Amphenol Interconnect India pvt. Ltd., Pune V. DCIT Cir.-8, Pune

ITA 1486/PUN/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79860 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 4 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 05-02-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 31-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VERMA
• Assessee Lawyers: SUNIL PATHAK
• Keywords: Related party transaction; Transfer pricing; International transaction
• Section: 92C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.1486/PN/2010 (A.Y: 2006-07) AMPHENOL INTERCONNECT INDIA PVT. LTD., 105, BHOSARI INDUSTRIAL ESTATE, PUNE - 411026 PAN: AACCA3419J APPELLANT VS. DCIT, CIRCLE-8, PUNE RESPONDENT ITA NO.1548/PN/2011 (A.Y: 2007-08) AMPHENOL INTERCONNECT INDIA PVT. LTD., 105, BHOSARI INDUSTRIAL ESTATE, PUNE - 411026 PAN: AACCA3419J APPELLANT VS. DCIT, CIRCLE-8, PUNE RESPONDENT ITA NO.142/PN/2013 (A.Y: 2008-09) AMPHENOL INTERCONNECT INDIA PVT. LTD., 105, BHOSARI INDUSTRIAL ESTATE, PUNE - 411026 PAN: AACCA3419J APPELLANT VS. ACIT, CIRCLE-8, PUNE RESPONDENT 2 ASSESSEE BY : SHRI SUNIL PA THAK & SHRI NIKHIL PATHAK DEPARTMENT BY : SMT. M.S. V ERMA, CIT DATE OF HEARING : 23.05.2014 DATE OF ORDER : 30.05.2014 ORDER PER BENCH: ALL THESE APPEALS PERTAIN TO THE SAME ASSESSEE ON SIMILAR ISSUES, SO THEY ARE BEING DISPOSED OFF BY THIS COMM ON ORDER. 2. IN ITA NO.1486/PN/2010, THE ASSESSEE HAS FILED T HE APPEAL ON THE FOLLOWING GROUNDS. 1] THE LEARNED TPO / DRP ERRED IN RECOMPUTING THE T RANSFER PRICE OF THE INTERNATIONAL TRANSACTIONS RELATING TO EXPORTS AND IMPORT OF GOODS AND PAYMENT OF COMMISSION DESPI TE THE FACT THAT NONE OF THE CONDITIONS AS PRESCRIBED IN SECTION 92C(3) OF THE INCOME TAX ACT, 1961 ('THE AC T'), HAD BEEN VIOLATED BY THE APPELLANT. THUS, THE A.O. / DR P ERRED IN MAKING AN ADDITION OF RS.62,89,277/- U/S 92C ON THE BASIS OF THE ORDER OF THE TPO U/S 92CA(3) DATED 01.10.2009 IN THE CASE OF THE APPELLANT COMPANY. 2] THE LEARNED TPO / DRP ERRED IN MAKING AN ADDITIO N OF RS.62,89,277/-WITHOUT APPRECIATING THE FACT THAT SU CH AN ADHOC ADDITION WAS NOT PERMISSIBLE UNDER LAW IN VIE W OF THE DECISION OF SUPREME COURT IN THE CASE OF K.P. VERGHESE[131 ITR597]. 3] THE LEARNED TPO / DRP ERRED IN NOT APPRECIATING THE FACT THAT THE ADJUSTMENT OF RS.62,89,277/- MADE TO THE T OTAL INCOME AS RETURNED IS BEYOND THE SCOPE OF TOTAL INC OME AS DEFINED IN SECTION 5 OF THE ACT. THE LEARNED TPO / DRP ALSO ERRED IN NOT APPRECIATING THE FACT THAT THE AD JUSTMENT OF RS.62,89,277/-DOES NOT PARTAKE THE CHARACTER OF INCOME AS DEFINED IN SECTION 2 OF THE ACT. IN VIEW OF THE ABOVE, THE ADJUSTMENT MADE BY THE TPO / DRP ARE NOT WITHIN THE PURVIEW OF THE CONCEPT OF 'INCOME' AS PER IT ACT AN D HENCE, IT REQUIRES TO BE DELETED. 4] THE LEARNED TPO / DRP ERRED IN MAKING AN ADJUST MENT OF RS.43,97,063/- BY ADOPTING THE COMPARABLE UNCONTROL LED 3 PRICE (CUP) METHOD FOR DETERMINING THE ARM'S LENGTH PRICE (ALP) IN RESPECT OF SOME OF THE INTERNATIONAL TRANS ACTIONS PERTAINING TO EXPORT OF FINISHED GOODS. 4.1] THE LEARNED TPO / DRP ERRED IN HOLDING THAT T HE CUP METHOD WAS THE MOST APPROPRIATE METHOD FOR DETERMIN ING THE ALP IN RESPECT OF SOME OF THE TRANSACTIONS OF E XPORT OF GOODS MERELY ON THE BASIS THAT THE DATA PERTAINING TO SIMILAR TRANSACTIONS WITH THIRD PARTIES WERE AVAILA BLE. 4.2] THE LEARNED TPO / DRP FAILED TO APPRECIATE THA T THERE WERE VARIOUS DIFFERENCES ON ACCOUNT OF FUNCTIONAL, TRANSACTIONAL, GEOGRAPHICAL, VOLUME, TIMING, BUSINE SS RISKS, ETC. IN RESPECT OF ALLEGED COMPARABLE TRANSA CTIONS WHICH OUGHT TO HAVE BEEN CONSIDERED AND SINCE SUITA BLE ADJUSTMENTS WERE NOT POSSIBLE, THERE WAS NO REASON TO ADOPT THE CUP METHOD FOR DETERMINING THE ALP. 4.3] THE LEARNED TPO / DRP FAILED TO APPRECIATE THA T THE TNMM WAS THE MOST APPROPRIATE METHOD FOR DETERMINING THE ALP IN RESPECT OF EXPORT OF GOODS TO AE AND THE NET PRO FIT MARGIN OF THE ASSESSEE WAS COMPARABLE TO THE NET PR OFIT MARGIN OF THE COMPARABLE COMPANIES AND HENCE, THE TRANSACTIONS WITH THE AE WERE AT ALP. 4.4] THE LEARNED TPO / DRP HAVE ERRED IN REJECTING THE TRANSACTIONAL NET MARGIN METHOD ('TNMM') AS THE MOS T APPROPRIATE METHOD FOR BENCHMARKING CERTAIN INTERNATIONAL TRANSACTIONS ON THE GROUNDS THAT THES E TRANSACTIONS SHOULD HAVE BEEN SEPARATELY BENCHMARKE D AND THEREBY CONTRADICTING THEMSELVES, SINCE NO SUCH SEPARATE BENCHMARKING WAS CONDUCTED BY THE LD. TPO HIMSELF, WHILE BENCHMARKING THE BALANCE INTERNATION AL TRANSACTIONS FOR WHICH THE TNMM WAS ACCEPTED. 5] THE LEARNED A.O. / DRP ERRED IN MAKING AN ADJUST MENT OF RS.2,55,003/- BY ADOPTING THE COMPARABLE UNCONTROLL ED PRICE (CUP) METHOD FOR DETERMINING THE ARM'S LENGTH PRICE (ALP) IN RESPECT OF SOME OF THE INTERNATIONAL TRANS ACTIONS PERTAINING TO IMPORT OF GOODS. 5.1] THE LEARNED TPO / DRP ERRED IN HOLDING THAT TH E CUP METHOD WAS THE MOST APPROPRIATE METHOD FOR DETERMIN ING THE ALP IN RESPECT OF CERTAIN TRANSACTIONS OF IMPOR T OF CERTAIN GOODS MERELY ON THE BASIS THAT THE DATA PER TAINING TO SIMILAR TRANSACTIONS WITH THIRD PARTIES WERE AVA ILABLE. 5.2] THE LEARNED TPO / DRP FAILED TO APPRECIATE THA T THERE ,WERE VARIOUS DIFFERENCES ON ACCOUNT OF TRANSACTIONAL, 4 FUNCTIONAL, GEOGRAPHICAL, VOLUME, TIMING, BUSINESS RISKS, ETC. IN RESPECT OF ALLEGED COMPARABLE TRANSACTIONS WHICH OUGHT TO HAVE BEEN CONSIDERED AND SINCE SUITABLE ADJUSTMENTS WERE NOT POSSIBLE, THERE WAS NO REASON TO ADOPT THE CUP METHOD FOR DETERMINING THE ALP. 5.3] THE LEARNED TPO / DRP FAILED TO APPRECIATE THA T THE TNMM WAS THE MOST APPROPRIATE METHOD FOR DETERMINING THE ALP IN RESPECT OF IMPORT OF GOODS FROM THE AE SINCE THE NET PROFIT MARGIN OF THE ASSESSEE COMPANY WAS COMPARABL E TO THE NET PROFIT MARGIN OF THE COMPARABLE COMPANIES A ND HENCE, THE TRANSACTIONS WITH THE AE WERE AT ALP. 5.4] THE LEARNED TPO / DRP HAVE ERRED IN REJECTING THE TRANSACTIONAL NET MARGIN METHOD ('TNMM') AS THE MOS T APPROPRIATE METHOD FOR BENCHMARKING CERTAIN INTERNATIONAL TRANSACTIONS ON THE GROUNDS THAT THES E TRANSACTIONS SHOULD HAVE BEEN SEPARATELY BENCHMARKE D AND THEREBY CONTRADICTING THEMSELVES, SINCE NO SUCH SEPARATE BENCHMARKING WAS CONDUCTED BY THE LD. TPO HIMSELF, WHILE BENCHMARKING THE BALANCE INTERNATION AL TRANSACTIONS FOR WHICH THE TNMM WAS ACCEPTED. 