice President And Shri T. R. Senthil Kumar, Judicial Member Asandas & Sons Pvt. Ltd., R.S.No. 337, (Old Survey No.189), Mehsana-Ahmed abad Highway, Ganeshpura, Kadi, Mehsana-382705 Gujarat PAN: AARCA6913E (Appellant) Vs The Dy. CIT, Circle-Gandhingar, Gandhinagar (Respondent) Assessee Represented: Shri Dhinal Shah, A.R. Revenue Represented: Shri Prathvi Raj Meena, CIT-DR Date of hearing : 24-06-2025 Date of pronouncement : 25-06-2025 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- This appeal is filed by the Assessee as against the final assessment order dated 11-09-2024 passed by the Assessment Unit, arising out of the order passed under section 144C(5) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by the Dispute Resolution Panel-2, Mumbai relating to the Asst. Year 2021-22. ITA No: 1854/Ahd/2024 Assessment Year: 2021-22 I.T.A No. 1854/Ahd/2024 A.Y. 2021-22 Page No Asandas & Sons Pvt. Ltd. Vs. DCIT 2 2. Brief facts of the case is that the assessee is a Private Limited Company (hereinafter referred as ASPL) engaged in the business of manufacturing frozen French fries and allied products from processing grade Potatoes. Its Associated Enterprise (AE) namely M/s. Hyfun Agrilink Pvt. Ltd. (hereinafter referred as HAPL), is a wholly owned subsidiary and supplies potatoes to ASPL. During the financial year 2020-21, ASPL entered into specified domestic transactions for purchase of potatoes from HAPL. As per the Supply Agreement between ASPL and HAPL, the AE sells potatoes to ASPL at cost plus Arm’s Length markup and AE is required to sell to third parties only when surplus stock exists. The Transfer Pricing Officer (TPO) applied the Comparable Uncontrolled Price [CUP] method as the Most Appropriate Method (MAM) and made an upward adjustment of ₹15.99 crores, by comparing prices charged by the AE to ASPL and to third parties, without any quality or volume adjustments as per Rule 10B(1)(a)(ii) of the IT Rules. The assessee contends that Transaction Net Margin Method (TNMM) should have been adopted instead and disputed the comparability of transactions used by the Ld TPO. On filing objection before Dispute Resolution Panel, the Ld DRP upheld the upward adjustment made by TPO and dismissed the objection filed by the assessee. Consequently, the Assessment Unit passed the final assessment order assessing the total income at Rs.39,95,80,674/= and demanded tax thereon. 3. Aggrieved against the Final Assessment order the assessee is in appeal before us raising the following Grounds of Appeal : I.T.A No. 1854/Ahd/2024 A.Y. 2021-22 Page No Asandas & Sons Pvt. Ltd. Vs. DCIT 3 Ground No. 1-Upward transfer pricing adjustment of INR 15,99,74,674. 1.1. On the facts and in the circumstances of the case and in law, the learned Assessing Officer (\"AO\") / Hon'ble Dispute Resolution Panel (\"DRP\") has erred in making certain observations against the Appellant, in as much as, the tax department is required to collect taxes as per law and not by mis-using certain bonafide inadvertent mistakes and therefore, the negative observations of the learned AO/DRP need to be disregarded from the order passed by Transfer Pricing Officer (\"TPO\") / DRP directions. 1.2. On facts and circumstances of the case, the learned AO / Hon'ble DRP has erred in facts and circumstances of the case and in law, in re-computation of the arm's length price (\"ALP\") of the specified domestic transactions entered by the Appellant, by making an upward adjustment of INR 15,99,74,674. 1.3. On the facts and circumstances of the case, the learned AO / Hon'ble DRP erred in taking Comparable Uncontrolled Price (\"CUP\") method as Most Appropriate Method (\"MAM\") by comparing certain selected transactions and observing that invoices do not reflects quality difference in as much as having regard to Potato being commodity and nature of business and Covid 19 situation, CUP may not be considered as MAM under the provisions of section 920 and rule 108, 1.4. On facts and circumstances of the case, the learned AO / Hon'ble DRP has erred in deciding the MAM as internal CUP on the ground that AE/HAPL is undertaking complex functions, in as much as, AE / HAPL is a routine trader of potato and does not undertakes any complex functions and the learned AO/Hon'ble DRP ought to have applied the correct MAM based on the facts and circumstances of the case. 1.5. On facts and circumstances of the case, the learned AO/Hon'ble DRP erred in working out upward adjustment of Rs. 15,99,74,674 by directly comparing the prices of potatoes sold by Associated Enterprise (\"AE\") i.e., Hyfun Agrilink Private Limited (\"HAPL\") to Appellant vis-à-vis prices of potatoes sold by AE to third parties without making pricing adjustments as per Rule 108 which could materially affect the price in the open market as are required to be made in the facts of the Appellant 16. On the facts and circumstances of the case, the learned AO / Hon'ble DRP erred in not accepting the alternative benchmarking method by treating MAM as Transaction Net Margin Method (\"TNMM\") and by taking AE as testing party based on the nature of business and availability of reliable comparables though AE is least complex and does not own intangibles. 