DCIT, New Delhi V. M/s High Polymer Labs Ltd., New Delhi

ITA 2120/DEL/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91063 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 18-05-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 07-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: GAURAV DUDEJA
• Assessee Lawyers: R K MEHRA
• Keywords: Transfer pricing; Opportunity of being heard; International transaction
• Section: 92C; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I : NEW DELHI BEFORE SHRI R.S. SYAL, AM AND SHRI C.M. GARG, JM ITA NO.2120/DEL/2010 ASSESSMENT YEAR : 2004-05 DCIT, CIRCLE 12(1), NEW DELHI. VS. HIGH POLYMER LABS LTD., 803, VISHAL BHAWAN, 95, NEHRU PLACE, NEW DELHI. PAN: AAACH0110P (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI R.K. MEHRA, CA & SHRI MANISH KUMAR, ADVOCATE DEPARTMENT BY : SHRI GAURAV DUDEJA, SR. DR DATE OF HEARING : 18.05.2015 DATE OF PRONOUNCEMENT : 20.05.2015 ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) ON 5.3.2010 IN RELATION TO THE ASSESSMEN T YEAR 2004-05. ITA NO.2120/DEL/2010 2 2. THE FIRST EFFECTIVE GROUND IS AGAINST THE DELE TION OF ADDITION OF RS.1,40,05,896/-, BEING THE TRANSFER PRICING ADJUS TMENT ON ACCOUNT OF INTERNATIONAL TRANSACTIONS. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS AN INDIAN COMPANY ENGAGED IN THE PRODUCTION OF VARIOUS CHEMIC ALS, SUCH AS, BLOWING AGENTS, WHICH INCLUDE POLYMER ADDITIVES, SP ECIALITY CHEMICALS AND INDUSTRIAL CHEMICALS. THE ASSESSEE H AS A SUBSIDIARY IN USA WHICH ACTS AS ITS MARKETING AGENT. THE ASSESSE E REPORTED AN INTERNATIONAL TRANSACTION OF SALE OF BLOWING AGENTS & ANTIOXIDANTS TO ITS ASSOCIATED ENTERPRISE (AE) WITH THE TRANSACTED VALU E OF RS.5,36,16,103/. THIS INTERNATIONAL TRANSACTION REPORTED BY THE ASSE SSEE IN FORM NO.3CEB CONSISTED OF SALE OF BLOWING AGENT WORTH 297617 KGS . AND THAT OF ANTIOXIDANTS WORTH 4360 KGS. IN ORDER TO DEMONSTRA TE THAT THIS INTERNATIONAL TRANSACTION WAS AT ARMS LENGTH PRI CE (ALP), THE ASSESSEE EMPLOYED COMPARABLE UNCONTROLLED PRICE (CUP) METHOD . IN THE PROCEEDINGS INITIATED BY THE TRANSFER PRICING OFFIC ER (TPO), ON A REFERENCE MADE BY THE ASSESSING OFFICER (AO), THE A SSESSEE SUBMITTED ITA NO.2120/DEL/2010 3 THAT THE PRICE CHARGED FROM ITS AE FOR THE PRODUCTS SOLD WAS HIGHER THAN THE PRICE FOR SIMILAR PRODUCTS CHARGED FROM UNRELAT ED CUSTOMERS, WHEREVER APPLICABLE. IT WAS EXPLAINED THAT THE FOR MULATIONS DONE BY THE ASSESSEE ARE PROPRIETARY IN NATURE AND THE FINAL PR ODUCTS VARY AS PER REQUIREMENTS OF VARIOUS CUSTOMERS. TO CATER TO THE REQUIREMENTS OF VARIOUS CUSTOMERS, THE ASSESSEE STATED THAT SOMETIM ES, IT NEEDS TO ALTER THE CHEMICAL COMPOSITIONS AND UNDERTAKE RESEARCH, S O THAT THE FINAL PRODUCT SUITS THE CUSTOMERS PROCESSING PARAMETERS. THE FORMATIONS OF THE PRODUCTS WERE STATED TO BE VARYING BY APPLICATI ON DEPENDING UPON THE PROCESSING TECHNIQUE, POLYMER USED AND ARTICLES MANUFACTURED. IT WAS ALSO PUT FORTH THAT THE PRICE CHARGED FROM THE AE IN SOME CASES WAS EVEN LOWER THAN THE PRICES CHARGED FROM THE UNRELAT ED ENTERPRISES. THE TPO OBSERVED THAT THE ASSESSEE GROUP WAS BASICALLY ORGANIZED IN THREE DIVISIONS, NAMELY, POLYMER