Ocean India Pvt. Ltd., Visakhapatnam V. THE ACIT, Visakhapatnam

ITA 150/VIZ/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 2920 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 4 year(s) 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 29-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K SONOWAL
• Keywords: Depreciation; Transfer pricing; International transaction; Retrospective amendment; Working capital adjustments; Set aside
• Section: 143(3); 144C; 13; 22; 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM (T HROUGH WEB - BASED VIDEO CONFERENCING PLATFORM) BEFORE SHRI V. DURGA RAO, HONBLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , HONBLE ACCOUNTANT MEMBER I . T . (T.P.) A . NO. 150 /VIZ/2016 (ASST. YEAR : 20 1 1 - 1 2 ) M/S. TEEJAY INDIA PVT . LTD. ( F ORMERLY KNOWN AS OCEAN INDIA PVT. LTD.) , PLOT NO. 15, BRANDIX INDIA APPAREL CITY PVT. LTD. SEZ, PUDIMADAKA ROAD , ATCHUTAPURAM, VISAKHAPATNAM . VS. THE AC IT, CIRCLE - 5( 1 ) , VISAKHAPATNAM . PAN NO. A AACO 9452 H (APP ELLANT ) (RESPONDENT) ASSESSEE BY : SHRI AJITH TOLANI / DARPAN KIRPALANI/ AAKANKSHA KUMAR , ARS DEPARTMENT BY : SHRI D.K.SONOWAL, CIT(DR) DATE OF HEARING : 25 / 0 9 /2020 . DATE OF PRONOUNCEMENT : 23/11/2020 O R D E R P ER D.S. SUNDER SINGH , ACCOUNTANT MEMBER TH IS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER PASSED U/S 1 43(3) R.W.S 144C(13) OF INCOME T AX A CT DATED 29 / 01 /201 6 FOR THE ASSESSMENT YEAR 20 1 1 - 1 2 . 2 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) 2. THE ASSESSEE F ILED THE APPEAL WITH THE FOLLOWING GROUNDS : - 1. THAT THE ORDER OF THE LEARNED ASSISTANT COMMISSIONER OF INCOME - TAX, CIRCLE - 5(1), VISAKHAPATNAM ('LEARNED ASSESSING OFFICER' OR 'LEARNED AO') AND JOINT COMMISSIONER OF INCOME - TAX (TRANSFER PRICING) ('LEARNED TRANSFER PRICING OFFICER' OR 'LEARNED TPO ') TO THE EXTENT PREJUDICIAL TO THE APPELLANT, IS BAD IN LAW, CONTRARY TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND LIABLE TO BE QUASHED. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED DISPUTE RESOLUTION PANEL ('THE LEARNED PANEL') AND THE LEARNED AO ERRED IN UPHOLDING THE APPROACH OF THE LEARNED TPO AND THE CONSEQUENT ADJUSTMENT OF INR 31 , 07 , 79,932 / - MADE TO THE TRANSFER PRICE OF THE APPELLANT'S INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRISES ('AES'). 3. THAT THE LEARNED AO AN D THE LEARNED PANEL ERRED BOTH IN FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE LEARNED TPO OF MAKING AN ADJUSTMENT TO THE TRANSFER PRICE OF THE APPELLANT HOLDING THAT THE INTERNATIONAL TRANSACTIONS DO NOT SATISFY THE ARM'S LENGTH PRINCIPLE ENVISAGED UN DER THE INCOME - TAX ACT, 1961 ('THE ACT') AND IN DOING SO, GROSSLY ERRED IN: 3.1. REJECTING THE TP DOCUMENTATION MAINTAINED BY THE APPELLANT AND THE COMPARABILITY ANALYSIS UNDERTAKEN THEREIN BY THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT REA D WITH THE INCOME - TAX RULES, 1962, ('THE RULES'); 3.2. REJECTING THE COMPARABLE UNCONTROLLED PRICE METHOD ('CUP') AS THE MOST APPROPRIATE METHOD, AS APPLIED BY THE APPELLANT IN ITS TRANSFER PRICING DOCUMENTATION FOR BOTH THE PURCHASE AND SALES TRANSACTION S; 3.3. DISREGARDING THE CONDITIONS PRESCRIBED UNDER SECTION 92C(3) OF THE ACT FOR DETERMINING THE ARM'S LENGTH PRICE FOR INTERNATIONAL TRANSACTION IN RELATION TO SALE OF FINISHED GOODS AND PURCHASES OF RAW MATERIALS TO/FROM ITS AES. 3.4. UPHOLDING THE L EARNED TPO'S APPROACH OF USING DATA WHICH WAS NOT CONTEMPORANEOUS AND WHICH WAS NOT AVAILABLE IN THE PUBLIC DOMAIN AT THE TIME OF CONDUCTING THE TRANSFER PRICING STUDY BY THE APPELLANT; 3.5. DISREGARDING THE APPLICATION OF MULTIPLE YEAR DATA WHILE COMPUTI NG THE ARM'S LENGTH MARK UP ON COST/ MARGIN ON SALES FOR THE COMPARABLE COMPANIES; 3.6. DISREGARDING THE PECULIAR ECONOMIC CONDITIONS FACED BY THE 3 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) ASSESSEE DURING ASSESSMENT YEAR 2011 - 12 ON ACCOUNT OF THE START - UP NATURE OF ITS MANUFACTURING OPERATIONS; 3.7. NOT GRANTING AN ADJUSTMENT ON ACCOUNT OF UNDER - UTILISATION OF CAPACITY BY THE ASSESSEE UNDER RULE 10B(3)(II) OF IT RULES IN ORDER TO ELIMINATE THE EFFECT OF DIFFERENCES BETWEEN THE APPELLANT AND COMPARABLE COMPANIES; 3.8. NOT GRANTING AN ADJUSTMENT ON ACCOUNT OF ABNORMAL BUSINESS LOSSES INCURRED BY THE ASSESSEE IN ORDER TO ELIMINATE THE EFFECT OF DIFFERENCES BETWEEN THE ASSESSEE AND COMPARABLE COMPANIES; 3.9. CONSIDERING CERTAIN NON - OPERATING EXPENSES AND EXTRAORDINARY EXPENSES WHILE COMPUTING THE OPERATING MARK - UP ON COST OF THE ASSESSEE AND COMPUTING THE TRANSFER PRICING ADJUSTMENT ON THE INTERNATIONAL TRANSACTION RELATING TO SALE OF FINISHED GOODS AND PURCHASES OF RAW MATERIALS MADE BY THE ASSESSEE FROM ITS AES, INCORRECTLY; 3.10. COMPUTING THE MARK UP ON COST/ MARGIN ON SALES OF THE COMPARABLE COMPANIES IN HIS ORDER AND NOT PROVIDING ACTUAL WORKING CAPITAL ADJUSTMENT; 3.11. NOT APPRECIATING THE LIMITED - RISK NATURE OF THE MANUFACTURING ACTIVITY OF THE ASSESSEE AS A CAPTIVE MANUFACTURER AND IN NOT PROVIDING AN APPROPRIATE ADJUSTMENT TOWARDS THE RISK DIFFERENTIAL, EVEN WHEN FULL - FLEDGED MANUFACTURERS ARE SELECTED AS COMPARABLE COMPANIES. THAT THE APPELLANT CRAVES LEAVE TO ADD TO AND/OR TO ALTER, AMEND, RESCIND, MODIFY THE GROUNDS HEREIN ABOVE OR PRODUCE FURTHER DOCUMENTS BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. 2.1. SUBSEQUENTLY, THE ASSESSEE FILED A LETTER DT.22.09.2020 FOR INCLUSION OF SOME MORE GROUNDS AS UNDER : 4. THAT THE LEARNED AO / LEARNED TPO ERRED IN NOT CONDUCTING A CONTEMPO RANEOUS SEARCH AN D RELYING ON THE SEARCH CONDUCTED DURING THE PREVIOUS YEAR, I.E. FINANCIAL YEAR 2009 - 10. THE LEARNED PANEL ERRED IN UPHOLDING THE ACTION OF THE LEARNED AO/LEARNED TPO; 5. GROUND FOR CPLM AS THE MOST APPROPRIATE METHOD. 