5.5] WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE AS SESSEE SUBMITS THAT IF AT ALL, THE CUP METHOD WAS TO BE AD OPTED FOR DETERMINING THE ALP, SUITABLE ADJUSTMENTS OUGHT TO HAVE BEEN MADE FOR DIFFERENCES ON ACCOUNT OF VOLUME , TIMING, GEOGRAPHICAL, BUSINESS RISKS, ETC BETWEEN T HE ALLEGED COMPARABLE TRANSACTIONS. 6] THE LEARNED TPO / DRP ERRED IN IGNORING THE FAC T THAT BASED ON THE DETAILED TRANSFER PRICING STUDY CONDUC TED BY THE APPELLANT, THE TNMM HAD BEEN DEMONSTRATED TO BE THE MOST APPROPRIATE METHOD TO DETERMINE THE ALP OF THE APPELLANT'S EXPORT AND IMPORT TRANSACTIONS PERTAINI NG TO THE MANUFACTURING SEGMENT. HE ALSO FAILED TO APPREC IATE THAT THE TNMM HAD BEEN ACCEPTED BY THE LD. TPO AS T HE MOST APPROPRIATE METHOD FOR AY 2004-05, IN WHICH YE AR THE SURROUNDING FACTS AND CIRCUMSTANCES WERE SIMILA R. 7] WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE ASS ESSEE SUBMITS THAT THE LEARNED TPO / DRP FAILED TO APPREC IATE THAT IN RESPECT OF CERTAIN PRODUCTS EXPORTED BY THE ASSESSEE, IT HAD CHARGED HIGHER PRICE TO THE AE AS COMPARED TO NON AE AND HENCE, THIS AMOUNT SHOULD HA VE BEEN ADJUSTED AND ONLY THE NET AMOUNT COULD BE ADDE D. 8] WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE ASS ESSEE SUBMITS THAT THE LEARNED TPO / DRP FAILED TO APPREC IATE THAT IN RESPECT OF CERTAIN PRODUCTS IMPORTED BY THE 5 ASSESSEE, IT HAD PAID LESSER PRICE TO THE AE AS COM PARED TO NON AE AND HENCE, THIS AMOUNT SHOULD HAVE BEEN ADJUSTED AND ONLY THE NET AMOUNT COULD BE ADDED. 9] THE LEARNED TPO / DRP ERRED IN MAKING AN ADJUST MENT OF RS.16,37,200/- BY ADOPTING THE COMPARABLE UNCONTROL LED PRICE (CUP) METHOD FOR DETERMINING THE ARM'S LENGTH PRICE (ALP) IN RESPECT OF THE TRANSACTION OF PAYMENT OF COMMISSION BY THE ASSESSEE COMPANY TO ITS AE. 9.1] THE LEARNED TPO/ DRP ERRED IN HOLDING THAT TH E ASSESSEE HAD PAID COMMISSION AT A HIGHER RATE TO ITS AE AS COMPARED TO THE RATE PAID TO THE THIRD PARTIES IN D OMESTIC MARKET AND HENCE, AN ADJUSTMENT WAS REQUIRED TO BE MADE ON ACCOUNT OF THE COMMISSION PAID. 9.2] THE LEARNED TPO / DRP FAILED TO APPRECIATE TH AT THERE WERE VARIOUS TRANSACTIONAL, FUNCTIONAL AND ECONOMIC DIFFERENCES IN RESPECT OF THE SERVICES PROVIDED BY THE AE AND THE THIRD PARTIES IN THE DOMESTIC MARKET AND HE NCE, SINCE SUITABLE ADJUSTMENTS WERE NOT POSSIBLE TO BE MADE FOR THE VARIOUS DIFFERENCES BETWEEN THE SERVICES RE NDERED, THE CUP METHOD WAS NOT THE MOST APPROPRIATE METHOD FOR DETERMINING THE ALP. 9.3] THE LEARNED TPO / DRP ERRED IN NOT APPRECIATI NG THAT THE ASSESSEE HAD ALSO RECEIVED COMMISSION FROM ITS AE A ND THE RATE OF THE COMMISSION RECEIVED WAS ALMOST EQUA L TO THE RATE PAID BY THE ASSESSEE COMPANY TO ITS AE AND HENCE, THERE WAS NO REASON TO HOLD THAT THE ASSESSE E HAD PAID HIGHER RATE OF COMMISSION TO ITS AE. 9.4] THE LEARNED TPO / DRP FAILED TO APPRECIATE TH AT THE TNMM WAS THE MOST APPROPRIATE METHOD FOR DETERMININ G THE ALP IN RESPECT OF THE COMMISSION PAID TO ITS AE AND SINCE THE NET PROFIT MARGIN OF THE ASSESSEE COMPANY WAS COMPARABLE TO THE NET PROFIT MARGIN OF THE COMPARAB LE ENTITIES, NO ADDITION WAS REQUIRED TO BE MADE. 9.5] WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE A SSESSEE SUBMITS THAT IF AT ALL, THE CUP METHOD WAS TO BE AD OPTED FOR DETERMINING THE ALP, SUITABLE ADJUSTMENTS OUGHT TO HAVE BEEN MADE FOR THE VARIOUS DIFFERENCES IN THE S ERVICES RENDERED BY THE AE AND THE THIRD PARTIES. 10] THE ASSESSEE SUBMITS THAT WITHOUT PREJUDICE TO ITS CONTENTION THAT THE ADDITION MADE U/S 92C IS NOT WARRANTED AT ALL, IT IS SUBMITTED THAT THE LEARNED TPO / 6 DRP OUGHT TO HAVE GRANTED THE BENEFIT OF 5% TO THE ASSESSEE COMPANY AS PER THE PROVISO TO SECTION 92C( 2). 11] THE APPELLANT RESERVES ITS RIGHT TO ADD, ALTER , AMEND OR WITHDRAW ANY GROUND OF APPEAL EITHER BEFORE OR AT T HE TIME OF HEARING OF THIS APPEAL. 2. AMPHENOL INTERCONNECT INDIA PVT. LTD. (HEREINAFT ER CALLED AS AMPHENOL) IS MAINLY ENGAGED IN THE BUSINESS OF MANU FACTURING OF CONNECTORS, ACCESSORIES, CABLE ASSEMBLIES AND SYSTE M INTEGRATION FOR APPLICATION IN VARIOUS INDUSTRIES SUCH AS MILITARY, AEROSPACE, TELECOM, ETC. THE PRODUCTS ARE SPECIALIZED IN NATU RE AS THEY ARE BEING USED IN DEFENCE, AEROSPACE, ETC. THE PRODUCT S ARE MANUFACTURED ONLY AGAINST THE SPECIFIC ORDERS I.E. THEY ARE CUSTOMIZED PRODUCTS. THE ASSESSEE COMPANY IS PART OF AMPHENOL GROUP WHICH IS ONE OF THE LARGEST MANUFACTURERS OF INTERCONNECT PRODUCTS IN THE WORLD. IN THE YEAR UNDER CONSIDERA TION, THE ASSESSEE HAS ENTERED INTO INTERNATIONAL TRANSACTIONS WITH IT S ASSOCIATED ENTERPRISES (HEREINAFTER CALLED AS AE). THE DETAILS OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE AS DETAIL ED IN THE TRANSFER PRICING OFFICERS (HEREINAFTER CALLED AS TPO) ORDER ARE AS UNDER: SR. NO. DETAILS OF TRANSACTION AMOUNT (RS.) METHOD ADOPTED 1 PURCHASE OF RAW MATERIAL 14,21,93,087 TNMM 2 EXPORT OF CONNECTORS I.E. FINISHED GOODS 28,64,38,138 TNMM 3 IMPORT OF FINISHED GOODS 37,25,099 TNMM 4 IMPORT OF CAPITAL GOODS 1,31,60,258 TNMM 5 RECEIPT OF INDENTING COMMISSION RECEIVED RS.36,54,122/- PAID RS.20,98,224/- 47,52,346 TNMM 6 REIMBURSEMENT OF EXPENSES 83,01,205 TNMM TOTAL 45,85,70,133 2.1 THE ASSESSEE COMPANY HAD ENTERED INTO INTERNATI ONAL TRANSACTIONS OF PURCHASE OF RAW MATERIAL AND EXPORT OF FINISHED GOODS IN RESPECT OF WHICH THE ADDITION WAS MADE BY THE ASSESSING OFFICER. IN THIS YEAR, THE ASSESSEE HAS RECORD SAL ES TURNOVER OF 7 84.16 CRS AND HAD DECLARED NET PROFIT BEFORE TAX OF 24.33 CRORES. IN THE T.P. STUDY REPORT AS PLACED ON PAGES 54 - 84 OF PAPER BOOK - I, THE ASSESSEE HAS APPLIED TNMM AS THE MOST APPROPRIA TE METHOD FOR COMPUTING THE ALP OF INTERNATIONAL TRANSACTIONS. TH E ASSESSEE IDENTIFIED 12 COMPANIES AS COMPARABLE WITH THE ASSE SSEE COMPANY AND AVERAGE OPERATING