ADDITIVES DIVISION; SPEC IALITY CHEMICALS DIVISION; AND INDUSTRIAL CHEMICAL DIVISION. THE PR ODUCTS SOLD BY THE ASSESSEE TO ITS AE BELONGED TO THE POLYMER ADDITIVE S DIVISION AND INDUSTRIAL CHEMICAL DIVISION. ON THE BASIS OF THE SUBMISSIONS ADVANCED ON BEHALF OF THE ASSESSEE AND THE MATERIAL GATHERED DURING THE COURSE OF ITA NO.2120/DEL/2010 4 PROCEEDINGS, THE TPO INFERRED THAT (I) THE PRICE C HARGED FROM THE AE IN VARIOUS TRANSACTIONS WAS LOWER THAN THE PRICED CHAR GED FROM UNRELATED ENTERPRISES FOR SIMILAR ITEMS AND, (II) IN CASE OF MATERIAL DIFFERENCE BETWEEN THE CONTROL AND UNCONTROLLED TRANSACTIONS, THE ASSESSEE FAILED TO ESTABLISH OR QUANTIFY ANY ADJUSTMENT WHICH COULD AF FECT THE DETERMINATION OF THE ALP ON THIS COUNT. THE TPO ANA LYZED THE SALE OF VARIOUS PRODUCTS MADE BY THE ASSESSEE TO ITS AE IN A TABLE DRAWN ON PAGE 6 OF HIS ORDER GIVING DETAILS OF DATE OF INVOI CE, PRODUCTS SOLD, QUANTITY, RATE PER KG., AND TOTAL VALUE. ON MAKING A COMPARISON WITH THE SALES MADE TO THE UNRELATED ENTERPRISES, THE TP O OBSERVED THAT THE PRICES CHARGED BY THE ASSESSEE FROM ITS AE OF ALL T HE PRODUCTS SOLD, EXCEPT ADC-L-5, DBH, OBSH AND TSSC, WAS AT ALP REQU IRING NO INTERFERENCE. HE ANALYSED SALE OF THE ABOVE FOUR P RODUCTS, ONE BY ONE, WHICH FORMED THE BASIS FOR THE RECOMMENDATION FOR A TRANSFER PRICING ADJUSTMENT. THE ADDITION SO PROPOSED BY THE TPO WA S MADE BY THE AO. THE LD. CIT(A) WAS PLEASED TO DELETE THE ADDITI ON, AGAINST WHICH THE REVENUE HAS COME UP IN APPEAL BEFORE US. WE SHALL D EAL WITH SUCH ITA NO.2120/DEL/2010 5 ADDITIONS/DELETIONS INDIVIDUALLY TO ASCERTAIN IF TH E AO WAS RIGHT IN MAKING THE ADDITIONS OR THE LD. CIT(A) IN DELETING THESE ADDITIONS. BLOWING AGENTS ADC-L-5 4. THE FIRST PRODUCT IS BLOWING AGENTS ADC-L-5, A MODIFIER, CALLED CHEMICAL BLOWING AGENT FOR PLASTIC AND RUBBER. THE ASSESSEE SOLD 3622 KGS. OF THIS BLOWING AGENT TO ITS AE AT A TOTAL VAL UE OF RS.34,86,003/-, THEREBY GIVING THE AVERAGE SELLING RATE OF RS.96.2 3 PER KG. THERE WERE THREE INTERNATIONAL TRANSACTIONS WITH THE RATES CHA RGED AT RS.97/-, RS.98/- AND RS.87/- PER KG. RESPECTIVELY. IT WAS OBSERVED BY THE TPO THAT THE SAME ITEM WAS SOLD BY THE ASSESSEE TO MARICELL SRI, ITALY, AT A PRICE OF RS.126 PER KG. THE FIRST SALE WAS MADE BY THE ASSE SSEE TO ITS AE ON 14.10.2003, THEN ON 6.12.2003. THE ASSESSEE SOLD T HE SAME PRODUCT TO M/S MARICELL SRI, ITALY, ON 17.12.2003. NOTICING N OT MUCH VARIATION IN THE SALE VOLUME MADE TO AE AND ITALY PARTY, THE TPO TREATED THE PRICE OF RS.126 PER KG. AS THE ALP OF THIS TRANSACTION. THA T IS HOW THE DIFFERENTIAL AMOUNT BETWEEN THE ALP AND THE ACTUAL PRICE CHARGED AMOUNTING TO RS.10,78,347/- WAS PROPOSED AS A TRANS FER PRICING ITA NO.2120/DEL/2010 6 ADJUSTMENT. THE AO MADE THE ADDITION WHICH CAME TO BE DELETED IN THE FIRST APPEAL. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE ON THE FAC T THAT THE ASSESSEE USED THE CUP METHOD FOR DEMONSTRATING THAT ITS INTERNATI ONAL TRANSACTIONS OF EXPORTS MADE TO AE WERE AT ALP. THE TPO, TOO, DID NOT DISPUTE THE APPLICATION OF CUP AS THE MOST APPROPRIATE METHOD. HOWEVER, THE EXTANT ADDITION WAS MADE BY OBSERVING THAT THE PRIC E CHARGED BY THE ASSESSEE FROM ITS AE WAS LESS THAN THAT CHARGED FRO M ITALY PARTY FOR THE SAME PRODUCT. DURING THE COURSE OF HEARING, OUR AT TENTION WAS DRAWN TOWARDS THE PRODUCT ADC-L-5 HAVING BEEN SOLD BY THE ASSESSEE TO VARIOUS RELATED AND UNRELATED PARTIES IN THE FORM O F A TABLE GIVEN ON PAGE 49 OF THE PAPER BOOK. FROM SUCH TABULATION, IT CAN BE SEEN THAT THE ASSESSEE SOLD THIS PRODUCT TO ITS AE, FIRSTLY, ON 1 4.10.2003, THEN ON 6.12.2003 AND, LASTLY, ON 22.03.2004 @ RS.97/-, 98/ - AND RS.87/- PER KG. RESPECTIVELY. APART FROM THAT, THE ASSESSEE ALSO SO LD THIS PRODUCT IN BANGLADESH TO CERTAIN PARTIES AT THE RATES VARYING BETWEEN RS.94/- TO ITA NO.2120/DEL/2010 7 RS.97/- AND THERE ARE TWO SALES INSTANCES BY THE AS SESSEE TO ITALY PARTIES ON 28.5.2003 AND 17.12.2003 @ RS.103/- AND RS.126/- PER KG. RESPECTIVELY. THE TPO ADOPTED THE HIGHEST RATE OF R S.126/- PER KG., AS THE ALP OF THE INTERNATIONAL TRANSACTION OF THE ASS ESSEE WITH ITS AE. ON THE OTHER HAND, THE ASSESSEE INSISTED FOR MAKING CO MPARISON WITH THE SALES MADE TO BANGLADESH PARTY WITH THE RATES VARYI NG FROM RS.94/- TO RS.97/- PER KG. THE LD. COUNSEL FOR THE ASSESSEE, IN AN ATTEMPT TO JUSTIFY THE PRICE CHARGED FROM AE AT ALP, SUBMITTED THAT TH E SALE PRICE OF THIS PRODUCT LARGELY DEPENDS ON THE FORMULATIONS AND SPE CIFICATIONS GIVEN BY INDIVIDUAL CUSTOMERS WHICH ENTAILS VARYING COSTS AN D THE RESULTANT VARYING SALES PRICES. HE TRIED TO JUSTIFY THE PRICE CHARGED FROM ITS AE AT ALP BY CLAIMING IT AS COMPARABLE WITH THE SALES MAD E TO BANGLADESH PARTIES. HOWEVER, NO MATERIAL WAS PLACED ON RECORD TO SHOW THAT THE PRODUCT SUPPLIED TO ITALY PARTY WAS A BETTER VERSIO N OF THIS PRODUCT WITH HIGHER FORMULATIONS/SPECIFICATIONS VIS--VIS THOSE SUPPLIED TO BANGLADESH PARTIES ON THE ONE HAND AND ITS AE IN TH E USA ON THE OTHER. ITA NO.2120/DEL/2010 8 6. BEFORE PROCEEDING FURTHER, IT IS RELEVANT TO NOT E THAT SECTION 92(1) PROVIDES THAT ANY INCOME ARISING FROM AN INTERNATIO NAL TRANSACTION SHALL BE COMPUTED HAVING REGARD TO THE ARMS LENGTH PRICE . SECTION 92C DEALS WITH THE COMPUTATION OF THE ALP. SUB-SECTION (1) OF SECTION 92C ENLISTS FIVE SPECIFIC AND ONE GENERAL METHOD FOR DETERMININ G THE ALP OF AN INTERNATIONAL TRANSACTION. THIS SUB-SECTION PROVID ES THAT THE ALP OF AN INTERNATIONAL TRANSACTION SHALL BE DETERMINED BY AN Y OF THE GIVEN METHODS, BEING THE MOST APPROPRIATE METHOD, HAVIN G REGARD TO THE NATURE OF TRANSACTION OR CLASS OF TRANSACTION OR CL ASS OF ASSOCIATED PERSONS OR FUNCTIONS PERFORMED OR SUCH PERSONS OR SUCH OTHE R RELEVANT FACTORS, AS THE BOARD MAY PRESCRIBE. RULE 10B OF THE INCOME-TA X RULES, 1962, CONTAINS MODUS OPERANDI FOR THE DETERMINATION OF THE ALP OF AN INTERNATIONAL TRANSACTION UNDER THESE SPECIFIED MET HODS. THE FIRST PRESCRIBED METHOD IS COMPARABLE UNCONTROLLED PRICE (CUP) METHOD. CLAUSE (A) OF RULE 10B(1), DEALING WITH THE MECHANI SM FOR THE DETERMINATION OF ALP UNDER CUP METHOD, PROVIDES AS UNDER:- (A) COMPARABLE UNCONTROLLED PRICE METHOD, BY WHICH , ITA NO.2120/DEL/2010 9 (I) THE PRICE CHARGED OR PAID FOR PROPERTY TRANSFER RED OR SERVICES PROVIDED IN A COMPARABLE UNCONTROLLED TRANSACTION, OR A NUMBER OF SUCH TRANSACTIONS, IS IDENTIFIED ; (II) SUCH