5.1. WITHOUT PREJ UDICE TO GROUND NO.3, THE LEARNED AO/ LEARNED TPO OUGHT TO APPLY COST PLUS METHOD (CPM), WHICH WAS APPLIED BY THE LEARNED AO/LEARNED TPO DURING THE PREVIOUS YEAR I.E. FINANCIAL YEAR 4 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) 2009 - 10 AND ALSO ACCEPTED BY THE HONBLE BENCH FOR THE REFERRED FINANCIA L YEAR. 5.2. WHILE APPLYING CPM, THE APPELLANT PLEADS TO EXCLUDE THE FOLLOWING EXTRAORDINARY EXPENSES INCURRED BY THE APPELLANT WHILE COMPUTING THE GROSS PROFIT MARGIN OF THE APPELLANT AND THE COMPARABLE COMPANIES SO AS TO ELIMINATE THE EFFECT OF DIFFEREN CES IN THE OPERATING COSTS INCURRED BY THE APPELLANT VIS - A - VIS COMPARABLE : STORES & CONSUMABLES DEPRECIATION 5.3. THE APPELLANT CRAVES TO PLEAD THIS HONBLE TRIBUNAL TO CONSIDER FOREIGN EXCHANGE GAIN AS OPERATING IN NATURE WHILE COMPUTING THE GROSS PRO FIT MARGIN OF THE APPELLANT AND THE COMPARABLE COMPANIES UNDER THE CPM METHOD; 6. WITHOUT PREJUDICE TO THE GROUND 3 AND 4 ABOVE, EVEN IF THE TRANSACTIONAL NET MARGIN METHOD (TNMM) IS TO BE APPLIED AS THE MOST APPROPRIATE METHOD, THE APPELLANT HUMBLY PRAYS BEFORE THE HONBLE BENCH THAT THE LEARNED AO / LEARNED TPO ERRED IN NOT APPRECIATING THE REASONS FOR LOSSES INCURRED BY THE APPELLANT AND ALSO NOT GRANTING THE FOLLOWING ADJUSTMENTS WHILE COMPUTING THE OPERATING MARK - UP ON COST OF THE APPELLANT AND THE CO MPARABLE COMPANIES ADJUSTMENT ON ACCOUNT OF ABNORMAL BUSINESS LOSSES INCURRED BY THE APPELLANT DUE TO THE START - UP NATURE OF ITS OPERATIONS AND BELOW MENTIONED FACTORS BE GRANTED SO AS TO ELIMINATE THE EFFECT OF DIFFERENCES IN THE OPERATING COSTS INCURRED BY THE APPELLANT VIS - A - VIS THE COMPARABLE WHILE THE LEARNED AO / LEARNED TGPO ERRED IN NOT APPRECIATING - ABNORMAL LOSSES INCURRED IN CARRYING OUT EXCESSIVE STARTUP TEST - RUNS - SET UP EXPENSES INCURRED IN INSTALLING ADDITIONAL PROCESS CAPABILITY - UNDER UTILISATION OF INSTALLED CAPACITY BE EXCLUDED FROM THE OPERATING COST BASE OF THE APPELLANT IN TESTING THE ARMS LENGTH NATURE OF THE INTERNATIONAL TRANSACTIONS USING TNMM AS THE MOST APPROPRIATE METHOD. 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSE E - COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORTING KNITTED FABRICS / APPAR E LS AT BRANDIX APSEZ APPAREL , ATCHUTAPURAM, VISAKHAPATNAM , FILED ITS RETURN OF INCOME FOR THE A.Y. 2011 - 12 ON 29/09/2011 ADMITTING LOSS OF RS. 31,16,05,142/ - . THE R ETURN WAS 5 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) SELECTED FOR SCRUTINY UNDER CASS . DURING THE SCRUTINY PROCEEDINGS , THE AO FOUND FROM FORM 3CEB REPORT THAT THE ASSESSEE - COMPANY HAD ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED E NTERPRISES (AES) AM OUNTING TO RS. 44,02,69,760/ - ON A CCOUNT OF PURCHASES AND FROM THE EXPORTS RS. 35,41,46,007/ - (SALES TO AES) AND HENCE, REFERRED THE CASE TO THE TRANSFER PRICING OFFICER (TPO) TO DETERMINE THE ARM S LENGTH PRICE (ALP) AS REQUIRED U/SEC. 92CA(3) OF THE ACT. THE TPO OBSERVED THAT ASSESSEE M ANUFACTURES AND SELLS GREY FABRIC ( RAW YARN) TO ITS AFFILIATES AND OPERATES AS CONTRACT MANUFACTURER TO THE PARENT COMPANY AND THE GROUP IS THE LARGEST MANUFACTURER OF WEFT KNITTED FABRIC IN SRI L ANKA . IT PRODUCES CORE T E XTILE PRODUCTS SUCH AS JERSEYS, LY CRA, FLEECE AND TERRY ETC. THE ASSESSEE ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS AE AS UNDER: - NATURE OF TRANSACTION AMOUNT (IN RUPEES) PURCHASE OF RAW MATERIALS 44,02,69,760 SALE OF FINISHED GOODS 35,41,46,007 79,44,15,767 3 .1 . THE TAXPAYE R CARRIED OUT THE E CONOMIC ANALYSIS AND BENCH MARK ED BOTH THE TRAN SA CTIONS UNDER THE CUP METHOD RELATING TO THE PURCHASES /SALES . THE TAXPAYER STATED THAT THE COMPANY HAS PURCHASED THE RAW MATERIAL FROM ITS AES FOR THE PURPOSE OF ITS 6 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) MANUFACTURING ACTIVIT Y. THE AES HAVE UNDERTAKEN CORRESPONDING BACK TO BACK PURCHASE OF THE SAME RAW MATERIALS FROM THIRD PARTY SUPPLIE R S. THUS, VIEWED THAT THE PRICES PAID BY THE TAXPAYER FOR PURCHASE OF RAW MATERIAL FROM ITS AES ARE NOT HIGHER THAN THAT OF BY THE AES TO THIR D PARTY SUPPLIERS, HENCE, HELD THAT THE PRICES PAID BY THE TAXPAYER TO ITS AES FOR PURCHASE S ARE AT A RMS L ENGTH P RICE(ALP) . WITH REGARD TO SALE OF FINISHED GOODS, THE TAX PAYER STATED THAT THE AVERAGE MONTHLY PRICE CHARGED BY THE TAX PAYER TO ITS AES AND NON AES IS COMPARABLE. THE PRICE CHARGED TO AES IS EQUAL TO OR MORE THAN NON AES. BASED ON AN ANALYSIS UNDERTAKEN BY THE COMPANY IN ITS REPORT CALLED OPERATIONAL AND FINANCIAL REVIEW F.Y. 2011 THE COMPANY HAS SUPPORTED THE SALE PRICE RECEIVED BY THE A SSESSEE FROM ITS AES ARE NOT LOWER THAN THE SALE PRICE RECEIVED IN SIMILAR TRANSACTIONS WITH THIRD PARTY CUSTOMERS , T HEREFORE, VIEWED THAT THE TRANSACTIONS ARE AT ALP AND ACCORDINGLY SUBMIT TED THAT NO ADJUSTMENTS ARE REQUIRED ON ACCOUNT OF INTERNATIONAL TR AN SA CTIONS ENTERED BY THE ASSESSEE. THE FINANCIAL S OF THE TAXPAYER AS PER THE AUDITED STATEMENT ARE AS UNDER: - OPERATING REVENUE 69,43,15,068 OPERATING COST 98,35,91,503 OPERATING PROFIT - 24,92,76,435 OP/OC - 26.42 OP/OR - 35.90 7 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) 3 .2. THE TPO FOUND TH AT THE TAXPAYER DID NOT FURNISH THE SUPPORTING DOCUMENTS IN RESPECT OF CUP ANALYSIS FOR THE PURCHASE OF RAW MATERIAL. FURTHER TPO VIEWED THAT BACK TO BACK INVOICES CANNOT FORM A VALID CUP AS THE PURCHASE OF RAW MATERIAL FROM THE THIRD PARTY BY THE AES IS NOT SIMILAR TO THE SALE OF RAW MATERIAL BY AE TO THE TAXPAYER. ACCORDING TO THE TPO VALID CUP IS WHERE THE SAME TRANSACTION I.E. PURCHASE IS COMPARED WITH ANOTHER PURCHASE WITH FOCAL POINT BEING THE TAXPAYER. IN THE INSTANT CASE, THE TAXPAYER IS NOT THE FOCAL POINT, HENCE, THE TPO DID NOT ACCEPT THE CUP AS M OST A PPROPRIATE M ETHOD (MAM) FOR PURCHASES. SIMILARLY TRANSACTION REL A TING TO SALE OF FINISHED GOODS , THE TPO DID NOT ACCEPT THE INTERNAL REPORT OF THE TAXPAYER WHICH WAS PREPARED FOR ITS OWN PURPOSE AS A VALID DOCUMENT FOR ADOPTING CUP METHOD AS MAM . E VEN OTHERWISE , THE TPO FOUND THAT THE ASSESSEE DID NOT FURNISH THE COPY OF THE SAID REPORT RELIED UPON. IN THE TP STUDY THE TAXPAYER STATED TO HAVE ENCLOSE D A COPY AS ANNEXURE - E BUT ONLY FRONT PAGE OF THE REPORT WAS FOUND TO BE FURNISHED BUT NOT THE ENTIRE REPORT. THEREFORE, THE TPO REJECTED THE CUP AS MAM AND CONDUCTED THE INDEPENDENT ECONOMIC STUDY AND SEPARATE ANALYSIS HAS BEEN MADE AND HELD THAT TNMM IS MOST APPROPRIATE METHOD FOR BOTH PURCHASE AND SALE TRANSACTIONS. THE TPO HAS TAKEN THE 8 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) PREVIOUS YEAR S SEARCH RESULTS AND FOUND THE FOLLOWING COMPARABLE COMPANIES: - NAME OF THE COMPANY OR OC OP OP/OC OP/OR INDOCOUNT INDUSTRIES LTD., 7033566000 6266463000 767103000 12.24 10.91 NUTECH GLOBAL LTD., 273467363 262746321 10721042 4.08 3.92 KRISHNA KNITWEAR 23075603000 22181233000 894370000 4.03 3.88 TOTAL 20.35 18.71 ARITHMETIC MEAN 6.7 8 6.24 3 .3 . THE TPO HAS ARRIVED AT ARITHMETIC MEAN OF COMPARABLES AT 6.7 8 % I.E. OP/OC AND ISSUED A SHOW CAUS E CALLING FOR OBJECTIONS FROM THE ASSESSEE FOR REJECTION OF CUP METHOD AND FOR ADOPTING TNMM A S MOST APPROPRIATE METHOD. IN RESPONSE TO THE NOTICE ISSUED BY THE TPO, THE ASSESSEE FILED O BJECTIONS REITERATING TH AT CUP A S THE MOST APPROPRIATE METH OD FOR PUR CHASE OF RAW MATERIAL, S INCE THE ASSESSEE HA S PURCHASED THE RAW MATERIAL S FROM THIRD PARTY VENDORS WITHOUT ADDING EXPENSES OR PROFIT . THE PRICES PAID BY THE ASSESSEE WERE EQUAL TO THE PRICE PAID BY THE AE FROM THEIR PARTIES WAS IN UNCONTROLLED AND INDEPE NDENT CONDITIONS , THEREFORE THE ASSESSEE CONTENDED THAT THERE IS NO REASON TO DISTURB THE CUP A S MOST APPROPRIATE METHOD FOR PURCHASE S . W ITH REGARD TO SALES, THE ASSESSEE SUBMITTED THAT SALES PRICE CHARGED BY THE TAXPAYER TO AE IS EQUAL TO OR MORE THAN TH E PRICES CHARGED TO THIRD PARTY SALES. 