M/s KTC Ferro Alloys P Ltd, Visakhapatnam V. The Addl CIT Range-3 Visakhapatnam, Visakhapatnam

ITA 297/VIZ/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76448 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 09-12-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 11-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K V N CHARYA
• Keywords: Transfer pricing; International transaction; Rule of consistency; Question of law
• Section: 143(3); 10B; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH : VISAKHAPATNAM BEFORE SHRI B.RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO.297/VIZ/2011 ASSESSMENT YEAR 2007-2008 M/S. KTC FERRO ALLOYS PVT. LTD. VISAKHAPATNAM. PAN AACCK5007E VS. ADDL. CIT, RANGE-3 VISAKHAPATNAM (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. PVSS PRASAD AND MR. I. KAMA SASTRY FOR REVENUE : MR. KVN. CHARYA DATE OF HEARING : 09.12.2013 DATE OF PRONOUNCEMENT : 29.01.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS IS AN ASSESSEES APPEAL AGAINST THE ORDER OF ADDL.CIT, RANGE-3, VISAKHAPATNAM PASSED UNDER SECTI ON 143(3) READ WITH SECTION 144C(5) OF THE I.T. ACT, 1961 CONSEQUENT TO THE DIRECTIONS OF DISPUTES RESOLUTION PANE L (IN SHORT DRP), BANGALORE. 1.1. THE ISSUE IN THIS APPEAL IS WITH REFERENCE TO T HE TRANSFER PRICING ADJUSTMENT OF RS.5,45,18,174/- MADE B Y THE A.O. ON THE CALCULATIONS PROVIDED BY THE DRP IN RESPEC T OF INTERNATIONAL TRANSACTIONS OF PURCHASE OF RAW MATERIALS OF RS.17.24 CRORES FROM ASSOCIATED ENTERPRISE (AE). 2. WE HAVE HEARD LEARNED COUNSEL MR. PVSS PRASAD AND I. KAMA SASTRY AND THE LEARNED CIT D.R. MR. KVN C HARYA. WE HAVE ALSO PERUSED THE PAPER BOOKS PLACED ON RECORD ALONG WITH THE RELEVANT CASE LAW. ITA.NO.297/VIZ/2011 M/S. KTC FERRO ALLOYS PVT. LTD. VISAKHAPATNAM 3. BRIEFLY STATED, THE ASSESSEE COMPANY REGISTERED UNDER THE COMPANIES ACT, 1956 AND IS 100% OWNED BY M/ S. KTC KOREA. THE COMPANY IS PRIMARILY ENGAGED IN THE ACTI VITY OF MANUFACTURE OF ROASTED MOLYBDENUM CONCENTRATE OXIDE AND TRADE OF HIGH CARBON FERRO-CHROME. ASSESSEE FILED RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007-2008 ADMITTING LOS S OF RS.1,50,18,120/-. SINCE ASSESSEE HAD INTERNATIONAL TRANSACTIONS WITH AE FOR PURCHASE OF RAW MATERIAL, THE MA TTER WAS REFERRED TO THE TRANSFER PRICING OFFICER (IN SHORT TPO) BY THE A.O. IN THE COURSE OF SCRUTINY PROCEEDINGS. IN TH E COURSE OF T P STUDY BY ASSESSEE FOR EXAMINATION OF PURCHASES FRO M AE KTC KOREA, THE ASSESSEE RELIED ON COMPARABLE UNCONTROLLED PRICE (IN SHORT CUP) METHOD AS THE MOST APPROPRIATE METH OD AND JUSTIFIED THE PRICE PAID ON THE BASIS OF INTERNAL CUP I.E., THIRD PARTY TRANSACTIONS FROM WHOM KTC KOREA PURCHASED AND