1.7 On facts and circumstances of the case, the learned AO/Hon'ble DRP failed to appreciate the fact that the net margin of the AE works out to 5.86% (and not I.T.A No. 1854/Ahd/2024 A.Y. 2021-22 Page No Asandas & Sons Pvt. Ltd. Vs. DCIT 4 2.64%) and that the net margin of AE is higher than the margins earned by comparable companies (i.e., 2.44% based on prowess database and range of 1.19% to 2.08% based on Capitaline and ACE TP database). Accordingly, the transaction met the arm's length test. 1.8. Without prejudice to above, the learned AO / Hon'ble DRP has erred in not considering the margins of Appellant and the comparable company and consequently, failed to appreciate that provisions of specified domestic transactions on the facts of the case are applicable only when the eligible unit i.e., ASPL makes more than ordinary profits under section 80-IB(13). 2. Ground No. 2 - Erred in computation of demand amounting to INR 6,80,43,170. 2.1 On the facts and circumstances of the case, the learned AO has erred in computation of book profit under section 115JB of the Act at INR 50,01,98,035 as against INR 40,45,74,545 as per Return of Income. 2.2. On the facts and circumstances of the case, the learned AO has erred in not granting eligible MAT credit to the Appellant (out of MAT credit brought forward from previous years). 3. Ground No. 3 - Initiation of penalty proceedings under section 271AA of the Act 3.1. On the facts and in the circumstances of the case and in law, the learned AO has erred in initiating the penalty proceedings under section 271AA of the Act. 4. Ground No. 4 - Initiation of penalty proceedings under section 270A of the Act 4.1. On the facts and in the circumstances of the case and in law, the learned AO has erred in initiating the penalty proceedings under section 270A of the Act. The Appellant craves leave to add, alter, amend or withdraw any of the above grounds at or before hearing of the appeal. 4. Arguments of Ld Counsel Mr.Dhinal Shah appearing for the assessee are summarized as follows:  The CUP method is inapplicable due to the lack of comparability between sales made to ASPL and to non-AEs. I.T.A No. 1854/Ahd/2024 A.Y. 2021-22 Page No Asandas & Sons Pvt. Ltd. Vs. DCIT 5 There were substantial differences in volume, product quality, business model (B2B vs B2C), and contractual terms.   The assessee substantiated that proper quality-wise records are maintained and that multiple varieties like LR, Santana, Kennebec, etc., have different economic uses and prices.   The AE (HAPL) is a routine trader with no complex functions, intangibles, or assets, whereas the assessee holds licenses, engages in contract farming support, and bears higher functional risks.   The assessee submitted an alternative benchmarking analysis under TNMM, treating HAPL (AE) as the tested party. The AE earned a margin of 5.86%, while comparable companies showed margins of 1.19% to 2.44% as per Capitaline and Prowess databases. 5. Per contra arguments Ld. CIT-DR Shri Prathviraj Meena appearing for the Revenue are summarized as follows:  The assessee had originally selected CUP and cannot now be permitted to change it merely because the result is unfavorable.   The quality differences were not evident on invoices and therefore comparability could not be conclusively challenged.   The AE was not a mere trader but played an active role in procurement and sales and hence was not the right tested party. 5.1. Ld. CIT-DR relied on the following case laws: (i) CIT Vs. Cargill Food India Ltd. [2017] 88 taxmann.com 470 (Delhi) (ii) Malco Energy Ltd. Vs.ACIT [2023] 155 taxmann.com 32 (Mumbai Trib.) I.T.A No. 1854/Ahd/2024 A.Y. 2021-22 Page No Asandas & Sons Pvt. Ltd. Vs. DCIT 6 6. We have carefully considered the rival submissions, perused the orders passed by the lower authorities and examined the material on record. The assessee/ASPL is engaged in the business of processing of potatoes for manufacturing of frozen french fries and allied products. The Assessee uses processing category of potatoes for production of varieties of french fries and chips which has higher solid content and longer in length suitable for manufacturing french fries. Since the assessee is engaged in the business of processing vegetables (i.e. potatoes), it is eligible for deduction under section 80-IB of the Act. Whereas M/s. Hyfun Agrilink Private Limited (HAPL) is a wholly owned subsidiary of the assessee and HAPL is regarded as AE as per section 92BA of the Act, read with Rule 10A of the Income-tax Rules, 1962 (the \"Rules\"). M/s. HAPL provides potatoes to ASPL for manufacturing of french fries. During the year under consideration, ASPL had entered into specified domestic transaction of purchase of potatoes from HAPL. As per the Supply Agreement, HAPL shall sell the potatoes to the third parties only when the quantity held by HAPL is in excess of the requirement of ASPL. Further, HAPL shall sell potatoes to ASPL at cost plus agreed arm's length markup. 