9 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) 3.4. THE TPO HAS CONSIDERED THE SUBMISSIONS MADE BY THE ASSESSEE AND VIEWED THAT CUP IS APPLICABLE IN SITUATIONS WHEN A PRICE IS CHARGED FOR PRODUCT OR A SERVICE . THE COMPARISON OF PRICES CHARGED FOR THE PRODUCT I N A CONTROLLED TRANSACTION TO PRICES CHARGED FOR THE SAME PRODUCTS IN A COMPARABLE UNCONTROLLED TRA NS ACTION IS CARRIED OUT. THE TPO VIEWED THAT INTERNAL CUP IS THE PRICE THAT THE TAXPAYER HAS PAID IN A COMPARABLE UNCONTROLLED T R ANSACTION WITH AN INDEPENDE NT PARTY WHEN COMPARED TO THE PRICE PAID IN A CONTROLLED TRANSACTION. EXTERNAL CUP IS A PRICE PAID IN BETWEEN THIRD PARTIES WHEN COMPARED TO THE PRICE OF A CONTROLLED TRANSACTION. THUS, THE TPO VIEW ED THAT THE PRICE PAID BY THE TAXPAYER TO ITS AE NEEDS TO BE COMPARED WITH A PRICE CHARGED BY AN INDEPENDENT SELL ER TO ANOTHER INDEPENDENT BUYER AND FURTHER OBSERVED THAT I N THE INSTANT CASE, THERE IS NO TRANSACTION AVAILABLE WITH REGARD TO UNCONTROLLED TRANSACTION MADE BY THE AE OR THE ASSESSEE I.E. UNCONTROLLE D PARTY. THE TPO ALSO VIEWED THAT UNDER INTERNAL CUP TWO SITUATIONS WOULD EXIST (I) WHERE THE AE SELLS THE IDENTICAL PRODUCTS TO THE TAXPAYER AS WELL AS TO AN UNRELATED THIRD PARTY; (II) WHEN THE TAXPAYER PURCHASES IDENTICAL PRODUCTS FROM AN AE AS WELL AS THE NON - AE. IN THE CASE OF THE ASSESSEE, THE AE HAS PURCHASED THE MATERIAL AND SOL D IT TO THE TAXPAYER ON BACK TO BACK 10 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) BASIS . THE INFORMATION REGARDING PURCHASE OF SAME MATERIAL BY THE TAXPAYER FROM AN INDEPENDENT THIRD PARTY IS NOT AVAILABLE AS ALSO I NFORMATION REGARDING SALE/PURCHASE BETWEEN INDEPENDENT PARTIES OF THE SAME PRODUCT UNDER SIMILAR CIRCUMSTANCES IS NOT AVAILABLE. THUS, THE TPO HELD THAT THE REQUIREMENT OF BOTH INTERNAL AND EXTERNAL METHODS ARE NOT SATISFIED , THEREFORE VIEWED THAT THE CUP IS NOT ACCEPTABLE METHOD IN CASE OF ASSESSEE. 3 . 6 . AS REGARD TO SALES OF FINISHED GOODS, THE ASSESSEE STATED THAT AVERAGE MONTHLY PRICE CHARGED BY THE ASSESSEE TO ITS AES AND NON - AES ARE COMPAR ABLE AND THE SALE PRICE CHARGED TO AE BASED ON THE INTERNAL REPORT OF THE ASSESSEE COMPANY . WITH REGARD TO OBJECTIONS RAISED BY THE ASSESSEE RELATING TO EARLIER YEAR DATA, THE TPO VERIFIED THE COMPARABLE CASES SELECTED WITH THE LAST YEAR AND FOUND TO BE VALID COMPARABLES. THE AO FURTHER OBSERVED THAT ASSESSEE DID NOT OBJECT TO THE COMPARABLES, THEREFORE REJECTED THE ASSESSEES CONTENTION FOR EARLIER YEAR DATA. WITH REGARD TO ADJUSTMENTS REQUESTED BY THE ASSESSEE, THE TPO REJECTED THE ASSESSEES REQUEST STATING THAT THOUGH THE ASSESSEE MADE A MENTION WITH REGARD TO ADJUSTMENTS NO NUMERICAL VALUE FOR ADJUSTMENT IS PROVIDED. SINCE THE TAXPAYER DID NOT ELABORATE MUCH ON THE ISSUE, THE TPO REJECTED THE CONTENTION OF THE 11 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) ASSESSEE TO ADOPT CUP AS MOST APPROPRIATE METHOD AND VIEWED THAT TNMM A S THE MOST APPROPRIATE METHOD FOR SALE . THE AO WORKED OUT THE ARITHMETIC MEAN AT 6.78% OF THE THIRD PARTY COMPARABLES AS DISCUSSED EARLIER IN PARA 3.2 OF THIS ORDER. A S THE OPERATING PROFIT ON OPERATING COST ADMITTED BY THE ASSESSEE IS AT ( - ) 26.42 % , MADE THE ADJUSTMENTS OF RS. 15,97 ,13,166/ - IN RESPECT OF SALE S, RS. 14,91,84,370/ - IN RESPECT OF PURCHASES. THUS, PROPOSED FOR ADJUSTMENT OF RS. 30,88,97,536/ - U/SEC. 92CA (3) OF THE ACT. 4 . ON RECEIPT OF THE TRANSFER PRICING ORDER, THE ASSESSING OFFICER ISSUED DRAFT ASSESSMENT ORDER AND T HE ASSESSEE FILED OBJECTIONS BEFORE THE LD. DISPUTE RESOLUTION PANEL (DRP) . THE ASSESSEE OBJECTED FOR ADOPTING THE TNMM A S MOST APPROPRIATE METHOD AND THE DRP REJECTED THE CONTENTION OF THE ASSESSEE AND UPHELD THE ORDER OF THE TPO IN ADOPTING TNMM AS MOST APPROPRIATE METHOD. THE ASSESSEE OBJECTED FOR CONSIDERING THE EARLIER YEAR DATA INSTEAD OF USING CONTEMPORA NEOUS DATA FOR BENCH MARKING AND T HE LD. DRP REJECTED THE ASSESSEES OBJECTION STATING THAT AS PER RULE 10B( 4 ) FINANCIAL DATA RELATING TO THE FINANCI AL YEAR IN WHICH INTERNATIONAL TRANSACTIONS WERE UNDERTAKEN HAS TO BE USED AS PER INCOME TAX RULES , UNLESS IT IS ESTABLISHED THAT THE USE OF DATA OF THE EARLIER FINANCIAL YEARS WILL RESULT IN ADVERSE RESULTS. 12 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) THE LD.DRP VIEWED THAT I N THE INSTANT CASE, TH E ASSESSEE FAILED TO ESTABLISH THE SAME . THE LD.DRP PLAC ED RELIANCE ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHRYSCAPITAL INVESTMENT ADVISORS (INDIA) PVT. LTD. VS. DCIT (ITA NO. 417/2014) AND ACCORDINGLY REJECTED THE OBJECTION OF THE ASSESSEE . WITH REGARD TO OBJECTIONS RAISED BY THE ASSESSEE IN RESPECT OF INCORRECT CALCULATIONS OF MARGINS T HE LD. DRP DIRECTED THE ASSESSING OFFICER TO CARRY OUT THE VERIFICATIONS AND MAKE NECESSARY ADJUSTMENTS . WITH REGARD TO ADJUSTMENTS REQUESTED BY T HE ASSESSEE IN RESPECT OF THE START UP COMPANY THE DRP REJECTED THE OBJECTION STATING THAT DUE TO NATURE OF THE BUSINESS CARRIED OUT BY THE ASSESSEE NO SUCH ADJUSTMENTS ARE CALLED FOR. THE DRP FURTHER VIEWED THAT ME AN MARGINS OF THE COMPARABLE COMPANIES T AKE S CARE OF SUCH DIFFERENCE S AND HENCE , HELD THAT NO ADJUSTMENTS ARE REQUIRED. THE ASSESSEES REQUEST FOR NON - UTILIZATION OF FULL CAPACITY ETC., THE LD.DRP OBSERVED THAT THE ASSESSEE DID NOT DEMONSTRATE THAT THE OTHER CIRCUMSTANCES DOES NOT EXIST IN THE COMPARABLES SELECTED AND REJECTED BY THE DRP . THE RISK ADJUSTMENT AND WORKING CAPITAL ADJUSTMENT R E QUESTED BY THE ASSESSEE WAS ALSO REJECTED BY THE DRP . 13 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) 4 .1. IN A NUT SHELL, THE DRP REJECTED THE OBJECTION WITH REGARD TO ADOPTING THE CUP METHOD, OBJECTI ON FOR ADOPTING TNMM METHOD, USING EARLIER YEAR DATA, ADJUSTMENTS IN RESPECT OF WORKING CAPITAL, START UP, PECULIAR CONDITION ETC. AND REMITTED THE MATTER BACK TO THE FILE OF THE TPO IN RESPECT OF INCORRECT MARGINS OF COMPARABLE COMPANIES. 