SUPPLIED TO ASSESSEE WITH MARK-UP. DETAILS TRANSACTION S UNDERTAKEN BY M/S. KTC KOREA AND ALSO THE TRANSACTION OF PURCHASE BY M/S. KTC KOREA WERE PROVIDED TO THE TPO FOR JUSTIFYING THE INTERNAL CUP. IN ADDITION, ASSESSEE A LSO JUSTIFIED THE PRICE PAID WITH REFERENCE TO THE QUOTATIONS FROM AS IAN METAL MARKET, WHICH IS LIKE LONDON METAL EXCHANGE, FOR TH IS RAW MATERIAL ORE, AS EXTERNAL CUP. THE A.O. DID NOT AGREE WITH THE METHOD ADOPTED BY THE ASSESSEE AND REJECTED THE C UP METHOD FOR THE FOLLOWING REASONS : (A) THE DETAILS OF TRANSACTIONS WITH REFERENCE TO GEOGRAPHIES ARE NOT KNOWN FROM THE RESULTS OF THE WEBSITE. THE DETAILS OF THE CONTRACTING PARTIES ARE NOT KNOWN I.E., THE INFORMATION OF BUYERS AND SELLERS ARE NOT AVAILABLE FOR FURTHER VERIFICATION AND ANALYSIS. ITA.NO.297/VIZ/2011 M/S. KTC FERRO ALLOYS PVT. LTD. VISAKHAPATNAM (B) THE TERMS OF TRADE ARE NOT VERIFIABLE FROM THE INFORMATION GIVEN ON THE WEBSITE. WHETHER THE CONTRACTS ARE ON CIF BASIS OR FOB BASIS ARE NOT KNOWN. (C) THE TAX PAYER HAS TAKEN AVERAGE OF HIGH AND LOW PRICES ON A PARTICULAR DAY. THE AVERAGE PRICE CANNOT BE BENCHMARKED AGAINST THE PRICE AT WHICH TAXPAYER IMPORTED THE MOLYBDENUM AS THE CUP METHOD HAS TO BE APPLIED ON TRANSACTION TO TRANSACTION BASIS. (D) THE QUALITY AND CONTENT OF MOLYBDENUM COMPARED BETWEEN THE PRICE OF THE PRODUCTS AVAILABLE IN THE WEBSITE AND THE PRODUCT OF THE TAX PAYER ARE SIGNIFICANTLY DIFFERENT. THE LEVEL OF IMPURITIES IN THE MOLYBDENUM IMPORTED IS NOT COMPARABLE WITH THE MOLYBDENUM TRADED IN ASIAN METAL EXCHANGE. 4. THE TPO, THEREAFTER, SELECTED TNMM AS METHOD AND AFTER A SEARCH PROCESS OF COMPARABLE COMPANIES UNDER T HE HEAD FERRO ALLOYS, SELECTED 10 COMPANIES WHICH HE CONSIDERED AS COMPARABLE COMPANIES. THE AVERAGE OPERATING MARGINS OF THE COMPARABLES WERE AT 11.37% ON OPERATING PROFITS (IN SHORT OP) BY SALES AND 14.67% OP BY COST . AS THE ASSESSEES OP MARGIN WAS OF (-)19.53%, THE ASSESSEE WAS ISSUED A DETAILED SHOW CAUSE NOTICE WHY THE OP ON SALES OF 11.37% BE APPLIED TO THE PURCHASE TRANSACTIONS UNDERTAK EN WITH AE. AFTER CONSIDERING THE OBJECTIONS OF THE ASSESSEE , THE LEARNED TPO DECIDED THE ALP, THE COST OF THE PURCHASE MATERIAL AT 9.85 CRORES. SINCE THE ASSESSEE PURCHASED THE MAT ERIAL AT VALUE OF RS.17.24 CRORES, EXCESS AMOUNT OF RS.7.39 CRORES WAS DETERMINED AS AN ADJUSTMENT UNDER SECTION 92CA OF THE A CT. ITA.NO.297/VIZ/2011 M/S. KTC FERRO ALLOYS PVT. LTD. VISAKHAPATNAM 5. THE ASSESSEE RAISED DETAILED OBJECTIONS BEFORE THE DRP, BANGALORE. FIRST OBJECTION IS WITH REFERENCE TO THE REJECTION OF THE METHOD. SECOND OBJECTION IS WITH REFER ENCE TO INAPPROPRIATE COMPARABLES WHICH ARE STATED TO BE FUNCT IONALLY DIFFERENT FROM THE ASSESSEE-COMPANY. THE THIRD OBJECTION IS WITH REFERENCE TO THE CALCULATION OF THE ALP ITSELF. T HERE ARE OTHER OBJECTIONS ALSO AS LISTED OUT IN THE DRP ORDER. TH E DRP REJECTED THE SELECTION OF MOST APPROPRIATE METHOD BY UPH OLDING THE TPOS OBJECTIONS AND REJECTED THE ASSESSEES CONTEN TIONS. 