6.1. Applicability of CUP vs TNMM Method: The Ld TPO/DRP have confirmed the applicability of CUP method mainly on two grounds namely [a] In Transfer Pricing Study report, ASPL adopted CUP as the most appropriate method. When the Transfer Pricing Officer found flaws in the application of CUP and re-worked proper Internal CUP, the Assessee went to resile from CUP and claimed TNMM as Most Appropriate Method and I.T.A No. 1854/Ahd/2024 A.Y. 2021-22 Page No Asandas & Sons Pvt. Ltd. Vs. DCIT 7 [b] The \"quality\" of the potatoes are same and comparable between the Assessee and the third-parties. The invoices do not mention quality details. 6.2. As regarding first limb of argument regarding change of method from CUP to TNMM, it is well settled fundamental principle that the most appropriate method has to be selected and applied having regard to the transactions and the availability of information. Thus, the correct income has to be computed under the law and tax can be collected on the same. If either party commits a mistake in applying the most appropriate method, the same needs to be corrected to determine the Arm’s Length Price having regard to nature of transactions and availability of information. Therefore, the most appropriate method can be modified which confirms to requirement of Rule 10C(2), though the Assessee had stated CUP in the Form 3CEB and in the initial submissions before the TPO. The methods prescribed are only the means of achieving the object of the ALP determination. Technicalities of the assessee having selected a wrong comparable or adopted a wrong method cannot come in the way of determining the correct ALP. In an identical case, the Special Bench of the Tribunal in the case of Star India Pvt Ltd -Vs- ACIT reported in [2023] 151 taxmann.com 77 (Mumbai – Trib.)(SB) has clearly held that selection of the most appropriate method is not binding, if a better suited method is found later. The Special Bench emphasized that there is no estoppel in transfer pricing method selection, if the new method leads to a more reliable determination of Arm’s Length Price by observing as follows: I.T.A No. 1854/Ahd/2024 A.Y. 2021-22 Page No Asandas & Sons Pvt. Ltd. Vs. DCIT 8 “1. CAN ASSESSEE RESILE FROM THE MOST APPROPRIATE METHOD ADOPTED IN ITS T.P.S.R. ? 33.1 The assessee adopted the 'Other method' as the most appropriate method as per its Transfer Pricing Study Report. Then it advocated for the CUP as the most appropriate method in front of the TPO. Before the Tribunal also, the ld. AR heavily banked upon the CUP method to demonstrate that the international transaction was at ALP. This was opposed tooth and nail by the Id. DR contending that a method once chosen as the most appropriate in its TPSR cannot be changed by the assessee in further proceedings, much less the Tribunal for the first time. We need to examine if an assessee is entitled to switch over to a new method, different from the one taken in TPSR, as the most appropriate method? 33.2 Section 92 of the Act provides that any income arising from an international transaction shall be computed having regard to the arm's length price. Section 92C dealing with computation of ALP provides through sub-section (1) that the ALP shall be determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe. Five specific methods have been set out, namely, (a) comparable uncontrolled price method; (b) resale price method; (c) cost plus method; (d) profit split method; (e) transactional net margin method. Thereafter, another method is given in clause (1), namely, such other method as may be prescribed by the Board, which has since been prescribed in rule 10BA as 'Other method’. Sub-section (2) of section 92C mandates that: \"The most appropriate method referred to in sub-section (1) shall be applied, for determination of arm's length price, in the manner as may be prescribed. Ongoing through the prescription of sub-sections (1) and (2) of section 92C read with section 92, it gets highlighted that the legislature has used the word 'shall' for determining the ALP under the most appropriate method and the most appropriate method is to be applied having