DCIT, Circle-6(1), Hyderabad V. M/s. Alemeco India Extrusion Ltd., Medak Dist

ITA 109/HYD/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77929 (ITAT-HYDERABAD)
• Duration Of Justice: 44 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2014
• Appeal Filed By: Department
• Assessment Year: misc
• Appeal Filed On: 01-01-1970
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Keywords: Transfer pricing; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA. NO.109/HYD/2014 ASSESSMENT YEAR 2009-2010 DCIT, CIRCLE 6(1) HYDERABAD. VS. M/S. ALUMECO INDIA EXTRUSION LTD., KALLAKAL (V), TOOPRAN (M), MEDAK DISTRICT. PAN AABCP-7715-M (APPELLANT) (RESPONDENT) FOR REVENUE MR. D. SUDHAKAR RAO FOR ASSESSEE MR. P.V.S.S. PRASAD DATE OF HEARING 04.06.2014 DATE OF PRONOUNCEMENT 06 .06.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS IS REVENUE APPEAL AGAINST THE ORDERS OF THE DISPUTES RESOLUTION PANEL (DRP), HYDERABAD DATED 21.11.2013 CONTESTING THE DIRECTIONS OF THE DRP WHE REIN IT DIRECTED THE TPO/A.O. TO FOLLOW INTERNAL CUP METHOD ADOPTED BY THE ASSESSEE AS THE MOST APPROPRIATE METHOD. 2. BRIEFLY STATED, ASSESSEE IS A MANUFACTURER OF ALUMINUM EXTRUDED PRODUCTS. ASSESSEE PROCURED RAW M ATERIAL FROM BOTH INTERNATIONAL AND DOMESTIC MARKETS. ASSES SEES RETURN WAS SELECTED FOR SCRUTINY AND INTERNATIONAL TRANSACTIONS WERE REFERRED TO TRANSFER PRICING OFFICER FOR DETER MINING THE ARMS LENGTH PRICE. IT WAS SUBMITTED THAT ASSESSEE-C OMPANY ADOPTED THE CUP METHOD FOR DETERMINING THE ARMS LE NGTH PRICE FOR THE PURCHASE TRANSACTIONS AND THE CPM FOR 2 ITA.NO.109/HYD/2014 M/S. ALUMECO INDIA EXTRUSION LTD., KALLAKAL (V), TOOPRAN (M) MEDAK DT. DETERMINING THE ARMS LENGTH PRICE FOR THE SALE TRA NSACTIONS. IT WAS SUBMITTED THAT THE CUP METHOD WAS THE MOST APPR OPRIATE METHOD (MAM) FOR BENCHMARKING THE PURCHASE OF BILLE TS, INGOTS ETC., FROM O & S METAL IMPORT GMBH, GERMANY AS COMP ARISON WAS DONE WITH LONDON METAL EXCHANGE (LME) PRICES. T HE TPO HAS REJECTED THE SUBMISSIONS OF THE TAXPAYER AND OB SERVED THAT THERE WAS AN EXCESS PAYMENT OF RS.2,97,96,235/- FOR PURCHASE OF RAW MATERIALS FROM THE ASSESSEES ASSOCIATED ENT ERPRISE. IT WAS ALSO SUBMITTED THAT COST PLUS METHOD ADOPTED FO R BENCHMARKING OF EXPORT SALES TO O & S METAL IMPORT GHMB, GERMANY WAS THE MOST APPROPRIATE METHOD IN VIEW OF OTHER INTERNAL COMPARABLES BEING AVAILABLE IN THE FORM OF EXPORT SALES MADE TO OTHER UNRELATED PARTIES. THE TPO HAS REJECTED THE ABOVE SUBMISSIONS AND ADOPTED TNMM AS THE MOST APPROPRIATE METHOD. TPO HAS SELECTED 9 COMPARABLES FROM DIFFERENT DATA BASES LIKE PROWESS AND CAPITAL LI NE, THE ARITHMETIC MEAN, PROFIT LEVEL INDICATOR (OP/OC) OF THE 9 COMPARABLES IS 6.58% WHICH FALLS BEYOND THE ARMS L ENGTH RANGE OF +/- 5% THUS RESULTS IN ADJUSTMENT TO THE I NTERNATIONAL TRANSACTIONS PERTAINING TO SALES AS UNDER : TOTAL OPERATING COSTS