PRICE IS ADJUSTED TO ACCOUNT FOR DIFFEREN CES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION AND THE COMPARABLE UNCONT ROLLED TRANSACTIONS OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACT IONS, WHICH COULD MATERIALLY AFFECT THE PRICE IN THE OPEN MARKET ; (III) THE ADJUSTED PRICE ARRIVED AT UNDER SUB-CLAUS E (II) IS TAKEN TO BE AN ARMS LENGTH PRICE IN RESPECT OF THE PROPERTY TRANSFERRED OR SERVICES PROVIDED IN THE INTERNATIONAL TRANSACTION ; 7. A BARE PERUSAL OF THE PRESCRIPTION OF RULE 10B(1 )(A) DIVULGES THAT THE FIRST STEP IN THE DETERMINATION OF THE ALP UNDE R THE CUP METHOD IS TO IDENTIFY THE PRICE CHARGED FOR PROPERTY TRANSFER RED IN A COMPARABLE UNCONTROLLED TRANSACTION OR A NUMBER OF SUCH TRANSA CTIONS. SECOND STEP PROVIDES FOR ADJUSTING THE PRICE COMPUTED AS PER TH E FIRST STEP DUE TO DIFFERENCES, IF ANY, BETWEEN THE INTERNATIONAL TRAN SACTION AND COMPARABLE UNCONTROLLED TRANSACTION WHICH COULD MATERIALLY AFF ECT THE PRICE IN THE OPEN MARKET. THE PRICE SO ADJUSTED IS TAKEN AS ALP IN RESPECT OF THE PROPERTY TRANSFERRED UNDER THE THIRD STEP. THUS, I T IS PATENT THAT THE INTERNATIONAL AND UNCONTROLLED TRANSACTIONS ARE COM PARED WITH EACH OTHER TO FIND OUT THE DIFFERENCES IN THEM, IF ANY, AND TH EREAFTER ADJUSTMENTS ARE MADE IN THE PRICE OF THE UNCONTROLLED TRANSACTION D UE TO SUCH DIFFERENCES. ITA NO.2120/DEL/2010 10 SUB-RULE (2) OF RULE 10B PROVIDES THAT FOR THE PUR POSES OF SUB-RULE (1), THE COMPARABILITY OF AN INTERNATIONAL TRANSACTION W ITH AN UNCONTROLLED TRANSACTION SHALL BE JUDGED WITH REFERENCE TO THE F OLLOWING, NAMELY (A) THE SPECIFIC CHARACTERISTICS OF THE PROPERTY TR ANSFERRED OR SERVICES PROVIDED IN EITHER TRANSACTION ; (B) THE FUNCTIONS PERFORMED, TAKING INTO ACCOUNT ASSETS EMPLOYED OR TO BE EMPLOYED AND THE RISKS ASSUMED, BY THE RESPECTIVE PARTIES TO THE TRANSACTIONS ; (C) THE CONTRACTUAL TERMS (WHETHER OR NOT SUCH TERMS ARE FORMAL OR IN WRITING ) OF THE TRANSACTIONS WHICH LAY DOWN EXPLICITLY OR IMPLICITLY HOW THE RES PONSIBILITIES, RISKS AND BENEFITS ARE TO BE DIVIDED BETWEEN THE RESPECTI VE PARTIES TO THE TRANSACTIONS ; (D) CONDITIONS PREVAILING IN THE MAR KETS IN WHICH THE RESPECTIVE PARTIES TO THE TRANSACTIONS OPERATE, INC LUDING THE GEOGRAPHICAL LOCATION AND SIZE OF THE MARKETS, THE LAWS AND GOVE RNMENT ORDERS IN FORCE, COSTS OF LABOUR AND CAPITAL IN THE MARKETS, OVERALL ECONOMIC DEVELOPMENT AND LEVEL OF COMPETITION AND WHETHER TH E MARKETS ARE WHOLESALE OR RETAIL. SUB-RULE (3) OF RULE 10B STIP ULATES THAT AN UNCONTROLLED TRANSACTION SHALL BE COMPARABLE TO AN INTERNATIONAL TRANSACTION IF (I) NONE OF THE DIFFERENCES, IF ANY , BETWEEN THE ITA NO.2120/DEL/2010 11 TRANSACTIONS BEING COMPARED, OR BETWEEN THE ENTERPR ISES ENTERING INTO SUCH TRANSACTIONS ARE LIKELY TO MATERIALLY AFFECT T HE PRICE OR COST CHARGED OR PAID IN, OR THE PROFIT ARISING FROM, SUCH TRANSA CTIONS IN THE OPEN MARKET ; OR (II) REASONABLY ACCURATE ADJUSTMENTS CA N BE MADE TO ELIMINATE THE MATERIAL EFFECTS OF SUCH DIFFERENCES. 