regard to the nature of transaction or class of transaction etc. The crux is to apply the most appropriate method for determining the ALP having regard to the nature of transaction etc. It means we need to first understand the nature of transaction and then select the method for I.T.A No. 1854/Ahd/2024 A.Y. 2021-22 Page No Asandas & Sons Pvt. Ltd. Vs. DCIT 9 determination, that is befitting its nature, etc. The ultimate aim of Chapter-X of the Act is to determine the arm's length price of the transaction. The methods prescribed are only the means of achieving the object of the ALP determination. Technicalities of the assessee having selected a wrong comparable or adopted a wrong method cannot come in the way of determining the ALP. Suppose, an assessee applies a particular method as the most appropriate for determining the ALP of a transaction but the TPO, having regard to the nature of transaction or class of transactions etc. comes to the conclusion that the most appropriate method was not applied, he has every right to discard that method and apply the one which is actually the most appropriate in the given facts of the case. In the same way, if an assessee applies a particular method as most appropriate and thereafter realizes, during the course of the proceedings, that the method applied by it was not the most appropriate having regard to the nature and class of transactions etc., he can also back-out from the method earlier selected provided the new method is actually the most appropriate having regard to the nature of the transaction under consideration. In both the scenarios, viz., where either the TPO rejects the assessee's selection of the method or the assessee itself its mistake in the selection of the hierarchy to examine the correctness of the newly selected method as the most appropriate in the facts and circumstances of the case. If the Tribunal holds that the change in the method by the TPO or the assessee resiling from its earlier selection is correct, then there can be no impediment in switching over to the new method because the legislature stipulates that the most appropriate method shall be applied for determining the ALP. The point to be noted is the selection of actual most appropriate method in the facts of the case is essential and not the perception of the assessee or the TPO to this effect. It thus follows that there can be no estoppel to the change of a method so long as the new method is, in fact, most appropriate for determining the ALP. Mere urging for the application of a different method as most appropriate, does not per se entitle the assessee or the TPO to make such a change conclusive. What we are talking at this stage is just about the right of the parties to plead for a change in the method earlier selected and nothing more than that. An argument for a change is a first step in the process of actually changing the most appropriate method, which has to be followed by an independent evaluation by the authority before whom the change is canvassed. Proceeding further, there can be another situation wherein neither the assessee nor the TPO applied the most appropriate method in the facts of the case and the assessment gets finalized on the basis of such an inappropriate method but with transfer pricing addition made on some different count. The Tribunal in such cases, while hearing the appeal on the transfer pricing addition, can direct I.T.A No. 1854/Ahd/2024 A.Y. 2021-22 Page No Asandas & Sons Pvt. Ltd. Vs. DCIT 10 to apply another method, which is really most appropriate in the facts and circumstances of the case. Our view is fortified by the judgment of the Hon'ble Delhi High Court in Pr. CIT v. Matrix Cellular International Services (P.) Ltd. (2018) 90 taxmann.com 54/[2017] 100 CCH 191 Delhi High Court. The facts of case are that the assessee therein applied the Transaction Net Margin Method (TNMM\") as the most appropriate method for benchmarking international transactions, which the TPO accepted. He, however, made transfer pricing addition by rejecting the claim of adjustment on account of unutilized capacity. The Tribunal observed that the most appropriate method, in the facts of the case, was the Resale price method (RPM). It accordingly directed to apply the RPM. The Revenue, in its appeal before the Hon'ble High Court, insisted that it was not open to the Tribunal to reject the TNMM and adopt the RPM as a new most appropriate method. Repelling such contention and approving the action of the Tribunal in suo motu changing the most appropriate method, the Hon'ble High Court held that the RPM was most appropriate method in the given facts of the case. It further held that: 'Since the ultimate aim of the transfer pricing exercise is to determine an accurate value of the arms' length price for the purpose of taxation/and therefore the appellate authorities would not be barred from adopting a different method, from that adopted by the assessee in the transfer pricing report, if the latter is not found to be the Most Appropriate Method. 