6. WITH REFERENCE TO THE SELECTION OF COMPARABLES ALSO, THE DRP VIDE PARA 3.12 REJECTED THE ASSESSEES OBJ ECTIONS. WITH REFERENCE TO THE CALCULATION OF ALP ON THE GIVEN TRANSACTIONS, THE DRP UPHELD THE INITIAL OBJECTION OF THE ASSESSEE THAT ONLY RS.3,43,81,690/- CAN BE MADE AS AN ADJUSTMENT AS AGAINST RS.7.39 CRORES ARRIVED AT BY THE TPO. HOWEVER, THEY HAVE FURTHER ANALYSED THE TRANSACTIONS AN D DETERMINED THE ADDITION TO BE MADE AT RS.5,45,18,174 /- THEREBY, GIVING RELIEF TO THE ASSESSEE PARTLY WITH REF ERENCE TO THE CALCULATIONS. THE A.O. CONSEQUENT TO THE DIRECTION S OF THE DRP MADE THE ADDITION OF THE ABOVE AMOUNT AND HENCE, THE ASSESSEE IS AGGRIEVED. 7. ASSESSEE HAS RAISED 8 GROUNDS, OUT OF WHICH, GROUND NO.1 AND 8 ARE GENERAL IN NATURE AND THEY NEED NO ADJUDICATION. 8. GROUND NO.2 IS WITH REFERENCE TO THE ORDER BEING BARRED BY LIMITATION WAS NOT PRESSED, CONSEQUENT TO THE CLARIFICATION GIVEN BY THE D.R. ABOUT THE SERVICE OF T HE ORDER. ACCORDINGLY, THIS GROUND IS TREATED AS WITHDRAWN. ITA.NO.297/VIZ/2011 M/S. KTC FERRO ALLOYS PVT. LTD. VISAKHAPATNAM 9. GROUNDS NO. 3 TO 6 PERTAIN TO THE TRANSFER PRICING ADJUSTMENT. THE LEARNED COUNSEL REFERRING TO THE ORDER OF THE TPO AND OBJECTIONS RAISED BY THE ASSESSEE AND THE PAP ER BOOK, HAS CONTESTED THE ISSUE ON THREE MAJOR AREAS. FIRST ONE BEING SELECTION OF MOST APPROPRIATE METHOD. THE SECOND ONE BEING SELECTION OF COMPARABLES AND THE THIRD ONE PERTAINS TO THE CALCULATION UNDERTAKEN BY THE DRP. 10. THE LEARNED COUNSEL SUBMITTED THAT CUP METHOD IS THE MOST DIRECT METHOD AND APPROPRIATE METHOD FOR CONSIDERING THE ASSESSEES TRANSACTIONS. IT WAS SUBMIT TED THAT ASSESSEE-COMPANY PURCHASED IMPORTED MOLYBDENUM FROM ITS AE FOR THE MANUFACTURE AND PROCESSING OF FINAL PRODUCT I.E ., ROASTED MOLYBDENUM CONCENTRATE OXIDE. THE FINISHED PRODUC T IS SOLD IN THE DOMESTIC MARKET. THE LEARNED COUNSEL EXPL AINED THE PROCESS OF MANUFACTURE UNDERTAKEN BY WAY OF A FLOOR CH ART TO SUBMIT THAT MOLYBDENUM CONCENTRATE OXIDE WOULD UNDERGO A PROCESS OF MILLING, FLOTATION, ROASTING AND RHENIUM RECOV ERY, SMELTING OF FERROMOLYBDENUM AND UPGRADING TO TECH OXIDE ETC. IT WAS SUBMITTED THAT LOT OF PROCESS IS INVOLVED IN MANUFACTURING FINAL PRODUCT AND SINCE THE PROCESS WAS N OT STABILISED BY THE INDIAN COMPANY, THE COMPANY INCURRED LOSS AND AT PRESENT IS NOT IN THE MANUFACTURE AT ALL. 11. COMING TO THE SELECTION OF CUP, THE LEARNED