M/s. Cargill Food India Ltd., V. Asst.. Comm. of Income-tax, Pune

ITA 1557/PUN/2011

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9558 (ITAT-PUNE)
• Duration Of Justice: 5 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-01-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 02-12-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NANDITA KANCHAN
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary
• Section: 143(3); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , ! ' # , $% &' #' , ' # '( BEFORE SHRI ANIL CHATURVEDI, AM AND SHRI VIKAS AWAS THY, JM '%. / ITA NO. 1557/PUN/2011 * +* / ASSESSMENT YEAR : 2007-08 CARGILL FOODS INDIA LIMITED, (NOW MERGED IN AND KNOWN AS CARGILL INDIA PRIVATE LIMITED), 14 TH FLOOR, BUILDING-9-A, DLF CYBER CITY, PHASE-III, GURGAON, HARYANA 122002 PAN : AABCP0312N ....... / APPELLANT /VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 4, PMT BUILDING, SWARGATE, PUNE 411037 / RESPONDENT ASSESSEE BY : SHRI RAJENDRA AGIWAL REVENUE BY : SMT. NANDITA KANCHAN / DATE OF HEARING : 02-03-2017 / DATE OF PRONOUNCEMENT : 21-04-2017 , / ORDER PER VIKAS AWASTHY, JM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ASS ESSMENT ORDER DATED 04-10-2011 PASSED U/S. 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE AC T) FOR THE ASSESSMENT YEAR 2007-08. 2 ITA NO. 1557/PUN/2011, A.Y. 2007-08 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORD S ARE: THE ASSESSEE COMPANY WAS INCORPORATED ON 31-10-2004 AS A JOINT VENTURE BETWEEN M/S. PARAKH FOODS LTD. AND M/S. CARGILL MAURITIUS LTD. IN NOVEMBER, 2005 THE ASSESSEE BECAME A 100% SUBSIDIARY OF M/S. CARGILL MAURITIUS LTD. THE ASSESSEE IS ENGAGED IN MANUFACTURING A ND TRADING OF EDIBLE OIL AND MANUFACTURING OF PLASTIC FILMS. FOR THE ASSESS MENT YEAR UNDER APPEAL THE ASSESSEE FILED ITS RETURN OF INCOME ON 31-10-2007 DECLARING A NET LOSS OF ` 26,85,38,165/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY, ACCORDINGLY, STATUTOR Y NOTICE U/S. 143(2) WAS ISSUED TO THE ASSESSEE. DURING THE PERIOD RELE VANT TO THE ASSESSMENT YEAR 2007-08, THE ASSESSEE HAD ENTERED INT O INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES (AES). ACCORD INGLY, REFERENCE U/S. 92CA WAS MADE BY THE ASSESSING OFFICER TO TRANSFER PRICING OFFICER (TPO). THE TPO ACCEPTED ARMS LENGTH PRICE (ALP) OF VARIOUS INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE, E XCEPT: (I) PREPAYMENT TRADE (PURCHASE) ` 1,42,14,87,237/-. (II) PREPAYMENT TRADE (SALE) ` 1,38,89,66,398/-. 