33.3 Adverting to the facts of the extant case, it is seen that the assessee applied 'Other method' in its TPSR with a note on para 7.3 that: 'Given that the Other method has been selected as the most appropriate method, the other methods (CUP, RPM, CPM, PSM, TNMM) have not been evaluated further'. This shows that the assessee did not remark that the CUP was not the most appropriate method and simply left it from evaluation. However, it was categorically urged before the TPO, as is evident from para 12.4 of his order, that: 'since the payment made to the third party is more than the payment made to the AE for the same set of rights, a CUP exists'. Para 12.5 of the TPO's order also records the defending by the assessee of the CUP method. Thus it is graphically clear that the assessee not only argued before the existence and the applicability of the CUP before the TPO as the most appropriate method, but also heavily relied on the same during the course of the hearing before the Tribunal. Without batting for the applicability of the CUP method before the TPO, the assessee could have even validly pressed for the change of the ‘Other method’ as the most appropriate method before the Tribunal. As such, it is held that no exception can be taken to the assessee pleading for the applicability of the CUP as the most appropriate method instead of I.T.A No. 1854/Ahd/2024 A.Y. 2021-22 Page No Asandas & Sons Pvt. Ltd. Vs. DCIT 11 ‘Other method’, which is just a first step in the process of approval of the most appropriate method by the Tribunal. 33.4 The ld. DR relied on rule 11 of the ITAT Rules, 1963 to contend that no ground of the CUP as the most appropriate method was taken by the assessee in the memorandum of appeal and, as such, it was disentitled to take up this issue before the Tribunal. We do not find much force in this contention. Rule 11 provides that: ‘The appellant shall not, except by leave of the Tribunal, urge or be heard in support of any ground not set forth in the memorandum of appeal. However, the later part of the rule provides that: 'the Tribunal, in deciding the appeal, shall not be confined to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal under this rule'. This shows that the Tribunal has to see the substance of the matter before it and then decide it accordingly. However, there should be no violation of principles of natural justice anent to the affected party, which is borne out from the proviso to rule 11 providing that 'the Tribunal shall not rest its decision on any other ground unless the party who may be affected thereby has had a sufficient opportunity of being heard on that ground. We are in a situation, in which the assessee has assailed the transfer pricing adjustment in the international transaction of purchase of bundle of broadcasting rights generally through ground no. 1 and then specific grounds have been taken to challenge the addition made on the basis of the valuation report. Ground no. 1 covers the subject matter of the dispute in a comprehensive manner, which impliedly covers all the aspects of the addition, including the assail to selection of the most appropriate method. Further, the argument of the Id. AR on the CUP method has not only been taken up before the Tribunal for the first time, but was also raised before the TPO. Not only the Id. DR was given full opportunity of hearing on this aspect of the matter but he also made elaborate submissions on the same. Thus the reliance of the Id. DR on rule 11 of the ITAT Rules is misconceived. 33.5 We ergo, hold that an assessee, in principle, can resile from the most appropriate method as was adopted in its transfer pricing study report.” 6.3. We also note the following factual and economic differences in CUP comparables:  Volume of Transactions: AE sold 7.67 crore kg of potatoes to the assessee, whereas the sales to non-AEs (used as CUP I.T.A No. 1854/Ahd/2024 A.Y. 2021-22 Page No Asandas & Sons Pvt. Ltd. Vs. DCIT 12 comparables) averaged less than 1% of this quantity. This clearly renders volume non-comparable.  Product Differentiation: Although invoices do not mention variety, internal books and ERP system record product grades (LR, Santana, Kennebec, Frysona, etc.) with distinct commercial value. Such information was verified on sample basis by the TPO.  Contractual Framework: AE was bound to sell to ASPL on cost-plus basis, whereas third-party sales were discretionary and market driven, influenced by seasonal and perishable nature of potatoes.  