4.2. DRP DI RECTED THE ASSESSING OFFICER TO PASS NECESSARY ORDERS U/SEC. 143(3) R.W.S. 144C A S PER THE DIRECTIONS GIVEN IN I TS ORDER . ON RECEIPT OF DRPS ORDER THE ASSESSING OFFICER MADE THE ADJUSTMENT OF RS.30,88,97,536/ - AND PASSED THE FINAL ORDER U/SEC. 143(3) R. W.S. 144 C BY ORDER DATED 29/01/2016 . AGAINST THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL . 5 . DURING APPEAL HEARING, LD.AR ARGUED TH A T T HE A E MADE PURCHASES FROM THIRD PARTIES AND SUPPLIED TO THE TAXPAYER ON BACK TO BACK BASIS. NO FURTHER EXPENDITURE WAS DEBITED TO THE PURCHASES MADE BY THE AE. THEREFORE, ARGUED THAT PURCHASE S MADE BY THE TAXPAYER IS COMPARABLE AND AT ARMS LENGTH. LD.AR ARGUED THAT LAW DOES NOT P LAC E ANY RESTRICTION ON PURCHASES MADE FOR AE ON BAC K TO BACK BASIS. SINCE THE PURCHASE ARE MADE BY THE AE FROM THE THIRD PARTIES AND SOLD TO THE ASSESSEE ON BACK TO BACK 14 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) BASIS THERE IS UNCONTROLLED TRA N SACTION S HENCE, ARGUED TH A T THERE IS NO REASON TO REJECT THE TP STUDY MADE BY THE ASSESSEE HENCE, REQUES TED TO ACCEPT THE CUP AS MAM . THE ASSESSEE FURTHER SUBMITTED THAT IT HAS ANNEXED SOME INVOICES RELATING TO PURCHASES MADE FROM AE AND THIRD PARTY VENDORS TO DEMONSTRATE THAT THE PURCHASES WERE MADE BACK TO BACK BASIS AND AT ALP . THE ASSESSEE FURNISHED PUR CHASE BILLS FROM THE AE. FROM THE SAID PURCHASE BILLS, WE FIND THAT THE AE HAS SOLD 6048 KG OF MATERIAL TO THE ASSESSEE @ RS. 7.40 PER KG VIDE BILL DATED 01/04/2010 WHICH WAS PURCHASED FROM INVISTA SINGAPORE FIBRES PVT. LTD. @ 7.40 PER KG. SIMILARLY, THE TAX PAYER ALSO HAS EN C L OSED SOME MORE INVOICES RELATING TO PURCHASES MADE BY THE TAX PAYER FROM AE ON BACK TO BACK BASIS ON VARIOUS DATES. WITH REGARD TO SARAVANA SPINNING MILLS, THE ASSESSEE HAS ENCLOSED INVOICE AT PAGE NO.8 WHICH DEMONSTRATED THAT IT HA D PURCHASED RAW MATERIAL @ 3.88 PER KG WHICH WAS SOLD DIRECTLY TO AE ON 08/08/2010 AND SHIPPED TO THE TAXPAYER . LD.AR FURTHER ARGUED THAT EXCEPT STATING THAT THERE WAS NO UNCONTROLLED TRANSACTION FROM THIRD PARTY NO OTHER REASON OR DEFECT WAS POINTED OUT B Y THE TPO /AO AND ALL THE CONDITIONS FOR ADOPTING INTERNAL CUP IS SATISFIED BY THE ASSESSEE , T HUS, ARGUED THAT PURCHASES MADE BY THE ASSESSEE ARE AT ARMS LENGTH AND THERE IS NO REASON TO REJECT THE CONTENTION OF THE TAXPAYER TO 15 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) ADOPT CUP AS THE MOST APPROP RIATE METHOD. ACCORDINGLY REQUESTED TO ACCEPT CUP AS MAM FOR PURCHASES. 5.1. THE LD. AR FURTHER SUBMITTED THAT THE TPO IN HIS ORDER STATED THAT THE TAX PAYER REPRESENTED THE SALE PRICE AT ALP ON THE BASIS OF ANALYSIS UNDERTAKEN BY OPERATIONAL FINANCIAL R EVIEW F.Y.2011 BUT NOT FURNISHED THE REPORT. IN THIS REGARD, THE LD.AR STATED THAT T HE CONTENTION OF THE TPO WITH REGARD TO NON SUBMISSION OF THE REPORT IS INCORRECT AND PAGE NO.147 ONWARDS THE DOCUMENT ON OPERATIONAL FINANCIAL REVIEW WAS ENCLOSED AND P AGE NO. 152 IS THE SALES BREAK UP CONTAINING THE AVERAGE MONTHLY SALE PRICE. THEREFORE, SUBMITTED THAT THE ENTIRE INFORMATION WAS PLACED BEFORE THE TPO AND THE SAME WAS NOT PROPERLY VERIFIED BY THE TPO . WITH REGARD TO SALES, LD.AR ARGUED THAT THE ASSESSE E IS A TAX EXEMPT COMPANY AND THERE I S NO REQUIREMENT F OR SHIFTING OF PROFITS OUTSIDE THE COUNTRY. THE ASSESSEE HAS EXPLAINED THAT IT HAS MANUFACTUR ED THE GOODS AND SOLD TO RELATED PARTY AS WELL AS UNRE L ATED PARTY AND THE PRICE RECEIVED BY THE ASSESSEE FRO M THE AE IS MORE OR EQUAL TO THE UNRELATED PARTY. THEREFORE, ARGUED THAT THERE IS NO REASON IN REJECTING THE TP STUDY UNDERTAKEN BY THE ASSESSEE. THE OBSERVATION OF THE TPO IN HIS ORDER THAT THE TP STUDY ANNEXURE - G WAS NOT M A DE AVAILABLE TO HIM WAS IN COR RECT IN FACT THE SAME WAS 16 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) SUBMITTED TO THE TPO VIDE LETTER DATED 14/03/2014. TAKING OUR ATTENTION TO PAGE NO.147 THE LD.AR SUBMITTED THAT IT WAS THE FIRST PAGE OF APPENDIX - E RELATING TO OPERATION AND FINANCIAL REVIEW AND PAGE NO.152 CONTA I N THE SALE S BREA K UP OF GROUP COMPANIES VERSUS NON - GROUP COMPANIES . PAGE NO.157 CONTAIN MONTHLY SALES , THUS, ARGUED THAT THE COMPLETE DETAILS OF SALES WERE FURNI S H ED TO THE TPO , THEREFORE , THERE IS NO REASON TO REJECT TP STUDY OF THE ASSESSEE. T HE LD. AR ARGUED THAT IT HA S DEMONSTRATED THAT SALE PRICE RECEIVED BY THE ASSESSEE FROM THE AE WAS MORE THAN THE SALE PRICE CHARGED TO THIRD PARTIES HENCE, ARGUED TH A T THE TPO DID NOT POINT OUT ANY SPECIFIC OBJECTION OR DEFECT IN THE TP STUDY CONDUCTED BY THE ASSESSEE. HENCE, NO RE ASON TO REJECT THE CUP A S MOST APPROPRIATE METHOD AND ACCORDINGLY ARGUED THAT THE ORDER OF THE LD. DRP /TPO/ MAY BE SET ASIDE AND ADOPT THE CUP A S MOST APPROPRIATE METHOD BOTH FOR PURCHASE S AND SALES. 6 . PER CONTRA , LD.DR ARGUED THAT EXCEPT ASSESSEE STATI NG THAT THE AE SUPPLIED THE MATERIAL ON BACK TO BACK BASIS THERE WERE NO THIRD PARTY TRANSACTIONS FOR COMPARING PURCHASES MADE BY THE ASSESSEE FROM ITS AE. SINCE NO EXTERNAL COMPARABLES A RE AVAILABLE, LD.DR ARGUED THAT THE TPO RIGHTLY REJECTED THE ASSESSE ES CONTENTION AND ARGUED THAT TNMM I S MOST APPROPRIATE 17 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) METHOD IN THE FACTS AND CIRCUMSTANCES . SIMI L A R LY WITH REGARD TO SALES, LD.DR SUBMITTED THAT THERE W ERE NO COMPARABLE TRANSACTION S FOR TAKING CUP AS MOST APPROPRIATE METHOD . FOR ADOPTING CUP AS MOST APPROPRIATE METHOD, T HE GEOGRAPHICAL LOCATION, THE DAT E OF TRANSACTIONS WITH RELATED AND UNRELATED PARTIES AND THE RATES QUOTED ARE REQUIRED AND IN THE INSTANT CASE , NO SUCH INFORMATION IS AVAILABLE , HENCE, ARGUED THAT THE TPO RIGHTLY REJECTED THE CUP AS M OST APPROPRIATED METHOD ADOPTED BY THE TAXPAYER. ACCORDING TO THE LD.DR, TNMM A S MOST APPROPRIATE METHOD, HENCE, ARGUED THAT NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE LD. DRP /AO AND REQUESTED TO UPH O LD THE ORD E R OF THE AO/ DRP AND DISMISS THE APPEAL OF THE ASSESSEE. 7 . RESPONDING TO THE ARGUMENT OF THE LD.DR, THE LD.AR SUBMITTED THAT ALL THE DETAILS ARE MADE AVAILABLE TO THE TPO TO DEMONST R ATE THAT CUP A S MOST APPROPRIATE METHOD. LD.AR ALTERNATIVELY SUBMITTED THAT IN THE IMMEDIATE PRECEDING ASSESSM ENT YEAR, THE ITAT HAS HELD T H A T COST PLUS METHOD IS MOST A PPROPRIATE M ETHOD AND HENCE SUBMITTED THAT IN CASE, THE ITAT CONSIDER S THAT TH E CUP IS NOT M OST A PPROPRIATE M ETHOD , REQUESTED TO CONSIDER THE COST PLUS METHOD AS MAM, FOLLOWING THE ORDER OF THE ITA T IN ASSESSEES OWN CASE FOR THE A.Y. 2010 - 11 IN ITA NO. 18 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) 01/VIZ/ 2014 . THE LD.AR FURTHER ARGUED THAT IN CASE THE ITAT CONSIDERS THE TNMM AS MAM THE NECESSARY ADJUSTMENTS MAY BE GIVEN IN RESPECT OF START UP, NON - UTILISATION OF FULL CAPACITY ETC. AS REQUESTED IN ADDITIONAL GROUNDS OF APPEAL. 