2.1 TO BENCHMARK THESE TRANSACTIONS THE ASSESSEE ADOP TED CUP AS THE MOST APPROPRIATE METHOD. TO FURTHER SUBSTANTIATE T HE ARMS LENGTH PRICE OF THE AFORESAID TRANSACTIONS, THE ASSESSEE APPLIED T RANSACTIONAL NET MARGIN METHOD (TNMM) WHICH WAS REJECTED BY THE TPO . THE TPO MADE UPWARD ADJUSTMENT OF ` 3,25,20,839/- IN RESPECT OF TRANSACTIONS RELATING TO PREPAYMENT TRADES. 2.2 AGGRIEVED BY THE ADJUSTMENT MADE BY THE TPO IN RES PECT OF INTERNATIONAL TRANSACTIONS, THE ASSESSEE FILED OBJECTIONS BE FORE THE DISPUTE RESOLUTION PANEL (DRP). THE DRP VIDE DIRECTIONS DAT ED 20-05-2011 UPHELD THE ACTION OF TPO IN MAKING ADJUSTMENT IN RESPECT 3 ITA NO. 1557/PUN/2011, A.Y. 2007-08 OF PREPAYMENT TRADES. ON THE BASIS OF DIRECTION OF DRP, TH E ASSESSING OFFICER FRAMED THE ASSESSMENT. NOW, THE ASSESSEE IS IN APP EAL BEFORE THE TRIBUNAL ASSAILING THE ADJUSTMENT MADE IN RESPECT OF PREPAYMENT TRADES. 3. THE ASSESSEE HAS FILED FOLLOWING GROUNDS OF APPEAL : 1. GENERAL GROUND CHALLENGING THE TRANSFER PRICING ADJUSTMENT OF RS.3,25,20,839 ERRED IN MAKING TRANSFER PRICING ADJUSTMENT BY REJEC TING THE ANALYSIS UNDERTAKEN BY THE APPELLANT TO DETERMINE A RM'S LENGTH PRICE FOR ITS INTERNATIONAL TRANSACTIONS PERTAINING TO MERCHANTING ACTIVITY. 2. CONCLUDING THAT THE APPELLANT'S INTERNATIONAL TR ANSACTIONS RELATING TO MERCHANTING ACTIVITY ARE NOT AT ARM'S L ENGTH PRICES ERRED IN UNDERSTANDING THE FACTS OF THE CASE AND ER RONEOUSLY CONCLUDED THAT THE APPELLANT'S INTERNATIONAL TRANSA CTIONS RELATING TO MERCHANTING ACTIVITY ARE NOT AT ARM'S LENGTH BAS ED ON THE FOLLOWING: (A) ALLOWING DISCOUNT ON THE SALE PRICE BY THE APPE LLANT DOES NOT MAKE COMMERCIAL SENSE AND DISCOUNT ALLOWED TO THE AES ARE NOT AT ARMS LENGTH PRICES. (B) VALUE OF SALES TRANSACTION IS LESS THAN THE VAL UE OF PURCHASE TRANSACTION OF THE MERCHANTING ACTIVITY 3. REJECTION OF THE CORROBORATIVE TRANSACTIONAL NET MARGIN METHOD ('TNMM') ANALYSIS UNDERTAKEN BY THE APPELLAN T TO BENCHMARK THE INTERNATIONAL TRANSACTION OF MERCHANT ING ACTIVITY ERRED IN LAW AND IN FACTS IN REJECTING THE CORROBOR ATIVE TNMM ANALYSIS UNDERTAKEN BY THE APPELLANT FOR THE PURPOS E OF BENCH MARKING THE TRANSACTIONS RELATING TO MERCHANTING AC TIVITY. 4. ERRONEOUS LEVY OF PENALTY UNDER SECTION 271(1)(C ) OF THE ACT WITHOUT PREJUDICE TO THE GROUNDS ABOVE, EVEN IF THE TRANSFER PRICING ADJUSTMENT IS SUSTAINED THEN THE LEARNED AO HAS ERR ED IN PROPOSING TO LEVY PENALTY UNDER SECTION 271(1)(C) O F THE ACT, WITHOUT CONSIDERING THE FACT THAT ADJUSTMENT TO TRA NSFER PRICE IS MAINLY ON ACCOUNT OF MISINTERPRETATION OF THE FACTS OF THE CASE BY THE LEARNED AO/TPO. THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOUT PREJU DICE TO EACH OTHER. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMI T, SUBSTITUTE OR AMEND THE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFORE OR AT, THE TIME OF HEARING OF THE APPEAL. 4 ITA NO. 1557/PUN/2011, A.Y. 2007-08 4. SHRI RAJENDRA AGIWAL APPEARING ON BEHALF OF THE ASSESS EE SUBMITTED THAT DURING THE FINANCIAL YEAR 2006-07 THE ASS ESSEE HAD ENTERED INTO VARIOUS INTERNATIONAL TRANSACTIONS WITH ITS AE S. THE DISPUTE IS WITH RESPECT TO MERCHANTING ACTIVITIES I.E. PREPAY MENT TRADES. THE ASSESSEE ADOPTED CUP FOR BENCHMARKING ALP. THE TP O AFTER ACCEPTING CUP AS THE MOST APPROPRIATE METHOD, YET MADE UPWARD ADJUSTMENT OF ` 3,25,20,839/- IN RESPECT OF PREPAYMENT TRADES. THE ASSESSEE HAD OFFERED DISCOUNT TO ITS AE ON ACCOUNT OF PR EPAYMENT TRADES RELATING TO SALE UNDER MERCHANTING ACTIVITIES. THE ASSESSEE HAD RECEIVED ADVANCES FOR THE GOODS SOLD AND ALSO AVAILED CRE DIT PERIOD ON THE PURCHASE SIDE. THE LD. AR REFERRED TO THE DETAILS OF THE PURCHASE AND SALE IN RESPECT OF MERCHANTING ACTIVITIES AND THE DISC OUNT OFFERED MENTIONED AT PAGE 10 OF THE TPOS ORDER. THE LD. AR SUB MITTED THAT A PERUSAL OF THE SAID TABLE WOULD CLEARLY SHOW THAT THE ASS ESSEE HAD EARNED PROFIT ON SALE OF COMMODITIES AND THE DIFFERENCE BETW EEN PURCHASE PRICE AND THE AMOUNT RECEIVED ON SALE OF COMMO DITIES IS ON ACCOUNT OF DISCOUNT ALLOWED FOR RECEIVING PAYMENTS IN ADVAN CE. THE ASSESSEE HAD ALLOWED DISCOUNT TO ITS AE FOR PREPAYMENT @ 5%. THE PREPAYMENT DISCOUNT ALLOWED BY ASSESSEE TO THE AE IS LE SS THAN THE AVERAGE BANK PRIME LENDING RATE 12.375% PREVAILING IN FINANC IAL YEAR 2006-07. IF THE ASSESSEE WOULD HAVE BORROWED THE AMOU NT FROM BANK, IT WOULD HAVE TO PAY HIGHER AMOUNT OF INTEREST AS COMPA RED TO WHAT HAS BEEN OFFERED AS DISCOUNT FOR PREPAYMENT TO AE. THER EFORE, THE DISCOUNT ALLOWED BY THE ASSESSEE TO ITS AE IS PROFITABLE AN D VIABLE OPTION. THUS, THE INTERNATIONAL TRANSACTIONS OF MERCHANTIN G ACTIVITIES ARE AT ARMS LENGTH. THE LD. AR SUBMITTED THAT ALTHOUGH WHILE BENCHMARKING THE TRANSACTIONS, THE ASSESSEE HAD APPLIED CUP AS THE MOST APPROPRIATE METHOD, THE ASSESSEE HAD TRIED TO EXP LAIN THE ENTIRE TRANSACTIONS THOUGH TNMM AS WELL. TO EXPLAIN THE TRANSAC TION THE 5 ITA NO. 1557/PUN/2011, A.Y. 2007-08 ASSESSEE HAD APPLIED BERRY RATIO TO DETERMINE PLI. THE USE OF BERRY RATIO AS PLI WAS APPROVED BY THE DELHI TRIBUNAL IN THE C ASE OF ASSESSEES SISTER CONCERN CARGILL INDIA PVT. LTD. VS. ADDL. CIT IN ITA NO. 4095/DEL/2010 FOR ASSESSMENT YEAR 2006-07 DECIDED ON 28-11-2 013. 