8. ON A CONJOINT READING OF SUB-RULES (1), (2) AND (3) OF RULE 10B, IT IS MANIFEST THAT THE INTERNATIONAL TRANSACTION AND THE UNCONTROLLED TRANSACTION WITH WHICH COMPARISON IS SOUGHT TO BE M ADE FOR DETERMINING THE ALP, IN THE FIRST INSTANCE, MUST HAVE OVERALL SIMILAR PRODUCTS. IT IS OBVIOUS THAT IF THE PRODUCTS ARE DIFFERENT, THEN, T HERE CAN BE NO QUESTION OF MAKING AN EFFECTIVE COMPARISON BETWEEN THE PRICE S CHARGED. ONCE THE PRODUCTS UNDER BOTH THE TRANSACTIONS ARE BROADL Y SIMILAR BUT THERE IS A DIFFERENCE IN THEM BECAUSE OF CERTAIN SPECIFIC CHA RACTERISTICS; AND/OR THE PRODUCTS IN BOTH THE TRANSACTIONS ARE IDENTICAL, BU T STILL THERE ARE CERTAIN DIFFERENCES DUE TO THE CONTRACTUAL TERMS OR THE GEO GRAPHICAL LOCATION, ETC., THEN, A REASONABLY ACCURATE ADJUSTMENT SHOUL D BE MADE IN THE PRICE OF THE UNCONTROLLED TRANSACTION FOR ELIMINATING TH E MATERIAL EFFECTS OF ITA NO.2120/DEL/2010 12 SUCH DIFFERENCES SO AS TO BRING THE INTERNATIONAL T RANSACTION AND THE COMPARABLE UNCONTROLLED TRANSACTION ON THE SAME PED ESTAL. IF DUE TO ONE REASON OR THE OTHER, NO REASONABLE ACCURATE ADJUST MENT CAN BE MADE DUE TO SUCH DIFFERENCES, THEN, SUCH UNCONTROLLED TRANS ACTION SHOULD NOT BE CONSIDERED AS A COMPARABLE TRANSACTION. IF, AFTER ELIMINATING SUCH TRANSACTION(S), THERE REMAINS NO OTHER COMPARABLE U NCONTROLLED TRANSACTION, THEN, THE CUP METHOD CANNOT BE CONSIDE RED AS THE MOST APPROPRIATE METHOD WHICH SHOULD BE DISCARDED AND SU BSTITUTED WITH ANOTHER MORE SUITABLE METHOD. 9. ADVERTING TO THE FACTS OF THE INSTANT CASE, WE F IND THAT BOTH THE ASSESSEE AS WELL AS THE TPO/CIT(A) HAVE ADOPTED INC ORRECT APPROACH IN DETERMINING THE ALP UNDER THE CUP METHOD. WE NOW E SPOUSE THE CONTENTION OF THE LD. AR THAT THE PRICE OF ADC-L-5 CHARGED BY THE ASSESSEE FROM ITS AE WAS DIFFERENT BECAUSE OF DIFFE RENT FORMULATIONS/SPECIFICATIONS GIVEN BY THE ITALY PART Y. ON A SPECIFIC QUERY RAISED FROM THE BENCH TO POINT OUT THE DIFFERENCE I N THE SPECIFICATIONS OF THE ADC-L-5 SOLD TO THE AE AND NON-AES IN ITALY OR BANGLADESH AND ITA NO.2120/DEL/2010 13 THE FURTHER EFFECT OF SUCH DIFFERENCES OF THE PRICE CHARGED, THE LD. AR COULD NOT GIVE ANY CONVINCING REPLY. A GENERALIZED STATEMENT WAS MADE THAT THE PRICE CHARGED FROM THE AES CONFORMED TO TH E PRICE CHARGED FROM NON-AES, IF THE SPECIFICATIONS OF THE TWO TRANSACTI ONS HAD BEEN SIMILAR. NO MATERIAL WORTH THE NAME WAS PLACED ON RECORD TO SHOW, FIRSTLY, THE DIFFERENCE IN THE SPECIFICATIONS OF THE TWO SETS OF TRANSACTIONS AND, SECONDLY, THE EXTENT OF ADJUSTMENT IN THE PRICE FRO M UNCONTROLLED TRANSACTIONS TO BE MADE ON ACCOUNT OF SUCH DIFFEREN CES. COMING TO THE TPO, WE FIND THAT THE ASSESSEE SOLD THIS PRODUCT ON 18 OCCASIONS DURING THE YEAR INCLUDING THREE TO ITS AE AT THE RATES VAR YING BETWEEN RS.87/- TO RS.126/-. THE TPO SIMPLY PICKED UP THE HIGHEST RAT E OF RS.126/- AS THE ALP. THE LD. CIT(A) DELETED THIS ADDITION BY OBSER VING THAT THE EXPORTS TO BANGLADESH WERE LARGER IN VOLUME AND HAD A LOWER PRICE THAN THAT CHARGED FROM ITS AE. HE ALSO FAILED TO RECORD ANY REASON AS TO WHY THE TRANSACTIONS WITH ITALY PARTY WERE NOT REQUIRED TO BE CONSIDERED AS BENCHMARK OR THE EXTENT OF ADJUSTMENT TO BE MADE IN RESPECT OF PRICE CHARGED BY THE ASSESSEE FROM ITALY/BANGLADESH PARTI ES DUE TO DIFFERENCE IN THE FORMULATIONS/SPECIFICATIONS OF PRODUCTS. WH EN THE MANDATE