8 . WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ASSESSEE IS A SUBSIDIARY COMPANY OF BRANDIX APPAREL LTD. AND ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORTING OF KNITTED FABRICS / APPARELS AT BRANDIX APSEZ APPAREL, ATCHUTAPUR AM, VISAKHAPATNAM. BRANDIX LANKA IS THE LARGEST MANUFACTURER OF WEFT KNITTED FABRIC IN SRI LANKA AND HOLDING THE COMPANY OF OCEAN LANKA. BRANDIX LANKA IS ENGAGED IN DEVELOPING, MANUFACTURING AND MARKET ING END TO END APPAREL SALES OF GLOBALLY FASHIONED BRANDS. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, THE TAX PAYER HA D INTERNATIONAL TRANSACTION IN RESPECT OF PURCHASE AND SALES WITH ITS AE . IT HAS MADE PURCHASES TO THE TUNE OF RS.44.02 CRORES OF RAW MATERIAL AND EXPORTED FINISHED GOODS FOR A SUM OF RS.35.41 CRORES. THE TOTAL INTERNATIONAL TRANSACTION WORKED OUT TO BE RS.79.44 CRORES. THE ASSESSEE HAD UNDERTAKEN THE TRANSFER PRICING ANALYSIS AND ADOPTED CUP 19 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) AS MOST APPROPRIATED METHOD, BOTH FOR PURCH ASES AND SALES AND HELD THAT THE PURCHASE PRICE IS AT ARMS LENGTH , SINCE , THE AE IS SUPPLYING THE MATERIAL TO THE TAXPAYER ON BACK TO BACK BASIS WITHOUT ADDING ANY COSTS OR EXPENSES OR PROFIT . 8.1. T HE SALES ARE MORE OR EQUAL TO THE SALE PRICE CHARGED BY THE TAXPAYER TO THIRD PARTY BUYERS. S INCE , THE PURCHASE PRICE IS LESS OR EQUAL TO THE PRICE CHARGED AT UNCONTROLLED CONDITIONS AND THE SALE PRICE CHARGED TO THE AE IS MORE OR EQUAL TO THE UNCONTROLLED TRANSACTIONS, THE ASSESSEE VIEWED THAT NO ADJUSTMENT S ARE REQUIRED AND THE SALE AND PURCHASES ARE AT ARMS LENGTH PRICE. THE TPO REJECTED THE ASSESSEES CONTENTION AND HELD THAT TNMM IS MOST APPROPRIATE METHOD BOTH FOR PURCHASES AND SALES AND ACCORDINGLY PROPOSED FOR ADJUSTMENT OF RS.30,88,97,536/ - WHICH IS R EPRESENTING SHORTFALL IN ADJUSTMENT IN SALES OF RS.15,97,13,166/ - AND EXCESS PAID IN PURCHASES TO THE EXTENT OF RS.14,91,84,370/ - . THOUGH THE ASSESSEE HAS OBJECTED THE PROPOSED ADJUSTMENTS BEFORE THE DRP, IT COULD NOT SUCCEED, HENCE , THE ASSESSEE HAS APPR OACHED THE TRIBUNAL. 20 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) 8.2. THE AO HAS REJECTED THE TRANSFER PRICING DOCUMENT, THE ANALYSIS MADE BY THE ASSESSEE ON THE REASON THAT THE ASSESSEE HAS MADE ANALYSIS BASED ON REPORT TITLED OCEAN INDIA OPERATIONAL AND FINANCIAL REVIEW FY2011 WHICH IS INTERNA L DOCUMENT AND THE SAME WAS NOT MADE AVAILABLE TO THE TPO. THE LD.TPO FURTHER OBSERVED THAT IN PAGE NO.4 OF THE TPO ORDER THAT THE TAX PAYER DID NOT FURNISH THE COPY OF THE REPORT RELIED UPON BY THE ASSESSEE AND STATED TO HAVE ENCLOSED ANNEXURE A WHICH WAS NOT PLACED BEFORE THE TPO. THE ASSESSEE INVITED OUR ATTENTION TO PAPER BOOK PAGE NO.111 A COPY OF LETTER ADDRESSED TO THE TPO DATED 14/03/2014 WHEREIN TRANSFER PRICING STUDY WAS ENCLOSED IN PAGE NO.147, COPY OF APPENDIX E, TITLED AS OCEAN INDIA OP ERATIONAL AND FINANCIAL REVIEW FY 2011 WAS FURNISHED. FURTHER THE TPO REJECTED THE TRANSFER PRICING DOCUMENT FOR THE REASON THAT THE TAXPAYER DID NOT FURNISH THE SUPPORTED DOCUMENTS IN RESPECT OF CUP ANALYSIS FOR PURCHASE OF RAW MATERIAL. HE FURTHER VIEWED THAT BACK TO BACK INVOICES CANNOT FORM VALID CUP AS THE PURCHASE OF RAW MATERIAL FROM THIRD PARTY BY THE AE IS NOT SIMILAR TO THE SALE OF RAW MATERIAL 21 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) BY THE AE TO THE TAXPAYER. THE TPO ALSO VIEWED THAT VALID CUP IS WHERE THE TRANSACTION IS COMPARED WITH ANOTHER PURCHASE WITH FOCUL POINT, BEING THE TAX PAYER. SINCE THE ABOVE CONDITIONS ARE NOT SATISFIED, THE TPO HELD THAT THE CUP METHOD ADOPTED BY THE ASSESSEE FOR THE PURCHASES IS UNACCEPTABLE AND ACCORDINGLY REJECTED THE CUP AS MOST APPROPRIATE MET HOD. IN THIS REGARD, WE OBSERVE FROM THE INFORMATION PLACED BEFORE US BY THE ASSESSEE IN APPEAL MEMO FROM PAGE NO.74 TO 93 THAT THE ASSESSEE HAS ENCLOSED SAMPLE INVOICES WHERE THE ASSOCIATED ENTERPRISE HAS SUPPLIED THE RAW MATERIAL TO THE TAX PAYER ON BAC K TO BACK BASIS. THE AE HAS NOT CHARGED ANY EXTRA COST OR EXPENDITURE TO THE PURCHASE PRICE OF THE AE. THE ASSESSEE ALSO ENCLOSED THE PURCHASE INVOICE FROM S RI SARAVANA SPINNING MILLS PVT. LTD. AS PER PAGE NO.81 OF APPEAL MEMO AND DEMONSTRATED THAT THE P URCHASE PRICE OF THE ASSESSEE COMPARABLE WITH THAT OF SUPPLIES MADE BY THE AE. THOUGH THE ASSESSEE HAS MADE PURCHASES ON BACK TO BACK BASIS FROM AE WITHOUT CUSHIONING THE PROFIT OR EXTRA COST BY THE AE, THE TPO REJECTED THE CONTENTION OF THE ASSESSEE TO ADOPT CUP AS MOST APPROPRIATE 22 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) METHOD WITHOUT ASSIGNING ANY REASON, SIMPLY HOLDING THAT INTERNAL CUP IS NOT VALID CUP. THE TPO ALSO OBSERVED THAT THE PURCHASE OF RAW MATERIAL FROM THE THIRD PARTY IS NOT SIMILAR TO THE SALE OF RAW MATERIAL BY AE, BUT THE I NVOICES ENCLOSED IN APPEAL MEMO SHOWS THAT THE SAME RAW MATERIAL WHICH WAS PURCHASED BY THE AE WAS SUPPLIED TO THE TAX PAYER ON BACK TO BACK BASIS. THEREFORE, THE OBSERVATION OF THE TPO IS NOT WELL FO UNDED . THOUGH IT IS NECESSARY FOR VALID CUP TO COMPARE THE PURCHASE TRANSACTION WITH ANOTHER PURCHASE TRANSACTION, THE FOC A L POINT, BEING THE TAXPAYER , IN THE INSTANT CASE, THE ASSESSEE HAS MADE ENTIRE PURCHASE FROM THE AE ON BACK TO BACK BASIS WITHOUT ADDING ANY PROFIT OR EXPENDITURE. THE AO DID NOT BRING AN Y OTHER MATERIAL TO SHOW THAT THE MATERIAL PURCHASED BY THE ASSESSEE FROM ITS AE WAS AT HIGHER COST, THAN THE MATERIAL AVAILABLE FROM THIRD PARTY VENDORS. THEREFORE, IT IS OBSERVED THAT THE TAXPAYER HAS DEMONSTRATED THE PURCHASE MADE BY THE ASSESSEE FROM ITS AE A RE AT ARMS LENGTH PRICE . THE ASSESSEE PLACED RELIANCE ON THE GUIDANCE NOTE ON TRANSFER PRICING ISSUED BY INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. IN PARA NO.5.26, THE INSTITUTE VIEWED 23 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) THAT INTERNAL CUP IS PREFERRED METHOD OVER EXTERNAL CUP. FO R THE SAKE OF CONVENIENCE, WE EXTRACT PARA NO.5.26 OF GUIDELINES OF INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA IN PAGE NO.40 OF THE FORM 35A PLACED BEFORE DR P . C. INTERNAL CUP PREFERRED OVER EXTERNAL CUP '5.26 IT IS IMPORTANT TO NOTE THAT THE TRANSACTI ONS ENTERED INTO BY ASSOCIATED ENTERPRISES WITH UNRELATED PARTY (INTERNAL COMPARABLES) WOULD PROVIDE MORE RELIABLE AND ACCURATE DATA AS COMPARED TO TRANSACTIONS BY AND BETWEEN THIRD PARTIES ('EXTERNAL COMPARABLES'). OECD'S GUIDELINES ON TRANSFER PRICING RECOGNIZE THE FACT THAT EXTERNAL COMPARABLES ARE DIFFICULT TO OBTAIN AND, ALSO, IT MAY BE INCOMPLETE AND DIFFI CULT TO INTERPRET. HENCE FOR THOSE R EASONS, INTERNAL COMPARABLES ARE PREFERRED TO EXTERNAL COMPARABLES. 