4.1 THE LD. AR FURTHER SUBMITTED THAT THE CONCEPT OF BERR Y RATIO WAS ALSO ACCEPTED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF JOHNSON MATTHEY INDIA PRIVATE LIMITED VS. DEPUTY COMMISSIONER OF IN COME TAX IN ITA 14/2013 DECIDED ON 30-10-2015. THE LD. AR FURTHER REFERRED TO MERCHANTING TRANSACTIONS OF SALES AND PURCHASE AT PAGES 142 AND 143 OF THE PAPER BOOK. REFERRING TO THE TABLE OF MERCHANTING SALES TRANSACTIONS AND MERCHANTING PURCHASE TRANSACTIONS, THE LD. AR SUBMITTED THAT A PERUSAL OF THE TABLE WOULD MAKE IT UNAMB IGUOUSLY CLEAR THAT THE ASSESSEE HAD RECEIVED ADVANCES FROM ITS AE IN RESPECT OF THE COMMODITIES SUPPLIED. THE LD. AR FURTHER CONTENDED THA T IT IS COMMON BUSINESS PRACTICE THAT WHERE AMOUNT IS RECEIVED IN ADVANCE FOR SUPPLY OF COMMODITIES SOME DISCOUNT IS OFFERED TO THE P URCHASER. IN SUPPORT OF HIS SUBMISSIONS THE LD. AR PLACED RELIANCE ON THE DECISION OF CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S. PANASONIC SALES & SERVICES (I) COMPANY LIMITED VS. ASSISTANT COMMISSIONER OF INCOME TAX IN ITA NO. 1957/MDS/2012 FOR ASSESSMENT YEAR 2008-09 D ECIDED ON 30-06-2014. THE LD. AR FURTHER REFERRED TO THE SAMPLE A GREEMENT PLACED ON RECORD AT PAGES 170 TO 174 OF THE PAPER BOO K. THE LD. AR SUBMITTED THAT THE SAMPLE AGREEMENT WAS EXECUTED ON 1 5-12-2005, SIMILAR AGREEMENT WAS EXECUTED FOR THE FINANCIAL YEAR 2006- 07. A PERUSAL OF THE AGREEMENT WOULD SHOW THAT THERE IS PREPA YMENT CLAUSES AND IT WAS MUTUALLY AGREED BETWEEN THE ASSESSEE AND IT S AE THAT PREPAYMENT DISCOUNT/TRADE DISCOUNT WOULD BE ALLOWED IN CA SE THE AE MADE PREPAYMENT FOR PURCHASE OF COMMODITIES FROM THE AS SESSEE. THE 6 ITA NO. 1557/PUN/2011, A.Y. 2007-08 LD. AR ASSERTED THAT AS FAR AS THE FACTS OF THE CASE ARE CONCERNED THERE IS NO DISPUTE BETWEEN THE DEPARTMENT AND THE ASSESSEE. 5. PER CONTRA SMT. NANDITA KANCHAN REPRESENTING THE DE PARTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF TPO, DRP AND THE AS SESSING OFFICER. THE LD. DR POINTED THAT THE ASSESSEE HAD APPLIED C UP METHOD TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS. UNDISPUTEDL Y, THE TPO HAD ACCEPTED THE METHOD ADOPTED BY THE ASSESSEE AS THE MOST APPROPRIATE METHOD FOR DETERMINING ALP. FURTHER, THE ASS ESSEE FOR CORROBORATING THE BENCHMARKING OF PREPAYMENT TRADE TRA NSACTIONS APPLIED TNMM. IN THE SAID ANALYSIS THE ASSESSEE SELECTED 12 COMPANIES WITH THE RATIO OF OPERATING PROFIT TO OPERATING C OST, AS THE PROFIT LEVEL INDICATOR. THE UNADJUSTED OPERATING MARGIN M EAN OF THE COMPARABLE COMPANIES WAS COMPUTED AT 14% FOR BENCHMARK