MARGIN OF THESE COMPANIES WAS 7.71% AS DETAILED ON BACK SIDE OF PAGE 75 OF PAPER BOOK-1] A S AGAINST THE OPERATING MARGIN OF 26.59% AS REFERRED BACK SIDE OF PAGE 83 OF PAPER BOOK - I] EARNED BY THE ASSESSEE AND ACCORDIN GLY, IT WAS THE STAND OF ASSESSEE THAT THE INTERNATIONAL TRANSACTIO NS ENTERED INTO WITH THE ASSESSEE WERE ARE ALP. THE TPO HAS NOT AC CEPTED THE CONTENTION OF THE ASSESSEE AND HE MADE ADJUSTMENT U /S.92C ON THREE COUNTS WHICH AS UNDER: A) EXPORT OF PRODUCTS TO AES WHICH ARE SIMILAR - 43,97,063 TO PRODUCTS SOLD TO THIRD PARTIES B) IMPORT OF PRODUCTS TO AES WHICH ARE SIMILAR TO PRODUCTS PURCHASED FROM THIRD PARTIES - 2,55,003 C) COMMISSION PAID TO AE - 16,37,200 TOTAL TP ADJUSTMENT IS 62,89,266 3. REGARDING ADJUSTMENT TOWARDS EXPORTS, WE FIND TH AT THE ASSESSEE HAS MADE TOTAL EXPORTS OF 28,64,38,138/- TO ITS AES AS REFERRED IN PAGE 2 OF TPO ORDER. OUT OF THESE EXPOR TS, THE TPO HAS ACCEPTED TNMM METHOD FOR EXPORTS AMOUNTING TO 27,24,19,025/-. HOWEVER, IN RESPECT OF EXPORTS AMOUNTING TO 1,40,19,113/-, THE TPO HAS STATED THAT SIMILAR PRODUCTS HAVE ALSO BEEN SOLD BY THE ASSESSEE TO THIRD PARTIES WHEREIN LESSER PRICE WAS CHARGED FROM THE AES. ACCORDINGLY, THE TPO HAS HELD THAT IN RESPECT OF SUCH EXPORTS, CUP METHOD SHOULD BE APPLIED. THE TPO HAS COMPUTED AVERAGE SALE PRICE OF THE PRODUCTS SOLD TO AES AND AVERAGE SALES PRICE OF PRODUCTS SOLD TO THIRD PARTIES AS DETAILED IN PAGES 165 - 19 8 OF PAPER BOOK. THUS, HE HAS HELD THAT IN CASE OF CERTAIN PRODUCTS, THE AVERAGE SELLING PRICE CHARGED BY THE ASSESSEE TO ITS AES WA S LESS THAN THE 8 AVERAGE SELLING PRICE CHARGED TO THIRD PARTIES AND HENCE, HE HAS MADE AN ADJUSTMENT OF 43,97,063/- IN RESPECT OF SUCH EXPORTS BY APPLYING CUP METHOD. 3.1 ACCORDING TO THE TPO, IN RESPECT OF THE PRODUCT S WHICH WERE SOLD BY THE ASSESSEE TO ITS AES AS WELL AS THIRD PA RTIES, THE CUP METHOD IS THE MOST APPROPRIATE METHOD FOR DETERMINI NG ALP. THE TPO HAS HELD THAT THE CUP METHOD COULD BE APPLIED I N THIS SCENARIO. HE HAS FURTHER STATED THAT THE ASSESSEE DID NOT SUB MIT ANY DATA FOR THE ADJUSTMENTS TO BE MADE ON ACCOUNT OF THE DIFFER ENCES IN RESPECT OF SALES TO AES AND THIRD PARTIES. ACCORDINGLY, HE HAS MADE THE ADDITION IN RESPECT OF THOSE PRODUCTS WHEREIN THE A VERAGE SELLING PRICE CHARGED BY THE ASSESSEE TO THE AES WAS LESSER THAN THE AVERAGE SELLING PRICE CHARGED TO THIRD PARTIES. IN THIS RE GARD, THE STAND OF THE ASSESSEE HAS BEEN THAT THE ADDITION IS QUESTION IS NOT JUSTIFIED. WE FIND THAT OUT OF THE TOTAL EXPORTS TO AE OF 28.64 CRORES, THE TPO HAS ACCEPTED THAT EXPORTS OF 27.24 CRS. ARE AT ALP. ONLY IN RESPECT OF EXPORTS OF 1.40 CRS. WHICH ACCOUNT FOR 5% OF TOTAL EXPORTS, T HE TPO HAS APPLIED THE CUP METHOD. THE TPO HAS MADE THE A DDITION ONLY ON THE BASIS THAT THERE IS PRODUCT SIMILARITY. THE TPO HAS NOT APPRECIATED THAT THE CUP METHOD IS NOT THE MOST APP ROPRIATE METHOD TO DETERMINE ALP IN THE CASE OF THE ASSESSEE BECAUSE THE ASSESSEE MANUFACTURES CUSTOMIZED PRODUCTS. THE PRIC ING OF THE PRODUCT DEPENDS UPON VARIOUS FACTORS LIKE THE GEOGR APHICAL LOCATION OF THE CUSTOMER, THE VOLUME OF THE ORDER, TIMING OF THE ORDER, URGENCY OF THE CUSTOMER, COMPETITION IN THE MARKET, ETC. TH E PRICING DEPENDS UPON SO MANY FACTORS AND SUITABLE ADJUSTMENTS COULD NOT BE MADE TO ACCOUNT FOR SUCH DIFFERENCES. THE LEARNED AUTHO RIZED REPRESENTATIVE HAS POINTED OUT THAT IN RESPECT OF T HE SAME PARTY AND THE SAME PRODUCT, THE ASSESSEE HAS CHARGED DIFFEREN T PRICES WHICH ITSELF INDICATES THAT THE PRICING IS DEPENDENT UPON VARIOUS FACTORS FOR WHICH SUITABLE ADJUSTMENTS COULD NOT BE MADE. IN T HIS REGARD, THE ATTENTION WAS DRAWN TO PAGE 165 OF THE PAPER BOOK W HEREIN WHICH 9 MAKE IT CLEAR THAT THE ASSESSEE COMPANY HAS CHARGED DIFFERENT PRICES TO AMPHENOL LTD., GREAT BRITAIN FOR THE SAME PRODUC T. 3.2 THE ASSESSEE EMPHASIZED THAT THERE ARE VARIOUS DIFFERENCES IN TRANSACTIONS WITH AES AND THE THIRD PARTIES PERTAIN ING TO SIMILAR PRODUCTS. THESE DIFFERENCES ARE AS UNDER A. VOLUME DIFFERENCES - THIS ASPECT WAS CLARIFIED BY THE ASSESSEE ON PAGE 1 50 OF THE PAPER BOOK. THE ASSESSEE, INTER ALIA, HAD EXPLAINED TO THE ASSESSING OFFICER THAT VOLUMES INVOLVED FOR AES ARE MUCH HIGHER AS COMPARED TO THIRD PARTIES. THE ASSESSEE H AS FURTHER STATED THAT VOLUME DISCOUNT OFFERED DEPENDS UPON VA RIOUS FACTORS LIKE PREVAILING MARKET CONDITIONS, LEVEL OF COMPETITION IN THE MARKET AND FUTURE GROWTH PROSPECTS. THIS FACT HAS NOT BEEN APPRECIATED BY THE TPO. B. GEOGRAPHICAL DIFFERENCES - THIS ASPECT WAS CLARIFIED BY THE ASSESSEE ON PAGE 1 52 OF THE PAPER BOOK, INTER ALIA, CLARIFIED TO THE ASSESSING OFFICER THAT THE PRICES CHARGED DEPENDS UPON THE COUNTRY WHERE THE A E/ THIRD PARTY IS SITUATED AND ALSO THE DEMAND AND SUPPLY FA CTORS IN THE RESPECTIVE COUNTRIES. THE ASSESSEE EXPLAINED THAT C UP METHOD CAN BE APPLIED ONLY WHEN THE CONDITIONS PREVAILING IN THE MARKET IN WHICH THE RESPECTIVE PARTIES OPERATE ARE THE SAME AND ALSO THE SIZE AND LOCATION OF THE MARKET IS TO BE TAKEN INTO CONSIDERATION. THIS ASPECT HAS NOT BEEN ANALYZED B Y THE TPO JUDICIOUSLY. C. TIMING DIFFERENCES THIS ASPECT WAS CLARIFIED BY THE ASSESSEE ON PAGES 153 - 154 OF THE PAPER BOOK, INTER ALIA, SUBMITTED THAT TIMING D IFFERENCES IN THE SALES MADE TO THE AES AND THIRD PARTIES HAVE A BEARING 10 SINCE THE PRICES ARE DEPENDENT UPON VARIOUS FACTORS . AS CLARIFIED, THE ASSESSEE MANUFACTURES AFTER RECEIVIN G THE ORDER FROM THE PARTY AND THE RELEVANT RAW MATERIAL COST A T THAT TIME IS ALSO A CRUCIAL FACTOR TO DETERMINE THE PRICES OF TH E END PRODUCT. THUS, CONSIDERING TIMING DIFFERENCES OF TRANSACTION , APPLICATION OF CUP METHOD IS NOT JUSTIFIED. D. RISK DIFFERENCE - THIS ASPECT EMPHASIZED BY THE ASSESSEE FROM THE DET AILS AT PAGE 154 OF THE PAPER BOOK, INTER ALIA, EMPHASIZED THAT THE RISK MAINLY MARKET RISK AND PRODUCT RELATED RISK ASSUMED BY THE COMPANY IN CASE OF TRANSACTIONS WITH AES ARE SIGNIF ICANTLY LOWER AS COMPARED TO THE TRANSACTIONS WITH THIRD PA RTIES. THEREFORE, CONSIDERING THE RISK DIFFERENCES, THE