8.3. T HE ASSESSEE RELIED ON THE DECISION OF DESTINATION OF WORLD ( SUB CO NTINENTAL) PRIVA T E LIMITED, WHEREIN, THE COORDINATE BENCH OF ITAT, B DELHI IN I.T.A.NO.5534/2010 HELD THAT INTERNAL CUP IS VALID UNDER ALL METHODS. FOR THE SAKE OF CLARITY AND CONVENIENCE WE EXTRACT RELEVANT PART OF THE ORDER OF THE COORDINATE BENCH OF ITAT DELHI (SUPRA) WHICH READS AS UNDER : 6. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. ON THE BASIS OF THE SAME, THE FIRST QUESTION WHICH REQUIRES DECISION ACCORDING TO US IS - WHETHER, THE AO WAS JUSTIFIED IN TAKING RECOURSE TO EXTERNAL COMPARABLES WHEN INTERNAL COMPARABLES WERE AVAILABLE? 6.1 . BRIEFLY, THE FACTS ARE THAT THE ASSESSEE IS CARRYING ON THE BUSINESS OF PROVIDING SERVICES FOR IN - BOUND, OUT - BOUND AND LOCAL TRAVELS. THE DISPUTE IS IN REGARD TO IN - BOUND AND OUT - BOUND TRAVEL SERVICES. THE 24 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) ASSESSEE MAINTAINS CONSOLIDATED ACCOUNTS. SEGMENTAL ACCOUNTS HAVE NOT BEEN MAINTAINED SEPARATELY IN RESPECT OF VARIOUS KINDS OF SERVICES. HOWEVER, IN RESPECT OF BOTH IN - BOUND AND OUT - BOUND SERVICES SEG MENTAL ACCOUNTS HAVE BEEN CULLED OUT. THEREAFTER, IN RESPECT OF EACH SEGMENT, CONTROLLED AND UNCONTROLLED TRANSACTIONS HAVE BEEN SEGREGATED. IN SO FAR AS IN - BOUND TRAVELS ARE CONCERNED, THE ASSESSEE HAD UTILIZED COST PLUS METHOD TO JUSTIFY THE ARMS LENGTH VALUE OF CONTROLLED TRANSACTIONS, COMPARING THEM WITH THE VALUE OF UNCONTROLLED TRANSACTIONS UNDERTAKEN BY IT. HOWEVER, IN RESPECT OF OUT - BOUND TRAVEL SERVICES, RESALE METHOD HAS BEEN EMPLOYED ON THE GROUND THAT NO VALUE ADDITION IS MADE IN RESPECT OF THE SE SERVICES. THE OBJECTION OF THE AO IS THAT WHILE THE ASSESSEE HAS INCURRED LOSS, THE EXPENSES IN RESPECT OF IN - BOUND AND OUT - BOUND TRAVEL SERVICES HAVE BEEN SO ARRANGED AS TO SHOW THAT THE PLIS ARE COMPARABLE WITH UNCONTROLLED TRANSACTIONS. IN OTHER WORD S, THE ACCOUNTS CANNOT BE SEGREGATED AS SEPARATE BOOKS OF ACCOUNT HAVE NOT BEEN MAINTAINED. ON THE OTHER HAND, THE CASE OF THE LD. COUNSEL IS THAT INTERNAL COMPARABLES ARE PREFERABLE TO EXTERNAL COMPARABLES BECAUSE OF DIFFERENCE IN BUSINESS ENVIRONMENT. TH E ASSESSEE HAS UTILIZED A SYSTEM FOR MAINTENANCE OF ACCOUNTS WHICH IS NOT AMENABLE TO MANUAL MANIPULATION AND, THEREFORE, THE CHARGE OF MANIPULATING THE ACCOUNTS IS NOT JUSTIFIED. HAVING CONSIDERED THESE MATTERS, WE FIND THAT OECD GUIDELINES, REPRODUCED IN PARAGRAPH NO. 4.6 (SUPRA), MENTION THAT NET MARGIN OF THE TAX PAYER FROM THE CONTROLLED TRANSACTIONS SHOULD BE ESTABLISHED WITH REFERENCE TO NET MARGIN WHICH THE SAME TAXPAYER EARNS IN COMPARABLE UNCONTROLLED TRANSACTIONS. WHERE THIS IS NOT POSSIBLE, THE NET MARGIN THAT WOULD HAVE BEEN EARNED IN COMPARABLE TRANSACTIONS BY AN INDEPENDENT ENTERPRISE MAY SERVE AS A GUIDE. THUS, THESE GUIDELINES SUGGEST PREFERENCE FOR INTERNAL COMPARABLES AND REFERENCE HAS TO BE MADE TO THE RESULTS OF INDEPENDENT ENTERPRISES O NLY WHEN FORMER COURSE OF ACTION IS NOT POSSIBLE. THE LD. COUNSEL HAS ALSO RELIED ON THE DECISION OF UCB INDIA PVT. LTD. (SUPRA), A COPY OF WHICH HAS BEEN PLACED BEFORE US. IN THIS CASE, THE ASSESSEE WANTED TO SUPPORT THE VALUE OF CONTROLLED TRANSACTIONS B Y COMPARING WITH EXTERNAL COMPARABLES. HOWEVER, IT APPEARS THAT THE SAME COULD HAVE BEEN COMPARED BY HAVING RECOURSE TO INTERNAL COMPARABLES OF THE PARENT COMPANY, FOR WHICH THE DATA WAS NOT FURNISHED ON THE GROUND THAT THE TWO COMPANIES ARE SEPARATE ENTIT IES. THE TRIBUNAL DID NOT FIND FAVOUR WITH THIS LINE OF ARGUMENT, WHICH INDIRECTLY LEADS TO A CONCLUSION THAT INTERNAL COMPARABLES SHOULD BE PREFERRED TO EXTERNAL COMPARABLES. FURTHER, IN THE CASE OF BIRLASOFT (INDIA) LTD. (SUPRA), IT HAS BEEN CLEARLY HELD THAT THE ASSESSEE WAS JUSTIFIED IN UNDERTAKING INTERNAL COMPARISON ON STAND ALONE BASIS BY PLACING ON RECORD WORKING OF OPERATIVE PROFIT MARGIN FROM INTERNATIONAL TRANSACTIONS WITH AES AND TRANSACTIONS WITH UNCONTROLLED PARTIES UNDERTAKEN IN SIMILAR FUNCT IONAL AND ECONOMIC SCENARIO. SUCH INTERNAL COMPARISON IS VALID IN ALL THE METHODS. THEREFORE, IT IS HELD THAT IN THE FIRST INSTANCE, THE ATTEMPT SHOULD BE MADE TO DETERMINE ARMS LENGTH PRICE OF CONTROLLED TRANSACTIONS BY COMPARING THE SAME WITH INTERNAL U NCONTROLLED TRANSACTIONS UNDERTAKEN IN SAME OR SIMILAR ECONOMIC SCENARIO. NO ARGUMENT HAS BEEN MADE BY 25 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) THE LD. DR THAT ECONOMIC SCENARIOS OF CONTROLLED AND UNCONTROLLED TRANSACTIONS WERE DIFFERENT. THEREFORE, IT IS HELD THAT THE TRANSFER PRICING ANALYSIS S HOULD HAVE BEEN DONE BY TAKING RECOURSE TO INTERNAL UNCONTROLLED TRANSACTIONS. 8.4. THE ASSESSEE ALSO RELIED ON THE DECISION OF COORDINATE BENCH OF ITAT, CHENNAI - B IN THE CASE OF REDINGTON INDIA LTD IN ITA NO.2164/MDS / 2010 DATED 02/05/2013 TO SUPPO RT THEIR CASE FOR PURCHASES FOLLOWING INTERNAL CUP . FOR THE SAKE OF CONVENIENCE WE, EXTRACT PARA NO.12 OF THE ORDER OF ITAT IN THE CASE CITED ( SUPRA ) AS UNDER : 12. LEAVING ASIDE THE MERITS AND DEMERITS OF DIFFERENT METHODS USED FOR ASCERTAINING THE ALP, IN THE GIVEN INSTANCE, WHAT WAS BOUGHT BY THE ASSESSEE WAS 1250 ITEMS OF PENTIUM IV PROCESSORS FROM ITS ASSOCIATE ENTERPRISE IN SINGAPORE. A LOOK AT THE INVOICE RAISED BY M / S INTEL SEMICONDUCTOR LIMITED, ON THE SAID ASSOCIATE ENTERPRISE, CL EARLY SHOWS THA T THESE ITEMS THOUGH SOLD TO THE SINGAPORE ENTITY BUT, DIRECTLY SHIPPED TO THE ASSESSEE IN INDIA. THE INVOICE MENTIONS THE UNIT PRICE AS 144 US$. THE SAID INVOICE CLEARLY SHOWS THAT THE PRICE AT WHICH M / S INTEL SEMICONDUCTOR LIMITED SUPPLIED TO REDINGTON D ISTRIBUTION PVT. LTD, SINGAPORE AND PRICE AT WHICH THE LATTER SOLD TO THE ASSESSEE IN INDIA, WAS ONE AND THE SAME. WE ARE OF THE OPINION THAT WHEN THE ASSOCIATE ENTERPRISE HAD SOLD THE ITEMS TO THE ASSESSEE AT THE SAME PRICE AT WHICH IT HAD PURCHASED IT, T HERE CANNOT BE ANY ARM'S LENGTH PRICE ADJUSTMENT DONE, UNLESS AND UNTIL THE ORIGINAL VENDOR WAS ALSO AN ASSOCIATE ENTERPRISE. HERE, ADMITTEDLY, M / S INTEL SEMICONDUCTOR LIMITED WAS NOT AN ASSOCIATE ENTERPRISE OF ASSESSEE OR ITS ASSOCIATE ENTERPRISE IN SINGA PORE. THEREFORE, WE CANNOT SAY THAT THE PRICE AT WHICH M / S - INTEL SEMICONDUCTOR LIMITED SOLD TO REDINGTON DISTRIBUTION PVT. LID., SINGAPORE, WAS NOT AT ARM'S LENGTH PRICE. IN OUR OPINION, WHEN REDINGTON DISTRIBUTION PVT. LTD. SOLD THE IT EMS TO ASSESSEE AT V ERY SAME PRICE AT WHICH IT HAD PURCHASED FROM M / S INTEL SEMICONDUCTOR LIMITED, THERE CANNOT BE ANY QUESTION OF UNDER PRICING OR OVER PRICING. WE ARE, THEREFORE, OF THE OPINION THAT THE ADJUSTMENT CARRIED OUT BY THE LOWER AUTHORITIES, BASED ON LIST PRICE, O N THE PURCHASE OF 1250 PENTIUM IV PROCESSORS 26 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) FROM ASSOCIATE ENTERPRISE WAS NOT CALLED FOR. SUCH ADJUSTMENT, THEREFORE, STANDS DELETED. 