ING THE TRANSACTIONS, AS AGAINST OPERATING MARGIN OF THE ASSESSEE AT 875.51%. WITH SUCH WIDE VARIATION BETWEEN THE MEAN OF 14% OF THE COMPARABLES AND 875.51% OF THE ASSESSEE, THE TNMM APPLIED BY THE ASS ESSEE TO CORROBORATE THE BENCHMARKING WAS RIGHTLY REJECTED BY THE AUTHORITIES BELOW. THE ASSESSEE HAS PURPORTEDLY OFFERED DISCOUNT TO ITS AE FOR MAKING ADVANCE PAYMENTS. A PERUSAL OF COMPUTATION OF TH E TRANSACTIONS WOULD SHOW THAT THE ENTIRE TRANSACTION STA RTS WITH DISCOUNT. THE ADVANCE PAYMENTS MADE BY THE AES, HEDG E AGAINST CURRENCY FLUCTUATION. THEREFORE, THERE WAS NO NEED FOR FU RTHER DISCOUNT. THE ASSESSEE HAS FAILED TO SHOW ANY BUSINESS E XPEDIENCY TO OFFER DISCOUNTS WHEN THE PURCHASERS AND SELLERS HAVE BEE N IDENTIFIED AND THE ASSESSEE HAS VERY LIMITED ROLE TO PLAY. 5.1 THE LD. DR FURTHER POINTED THAT A CLOSE SCRUTINY OF THE PURCHASE/SALE TRANSACTIONS ON THE BASIS OF PREPAYMENT O F GOODS REVEAL 7 ITA NO. 1557/PUN/2011, A.Y. 2007-08 THAT THAT THE ASSESSEE HAD MADE PURCHASES OF COMMODIT IES FOR ` 1,42,14,87,237/- AND HAVE SOLD THE SAME COMMODITIES TO AE AT ` 1,38,89,66,398/-. IN THE PROCESS, THE ASSESSEE HAS INCURR ED A LOSS OF ` 3,25,20,839/-. THE ASSESSEE HAS NOT BEEN ABLE TO JUSTIFY THE ABOVE SAID LOSSES IN THE LIGHT OF ARMS LENGTH PRINCIPLES. IT IS EVID ENT THAT NO MARK-UP ON THE COST OF GOODS SOLD WAS RECOVERED FROM T HE AE, THE GOODS WERE SOLD TO AE AT A PRICE LESSER THAN THE COST OF THE GOODS. 5.2 THE LD. DR FURTHER CONTENDED THAT THE CASE LAWS ON WHICH THE LD. AR OF THE ASSESSEE HAS PLACED RELIANCE ARE DISTINGUISHABLE ON FACTS. THE DECISION RENDERED BY THE CHENNAI BENCH OF THE TRIBUNAL IN THE CA SE OF M/S. PANASONIC SALES & SERVICES (I) COMPANY LIMITED VS. ASSISTANT COMMISSIONER OF INCOME TAX (SUPRA) RELATES TO CASH DISCOUN T AND NOT TRADE DISCOUNT. THE CASE OF THE ASSESSEE IS THAT IT IS A TRADE DISC OUNT. 6. CONTROVERTING THE SUBMISSIONS MADE ON BEHALF OF THE DEPARTMENT, THE LD. AR SUBMITTED THAT THE ASSESSEE IN NO TES TO ACCOUNT AND AT VARIOUS OTHER PLACES IN THE SCHEDULE FORMING PART OF THE BOOKS HAD MADE DISCLOSURE WITH RESPECT TO THE DISCOUNT ALLOWED BY THE ASSESSEE ON SALES. THE LD. DR FURTHER SUBMITTED THAT TH E AMOUNT SHOWN IN THE TP REPORT WITH RESPECT TO SALE ` 1,38,89,66,398/- IS NET OF DISCOUNT ALLOWED ` 33,464,119/- BY THE ASSESSEE TO ITS AE FOR MAKING PREPAYMENTS. THE AUTHORITIES BELOW HAVE ERRED IN MAKING ADJUSTMENT IN THE PREPAYMENT TRADES TRANSACTIONS. 7. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORIT IES BELOW. WE HAVE ALSO CONSIDERED THE DECISIONS AND THE DOCUMENTS RE FERRED BY THE LD. AR DURING THE COURSE OF MAKING SUBMISSIONS. THE ASSESS EE IN APPEAL HAS RAISED FOUR GROUNDS ASSAILING THE ASSESSMENT ORDER. THE 8 ITA NO. 1557/PUN/2011, A.Y. 2007-08 GROUND NO. 1 IS GENERAL IN NATURE AND HENCE, NEEDS NO AD JUDICATION. IN GROUND NOS. 4, THE ASSESSEE HAS ASSAILED LEVY OF PENALTY U /S. 271(1)(C) OF THE ACT. THE SAID GROUND IS PRE-MATURE AND HENCE, TH E SAME IS DISMISSED. THE ONLY EFFECTIVE GROUNDS TO BE DECIDED BY TH E TRIBUNAL ARE GROUND NOS. 2 AND 3. 8. IN GROUND NOS. 2 AND 3 THE ASSESSEE HAS ASSAILED TH E FINDINGS OF LOWER AUTHORITIES IN REJECTING TNMM ANALYSIS UNDERTAKEN BY THE ASSESSEE TO CORROBORATE THE BENCHMARK OF INTERNATIONAL TRANSACTIONS OF MERCHANTING ACTIVITIES. THE ASSESSEE HAD APPLIED CUP AS T HE MOST APPROPRIATE METHOD FOR BENCHMARKING INTERNATIONAL TRANSAC TIONS THAT ARE SUBJECT MATTER OF APPEAL. THE CUP METHOD APPLIED B Y THE ASSESSEE WAS ACCEPTED BY THE TPO. HOWEVER, THE TNMM APPLIED BY THE ASSESSEE TO CORROBORATE THE BENCHMARKING OF INTERNATIONAL TRANSAC TIONS WAS REJECTED BY THE TPO AND DRP. ONCE, HAVING APPLIED CUP A S THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE TRANSACTIONS AN D TPO HAVING ACCEPTED THE SAME, WE FAIL TO UNDERSTAND THAT AS TO WHY THE ASSESSEE CHOSE TO APPLY CIRCUITOUS TNMM TO SUBSTANTIATE THE BEN CHMARKING OF INTERNATIONAL TRANSACTIONS. RULE 10B OF THE INCOME TAX RULES, 1962 GIVE THE LIST OF MET HODS WHICH MAY BE APPLIED FOR DETERMINING ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS. THE MOST APPROPRIATE METHOD FROM THE ACCEPTED METHODS LISTED IN RULE 10B HAS TO BE ADOPTED. THE CUP BEING THE DIRECT METHOD IS PREFERRED OVER THE OTHER METHODS. THE TNMM IS APPLIED WHERE THE DIRECT METHOD FAILS. IN THE PRESENT CA SE, SINCE, BOTH THE SIDES THAT IS THE ASSESSEE AND THE REVENUE HAVE A GREED THAT CUP IS THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE TRANS ACTIONS, APPLYING TNMM TO CORROBORATE THE BENCHMARKING THE TRA NSACTIONS SEEMS TO BE IRRATIONAL AND SPECIOUS. 9 ITA NO. 1557/PUN/2011, A.Y. 2007-08 9. THE LD. AR HAS CONTENDED THAT BERRY RATIO IS APPLIED W HILE BENCHMARKING THE MERCHANTING ACTIVITY TRANSACTIONS. THE CONCEPT OF BERRY RATIO HAS BEEN APPROVED BY THE HONBLE DELHI HIGH COURT AND THE DELHI BENCH OF THE TRIBUNAL. WE FIND THIS SUBMISSION OF THE AS SESSEE IS OUT OF CONTEXT IN THE FACTS OF PRESENT CASE. THE ASSESSEE HAS US ED BERRY RATIO WHILE APPLYING TNMM TO BENCHMARK THE INTERNATIONAL TRANSACTIONS. ONCE, CUP HAS BEEN ACCEPTED AS THE MOST APPROPRIATE METHOD THERE IS NO QUESTION OF APPLYING ANY OTHER METH OD TO CORROBORATE THE ANALYSIS MADE UNDER CUP. THE ASSESSE E HAS TO EXPLAIN THE BENCHMARKING OF INTERNATIONAL TRANSACTIONS BY APPLYIN G THE MOST APPROPRIATE METHOD SELECTED TO BENCHMARK THE TRANSACTION. 