OF ITA NO.2120/DEL/2010 14 RULE 10B IS VIVID WHICH PROVIDES FOR, FIRSTLY, BRI NGING THE PRODUCT SOLD TO A NON-AE AT PAR WITH THE PRODUCT SOLD TO AE BY M AKING ADJUSTMENT DUE TO THE DIFFERENCES IN THE CHARACTERISTICS OF TH E PRODUCTS SOLD AND THEN TO MAKE ADJUSTMENTS ON ACCOUNT OF CONTRACTUAL TERMS AND GEOGRAPHICAL LOCATION, ETC., THEN, THERE CAN BE NO LOGIC IN DETE RMINING THE ALP UNDER THE METHOD BY BREACHING THE EXPRESS PROVISION OF RU LE 10B. IN OUR CONSIDERED OPINION, THE VIEW TAKEN BY THE LD. CIT(A ), WHICH DOES NOT CONFORM WITH THE MANDATE OF THE RULE, CANNOT BE SU STAINED. UNDER SUCH CIRCUMSTANCES, WE OVERTURN THE IMPUGNED ORDER ON TH IS ISSUE AND SEND THE MATTER BACK TO THE FILE OF AO/TPO FOR A FRESH D ETERMINATION OF ALP OF THIS TRANSACTION UNDER THE CUP METHOD IN ACCORDA NCE WITH OUR ABOVE DIRECTIONS/OBSERVATIONS. NEEDLESS TO SAY, THE ASSES SEE WILL BE ALLOWED A REASONABLE OPPORTUNITY OF HEARING IN SUCH FRESH PRO CEEDINGS. POLYMERIZATION CATALYSTS NAMED DBH . 10. THE ASSESSEE SOLD 13500 KGS. OF THIS PRODUCT TO ITS AE AT A TOTAL PRICE OF RS.18,15,205/-, GIVING THE AVERAGE UNIT S ALE PRICE OF RS.134/- PER KG. THE ASSESSEE ALSO SOLD THIS PRODUCT TO BEL GIUM AND JAPANESE ITA NO.2120/DEL/2010 15 PARTIES. TOTAL SEVEN TRANSACTIONS OF THIS PRODUCT WERE UNDERTAKEN BY THE ASSESSEE WHICH HAVE BEEN TABULATED ON PAGE 50 OF TH E PAPER BOOK, WITH THE PRICE RANGING FROM RS.134/- PER KG. TO RS.195/- PER KG., BEING THE LOWEST PRICE CHARGED BY THE ASSESSEE FROM ITS AE AN D THE HIGHEST FROM THE BELGIUM PARTY. THE TPO TOOK UP THE HIGHEST PRI CE OF RS.195/- PER KG. AS BENCHMARK AND, ACCORDINGLY, PROPOSED TRANSFE R PRICING ADJUSTMENT OF RS.8,17,295/- . THE ADDITION SO MADE BY THE AO C AME TO BE DELETED IN THE FIRST APPEAL. 11. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, IT IS OBSERVED FROM THE IMPUGNE D ORDER THAT THE LD. CIT(A) HAS RECORDED A CATEGORICAL FINDING THAT THIS PRODUCT EXPORTED TO NON-AE IS DIFFERENT IN FORMULATIONS AND COSTS FROM PRODUCT EXPORTED TO AE. SIMILAR CONTENTION WAS PUT FORTH BY THE LD. AR BEFORE US IN JUSTIFYING THE REASONS FOR THE PRICE CHARGED AT RS .134/- PER KG. FROM ITS AE, BEING THE LOWEST PRICE CHARGED IN COMPARISON WI TH ALL THE UNCONTROLLED TRANSACTIONS. HERE AGAIN, THE LD. AR PUT FORWARD THE SAME SUBMISSIONS THAT THE SPECIFICATIONS OF THIS PRODUCT SOLD TO NON-AES WERE ITA NO.2120/DEL/2010 16 DIFFERENT FROM THOSE SOLD TO ITS AE. NEITHER ANY D IFFERENCE IN SUCH SPECIFICATIONS WAS SPECIFICALLY POINTED OUT NOR THE EFFECT OF SUCH DIFFERENCES WAS BROUGHT TO OUR NOTICE. HERE AGAIN, WE FIND THAT NEITHER THE ASSESSEE BROUGHT ON RECORD ANY COMPARABLE UNCON TROLLED TRANSACTION TO JUSTIFY THE PRICE CHARGED FROM ITS AE NOR THE AU THORITIES BELOW COULD JUSTIFY THEIR VIEWPOINT IN MAKING OR DELETING THE A DDITION AS PER THE PARAMETERS OF RULE 10B. THE POSITION BEFORE US ON THIS PRODUCT IS SIMILAR TO ADC-L-5 DISCUSSED ABOVE. FOLLOWING THE V IEW TAKEN HEREINABOVE, WE SET ASIDE THE IMPUGNED ORDER ON THI S SCORE AND SEND THE MATTER TO THE FILE OF AO/TPO FOR A FRESH DETERMINAT ION OF THE ALP OF THIS TRANSACTION IN ACCORDANCE WITH OUR ABOVE GUIDELINES . BLOWING AGENT NAMED TSSC . 