PR ICES CHARGED TO THIRD PARTIES ARE HIGHER THAN THE PRICES CHARGED TO AES IN CERTAIN CASES. HENCE, CUP METHOD COULD NOT BE APPLI ED IN THE CASE OF THE ASSESSEE. FURTHER, THE ASSESSEE DOES NO T HAVE ANY CREDIT RISK IN RESPECT OF SALES TO THE AES WHICH IS AN IMPORTANT FACTOR. THIS DIFFERENCE IS DISCUSSED ABOVE HAS NOT BEEN JUDICIOUSLY APPRECIATED BY THE ASSESSEE. E. FUNCTIONAL DIFFERENCES THIS ASPECT WAS CLARIFIED BY THE ASSESSEE AS PER DE TAILS ON PAGE 154 OF THE PAPER BOOK, INTER ALIA, ASSESSEE EXPLAIN ED TO THE ASSESSING OFFICER THAT IN RESPECT OF SALES TO AES, IT WAS NOT REQUIRED TO UNDERTAKE MARKETING FUNCTIONS WHILE IN RESPECT OF SALES TO THIRD PARTIES, THE ASSESSEE HAS TO EXTENSI VELY UNDERTAKE MARKETING OPERATIONS. IGNORING UNDERTAKI NG OF MARKETING FUNCTION IS NOT JUSTIFIED. F. OTHER DIFFERENCES THIS ASPECT WAS CLARIFIED BY THE ASSESSEE ON PAGE 1 54 OF THE PAPER BOOK, INTER ALIA, ASSESSEE EXPLAINED THAT THE AES ARE 11 USUALLY ORIGINAL EQUIPMENT MANUFACTURERS WHILE THE THIRD PARTIES ARE USUALLY DISTRIBUTORS. THUS, THERE WAS A DIFFERENCE IN VALUE CHAIN. SIMILARLY, ASSESSEE EXPLAINED THAT IT IS ABLE TO REALIZE HIGHER PRICE ON ACCOUNT OF AMPHENOL BRAND F OR WHICH NO CONSIDERATION WAS PAID BY THE ASSESSEE. 3.3 CONSIDERING THE ABOVE DIFFERENCES, CUP METHOD W AS CLAIMED TO BE NOT THE MOST APPROPRIATE METHOD TO DETERMINE ALP . THE SUITABLE ADJUSTMENTS WERE NOT POSSIBLE FOR THE ABOVE DIFFERE NCES AND THEREFORE, THE TPO WAS NOT JUSTIFIED IN ADOPTING CU P FOR EXPORTS OF 1.40 CRS. TO THE AES SPECIALLY WHEN IN RESPECT OF S OME OF THE PRODUCTS, THE ASSESSEE HAS CHARGED HIGHER PRICE TO THE AES AS COMPARED TO THE PRICES CHARGED TO THIRD PARTIES. T HIS FACT WAS CLARIFIED BY THE ASSESSEE TO THE TPO BY THE DETAILS AS MENTIONED ON PAGE 161 OF THE PAPER BOOK. CONSIDERING THE ABOVE FACT, WE FIND THAT IN RESPECT OF SOME OF THE INSTANCES, THE ASSES SEE HAS CHARGED HIGHER PRICES TO THE AES AS COMPARED TO THIRD PARTI ES. THIS FACT ITSELF INDICATES THAT THE PRICING OF THE PRODUCTS I S INFLUENCED BY ECONOMIC CIRCUMSTANCES AND UNDERLYING TRANSACTIONAL DIFFERENCES. THE ASSESSEE HAS CHARGED HIGHER AMOUNT OF 16,18,244/- TO THE AES IN RESPECT OF THE SAME PRODUCTS WHICH WERE ALSO SOL D TO THIRD PARTIES AS REFERRED ON PAGE 198 OF THE PAPER BOOK. CONSIDE RING THE ABOVE DIFFERENCES, THE CUP METHOD WAS NOT THE MOST APPROP RIATE METHOD SINCE SUITABLE ADJUSTMENTS WERE NOT POSSIBLE TO BE MADE FOR THE VARIOUS DIFFERENCES. THE TPO HAS APPLIED CUP ONLY ON THE BASIS OF PRODUCT SIMILARITY WITHOUT APPRECIATING THE VARIOUS OTHER DIFFERENCES AS DISCUSSED ABOVE. 3.4 WE FIND THAT THE MUMBAI BENCH IN THE CASE OF GH ARDA CHEMICALS LTD. [130 TTJ 556 (MUM)] HAS HELD THAT TH E ASSESSEE HAD SOLD A PRODUCT NAMED 'DICAMBA' TO GHARDHA USA INC. AE OF THE ASSESSEE COMPANY. TOTAL AMOUNT RECEIVED BY THE ASSE SSEE AS 'ALP' TOWARDS EXPORT OF DICAMBA WAS DECLARED AT 20.71 CRORES. THE ASSESSEE HAD DETERMINED THE ALP BY COMPARABLE UNCON TROLLED PRICE 12 METHOD. THE TPO NOTED THAT THE SALE OF DICAMBA TO U NRELATED PARTIES WAS ALSO MADE BY THE ASSESSEE IN VARIOUS OTHER COUN TRIES AT THE RATES RANGING BETWEEN 19.47 US $ TO 25.00 US $ PER KG. AS AGAINST THAT THE DICAMBA SOLD BY THE ASSESSEE TO ITS AE WAS AT T HE RATE OF 14.66 US $. IT WAS FOUND RELEVANT TO MENTION THAT THE TO TAL QUANTITY EXPORTED BY THE ASSESSEE TO DIFFERENT COUNTRIES WAS 418803 KGS. INCLUSIVE OF 272100 KGS. SOLD TO ITS AE. THE TPO D ETERMINED THE AVERAGE RATE OF SALE TO ALL INDEPENDENT ENTERPRISES AT 20.67 US $ PER KG., WHICH WAS FOUND TO BE SUBSTANTIALLY HIGHER THA N 14.66 US $ CHARGED BY THE ASSESSEE FROM ITS AE. THE ITAT HELD THAT THE INTERNAL CUP METHOD ENVISAGES COMPARING THE UNCONTROLLED TRA NSACTIONS OF THE ASSESSEE ITSELF WITH OTHER UNRELATED PARTIES SO AS TO DETERMINE THE ALP WITH THE AE. HOWEVER, THE EXTERNAL CUP METH OD DISREGARDS THE PRICE CHARGED OR PAID BY THE ASSESSEE TO OR FRO M ITS UNRELATED PARTIES AND CONTEMPLATES THE COMPARISON OF THE PRIC E SO CHARGED FROM OR PAID TO ITS AE WITH SOME EXTERNAL INDEPENDE NT RELIABLE PRICE DATA UNDER SIMILAR CIRCUMSTANCES OF TRANSACTIONS WI TH AE. ORDINARILY THE INTERNAL CUP METHOD SHOULD BE PREFERRED OVER TH E EXTERNAL CUP METHOD AS IT NEUTRALIZES SEVERAL DISTINGUISHING FAC TORS, SUCH AS THE LOCAL FACTORS AND THE ECONOMIES AVAILABLE OR UNAVAI LABLE TO THE ASSESSEE IN PARTICULAR, HAVING BEARING OVER THE COM PARISON OF PRICE CHARGED FROM UNRELATED PARTIES AND AE. THE ESSENCE OF DETERMINING ALP UNDER CUP METHOD IS TO ENSURE THAT THE PRICE CH ARGED BY THE INDIAN ENTERPRISE FROM ITS AE SHOULD BE CONSISTENT WITH THAT CHARGED FROM UNRELATED PARTIES UNDER SIMILAR CIRCUMSTANCES. THE IMPORTANCE OF THE 'SIMILAR CIRCUMSTANCES' COULD NOT BE LOST SI GHT OF IN THIS CONTEXT BECAUSE A ROUND CANNOT BE COMPARED WITH A S QUARE AND A RECTANGLE WITH A TRIANGLE. IN OTHER WORDS THE UNCON TROLLED TRANSACTIONS WHICH ARE CONTEMPLATED FOR COMPARISON SHOULD BE ALIKE, IF NOT IDENTICAL. SIMILARITY BETWEEN THE TWO SETS O F TRANSACTIONS COULD BE JUDGED BY THE QUALITY, GRADE AND QUANTITY OF THE MATERIAL. IN ADDITION, THE FACTORS LIKE LOCATION OF THE PARTIES, AVAILABILITY OF RAW MATERIAL; DEMAND AND SUPPLY EQUATION ALSO PLAY PIVO TAL ROLE IN 13 FINDING OUT AS TO WHETHER THE TWO ARE REALLY COMPAR ABLE OR NOT. THUS IN THE INTERNAL CUP METHOD THE LOCAL FACTORS OF AE IN THE OTHER COUNTRY AND ALL THE RELEVANT FACTORS WHICH COULD HA VE BEARING ON THE PRICE SO CHARGED FROM AE MUST BE TAKEN INTO CONSIDE RATION. THE TRIBUNAL WAS DEALING WITH A CASE IN WHICH THE ASSES SEE HAS ITS AE IN USA AND RATE CHARGED WAS 14.66 US $ PER KG. OF DICA MBA. THERE WAS NO OTHER EXPORT BY THE ASSESSEE TO USA. THE UNCONTR OLLED TRANSACTIONS OF EXPORT MADE BY THE ASSESSEE ARE TO OTHER COUNTRIES SUCH AS UK, NETHERLANDS, NEW ZEALAND, AUSTRALIA, FR ANCE, ETC. IN RESPECT OF WHICH AVERAGE RATE OF 20.67 US $ PER KG. OF DICAMBA HAS BEEN DETERMINED BY THE TPO FOR COMPUTING THE ALP. A LL OTHER TRANSACTIONS OF EXPORT BY THE ASSESSEE ARE TO NON-U SA COUNTRIES. THE PRICE ON WHICH A PARTICULAR