10. IN SO FAR AS ALLOWING OF CASH DISCOUNT IS CONCERNED T HERE IS NO QUARREL ON THE ALLOWABILITY OF CASH DISCOUNTS. THE CHENNAI B ENCH OF THE TRIBUNAL IN THE CASE OF M/S. PANASONIC SALES & SERVICE S (I) COMPANY LIMITED VS. ASSISTANT COMMISSIONER OF INCOME TAX (S UPRA) HAD ACCEPTED THE ALLOWABILITY OF CASH DISCOUNTS WITHOUT RE DUCING SELLING PRICE. THE TRIBUNAL IN THE SAID CASE HAD CATEGORICALLY OBS ERVED THAT CASH DISCOUNTS CANNOT BE EQUATED WITH TRADE DISCOUNTS. IN THE PRESENT CASE, THE ASSESSEE HAS ADMITTED THAT WHAT HAS BEEN OFFE RED TO AE IS TRADE DISCOUNTS. THIS FACT IS CLEARLY EVIDENT FROM THE PER USAL OF SAMPLE AGREEMENT PLACED ON RECORD BY THE ASSESSEE AT PAGE 1 70 OF PAPER BOOK-I. IT IS AN UNDISPUTED FACT THAT ALLOWING DISCOUNTS IS NORMAL PRACTICE IN BUSINESS TRANSACTIONS. THE DISCOUNTS ARE OFFER ED FOR EARLY REALIZATION OF PAYMENTS AND SOMETIMES FOR RECEIVING ADVANCE PAYMENTS AS WELL. HOWEVER, SUCH TRANSACTIONS HAVE TO BE EXPLAINED WITH RATIONAL FOR DISCOUNTS OFFERED. IN THE PRESENT CASE, THE ENTIRE EM PHASIS OF THE LD. AR OF THE ASSESSEE WAS IN EXPLAINING THE MERCHANTING AC TIVITIES TRANSACTIONS AND THE DISCOUNTS OFFERED FOR PREPAYMENT T HROUGH TNMM, 10 ITA NO. 1557/PUN/2011, A.Y. 2007-08 WHEREAS BOTH THE SIDES AGREE THAT CUP IS THE MOST A PPROPRIATE METHOD. ONCE, HAVING ACCEPTED CUP AS THE MOST APPROPRIATE METH OD THERE WAS NO NEED FOR THE ASSESSEE FOR EXPLAINING THE TRANSACTION B Y APPLYING TNMM. THE ASSESSEE HAS TO EXPLAIN THE BENCHMARKING OF T RANSACTION BY APPLYING THE MOST APPROPRIATE METHOD, I.E. THE CUP IN T HE PRESENT CASE. WE DO NOT FIND ANY MERIT IN THE SUBMISSIONS OF THE LD . AR OF THE ASSESSEE. ACCORDINGLY, GROUND NOS. 2 AND 3 RAISED IN THE APPEAL BY THE ASSESSEE ARE DISMISSED. 11. IN THE RESULT, THE IMPUGNED ORDER IS UPHELD AND THE APPEAL OF THE ASSESSEE IS DISMISSED BEING DEVOID OF ANY MERIT. ORDER PRONOUNCED ON FRIDAY, THE 21 ST DAY OF APRIL, 2017. SD/- SD/- ( / ANIL CHATURVEDI) ( ! / VIKAS AWASTHY) ' ! / ACCOUNTANT MEMBER # ! / JUDICIAL MEMBER ' / PUNE; $% / DATED : 21 ST APRIL, 2017 RK , - ./& 0&+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. DISPUTE RESOLUTION PANEL, PUNE 4. & & ' / THE CIT-II, PUNE 5. () *+ , & *+ , , ,- , ' / DR, ITAT, B BENCH, PUNE. 6. )./ 01 / GUARD FILE // // TRUE COPY// &'2 / BY ORDER, 3 %4 / ASSISTANT REGISTRAR, & *+ , ' / ITAT, PUNE