Functional Profile: The assessee provided evidence of its seed licensing, R&D, farming support, quality assurance, etc., while AE merely undertook trading. Hence, AE is least complex and most suitable tested party. 6.4. Thus, we find CUP is inapplicable due to fundamental differences not reasonably adjustable and that TNMM is more appropriate under Rule 10C(2) read with Rule 10B(1)(e). 7. As regards second limb of argument that quality wise details were not given on invoice, it is noted that the same are mentioned in the accounting system maintained by the Assessee. On perusal of the same on sample basis for the month of September 2020, it is seen that quality of potatoes vary such as LR, Santana, Frysona, Kennebec, HYSM, etc. Thus, the second argument of the TPO/DRP also does not hold good as proper quality wise details have been maintained by the Assessee. In view of the above, we hold that I.T.A No. 1854/Ahd/2024 A.Y. 2021-22 Page No Asandas & Sons Pvt. Ltd. Vs. DCIT 13 having regard to the nature of the transactions and availability of information in compliance with Rule 10C, the TPO cannot follow CUP only just because it is stated in the Form 3CEB and in the initial submissions. 8. In this regard, reference is drawn to Rule 10B(1) of the Rules relating to CUP method which reads as follows: 10B. (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction or a specified domestic transaction shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely:- comparable uncontrolled price method, by which,- (i) the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, is identified, (ii) such price is adjusted to account for differences, if any, between the international transaction or the specified domestic transaction and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could maternally affect the price in the open market; (iii) the adjusted price arrived at under sub-clause (ii) is taken to be an arm's length price in respect of the property transferred or services provided in the international transaction or the specified domestic transaction 8.1. Our attention was drawn to the OECD and its Transfer Pricing Guidelines (2022) which observes as under: Para 2.19 \"Under the CUP method, the arm's length price for commodity transactions may be determined by reference to comparable uncontrolled transactions and by reference to comparable uncontrolled arrangements represented by the quoted price\" I.T.A No. 1854/Ahd/2024 A.Y. 2021-22 Page No Asandas & Sons Pvt. Ltd. Vs. DCIT 14 Para 2.20 For the CUP method to be reliably applied to commodity transactions, the economically relevant characteristics of the controlled transaction and the uncontrolled transactions or the uncontrolled arrangements represented by the quoted price need to be comparable For commodities the economically relevant charactenstics include, among others, the physical features and quality of the commodity, the contractual terms of the controlled transaction such as volumes traded, period of the arrangements, the timing and terms of delivery, transportation, insurance, and foreign currency terms For some commodities, certain economically relevant charactenstics (eg prompt delivery) may lead to a premium or a discount If the quoted price is used as a reference for determining the arm's length price or price range, the standardised contracts which stipulate specifications on the basis of which commodities are traded on the exchange and which result in a quoted price for the commodity may be relevant. Where there are differences between the conditions of the controlled transaction and the conditions of the uncontrolled transactions or the conditions determining the quoted price for the commodity that materially affect the price of the commodity transactions being examined, reasonably accurate adjustments should be made to ensure that the economically relevant characteristics of the transactions are comparable Contributions made in the form of functions performed, assets used and risks assumed by other entities in the supply chain should be compensated in accordance with the guidance provided in these Guidelines.” 