PRODUCT IS AVAILABLE IN ONE COUNTRY MAY LARGELY VARY FROM THE PRICE PREVAILING IN OTHER COU NTRIES DUE TO VARIOUS FACTORS. THE COUNTRY WHICH IS PRODUCER OF A PARTICULAR COMMODITY OR ITS RAW MATERIAL MAY HAVE LOWER SALE P RICE IN COMPARISON WITH THE COUNTRY WHICH IS SHORT OF SUCH NATURAL RESOURCES. SIMILARLY THE PRICE MAY VARY FROM ONE CO UNTRY TO ANOTHER DEPENDING UPON CLIMATIC CONDITIONS AND THE DEMAND A ND SUPPLY FACTORS. THUS THE PRICE CHARGED BY AN INDIAN PARTY FROM UK OR AUSTRALIA MAY BE AT MUCH VARIANCE WITH THAT CHARGED FROM USA. IN SUCH A SCENARIO NO VALID COMPARISON COULD BE MADE B ETWEEN THE PRICE CHARGED BY THE ASSESSEE FROM OTHER COUNTRIES WITH THAT FROM USA, MORE PARTICULARLY WHEN THE TRIBUNAL WAS OF THE VIEW THAT QUANTITY EXPORTED TO USA ON WHOLESALE BASIS WITH TH AT TO OTHER COUNTRIES IN SMALL LOTS ON RETAIL BASIS. IN THIS SI TUATION, THE TRIBUNAL HELD THAT THE INTERNAL CUP METHOD WAS NOT SUITABLE IN THE PRESENT CIRCUMSTANCES. 3.5 WE FIND IN DUFON LABORATORIES [(39 SOT 59 (MUM) ], THE TPO HAD MADE THE ADDITION BASED ON THE FACT THAT THE ASSESS EE HAD CHARGED LESSER PRICE TO ITS AE AS COMPARED TO THE PRICE CHA RGED TO THIRD PARTY FOR THE SAME PRODUCT. THE ITAT HELD THAT IF THE DI FFERENCES ARE TAKEN 14 INTO CONSIDERATION LIKE GEOGRAPHICAL, VOLUME, PROFI LE OF THE CUSTOMER, ETC. ETC., NO ADDITION WAS WARRANTED. 3.6 IN UCB INDIA LTD. [121 ITD 131 (MUM)], THE ASSE SSEE HAD MADE IMPORTS FROM ITS AE. THE ASSESSEE HAD APPLIED TNMM. THE TPO ADOPTED CUP METHOD TO DETERMINE ALP. THE ITAT HELD THAT THOUGH CUP WAS A DIRECT METHOD, IT COULD NOT BE APPLIED IN ALL SITUATIONS. MUCH DEPENDS ON THE AVAILABILITY OF DATA ON COMPARA BLES. JUST BECAUSE IT IS THE ONLY DIRECT METHOD, IT DOES NOT A UTOMATICALLY BECOME THE MOST APPROPRIATE METHOD. THE CUP METHOD IS THE MOST DIRECT METHOD FOR DETERMINING ALP. UNDER THIS METHO D, THE PRICE AT WHICH CONTROLLED TRANSACTION IS CARRIED OUT IS COMP ARED TO THE PRICE OBTAINED IN COMPARABLE UNCONTROLLED TRANSACTION. AN UNCONTROLLED PRICE IS THE PRICE AGREED BETWEEN UNCONNECTED PARTI ES FOR THE TRANSFER OF GOODS OR SERVICES. THE CUP CAN BE EITH ER (A) INTERNAL CUP OR (B) EXTERNAL CUP. IN THIS CASE ON HAND, EXTERNAL CUP IS CONSIDERED. UNDER THE CUP METHOD THE PROPERTIES OF A PRODUCT AND ACCOMPANYING CIRCUMSTANCES AND CONDITIONS HAVE TO B E EVALUATED FOR COMPARISON. EVEN A MINOR CHANGE IN THE PROPERTI ES OF THE PRODUCTS, CIRCUMSTANCES OF TRADE (BILLING PERIOD, A MOUNT OF CREDIT THEREIN, ETC.) MAY HAVE A SIGNIFICANT EFFECT ON THE PRICE. PRODUCT COMPARABILITY IS ABSOLUTELY KEY, IN PARTICULAR PHYS ICAL FEATURES SUCH AS SIZE, WEIGHT, APPEARANCE ALONG WITH VOLUME, RELI ABILITY/STORAGE REQUIREMENTS, REGULATORY REQUIREMENTS, ETC. PRICING OF A PRODUCT IS A VERY SUBJECTIVE EXERCISE AND ITS TRUE VALUE, AS REC EIVED BY THE RECEIVER, CAN DIFFER FROM THAT RECEIVED BY OTHERS I N THE MARKET PLACE. BROADER BUSINESS FUNCTIONS AND NOT JUST THE PRODUCT COMPARABILITY HAVE TO BE CONSIDERED. IT WOULD ALSO BE NECESSARY T O COME TO A CONCLUSION, WITH SOME SCIENTIFIC STUDY OR ENQUIRY T HAT THE APIS IMPORTED BY INDEPENDENT ENTITIES ARE SAME AS THE AP I IMPORTED BY THE ASSESSEE, AS EVEN A MINOR DIFFERENCE COULD MATE RIALLY AFFECT THE PRICE. THERE SHOULD BE A SCIENTIFIC BASIS TO SAY TH AT APIS ARE IDENTICAL, WITH THE SAME PURITY, POTENCY, AND CHARA CTERISTICS. APIS ARE UNIQUE COMPOUND MAKING, AND THE EFFECT OF USAGE OF A PARTICULAR 15 PDF USING AN API WOULD DEPEND ON THE COMPOSITION, P URITY, METHOD OF USAGE, DOSAGE USED, SIDE-EFFECTS. ALL SUCH DATA SHOULD BE FIRST OBTAINED BY THE REVENUE OR THE ASSESSEE, WHO WISH T O COMPARE PRODUCTS AND THEN ARRIVE AT THE ALP OR WISH TO MAKE ADJUSTMENTS TO A PRICE, COST OR MARGIN. 3.7 IN THE CASE OF WELSPUN ZUCCHI TEXTILES LTD. [15 3 TTJ 153 (MUM)], THE ASSESSEE HAD EXPORTED BATHROBES TO ITS AES. THE ASSESSEE HAD ADOPTED CUP METHOD TO DETERMINE ALP. T HE TPO REJECTED CUP METHOD AND APPLIED TNMM. THE ITAT HEL D THAT THE ASSESSEE HAD WRONGLY ADOPTED CUP METHOD AND IT WAS HELD THAT THE ASSESSEE HAD MADE COMPARISON OF THE AVERAGE PRICE O F ALL THE BATHROBES SOLD TO AES VIS-A-VIS THIRD PARTIES. THE ITAT HELD THAT SUCH COMPARISON IS NOT CORRECT AND SECONDLY, THERE WERE DIFFERENCES IN GEOGRAPHICAL LOCATIONS AND SIZE OF THE MARKETS W HICH AFFECTED THE PRICE. ACCORDINGLY, CUP WAS REJECTED AS THE MOST AP PROPRIATE METHOD. 3.8 IN INTERVET INDIA PVT. LTD. [39 SOT 59 (MUM)], ITAT HAS HELD THAT FOR APPLICABILITY OF CUP, VARIOUS DIFFERENCES INCLUDING ECONOMIC AND MARKET CONDITIONS, GEOGRAPHICAL LOCATIONS, VOLU ME DISCOUNT, CREDIT RISKS, ETC. ETC. ARE TO BE TAKEN INTO ACCOUN T AND SIMPLY, PRODUCT SIMILARITY IS NOT THE ONLY CRITERIA FOR APP LYING CUP METHOD. 3.9 WE FIND IN THE CASE OF ARVIND MILLS LTD. [11 TA XMANN.COM 67 (AHD)], ITAT HAS HELD THAT FOR APPLYING THE CUP MET HOD, THERE SHOULD NOT ONLY BE PRODUCT SIMILARITY BUT IMPACT OF BROADE R BUSINESS FUNCTIONS ON PRICES SHOULD BE CONSIDERED. THE ITAT HELD THAT EVEN MINOR DIFFERENCES IN CONTRACTUAL TERMS, ECONOMIC CO NDITIONS, GEOGRAPHICAL AREAS, RISKS ASSUMED, FUNCTIONS ASSUME D COULD AFFECT THE PRICES OF THE PRODUCTS. 