8.5. FROM THE ABOVE FACTS AND LAW , IT IS OBSERVED THAT THE ASSESSEE HAD PURCHASED THE RAW MATERIAL FROM ITS AE AND TH E AE HAS SUPPLIED THE RAW MATERIAL TO THE TAX PAYER ON BACK TO BACK BASIS WITHOUT MARKING UP FOR ANY COSTS OR EXPENSES OR PROFIT. THE AE HAS MADE PURCHASES FROM THIRD PARTY VENDOR WHICH IS UNCONTROLLED TRANSACTION AND THE SUPPLIES MADE BY THE AE TO THE TA XPAYER ARE CONTROLLED TRANSACTION. THE PRICE CHARGED BY THE AE TO THE TAXPAYER IS LESS OR EQUAL TO THE UNCONTROLLED TRANSACTION. THIS FACT WAS ALSO DEMONSTRATED BY THE ASSESSEE IN RESPECT OF PURCHASES MADE FROM SARAVANA SPINNING MILLS BY THE ASSESSEE THRO UGH THE AE. THE AO HAS NOT DEMONSTRATED THAT THE PRICE CHARGED IN CONTROLLED TRANSACTION IS MORE THAN THE UNCONTROLLED TRANSACTION WITH ANY PROOF OR EVIDENCE. THE TPO ALSO DID NOT BRING ANY MATERIAL TO SHOW THAT THE INTERNAL CUP IS NOT ACCEPT ABLE OR ANY RESTRICTIONS ARE PLACED BY THE INCOME TAX ACT TO CONSIDER INTERNAL CUP AS COMPARABLE . IT IS ALSO UNDISPUTED FACT THAT SUPPLIER OF THE MATERIAL IS NOT RELATED PARTY OF THE AE. THEREFORE, W E DO NOT SEE ANY REASON TO REJECT THE TRANSFER 27 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) PRICING STUDY OF THE ASSESSEE AND TO ACCEPT CUP AS MOST APPROPRIATE METHOD IN RESPECT OF PURCHASES. ACCORDINGLY, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND DIRECT THE AO TO ADOPT CUP AS MOST APPROPRIATE METHOD FOR PURCHASES. 9. THE NEXT ISSUE IS WITH REGARD TO SALE S. WITH REGARD TO SALES, THE ASSESSEE HAS MADE SALES BOTH TO THE AE AS WELL AS TO THIRD PARTY BUYERS . THE SALES MADE TO THE AE IS CONTROLLED TRANSACTION, WHEREAS THE SALES MADE TO THE THIRD - PARTY BUYERS ARE UNCONTROLLED TRANSACTION S . THE ASSESSEE HAS FUR NISHED THE DETAILS BEFORE THE AO/ TPO AND THE TPO HAS REJECTED THE SAME WITH THE REASON THAT THE ASSESSEE RELIED ON THE INTERNAL DOCUMENT WHICH IS PREPARED FOR ITS OWN PURPOSE AND CAN NEVER BE BASIS FOR VALID CUP. IN THE INSTANT CASE, THE SALES WERE MADE TO THE THIRD - PARTY BUYERS AS WELL AS ASSOCIATED ENTERPRISES. THE AVERAGE MONTHLY PURCHASE PRICE CHARGED TO THE AE WAS MORE OR EQUAL TO THE THIRD - PARTY BUYERS . IN PAGE NO. 152 OF THE PAPER BOOK, THE ASSESSEE HAS FURNISHED THE BREAK UP OF SALES WITH AE AS WELL AS THIRD PARTIES I.E. GROUP COMPANIES AND NON GROUP COMPANIES AND FROM THE BREAKUP, IT IS OBSERVED THAT THE SALE PRICE CHARGED TO THE AE IS MORE OR 28 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) EQUAL TO THE NON GROUP COMPANIES. THEREBY THE ASSESSEE HAS DEMONSTRATED THAT THE AVERAGE SALE PRICE IS MORE OR EQUAL TO THE UNCONTROLLED TRANSACTION. THEREBY DISCHARGED ITS BURDEN TO SHOW THAT THE CUP AS MOST APPROPRIATE METHOD BY TAKING MATERIAL AVAILABLE WITH REGARD TO SALE FROM INTERNAL TRANSACTIONS. THOUGH THE AO HAS REJECTED THE TRANSFER PRICING DOC UMENTATION, AS WELL AS CUP METHOD ADOPTED BY THE ASSESSEE, BUT NOT BROUGHT ON RECORD TO SHOW THAT THE INFORMATION PLACED BY THE ASSESSEE IS INCORRECT OR THE PRICE CHARGED TO THE AE IS LESSER THAN THE THIRD PARTY BUYERS . I.E. UNCONTROLLED TRANSACTION. THOU GH THE AO HAS ADOPTED THE TNMM AS THE MOST APPROPRIATE METHOD, INSTEAD OF TAKING THE CONTEMPORANEOUS DATA, THE AO HAS ADOPTED THE EARLIER YEARS DATA WHICH IS INCORRECT. THE AO DID NOT ALLOW THE ADJUSTMENTS SOUGHT BY THE ASSESSEE SUCH AS START UP , UNUTILIS ED CAPACITY, RISK, WORKING CAPITAL ADJUSTMENTS ETC. THE DRP ALSO HAS NOT CONSIDERED THE ADJUSTMENTS SOUGHT BY THE ASSESSEE AND NO PROPER REASONING WAS GIVEN BOTH BY DRP OR TPO TO REJECT THE CONTENTION OF THE ASSESSEE WITH REGARD TO OBJECTIONS OF EARLIER Y EARS DATA , ADJUSTMENTS FOR WORKING 29 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) CAPITAL , UNUTILISED CAPACITY, START UP COMPANY ETC. IN THE CIRCUMSTANCES, APPROACH OF THE DRP AS WELL AS THE TPO IN ADOPTING THE TNMM AS MOST APPROPRIATE METHOD IS INCORRECT. IN THE INSTANT CASE, SUFFICIENT DATA AND INF ORMATION IS AVAILABLE TO SHOW THAT THE SALE PRICE CHARGED BY THE ASSESSEE TO ITS AE IS COMPARABLE AND INTERNAL COMPARABLES ARE AVAILABLE WHICH WERE PLACED BY THE ASSESSEE BEFORE THE TPO AS WELL AS THE DRP. NO VALID REASON WAS ASSIGNED FOR REJECTING THE ME THOD ADOPTED BY THE ASSESSEE. THE AO S IMPLY BRUSH ED ASIDE THE INTERNAL REPORT WITH REGARD TO SALE PRICE, WITHOUT BRINGING ANY EVIDENCE TO SHOW THAT THE SALE PRICE CHARGED TO THE AE IS INCORRECT. WHEN THE ASSESSEE HAS GIVEN COMPLETE DOCUMENTATION TO THE T PO / DRP, THE BURDEN SHIFTS ON AO/TPO TO ESTABLISH THAT THE METHOD ADOPTED BY THE ASSESSEE IS FAULTY. ON SALES TO SUPPORT THEIR CONTENTION TO ACCEPT THE CUP AS M AM, THE ASSESSEE RELIED ON THE DECISION OF THIS TRIBUNAL IN THE CASE OF CCL PRODUCTS (INDIA) L TD. IN I.T.A. NO.433/VIZ/2019 DATED 07.01.2020 . FOR THE SAKE OF CLARITY AND CONVENIENCE, WE EXTRACT RELEVANT PART OF THE ORDER OF THIS TRIBUNAL WHICH READS AS UNDER : 30 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) 22. WE FIND THAT THE ASSESSEE HAS SUPPLIED INSTANT COFFEE TO THE AES AND NON - AES IN DIFF ERENT SIZES I.E. 11 SIZES, OUT OF WHICH THE TPO HAS TAKEN ONLY TWO SIZES I.E. 100 GRAMS AND 200 GRAMS AND SUGGESTED ADJUSTMENT. THE CASE OF THE ASSESSEE IS THAT WHEN THE SAME PRODUCT IS SUPPLIED TO AE AS WELL AS NON - AE IN OUT OF 11 SIZES, 6 SIZES THE ASSES SEE HAS CHARGED TO AE HIGHER RATE AND 5 SIZES LOWER RATE, THEREFORE ONCE THE ENTIRE SUPPLY IS THE SAME PRODUCT THE ENTIRE SALES MADE TO AE AND NON - AE HAS TO BE CONSIDERED AND ADJUSTMENT HAS TO BE MADE. THIS WAS NOT CONSIDERED BY THE TPO. THE LD. CIT(A) BY CONSIDERING THE SAME AND GAVE A FINDING THAT TPO IS NOT CORRECT IN SELECTING TWO ITEMS OUT OF 11 ITEMS SUGGESTED ADJUSTMENT FOR THE PURPOSE OF ARRIVING AT ALP. HE FURTHER GAVE A FINDING THAT IF THE ENTIRE SALES IS CONSIDERED THE IRRESPECTIVE OF SIZE OF PAC KAGING DIFFERENCE IS ONLY 1.49% WHICH IS PERMISSIBLE LIMIT AS PER PROVISIONS OF LAW. AS PER PROVISO TO SUB - SECTION (2) OF SECTION 92C, THE DIFFERENCE TO THE EXTENT OF 3% IS PERMISSIBLE. WE FURTHER FIND THAT THE ASSESSEE BY SUBMITTING ALL THE DETAILS EXPLAI NED BEFORE THE TPO THAT THE ASSESSEE HAS CHARGED FOR AE AS WELL AS NON - AE