COUNSEL SUBMITTED THAT THE METHODOLOGY, APPLICATION AND DETERMINATION OF CUP AS MAM AS FOLLOWS : (1) THE CUP METHOD IS THE MOST DIRECT METHOD FOR THE DETERMINATION OF THE ALP. THE CUP METHOD PROVIDES THE BEST EVIDENCE OF AN ARM'S LENGTH PRICE. CONSEQUENTLY, IN SUCH CASES THE CUP METHOD IS PREFERABLE OVER ALL OTHER METHODS. ITA.NO.297/VIZ/2011 M/S. KTC FERRO ALLOYS PVT. LTD. VISAKHAPATNAM (2) THE QUOTATION MEDIUM IS WIDELY AND ROUTINELY USED IN THE ORDINARY COURSE OF BUSINESS IN THE INDUSTRY TO ESTABLISH PRICES FOR UNCONTROLLED PURCHASES/SALES. THUS THE PRICE DERIVED FROM THE QUOTATION MEDIUM CAN BE CONSIDERED AS EVIDENCE OF CUP. IT IS NOT APPROPRIATE TO USE DATA AVAILABLE IN PUBLIC EXCHANGE OR QUOTATION MEDIA ONLY UNDER EXTRAORDINARY MARKET CONDITIONS LIKE WAR ETC., (3) A COMPARABLE UNCONTROLLED PRICE MAY BE IDENTIFIED FROM DATA AVAILABLE IN PUBLIC EXCHANGES OR QUOTATION MEDIA, BUT ONLY IF THE FOLLOWING REQUIREMENTS ARE MET * THE DATA IS WIDELY AND ROUTINELY USED IN THE ORDINARY COURSE OF BUSINESS IN THE INDUSTRY TO NEGOTIATE PRICES OF UNCONTROLLED PURCHASES OR SALES; AND * THE DATA DERIVED FROM PUBLIC EXCHANGES OR QUOTATION MEDIA IS USED TO SET PRICES IN THE CONTROLLED TRANSACTIONS IN THE SAME WAY AS HOW IT IS USED BY UNCONTROLLED TAXPAYERS IN THE INDUSTRY * THE AMOUNT CHARGED IN THE CONTROLLED TRANSACTION IS ADJUSTED TO REFLECT DIFFERENCES IN PRODUCT QUALITY AND QUANTITY, CONTRACTUAL TERMS, TRANSPORTATION COSTS, MARKET CONDITIONS, RISK BORNE, AND OTHER FACTORS THAT AFFECT THE PRICE THAT WOULD BE AGREED TO BY UNCONTROLLED TAXPAYERS. (4) IT IS VERY IMPORTANT TO UNDERSTAND HERE THAT, METALS ACROSS THE WORLD ARE TRADED OVER VARIOUS TRADING EXCHANGES. IF ONE WANTS TO BUY METAL LIKE GOLD FROM MMTC OR ANY RETAILER IN INDIA THE PRICE IS NEGOTIATED WITH LONDON METAL EXCHANGE (LME) ITA.NO.297/VIZ/2011 M/S. KTC FERRO ALLOYS PVT. LTD. VISAKHAPATNAM PRICE AS BASE. SIMILARLY OTHER METALS BOUGHT FROM MMTC ARE BENCHMARKED TO LME. IT IS FOR THIS PARTICULAR MARKET CHARACTERISTIC OF METALS THAT THERE ARE STANDARD EXCHANGES FOR TRADING AND ALSO IDENTIFYING THE MARKET PRICE. THE ORGANIZATION OF TRADE ACROSS WORLD WITH RESPECT TO METALS AND COMMODITIES THROUGH EXCHANGES PROVIDE VALUABLE EXTERNAL CUP. IT IS THE BEST EVIDENCE THAT ONE CAN ESTABLISH. (5) ASIAN METAL, FOUNDED IN 2000, IS A GLOBAL INFORMATION COMPANY, WITH LEADING MARKET POSITIONS AND RECOGNIZED BRANDS IN THE METAL AND STEEL MARKET RESEARCH AND CONSULTING INDUSTRY. THE ASIAN METAL TEAM CONSISTS OF PROFESSIONAL METAL EXPERTS WITHIN THE INDUSTRY AND SERVES OVER 100,000 COMPANIES FROM CLOSE TO 200 COUNTRIES WORLDWIDE. ASIAN METAL'S MISSION IS TO HELP COMPANIES IN THE METAL' AND STEEL