4. NEW LET US ANALYSE THE ARGUMENTS OF LEARNED CIT DR ON BROAD PROPOSITION THAT THE ASSESSEE WAS NOT JUSTIFIED IN AGGREGATING THE TRANSACTIONS OF EXPORTS, IMPORTS AND COMMISSION INT O A SINGLE 16 ACTIVITY FOR THE PURPOSES OF DETERMINING THE ALP UN DER TNMM METHOD. IT WAS ARGUED BY THE LEARNED DEPARTMENTAL R EPRESENTATIVE THAT THE TRANSACTIONS ARE DISTINGUISHABLE IN THEIR NATURE AND SCOPE AND SEPARATE PROFITABILITY CAN BE ARRIVED AT IN RES PECT THESE TRANSACTIONS AND HENCE, THE AGGREGATION APPROACH AD OPTED BY THE ASSESSEE IS NOT JUSTIFIED. IN THIS REGARD, WE FIND THAT THE ASSESSEE SUBMITS THAT THE ABOVE CONTENTION IS NOT CORRECT. I T IS SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS ACTIVITY OF MANUFACTURING CONNECTORS AND OTHER PRODUCTS AND SELLING THEM SUBS EQUENTLY TO VARIOUS PARTIES. THUS, IT IS TO BE NOTED THAT THE T RANSACTIONS OF EXPORTS OF GOODS, IMPORT OF GOODS ARE ALL PART OF T HE ASSESSEE'S BUSINESS. FURTHER, THE COMMISSION IS PAID TO VARIOU S PARTIES TO BOOST THE SALES OF THE ASSESSEE'S PRODUCTS. THEREFORE, TH E TRANSACTIONS OF EXPORTS, IMPORTS AND PAYMENT OF COMMISSION TO AGENT S ARE CLOSELY INTER RELATED AND ARE PART OF SINGLE BUSINESS ACTIV ITY OF THE ASSESSEE AND THE PROFIT EARNED BY THE ASSESSEE IS COLLECTIVE RESULT OF ALL THESE TRANSACTIONS AND HENCE, IT IS IMPRACTICAL TO ANALYS E THE PROFITS OF EACH INDIVIDUAL TRANSACTIONS. ACCORDINGLY, THE ASSE SSEE HAS RIGHTLY AGGREGATED THE ABOVE TRANSACTIONS FOR THE PURPOSES OF DETERMINING THE ALP UNDER TNMM. EVEN IF THE VARIOUS TRANSACTIO NS ARE EVALUATED INDEPENDENTLY, THE NET FINAL RESULT REMAI NS THE SAME. THE ASSESSEE HAS ADOPTED TNMM FOR DETERMINING THE ALP F OR THE VARIOUS TRANSACTIONS AND THE ASSESSEE HAD CONTENDED THAT IT S NET OPERATING MARGIN IS MUCH HIGHER THAN THE COMPARABLE COMPANIES . THIS FACT HAS NOT BEEN DISPUTED BY THE LEARNED TPO SINCE HE H IMSELF HAS ACCEPTED THAT MORE THAN 95% OF THE EXPORTS AND IMPO RTS ARE AT ALP AS PER THE TNMM METHOD. ACCORDINGLY, EVEN IF THE VA RIOUS INTERNATIONAL TRANSACTIONS ARE EVALUATED SEPARATELY , THE FINAL RESULT REMAINS THE SAME. THE ASSESSEE HAS ADOPTED TNMM WH EREIN THE NET OPERATING MARGIN OF THE ASSESSEE IS COMPARED WITH T HE NET OPERATING MARGIN OF THE COMPARABLES. ONCE THE NET MARGIN OF T HE ASSESSEE IS HIGHER, IT MEANS THAT ALL THE INTERNATIONAL TRANSAC TIONS ENTERED INTO BY THE ASSESSEE WITH ITS AES ARE AT ALP. 17 4.1 THE LEARNED CIT DR HAS FURTHER SUBMITTED THAT C UP IS A MORE DIRECT METHOD FOR DETERMINING THE ALP OF INTERNATIO NAL TRANSACTIONS ENTERED INTO BY A COMPANY AND HENCE, IT SHOULD BE P REFERRED OVER TNMM METHOD. IN THIS RESPECT, SHE HAS PLACED RELIAN CE ON THE DECISION IN THE CASE OF ACIT V. MSS INDIA [32 SOT 1 32(PUNE)]. ACCORDINGLY, IT HAS BEEN CONTENDED THAT THE LEARNED TPO HAS RIGHTLY APPLIED CUP METHOD FOR DETERMINING THE ALP OF CERTA IN TRANSACTIONS RELATING TO EXPORTS AND IMPORTS OF GOODS AND COMMIS SION WHERE SIMILAR TRANSACTIONS WERE AVAILABLE FOR COMPARISON. IN THIS REGARD, THE STAND OF THE ASSESSEE HAS BEEN THAT THE ABOVE C ONTENTION IS NOT CORRECT. THE LEARNED TPO HAS RELIED ON THE DECISION OF MSS INDIA (SUPRA) TO STATE THAT CUP METHOD IS TO BE PREFERRED OVER TNMM METHOD. ACCORDING TO US, AS GENERAL PROPOSITION, T HERE IS NO DISPUTE TO THE FACT THAT THE CUP METHOD IS A MORE DIRECT ME THOD AND HENCE, IT SHOULD BE PREFERRED OVER TNMM METHOD WHEN COMPAR ABLE TRANSACTIONS ARE AVAILABLE. HOWEVER, IT IS TO BE AP PRECIATED THAT IN THE INSTANT CASE, WHERE THERE ARE VARIOUS DIFFERENC ES LIKE GEOGRAPHICAL DIFFERENCES, VOLUME DIFFERENCES, DIFFE RENT MARKET CONDITIONS, ETC. ETC. IN THE TRANSACTIONS ENTERED B Y THE ASSESSEE WITH ITS AES AND THE THIRD PARTIES. IT IS NOT POSSIBLE TO MAKE SUITABLE ADJUSTMENTS IN RESPECT OF SUCH DIFFERENCES, HENCE, CUP METHOD IS NOT THE MOST APPROPRIATE METHOD IN THE INSTANT CASE . IN THE COURSE OF THE HEARING, THE LEARNED CIT DR SUBMITTED THAT T HE TPO HAS RIGHTLY ADOPTED CUP FOR THE PRODUCTS IN RESPECT OF WHICH COMPARABLE TRANSACTIONS WERE AVAILABLE. WHILE RAISING THIS CON TENTION, THE LEARNED CIT DR HAS NOT CONTROVERTED THE VARIOUS DIF FERENCES BETWEEN THE TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS AES AND THIRD PARTIES. CONSIDERING THE VARIOUS DIFFERENCES AS DI SCUSSED ABOVE BETWEEN THE TWO TRANSACTIONS, CUP METHOD IS NOT APP LICABLE TO THE FACTS OF THE PRESENT CASE. THE LEARNED CIT DR HAD A LSO STATED THAT THE ONUS IS ON THE ASSESSEE TO DEMONSTRATE THAT THE METHOD SELECTED BY IT, WAS MOST APPROPRIATE. THERE IS NO DISPUTE RE GARDING THIS PROPOSITION AS WELL. HOWEVER, ONCE, THE TPO HAS TRI ED TO SELECT A 18 DIFFERENT METHOD, THE ONUS IS ON THE TPO TO DEMONST RATE THAT THE OTHER METHOD IS THE MOST APPROPRIATE METHOD. THIS P RINCIPLE HAS BEEN LAID DOWN BY SPECIAL BENCH IN THE CASE OF AZTE C SOFTWARE LTD. [107 ITD 141 (BANG)(SB)]. THE LEARNED CIT DR FURTHE R ARGUED THAT THE ASSESSEE HAD MADE INADEQUATE COMPLIANCE. IN THI S REGARD, THE STAND OF THE ASSESSEE HAS BEEN THAT IT HAD SUBMITTE D ALL THE RELEVANT DETAILS TO DEMONSTRATE THAT TNMM WAS THE MOST APPRO PRIATE METHOD AND THE DETAILED REPORT IN THIS REGARD IS ENCLOSED ON PAGES 54 - 84 OF THE PAPER BOOK. CONSIDERING THE VARIOUS DIFFERENCE S BETWEEN THE TRANSACTIONS ENTERED INTO WITH THE AES AND THE THIR D PARTIES, THE CUP IS NOT APPLICABLE TO THE FACTS OF THE PRESENT C ASE. SAME HOLDS GOOD FOR IMPORT AND COMMISSION ISSUES AS FAR AS DET ERMINATION OF ALP IS CONCERNED. 4.2 THE LEARNED CIT DR HAS PLACED RELIANCE ON TH E DECISION IN THE CASE OF KNORR- BREMSE INDIA PVT. LTD. V. ACIT [ITA NO. 5097/DEL/2011] AND CONTENDED THAT THE TRANSACTIONS OF EXPORT, IMPORT AND COMMISSION PAYMENT SHOULD HAVE BEEN BENC HMARKED SEPARATELY. THE AGGREGATION OF THESE TRANSACTIONS IS NOT JUSTIFIED. THE SAID DECISION IS DISTINGUISHABLE ON FACTS. IN THE SAID CASE, THE ASSESSEE HAD AGGREGATED TRANSACTIONS LIKE PAYMENT O F 'PROFESSIONAL CONSULTANCY FEE' AND PAYMENT OF 'MANAGEMENT FEE FOR SUPPORT SERVICES' 'AND THEREBY DETERMINED THE ALP UNDER TNM M METHOD. IN THE SAID CASE, BENCH HELD THAT THE ASSESSEE WAS NOT ABLE TO ESTABLISH THAT THE TRANSACTIONS WERE CLOSELY LINKED WITH EACH OTHER AND HENCE, IT WAS HELD THAT THE AGGREGATION OF SUCH TRANSACTIO NS WAS NOT JUSTIFIED. HOWEVER, IN THE INSTANT CASE, THE ASSESS EE HAS DEMONSTRATED THAT THE TRANSACTIONS OF EXPORTS, IMPO RTS AND PAYMENT OF COMMISSION TO AGENTS ARE CLOSELY INTERRELATED AN D PART OF SINGLE BUSINESS ACTIVITY OF THE ASSESSEE AND THEREFORE, TH E RATIO OF THE ABOVE DECISION IS NOT APPLICABLE TO THE CASE OF THE ASSES SEE. 4.3 THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS A LSO PLACED RELIANCE ON THE DECISION OF DELPHI TVS V. ACIT [24 TAXMANN.COM 179(CHENNAI)] IN SUPPORT OF HIS CONTENTION THAT CUP SHOULD BE 19 APPLIED ON THE FACTS OF THE ASSESSEE'S CASE AND NOT TNMM. WE FIND THAT IN THE DELPHI TVS (SUPRA), ITAT HAS REJECTED T NMM METHOD MAINLY BECAUSE THE COMPARABLE ENTITIES SELECTED