SIMILAR PRICES FOR THE SUPPLY OF INSTANT COFFEE AND NO PROFIT HAS BEEN SHIFTED TO AE, HOWEVER, THE TPO NOT ACCEPTED THE EXPLANATION GIVEN BY THE ASSESSEE AND SUGGESTED TP ADJUSTMENT WITHOUT GIVING ANY REASONS. THE TPO HAS NOT GIVEN WHAT IS THE REASON FOR CHOOSING ONLY TWO SIZES 100 GRAMS AND 200 GRAMS, WHEN THE ASSESSEE SPECIFICALLY SUBMITTED BEFORE THE TPO THAT OUT OF 11 SIZES, 6 SIZES THE ASSESSEE HAS CHARGED HIGH PRICE AND SUBMITTE D THAT AVERAGE HAS TO BE TAKEN. WITHOUT CONSIDERING THE SAME, THE TPO SIMPLY SUGGESTED ADJUSTMENT BY TAKING ONLY TWO SIZES, IN OUR OPINION, THE ASSESSEE HAS DISCHARGED THE BURDEN CASTED UPON HIM TO SHOW THAT IT HAS NOT SHIFTED PROFITS TO AE, THEREFORE IT I S THE DUTY OF THE TPO TO ESTABLISH THAT THE ASSESSEE HAS SHIFTED PROFITS TO AE. IN THIS CASE, WITHOUT GIVING ANY REASON SIMPLY SUGGESTED TP ADJUSTMENT BY THE TPO. WE FIND THAT TPO IS NOT CORRECT. THUS, WE FIND THAT THE LD.CIT(A) HAS CONSIDERED THE FACTS AN D DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION. WE FIND NO REASON TO INTERFERE WITH THE ORDER PASSED BY THE LD. CIT(A). THUS, THIS GROUND OF APPEAL RAISED BY THE REVENUE IS DISMISSED. 9.1. THE ASSESSEE ALSO RELIED ON THE FOLLOWING DECISION S WHICH SUPPORT THE ASSESSEES CASE : (I) M/S ESSAR STEEL PVT. LTD ITA NO. 3727/MUM/2011 (SHRI RC SHARMA & SHRI VP RAO) 10. WE HAVE CONSIDERED RIVAL CONTENTIONS AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. A CLEAR FINDING H AS BEEN RECORDED BY THE CIT(A) TO THE EFFECT THAT ASSESSEE HAS ALREADY CONSIDERED AL L THE 8 TRANSACTIONS WITH ITS AE IN TOTALITY BY AGGREGATING THE S A ME WHEREAS THE TPO PICKED UP TWO TRANSACTIONS WHERE 31 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) THE PRICE CHARGE WAS LESS THAN THE AVERAGE MARKET PRIC E. RULE 10(A)(A) DEFINES A TRANSACTION TO INCLUDE A NUMBER OF CLOSELY LINKED TRANSACTION. IN CASE THEY A RE CLOSELY LINKED THEN THEY CAN BE AGGREGATED FOR DETERMINING THE ALP. WE FOUND THAT ASSESSEE HAS EXPORTED HOT ROLLED COILS TO ITS AE BETWEEN 30 - 6 - 2005 TO 10 - 3 - 2006, THE PRICE HAS BEEN DETERMINED FROM THE WEBSITE WHOSE DATA IS NOT SUBJECT TO CHALLENGE. THE PRODUCT REMAINS THE S A ME AND THE SOURCE FROM WHICH THE AVERAGE PRICE HAS BEEN T A KEN REMAINS THE SAME . ACCORDINGLY, IT IS A FIT CASE FOR AGGREGATION. WE FOUND THAT IF THE AVERAGE PRICE IS ADOPTED FOR ALL THE 8 TRANSACTIONS, THEN THE AVERAGE COMES EXACTLY TO 420.71 WHICH IS WHAT THE PRICE CHARGED BY THE ASSESSEE TO ITS AE. FURTHERMORE, THE DETAILED FINDING RECORDED BY THE CIT(A) AT PARA 3.4 TO 38 HAS NOT B EEN CONTROVERTED BY LEARNED DR BY BRINGING ANY COGENT MATERIAL ON RECORD. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A) FOR DELETING THE ADDITION IN RESPECT OF ADJUSTMENT MADE OF RS.5,22,41,193/ - . (II) M/S BILAG INDUSTRIES PVT . LTD - ITA NO, 2886/AHO/10 - (SHRI AMARJIT SINGH & SHRI OP MEENA) 12. IN THE LIGHT OF RATIO LAID DOWN BY THE HON'BLE HIGH COURT IN ABOVE CASE, IT WOULD BE SEEN THAT AGGREGATION OF SALES TO AE 'S ALP IS INR 443.31 AND SIMILARLY AGGREGATION OF SALES TO NO N - A ES IS INR 423.29, IF 5% TOLERANCE MARGIN IS ADDED IT GIVES ALP AT INR 444.45, WHEREAS THE ARITHMETIC MEAN ALP OF AE'S IS INR 444.31. HENCE, NO ADDITION OR TP ADJUSTMENT IS REQUIRED AS THE AVERAGE PRICE 444.45 IS HIGHER THEN ALP DETERMINED AT INR 444.31 BY THE DRP. THUS, THE AVER AGE AGGREGATION SALE PRICE TO NO N AE'S IS WITHIN THE RANGE OF + 5% - THEREFORE, TP ADJUSTMENT MADE BY THE AO IS DELETED. THE DECISION OF SPECIAL BENCH IN THE CASE OF IHG IT SERVICES (INDIA) (P.) LTD. V. INCOME - TAX OFFICER, WARD - 11(3), NEW DELHI [2013] 33 TAXRNANN.COM I (DELHI - TUB) (SB) IS NOT APPLICABLE AS THE AR OF THE ASSESSEE HAS ACCEPTED THE RETROSPECTIVE EFFECT, BUT TO AGGREGATE ON ISSUE WAS NOT DISCUSSED WHEREAS WHEN THE DECISION OF HON ' BLE HIGH COURT OF BOMBAY HAS CLEARLY DISCUSSED THE AGGREGATION ISSUE ON THE ISSUE WHICH DIRECTLY COVERED THE ISSUE. 32 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) (III) MIS BARCLAYS BANK PLC - ITA NO. 2242/MUM/15 - (SHRI MAHAVIR SINGH & SHRI MK AGGARWAL) 16. AFTER GOING THROUGH THE FACTS AND ARGUMENTS OF THE BOTH THE SIDES, WE NOTICED THAT THE TRIBUNAL IS CONSISTENTLY TAKING THE VIEW THAT ARMS LENGTH PRICE SHOULD BE AFTER AGGREGATION AND THERE WAS NO SCOPE FOR ADJUSTMENT WITHOUT AGGREGATION. TAKING A CONSISTENT VIEW BY FOLLOWING THE CO - ORDINATE BENCHES DECISIONS CITED SUPRA, WE CONFIRM THE ORDER OF CIT(A) DELETING THE ADDITION. THIS ISSUE OF REVENUE'S APPEAL IS DISMISSED. THE LD.AR ALSO RELIED ON FOLLOWING DECISIONS TO SUPPORT HIS VIEW : ( I ) M/S AUDCO INDIA PVT. LTD ITA NO.2642/MUM/2009 ( II ) M/S AUDO INDIA P VT. LTD. ITA NO.1829 OF 2016 ( III ) M/S 3M INDIA PVT. LTD. (2011) 46 SOT 44 ( IV ) M/S RELIABLE CASHEW CO. LTD ITA 2237/MDS/13 ( V ) M/S CHEMINOVA INDIA PVT. LTD. ITA 4865/N/05 ( VI ) M/S IMEDX INFORMATION SERVICES PVT. LTD. ITA 577/H/16 AS DISCUSSED IN PARA NO.9, WE OBSERV E THAT THE SALE PRICE CHARGED TO AE IS MORE OR EQUAL TO NON AES AND THE ASSESSEE HAS FURNISHED THE COMPLETE INFORMATION BEFORE THE AO/TPO. THE DEPARTMENT HAS NOT BROUGHT ON RECORD TO 33 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) CONTROVERT THE SUBMISSION OF THE ASSESSEE TO ESTABLISH THAT THE ASSESSEE HAS CHARGED THE LESS PRICE THAN THIRD PARTY BUYERS. THE ASSESSEE HAS RELIED ON VARIOUS DECISIONS CITED SUPRA TO SUPPORT THEIR CONTENTION WITH REGARD TO CUP AS MAM IN RESPECT OF SALES. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE WE, HOLD THAT C UP IS MOST APPROPRIATE METHOD FOR SALES AS WELL AS PURCHASES. WE THEREFORE, DIRECT THE AO TO ADOPT CUP AS MOST APPROPRIATE METHOD AND DELETE THE ADDITIONS MADE BY THE AO / TPO. THE APPEAL OF THE ASSESSEE IS ALLOWED. 1 0 . SINCE WE HAVE ALLOWED THE APPEAL OF THE ASSESSEE WITH A DIRECTION TO ACCEPT THE CUP AS MAM, WE CONSIDER IT IS NOT NECESSARY TO ADJUDICATE THE OTHER GROUNDS RAISED BY THE ASSESSEE IN THIS APPEAL. 11 . IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN OPEN COURT ON TH I S 23 RD DAY OF NOV 2020. SD/ - SD/ - (V. DURGA RAO) (D.S. SUNDER SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 23.11.2020 VR/ - 34 IT (TP) A NO. 1 50 /VIZ/201 6 ( TEEJAY INDIA PVT. LTD. ) COPY TO: 1 . THE ASSESSEE - M/S. TEEJAY INDIA PVT. LTD. (FORMER LY KNOWN AS OCEAN INDIA PVT. LTD.), PLOT NO. 15, BRANDIX INDIA APPAREL CITY PVT. LTD. SEZ, PUDIMADAKA ROAD, ATCHUTAPURAM, VISAKHAPATNAM. 2 . THE REVENUE THE ACIT, CIRCLE - 5(1),VISAKHAPATNAM. 3 . THE CIT 4 . THE D.R . , VISAKHAPATNAM 5 . GUARD FILE. BY ORDER (VUKKEM RAMBABU) SR. PRIVATE SECRETARY, ITAT, VISAKHAPATNAM.