12. THE ASSESSEE SOLD THIS PRODUCT TO ITS US AE ON DIFFERENT DATES DURING THE YEAR AT THE PRICE CHARGED VARYING FROM R S.233/- PER KG. TO RS.266 PER KG. ONLY ONE TRANSACTION OF THIS PRODUC T WITH A NON-RELATED JAPANESE PARTY FOR SALE OF 1 KG. AT RS.125/- WAS U NDERTAKEN. AS AGAINST THAT, THE ASSESSEE SOLD 73710 KGS. TO ITS AE AT THE AVERAGE RATE OF ITA NO.2120/DEL/2010 17 RS.253.10 PER KG. THE TPO REFUSED TO CONSIDER THE SALE TO A NON-RELATED ENTERPRISE OF 1 KG., AS A BENCHMARK. IN THE ABSENC E OF ANY OTHER COMPARABLE TRANSACTION OF THE SAME PRODUCT, THE TPO PICKED UP THE SALE TRANSACTION OF ZBS WITH SOME UNRELATED PARTY WITH T HE AVERAGE RATE OF RS.318.86 PER KG. THAT IS HOW, HE PROPOSED TRANSF ER PRICING ADJUSTMENT OF RS.48,46,928/- ON THIS SCORE. SUCH ADDITION MADE BY THE AO WAS DELETED IN THE FIRST APPEAL BY GIVING THE SAME REAS ONING AS GIVEN FOR THE EARLIER PRODUCTS. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS NOTICED FROM PAGE 54 OF THE PAPER BOOK THAT THE ASSESSEE SOLD 73710 KGS. OF THIS PRODUCT TO ITS A E AND ONLY 1 KG. OF SALE TO A JAPANESE PARTY AT RS.125/- PER KG. IT IS OBVI OUS THAT THE TRANSACTION OF SALE OF 1 KG. TO NON-AE IS A SOLITARY AND EXCEPT IONAL IN NATURE AND HENCE CANNOT CONSTITUTE THE BEDROCK FOR MAKING COMP ARISON WITH 73710 KGS. SOLD TO AE. IF WE EXCLUDE THIS LONELY EXCEPTI ONAL TRANSACTION OF SALE TO NON-AE, THERE REMAINS NO OTHER COMPARABLE UNCONT ROLLED TRANSACTION, ITA NO.2120/DEL/2010 18 WHICH CAN BE COMPARED WITH THE INTERNATIONAL TRANSA CTION UNDER CONSIDERATION. 14. IT HAS BEEN NOTICED FROM THE MANDATE OF RUL E 10B(1)(A) ABOVE THAT THE ALP UNDER THIS METHOD CAN BE DETERMINED ONLY BY MAKING A COMPARISON OF THE CONTROLLED TRANSACTION WITH SIMI LAR UNCONTROLLED TRANSACTION(S). SUCH COMPARABLE UNCONTROLLED TRANS ACTIONS CAN BE INTERNAL AS WELL AS EXTERNAL. USUALLY, PREFERENCE IS GIVEN TO INTERNALLY COMPARABLE TRANSACTIONS. IF, HOWEVER, INTERNAL COM PARABLES ARE NOT AVAILABLE AND THE ASSESSEE SEEKS TO APPLY CUP AS TH E MOST APPROPRIATE METHOD, THEN, THE ONUS IS UPON HIM TO PUT FORWARD C ERTAIN EXTERNALLY COMPARABLE UNCONTROLLED TRANSACTIONS FOR ENABLING T HE TPO TO MAKE A LOGICAL COMPARISON WITH THE INTERNATIONAL TRANSACTI ON UNDERTAKEN BY THE ASSESSEE. TO SUMMARIZE THE POSITION, IF INTERNALLY COMPARABLE UNCONTROLLED TRANSACTION IS NOT AVAILABLE, THEN, IT IS OBLIGATORY TO COMPARE THE CONTROLLED TRANSACTION WITH SOME EXTERN ALLY COMPARABLE UNCONTROLLED TRANSACTION IN CASE AN ASSESSEE SEEKS TO APPLY THE CUP AS A MOST APPROPRIATE METHOD. IT IS PRACTICALLY IMPOSSI BLE TO APPLY CUP ITA NO.2120/DEL/2010 19 METHOD IN THE ABSENCE OF ANY COMPARABLE UNCONTROLLE D TRANSACTION, MAY BE INTERNAL OR EXTERNAL. IF NO COMPARABLE UNCONTRO LLED TRANSACTION IS AVAILABLE, THEN, THE CUP CANNOT BE APPLIED AS THE M OST APPROPRIATE METHOD. 