RS.84,47,67,060 SALES WITH AE RS.56,76,01,853 TOTAL OPERATING REVENUE RS.76,03,68,241 % OF AE SALES TO TOTAL OPERATING REVENUE 74.65% OPERATING COST PERTAINING TO AE (AS A % OF SALES TO OR) RS.63,06,18,610 ARMS LENGTH SALES @ 106.58% OF RS.63,06,18,610/- RS.67,21,13,315 PRICE RECEIVED RS.56,76,01,853 SHORTFALL BEING THE ADJUSTMENT RS.10,45,11,462 3.1. BEFORE THE PANEL, IT WAS SUBMITTED THAT CUP METHOD WAS RIGHTLY USED BY THE TAXPAYER TO COMPARE THE 3 ITA.NO.109/HYD/2014 M/S. ALUMECO INDIA EXTRUSION LTD., KALLAKAL (V), TOOPRAN (M) MEDAK DT. PURCHASE PRICE OF BILLETS IMPORTED FROM ITS AE CON SIDERING THE LONDON METAL EXCHANGE (LME) PRICES AS EXTERNAL CUP. LME PRICES ARE ADJUSTED TOWARDS CONVERSION COST, INTERE ST ON CREDIT PERIOD AND INSURANCE COSTS. THIS IS DONE TO REFLECT THE COST OF FINISHED GOODS AND TO COMPARE THE SAME WITH THE PUR CHASE PRICE OF BILLETS IMPORTED FROM AE, WHICH IS CIF BAS ED PRICES OF THE BILLETS IMPORTED. HENCE, THE PURCHASE PRICE OF IMPORTED BILLETS IS BENCHMARKED AGAINST LME PRICES AND THE C UP METHOD IS THE MOST SUITABLE METHOD. SINCE THE DOMES TIC PURCHASE OF INGOTS WERE MADE DURING THE MONTH OF AP RIL 2008 ONLY, THE SAME HAS BEEN USED TO BENCHMARK WITH THE IMPORTED INGOTS PURCHASES FROM AE. IT WAS ALSO SUBMITTED THA T THE CUP METHOD HAS ALWAYS BEEN ACCEPTED IN THE PREVIOUS ASS ESSMENTS BEFORE THE TPO. 4. THE DRP CONSIDERING THE ASSESSEES OBJECTIONS I N THE METHOD ADOPTED BY THE TPO, FOLLOWING THE DECISI ON OF THE ITAT FOR THE A.Y. 2008-09 IN ASSESSEES OWN CASE DI RECTED THE TPO TO FOLLOW THE DIRECTIONS OF THE HONBLE ITAT IN THIS YEAR ALSO AND RE-COMPUTE THE ALP BY FOLLOWING THE INTERN AL CUP METHOD FOR THE PURPOSE OF TRANSFER PRICING STUDY. T HE A.O. IS AGGRIEVED ON THE AFORESAID DIRECTIONS OF THE DRP AN D PREFERRED THE PRESENT APPEAL. 5. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE ARE OF THE OPINION THAT THE DIRECTIONS OF THE DRP ARE TO B E UPHELD AS THE DRP HAD FOLLOWED THE ORDERS OF THE ITAT ON THE ISSUE. SINCE COORDINATE BENCH DECISION IS BINDING ON THIS BENCH AND SINCE THE DIRECTIONS OF THE DRP ARE IN TUNE WITH THE DECI SION OF THE COORDINATE BENCH IN EARLIER YEAR IN ASSESSEES OWN CASE, WE SEE NO REASON TO UPHOLD THE REVENUE GROUNDS. 4 ITA.NO.109/HYD/2014 M/S. ALUMECO INDIA EXTRUSION LTD., KALLAKAL (V), TOOPRAN (M) MEDAK DT. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER WAS PRONOUNCED IN THE COURT ON 06.06.2014. SD/- SD/- (SAKTIJIT DEY) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 06 TH JUNE, 2014. VBP/- COPY TO 1. THE DCIT, CIRCLE 6(1), 7 TH FLOOR, D BLOCK, I.T. TOWERS, MASAB TANK, HYDERABAD. 2. M/S. ALUMECO INDIA EXTRUSION LTD., SURVEY NO.379 -382, KALLAKAL (VILLAGE) TOOPRAN MANDAL, MEDAK DISTRICT. 3. DISPUTES RESOLUTION PANEL, 2 ND FLOOR, INCOME TAX TOWERS, 10-2-3, A.C. GUARDS, HYDERABAD. 4. CIT(A)-I, HYDERABAD 5. D.R. ITAT, B BENCH, HYDERABAD.