8.2. Further United Nations Practical Manual on Transfer Pricing for Developing Countries (\"UN TP Manual\") states as under: Para 3.4.3.5 How contractual terms may affect transfer pricing may be seen in the following example: Example: Relevance of Contractual Terms Consider Company A in one country, an agricultural exporter, which regularly buys transportation services from Company B (its foreign subsidiary) to ship its product, cocoa beans, from Company A's country to overseas markets. Company B occasionally provides transportation services to Company C, an unrelated domestic corporation in the same country as Company B. However, the provision of such services to Company C accounts for only 10 per cent of the gross revenues of I.T.A No. 1854/Ahd/2024 A.Y. 2021-22 Page No Asandas & Sons Pvt. Ltd. Vs. DCIT 15 Company B and the remaining 90 per cent of Company B's revenues are attributable to the provision of transportation services for cocoa beans from Company A. In determining the degree of comparability between Company B's uncontrolled transaction with Company C and its controlled transaction with Company A, the difference in volumes involved in the two transactions, volume discounts if any, and the regularity with which these services are provided must be taken into account where such factors would have a material effect on the price charged. 8.3. Further, as per Para 4.2.2.5 of UN Manual, reasonably accurate adjustments may be possible for differences in:  The type and quality of the products.  Delivery terms.  Volume of sales and related discounts.  Product characteristics.  Contractual terms.  Allocation of risks.  Geographical factors. 9. On perusal of above provisions, it could be noted that broadly, CUP method compares the price charged with regard to a controlled transaction for transfer of goods or services to the price charged for transfer of goods or services in a third-party scenario having comparable circumstances. Accordingly, while applying CUP there shall be certain adjustments i.e. type and quality of the products, Delivery terms, Volume of sales and related discounts, Contractual terms, Allocation of risk, Geographical factors, etc. which needs to be made to eliminate the differences in the transactions between independent enterprises which has material impact on the price to reasonable extent. 9.1. Thus the nature of end consumer/business model of consumer to whom the product is being sold needs to be considered for I.T.A No. 1854/Ahd/2024 A.Y. 2021-22 Page No Asandas & Sons Pvt. Ltd. Vs. DCIT 16 comparability analysis. The price at which the product sold by an entity to a consumer for end-use (B2C model) may not be comparable with the price of the product sold to a consumer, who is using such product for its business (ie., B2B model). In this regard, reference to the decision of the Kolkata Tribunal in the case of Philips Carbon Black Ltd. [2022] (142 taxmann.com 325) (Kolata - Trib.) wherein the Tribunal has also appreciated the difference between the business models of end customers. 9.2. Further, as held by Jurisdictional High Court in the case of PCIT -Vs- Gulbrandsen Chemicals (P) Ltd reported in [2020] 119 taxmann.com 52 (Gujarat), the application of CUP method was not justified, in view of the fact that intra AE transactions were fundamentally different in character in economic circumstances and contractual terms and these cannot be compared with the independent transactions entered into by the assessee. 9.3. Thus, the case laws relied by the Ld. CIT-DR are clearly distinguishable pursuant to the Special Bench of Mumbai Tribunal decision. Therefore, the reliance placed by the Ld. DR are clearly distinguishable. 9.4. Further, the Assessee has submitted the agreement entered into with HAPL which is effective from 1st April 2021. As per the Supply Agreement, HAPL shall sell the potatoes to third parties only when the quantity held by HAPL is in excess of the requirement of ASPL. Further, HAPL shall sell potatoes to ASPL at cost plus agreed arm's length markup. It may be noted that this I.T.A No. 1854/Ahd/2024 A.Y. 2021-22 Page No Asandas & Sons Pvt. Ltd. Vs. DCIT 17 agreement is recording the oral terms and conditions followed in the earlier years also and the said fact has not been disputed by the Ld DR. Now applying the above principles to the facts of present case and as to whether CUP is applicable, it can be observed that  The processing variety of potatoes sold to small parties/ traders may have a different commercial use as compared to potatoes sold by ASPL which is utilized in manufacturing of french fries.  Potato being a perishable product may be subjected to huge variation in the prices.  HAPL has sold total quantity of 7,67,04,643 kilograms (KGs) to ASPL. As against this, the aggregate quantity sold to all the non-AEs (102 non-AEs) taken together is merely 5,35,67,155 KGs i.e., average sales made by HAPL to non-AEs individually do not account even 1% of the total sales made to HAPL.  Business model is different - sale to small parties/traders is B2C as compared to potatoes sold to ASPL (which is B2C).  As per the Supply Agreement, HAPL shall sell the potatoes to the third parties only when the quantity held by HAPL is in excess of the requirement of ASPL and rates are market driven. Whereas HAPL sell potatoes to ASPL at cost plus agreed arm's length markup.  