BY THE ASSESSEE COMPANY HAD SUBSTANTIAL RELATED PARTY TRANSACTIONS. HENCE, THE COMPARISON UNDER TNMM WAS NOT POSSIBLE. SECONDLY, I N THE SAID DECISION, BENCH HAS HELD THAT WHEN A TRANSACTION TO TRANSACTION COMPARISON IS TO BE PREFERRED ONLY IF PROPER ADJUST MENT CAN BE CARRIED OUT TO ACCOUNT FOR THE DIFFERENCES THAT COU LD MATERIALLY AFFECT THE PRICES IN THE OPEN MARKET OF THE RELATED ITEMS. HOWEVER, IN THE INSTANT CASE, THE ASSESSEE HAS DEMONSTRATED THAT SU ITABLE ADJUSTMENTS COULD NOT BE MADE ON ACCOUNT OF THE VAR IOUS DIFFERENCES AND HENCE, THE CUP CANNOT BE APPLIED TO THE FACTS O F THIS CASE. IT IS PERTINENT TO MENTION THAT THE TNMM HAS NOT BEEN REJ ECTED IN THE ASSESSEE'S CASE AS THE TPO HIMSELF HAS ADOPTED IT F OR DETERMINING THE ALP FOR MAJORITY OF THE TRANSACTIONS. ACCORDING LY, THE RATIO OF DELPHI TVS (SUPRA) IS NOT APPLICABLE TO THE FACTS O F THE ASSESSEE'S CASE. 4.4 REGARDING RELIANCE OF LEARNED DEPARTMENTAL R EPRESENTATIVE ON THE RATIO IN THE CASE OF WRIGLEY INDIA PVT. LTD. V. ADDL. CIT [14 TAXMANN.COM 91 (DEL)(ITAT)], WHEREIN, THE ASSESSEE WAS INVOLVED IN MANUFACTURE OF CHEWING GUM. THE ASSESSEE EXPORTED S OME OF ITS PRODUCTION TO ITS AES AND ALSO MADE DOMESTIC SALES OF THE SAME PRODUCT TO UNRELATED PARTIES. THE TPO REJECTED TNMM METHOD ADOPTED BY THE ASSESSEE AND APPLIED INTERNAL COST P LUS METHOD, THEREBY COMPARING THE MARGIN EARNED IN THE DOMESTIC SEGMENT WITH THE MARGIN EARNED IN THE EXPORTS SEGMENT AND ACCORD INGLY, MADE ADJUSTMENTS. IN THE SAID CASE, THE ISSUE WAS REGAR DING APPLICABILITY OF TNMM OR THE COST PLUS METHOD. IN THE SAID CASE, THE ISSUE OF APPLICABILITY OF CUP METHOD WAS NOT INVOLVED AND HE NCE, THE SAID DECISION HAS BEEN RENDERED IN DIFFERENT FACTS AND C IRCUMSTANCES. 4.5 THE LEARNED CIT DR HAS PLACED RELIANCE ON TH E DECISIONS OF DCIT V. HELLOSOFT INDIA PVT. LTD. [32 TAXMANN.COM 1 01 (HYD)] & COCA 20 COLA INDIA INC. V ASST. CIT [309 ITR 194] AND CONTE NDED THAT IT IS OPEN FOR THE TPO TO REJECT THE METHOD ADOPTED BY TH E ASSESSEE AND APPLY A DIFFERENT METHOD WHICH IS FOUND TO BE MORE APPROPRIATE ON FACTS OF THE CASE. THIS PROPOSITION IS NOT IN DISP UTE. HOWEVER, IN 'THE INSTANT CASE, THE ASSESSEE HAS DEMONSTRATED THAT TH E CUP METHOD ADOPTED BY THE LEARNED TPO IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE AND TNMM IS A MORE APPROPRIATE METHOD AS D ISCUSSED ABOVE, THE SAME SHOULD BE APPLIED. 4.6 IN THE CASE OF ATUL LTD. V. ACIT [ITA NO. 31 18/AHD/2010], WHEREIN BOTH THE ASSESSEE AND THE TPO HAD ADOPTED C UP METHOD AS THE MOST APPROPRIATE METHOD. THE BENCH HELD THAT I N THE CUP METHOD, A TRANSACTION IS HELD TO BE COMPARABLE ONLY IF BOTH, THE PRODUCT SOLD AND THE CIRCUMSTANCES SURROUNDING THE CONTROLLED TRANSACTION, ARE SUBSTANTIALLY THE SAME AS THOSE OF THE UNCONTROLLED TRANSACTION. THUS, THE COMPARABILITY DEPENDS UPON THE QUALITY OF PRODUCT, VOLUME OF SALE, MARKET LEVEL, GEOGRAPHICAL CONDITIONS, DATE AND OTHER REALISTIC FACTORS GOVERNING THE SALE PRIC E. HOWEVER, IN THE INSTANT CASE, THE ASSESSEE HAS DEMONSTRATED THAT TH E TRANSACTIONS WITH RELATED PARTIES AND UNRELATED PARTIES ARE NOT COMPARABLE ON ACCOUNT OF VARIOUS DIFFERENCES AS DISCUSSED ABOVE. THEREFORE, THE RATIO IN ATUL LTD. (SUPRA) IS NOT AGAINST THE ASSES SEE. THIS LEGAL PROPOSITION WILL BE APPLICABLE ONLY TO THE ADJUSTME NT TOWARDS IMPORT AND COMMISSION. 5. IN VIEW OF THE ABOVE, WE HOLD THAT THE TPO HAS W RONGLY APPLIED THE CUP METHOD FOR DETERMINING THE ALP IN RESPECT O F SOME MENTIONED TRANSACTIONS PERTAINING TO EXPORT OF FINI SHED GOODS. MORE SO, WHEN THE TPO ACCEPTS THAT MORE THAN 90% OF THE EXPORTS TO THE AES ARE AT ALP, THERE IS NO REASON TO APPLY CUP MET HOD FOR PART OF THE EXPORTS. ACCORDINGLY, THE ADDITIONS MADE ON TH IS ACCOUNT ARE NOT JUSTIFIED AND THEY ARE DIRECTED TO BE DELETED. 21 6. REGARDING ADJUSTMENT TOWARDS IMPORTS, THE ASS ESSEE HAS MADE TOTAL IMPORTS OF RAW MATERIAL AND FINISHED GOO DS OF 14,59,18,186/- FROM ITS AES AS REFERRED AT PAGE 2 O F TPO ORDER. OUT OF THESE IMPORTS, THE TPO HAS ACCEPTED TNMM METHOD FOR IMPORTS AMOUNTING TO 13,72,10,348/-. HOWEVER, IN RESPECT OF IMPORTS AMOUNTING TO 87,07,838/-, THE TPO HAS STATED THAT SIMILAR PRODUCTS HAVE ALSO BEEN PURCHASED BY THE ASSESSEE F ROM THIRD PARTIES AND IN WHICH CASE, THE ASSESSEE HAS PAID HI GHER AMOUNT TO THE AES. ACCORDINGLY, THE TPO HAS HELD THAT IN RESP ECT OF SUCH IMPORTS, CUP METHOD SHOULD BE APPLIED. THE TPO HAS COMPUTED AVERAGE PURCHASE PRICE OF THE PRODUCTS PURCHASED FR OM AES AND AVERAGE PURCHASE PRICE OF SAME PRODUCTS PURCHASED F ROM THIRD PARTIES AS REFERRED IN PAGES 199-217 OF PAPER BOOK. THUS, HE HAS HELD THAT IN CASE OF CERTAIN PRODUCTS, THE AVERAGE PURCHASE PRICE PAID BY THE ASSESSEE TO ITS AES WAS MORE THAN THE A VERAGE PURCHASE PRICE PAID TO THIRD PARTIES AND HENCE, HE HAS MADE AN ADJUSTMENT OF 2,55,003/- IN RESPECT OF SUCH IMPORTS BY APPLYING CUP METHOD. ACCORDING TO THE TPO, IN RESPECT OF THE PRODUCTS WH ICH ARE PURCHASED BY THE ASSESSEE FROM ITS AES AS WELL AS T HIRD PARTIES, THE CUP METHOD IS THE MOST APPROPRIATE METHOD FOR DETER MINING ALP. THE TPO HAS HELD THAT THE CUP METHOD CAN BE APPLIED IN THIS SCENARIO. HE HAS FURTHER STATED THAT THE ASSESSEE D ID NOT SUBMIT ANY DATA FOR THE ADJUSTMENTS TO BE MADE ON ACCOUNT OF T HE DIFFERENCES IN RESPECT OF PURCHASES FROM AES AND THIRD PARTIES. AC CORDINGLY, HE HAS MADE THE ADDITION IN RESPECT OF THOSE PRODUCTS WHEREIN THE AVERAGE PURCHASE PRICE PAID BY THE ASSESSEE TO THE AES WAS MORE THAN THE AVERAGE PURCHASE PRICE PAID TO THIRD PARTI ES. 6.1 IN THIS REGARD, THE STAND OF LEARNED AUTHORIZ ED REPRESENTATIVE HAS BEEN THAT OUT OF THE TOTAL IMPORTS FROM THE AES OF 14.59 CRS., THE TPO HAS ACCEPTED THAT IMPORTS OF 13.72 CRS. ARE AT ALP. ONLY IN RESPECT OF IMPORTS OF 0.87 CRS. WHICH ACCOUNT FOR 5.96 % OF TOTAL IMPORTS, THE TPO HAS APPLIED THE CUP METHOD. THE TP O HAS MADE THE ADDITION ONLY ON THE BASIS THAT THERE IS PRODUC T SIMILARITY. THE 22 TPO HAS NOT APPRECIATED THAT THE CUP METHOD IS NOT THE MOST APPROPRIATE METHOD TO DETERMINE ALP