15. COMING TO THE FACTS OF THE INSTANT CASE, WE FIN D THAT THE ASSESSEE HAS NOT PLACED ON RECORD ANY EFFECTIVE COMPARABLE U NCONTROLLED TRANSACTION TO DEMONSTRATE THAT ITS INTERNATIONAL T RANSACTIONS WITH AE OF THE SAME PRODUCT WERE AT ALP. THE TPO CHOSE AN ALT OGETHER DIFFERENT PRODUCT FOR MAKING COMPARISON UNDER THE CUP METHOD, WHICH IS NOT LEGALLY SUSTAINABLE BECAUSE OF THE INHERENT DIFFERE NCES IN THE QUALITY OF TWO PRODUCTS. THE LD. CIT(A) ALSO DELETED THE ADDI TION WITHOUT MAKING ANY COMPARISON WITH A VALID COMPARABLE UNCONTROLLED TRANSACTION. UNDER SUCH CIRCUMSTANCES, WE SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF AO/TPO FOR A FRESH DETERMINAT ION OF ALP OF THE SALE OF TSSC TO ITS AE IN ACCORDANCE WITH OUR ABOVE OBSERVATIONS. IT GOES WITHOUT SAYING THAT THE ASSESSEE WILL BE ALLOW ED A REASONABLE OPPORTUNITY OF BEING HEARD IN SUCH FRESH DETERMINAT ION. ITA NO.2120/DEL/2010 20 CHEMICAL BLOWING AGENT OBSH 16. THE ASSESSEE SOLD 75600 KGS. OF THIS PRODUCT TO ITS AE AT A TOTAL VALUE OF RS.1,45,85,074/-, GIVING THE AVERAGE UNIT SALE PRICE OF RS.192/- PER KG. THE TPO OBSERVED THAT THE ASSESSEE SOLD SI MILAR PRODUCT TO AN ITALIAN COMPANY ON TWO OCCASIONS @ RS.290 AND RS.28 9/- PER KG. RESPECTIVELY. CONSIDERING THE RATE OF RS.289/- PER KG. AS ITS ALP, THE TPO PROPOSED A TRANSFER PRICING ADJUSTMENT OF RS.72 ,63,326/-, WHICH WAS MADE BY THE AO BUT DELETED IN THE FIRST APPEAL. 17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. PAGE 52 OF THE PAPER BOOK IS A TABULATION OF THE PRODUCT OBSH SOLD BY THE ASSESSEE DURING THE YEAR T O DIFFERENT PARTIES, INCLUDING AE. THIS CHART DEPICTS THE RATE OF RS.189 , RS.191/-, RS.197/-, RS.198/- CHARGED BY THE ASSESSEE FROM ITS AE AS AGA INST THE RATE CHARGED FROM NON-AES RANGING BETWEEN RS.192 TO RS.290/- PER KG. HERE AGAIN, THE LD. AR TRIED TO JUSTIFY THE PRICE CHARGED FROM ITS AE AT ALP BY CONTENDING THAT SUCH PRODUCT SOLD TO NON-AES WAS HA VING DIFFERENT FORMULATIONS AND SPECIFICATIONS, WHICH RESULTED IN A DIFFERENCE IN THE SALE ITA NO.2120/DEL/2010 21 PRICE. NEITHER SUCH DIFFERENCES IN THE SPECIFICATI ONS WERE POINTED OUT NOR THEIR EFFECT ON THE PRICE CHARGED WAS SPECIFIC ALLY SHOWN. THE TPO TOO ADOPTED RS.289/-, BEING ONE OF THE HIGHEST PRIC ES AS THE ALP. THE LD. CIT(A) CHOSE TO DELETE THE ADDITION BY ACCEPTIN G THE ASSESSEES CONTENTIONS WHICH, IN OUR CONSIDERED OPINION, DO NO T PROPERLY JUSTIFY THE ALP. UNDER SUCH CIRCUMSTANCES, WE FIND THAT NEITHE R THE ASSESSEE NOR THE AUTHORITIES BELOW HAVE DEALT WITH THE MATTER AS PER LAW. FOLLOWING THE VIEW TAKEN IN RESPECT OF THE PRODUCT BLOWING AG ENT ADC-L-5 ABOVE, WE SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTE R TO THE FILE OF AO/TPO FOR FRESH DETERMINATION OF THE ALP OF THE IN STANT TRANSACTION IN CONFORMITY WITH OUR DIRECTIONS GIVEN HEREINABOVE. NEEDLESS TO SAY, THE ASSESSEE WILL BE GIVEN A REASONABLE OPPORTUNITY OF BEING HEARD. 18. THE ONLY OTHER GROUND WHICH SURVIVES FOR OUR CO NSIDERATION IS AGAINST THE ADMISSION OF FRESH EVIDENCE BY THE LD. FIRST APPELLATE AUTHORITY, WHICH WAS NOT CONFRONTED TO THE TPO. IN VIEW OF OUR ABOVE DECISION IN REMITTING THE MATTER OF DETERMINATION O F ALP TO THE FILE OF AO/TPO, THIS GROUND DOES NOT REQUIRE ANY SEPARATE A DJUDICATION. ITA NO.2120/DEL/2010 22 19. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIS TICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 20.05.201 5. SD/- SD/- [C.M. GARG] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 20 TH MAY, 2015. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.