Even quality of products are different and are not comparable as can be observed from the quality wise details maintained in the books of account of the Assessee. I.T.A No. 1854/Ahd/2024 A.Y. 2021-22 Page No Asandas & Sons Pvt. Ltd. Vs. DCIT 18 9.5. In view of the above, TPO/DRP has not taken any accurate adjustments in order to apply CUP method nor considered the impact of above factors/fundamental differences while applying CUP method. Further, in the absence of lack of data in public domain to make accurate adjustments, it can be concluded that CUP cannot be considered as the most appropriate method in the present case and the analysis undertaken by the Assessee in TP study as well as by the ld TPO as confirmed by DRP suffer from various flaws does not reflect the correct ALP. 9.6. Now once it is concluded that CUP cannot be applied in the present case, the next best possible option is to consider TNMM as the most appropriate method. We find that the Assessee has submitted alternative benchmarking methodology during the course of assessment proceedings. Before coming to search submitted by the Assessee, in order to apply TNMM, first step would be decide the tested party. The tested party is usually the participant in a transaction for which profitability can be ascertained most reliably and for which reliable data on comparables can be found. The tested party will also typically be the party with the least intangibles and least complex entity. 9.7. ASPL has obtained license from international breeder i.e., Stet Holand B.V. (Netherland based entity) to multiply seeds and produce potatoes of a specified variety for manufacturing of frozen french fries and other allied products for which it pays royalty. ASPL also provides guidance and support for the purpose of harvesting good quality potatoes and also extends support for co- I.T.A No. 1854/Ahd/2024 A.Y. 2021-22 Page No Asandas & Sons Pvt. Ltd. Vs. DCIT 19 ordination with the farmers for efficient contract farming by HAPL and it co-ordinates with the farmers for contract farming based on support and guidance received from ASPL. Accordingly, it could be concluded that ASPL is the one who has obtained license and possesses the know-how for harvesting the specialized potatoes and HAPL merely co-ordinates with the farmers for producing required quality potatoes. Thus, ASPL could be considered as a complex entity as against HAPL, which is a mere trader and does not own any intangible. Hence, HAPL can be considered as a \"tested party\" for the purpose of application of TNMM method. Accordingly, once HAPL is considered as tested party and also a trader, the net profit margin earned by HAPL can be compared with net profit margins earned by comparable companies engaged in trading activities as identified from third party database. Thus, we find CUP is inapplicable due to fundamental differences not reasonably adjustable and that TNMM is most appropriate method. 9.8. TNMM Application and Benchmarking: Further the benchmarking study furnished by the assessee under TNMM showed: Party Net Margin (OP/OC) Range of Comparables HAPL (AE) 5.86% 1.19% – 2.44% These margins were computed from reliable public domain databases (Capitaline and Prowess). The Ld TPO did not dispute these margins except rejecting TNMM methodology, which we have already held as permissible. Thus, the assessee’s purchase of I.T.A No. 1854/Ahd/2024 A.Y. 2021-22 Page No Asandas & Sons Pvt. Ltd. Vs. DCIT 20 potatoes from HAPL at cost plus markup stands at arm’s length, and no adjustment is warranted. 10. Ground No.2 - Computation of Book Profits u/s 115JB. The assessee claims that the AO wrongly computed book profits and failed to grant MAT credit is a verifiable factual matter. Therefore we direct the JAO to examine the revised working and allow appropriate relief after due verification. 11. Ground Nos. 3 & 4 - Penalty Proceedings: As the transfer pricing adjustment is deleted, the penalty proceedings under section 270A and 271AA become infructuous and unsustainable. 12. In light of the above findings our decisions are summarized as the transfer pricing adjustment of ₹15,99,74,674 is deleted and TNMM method is held to be the Most Appropriate Method. The book profit under section 115JB is to be recomputed and MAT credit be allowed after verification. The penalty proceedings initiated under sections 270A and 271AA are quashed. In the result the appeal filed by the assessee is allowed for statistical purpose. Order pronounced in the open court on 25-06-2025 Sd/- Sd/- (DR. BRR KUMAR) (T.R. SENTHIL KUMAR) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad : Dated 25/06/2025 I.T.A No. 1854/Ahd/2024 A.Y. 2021-22 Page No Asandas & Sons Pvt. Ltd. Vs. DCIT 21 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad s6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, अहमदाबाद "