IN THE CASE OF THE ASSESSEE. AS DISCUSSED BY US WITH REGARD TO EXTENT OF THE PRICIN G OF THE PRODUCT DEPENDS UPON VARIOUS FACTORS LIKE THE GEOGRAPHICAL LOCATION OF THE VENDOR, THE VOLUME OF THE ORDER, TIMING OF THE ORDE R, URGENCY OF REQUIREMENT, COMPETITION IN THE MARKET, ETC. IN THI S REGARD, RELIANCE WAS PLACED ON THE DETAILED ARGUMENTS AS TAKEN WITH REGARD TO ADJUSTMENT FOR EXPORT AS DISCUSSED ABOVE IN PARAS 3 & 4 OF THIS ORDER. ACCORDING TO HIM, THE PRICING DEPENDS UPON SO MANY FACTORS AND SUITABLE ADJUSTMENTS CANNOT BE MADE TO ACCOUNT FOR SUCH DIFFERENCES. AS DISCUSSED ABOVE IN RESPECT OF THE SAME PARTY AND THE SAME PRODUCT, THE ASSESSEE HAS PAID DIFFERENT PRICE S WHICH ITSELF INDICATES THAT THE PRICING IS DEPENDENT UPON VARIOU S FACTORS FOR WHICH SUITABLE ADJUSTMENTS COULD NOT BE MADE. IN TH IS CONTEXT, REFER PAGE 199 OF THE PAPER BOOK WHEREIN IT IS EVIDENT TH AT THE ASSESSEE COMPANY HAS PAID DIFFERENT PRICES TO AMPHENOL AEROS PACE OPERATIONS, USA FOR THE SAME PRODUCT. ACCORDINGLY, IN VIEW OF THE VARIOUS DIFFERENCES ENUMERATED ABOVE. THE CUP METH OD IS NOT THE MOST APPROPRIATE METHOD IN THE CASE OF THE ASSESSEE SINCE SUITABLE ADJUSTMENTS ARE NOT POSSIBLE TO BE MADE IN RESPECT OF THE ABOVE DIFFERENCES. SO, THE ADDITION ON THIS ACCOUNT IS NO T JUSTIFIED. 6.2 IT WAS ALSO POINTED OUT ON BEHALF OF ASSESSE E THAT IN RESPECT OF MOST OF THE PRODUCTS, THE ASSESSEE HAS PAID LOWER P RICE TO ITS AES AS COMPARED TO THE PRICES PAID TO THIRD PARTIES. THIS FACT HAS BEEN CLARIFIED BY THE ASSESSEE TO THE TPO AS DETAILED ON PAGE 161 OF THE PAPER BOOK FILED BY THE ASSESSEE. IN THIS BACKGROU ND, IT WAS SUBMITTED THAT CONSIDERING THE FACT THAT IN RESPECT OF MOST OF THE INSTANCES, THE ASSESSEE HAS PAID LOWER PRICES TO TH E AES AS COMPARED TO THIRD PARTIES, WHICH INDICATES THAT THE PRICING OF THE PRODUCTS IS INFLUENCED BY ECONOMIC CIRCUMSTANCES AN D UNDERLYING TRANSACTIONAL DIFFERENCES. IN SOME OF THE PRODUCTS WHERE THE PRICE PAID BY THE ASSESSEE TO ITS AES IS MORE THAN THE PR ICE PAID TO THIRD PARTIES, SUCH HIGHER PRICE PAID AMOUNTS TO 2,55,063/-. HOWEVER, 23 IN MOST CASES, WHERE THE PRICES PAID BY THE ASSESSE E TO ITS AES IS LOWER THAN THE PRICE PAID TO THIRD PARTIES, THE LOW ER PRICE PAID IS TO THE TUNE OF 18,08,201/- AS DETAILED ON PAGE 217 OF THE PAPER BO OK. THIS ASPECT HAS NOT BEEN APPRECIATED BY THE TPO. 7. IN VIEW OF ABOVE DISCUSSION, THE TPO WAS NOT JUS TIFIED IN ADOPTING CUP METHOD FOR DETERMINING ALP IN RESPECT OF SOME OF THE INTERNATIONAL TRANSACTIONS PERTAINING TO IMPORT OF GOODS. 8. REGARDING ADJUSTMENT TOWARDS COMMISSION PAID TO AE, THE ASSESSEE HAS PAID COMMISSION OF 20,98,224/- TO ITS AES AT THE AVERAGE RATE OF 9.33% OF SALES MADE TO CLIENTS IDEN TIFIED BY AES. THIS COMMISSION HAS BEEN PAID BY THE ASSESSEE TO ITS AES LOCATED IN EUROPE FOR THE VARIOUS FUNCTIONS PERFORMED BY THEM WHICH ARE ENUMERATED ON PAGE 245 OF THE PAPER BOOK FILED BY T HE ASSESSEE. THE RATE OF COMMISSION PAID TO DIFFERENT AES VARIES FROM 3.50% TO 10.50%. THE ASSESSEE APPLIED TNMM METHOD FOR DETER MINING THE ALP OF THE COMMISSION PAID TO ITS AES AND THUS, IT WAS SUBMITTED THAT THE SAID COMMISSION WAS AT ALP. HOWEVER, THE T PO HAS NOT ACCEPTED THE CONTENTION OF THE ASSESSEE. ACCORDING TO THE TPO, CUP METHOD IS THE MOST APPROPRIATE METHOD FOR COMPUTING THE ALP OF THE COMMISSION PAYMENT MADE BY THE ASSESSEE TO ITS AES. THE TPO HAS COMPARED THE RATE OF COMMISSION PAID BY THE ASSESSE E TO UNRELATED DOMESTIC AGENTS AGAINST THE RATE OF COMMISSION PAID TO THE AES LOCATED IN EUROPE. THE TPO HAS OBSERVED THAT THE WE IGHTED AVERAGE RATE OF COMMISSION PAID BY THE ASSESSEE TO UNRELATE D DOMESTIC AGENTS WAS 2.05% ON SALES MADE IN INDIA WHEREAS THE WEIGHTED AVERAGE RATE OF COMMISSION PAID TO AES IN EUROPE WA S 9.33% ON SALES MADE TO CLIENTS REFERRED BY SUCH AES. 8.1 ACCORDINGLY, THE TPO HAS HELD THAT THE ASSESSEE HAS PAID COMMISSION AT A HIGHER RATE TO IT AES AS COMPARED T O THE COMMISSION PAID TO UNRELATED DOMESTIC AGENTS AND SU CH DIFFERENCE IN THE RATE OF COMMISSION WORKS OUT TO 7.28% OF RES PECTIVE SALES. THUS, THE TPO HAS MADE AN ADJUSTMENT OF RS. 16,37,2 00/- IN 24 RESPECT OF COMMISSION PAID BY THE ASSESSEE TO ITS A ES BY APPLYING CUP METHOD. 8.2 IN THIS REGARD, THE ASSESSEE HAS SUBMITTED TH AT THE ADDITION MADE BY THE TPO IS NOT JUSTIFIED. IT IS SUBMITTED T HAT THE ASSESSEE HAD CLARIFIED THAT THE FUNCTIONS PERFORMED BY THE A ES WERE MUCH WIDER THAN THE FUNCTIONS PERFORMED BY THE NON AES. ON PAGE 245 OF THE PAPER BOOK, THE ASSESSEE HAS GIVEN THE COMPARIS ON OF THE FUNCTIONS PERFORMED BY THE AES AND THE THIRD PARTIE S. 9. WE FIND THAT CONSIDERING THE VAST DIFFERENCES IN THE FUNCTIONS PERFORMED, THE COMPARISON OF THE RATE OF COMMISSION PAID BY THE ASSESSEE TO THE AES AND THIRD PARTIES IS NOT JUSTIF IED. IT IS FURTHER TO BE APPRECIATED THAT ON PAGE 142, THE ASSESSEE HAS G IVEN THE DETAILS OF THE PARTIES TO WHOM COMMISSION IS PAID IN THE DO MESTIC MARKET. THE RATE OF COMMISSION VARIES FROM 1 % TO 7% WHICH ITSELF INDICATES THAT DEPENDING UPON THE SERVICES RENDERED, THE COMM ISSION IS PAID. ACCORDINGLY, THE TPO HAS WRONGLY APPLIED THE CUP ME THOD FOR DETERMINING THE ALP IN RESPECT OF TRANSACTIONS OF P AYMENT OF COMMISSION BY THE ASSESSEE COMPANY TO ITS AES. 10. SIMILAR ISSUES I.E. DETERMINATION OF ALP FOR EX PORT, IMPORT & COMMISSION AROSE IN OTHER A.YS. 2007-08 AND 2008-09 . FACTS BEING SIMILAR, SO FOLLOWING THE SAME REASONING, WE HOLD T HAT THE TPO WAS NOT JUSTIFIED IN APPLYING CUP METHOD FOR DETERMININ G ALP ON ACCOUNT OF SOME EXPORT, IMPORT TRANSACTIONS AND COMMISSION PAYMENTS AS DISCUSSED ABOVE. 11. IN THE RESULT, THE APPEALS FILED BY ASSESSEE AR E ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 30 TH DAY OF MAY, 2014. SD/- SD/- (R.K. PANDA) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 30 TH MAY, 2014 GCVSR 25 COPY TO:- 1. ASSESSEE 2. DEPARTMENT 3. THE DRP, PUNE 4. THE DR, A BENCH, I.T.A.T., PUNE. 5. GUARD FILE BY ORDER //TRUE COPY// SENIOR PRIVATE SECRETARY, I.T.A.T., PUNE //FIT FOR PUBLICATION//