INDUSTRY MAKE INFORMED BUSINESS DECISIONS, BY PROVIDING ACCURATE CONCLUDED PRICES, UP TO DATE NEWS AND COMPREHENSIVE ANALYSIS. ASIAN METAL'S PRICE ASSESSMENTS FOR METALS ARE TAKEN AS BENCHMARK PRICES FOR CONTRACTS SIGNED BY MAJOR PLAYERS OF THE INDUSTRY IN THE WORLD MARKET. ASIAN METAL PROVIDES COMPREHENSIVE AND UP-TO-DATE REVIEW AND ANALYSIS ON METALS, WHICH IS WELL-SOUGHT AFTER BY, INCLUDING BUT NOT LIMITED TO, PRODUCERS, END-USERS, FINANCIAL INSTITUTIONS, AND OTHER ALLIED STAKEHOLDERS. ASIAN METAL IS A LEADING SOURCE FOR ACCURATE AND RELIABLE METAL PRICES AND TO WHICH REFERENCE IS MADE BY ITA.NO.297/VIZ/2011 M/S. KTC FERRO ALLOYS PVT. LTD. VISAKHAPATNAM PRODUCERS, END-USERS, CREDIT-LENDING INSTITUTIONS AND RESEARCHERS ALIKE. (6) THE WHOLE METHOD OF SELECTION OF COMPARABLES ENSURED THAT PRODUCTS ARE SIMILAR, TIME OF SALE IS COMPARABLE AND MOST IMPORTANTLY, ARE PRONE TO A WORLD MARKET DEMAND AND SUPPLY DYNAMICS AND THE VERY ESSENCE OF RULE 10B (2) IS REFLECTED IN THE WAY WE HAVE CARRIED OUT THE SEARCH FOR COMPARABLES . IT MAY BE HIGHLY APPRECIATED THAT EACH OF SUCH COMPARABLES ARE A SEPARATE CUP UNTO THEMSELVES. 11.2. OBJECTING TO TPOS REJECTION OF CUP METHOD, LEARNED COUNSEL SUBMITTED THAT THE LEARNED TPO HAS OBSE RVED THAT KTC KOREA FAILED TO FURNISH ANY DOCUMENTATION/EVID ENCE AS TO WHAT ARE THE FUNCTIONS PERFORMED TO JUSTIFY THE MAR GIN RETAINED BEFORE THE MATERIAL HAS BEEN RESOLD TO THE TAX PAYER. THE LEARNED COUNSEL SUBMITTED THAT THEY HAVE GIVEN DE TAILED FAR ANALYSIS IN THE RULE 10D DOCUMENTATION WHICH WAS NOT CONSIDERED BY THE LEARNED TPO. FURTHER, TPO OBSERVED TH AT AS THE MATERIAL PURCHASED IS OF INFERIOR QUALITY KTC INDIA INCURRED HUGE LOSSES DUE TO HIGH PRODUCTION COSTS. HOWEVER, IT WAS SUBMITTED TO TPO THAT THE ACTUAL REASONS FOR LOSSES ARE AS UNDER : THE LOSSES ARE ON ACCOUNT OF THE FAILURE IN ACHIEVIN G DESIRED QUALITY OF THE END PRODUCT. WE WERE FORCED TO SELL AT A MUCH DISCOUNTED PRICE. IT MAY ALSO BE NOTED TH AT WE HAVE SOLD THE PRODUCT DOMESTICALLY AND NO SALES WERE MADE TO AE. A SIGNIFICANT CONSEQUENCE OF SUCH PROCES S FAILURE IS THAT WE HAVE STOPPED THE PRODUCTION AND T HE ITA.NO.297/VIZ/2011 M/S. KTC FERRO ALLOYS PVT. LTD. VISAKHAPATNAM FACTORY IS ALMOST CLOSED. THE WHOLE VENTURE HAS BECOM E NON-VIABLE. CONSIDERING THIS WE WOULD REQUEST YOUR GOODSELVES TO APPRECIATE THE FACT THAT LOSS IS ON ACCO UNT OF BUSINESS FAILURE AND NOT ON ACCOUNT OF PURCHASES FR OM AE. IN SHORT EVEN IF WE HAD PURCHASED FROM NON-AE WE WO ULD HAVE MADE SIMILAR LOSSES. THE IDEA OF CREATING AN IM PORT SUBSTITUTION HAS MISERABLY FAILED. DESPITE THE ABOVE SUBMISSIONS TPO REJECTED CUP METHOD A S MAM AND ADOPTED TNMM AS MAM. 11.3. COMING TO THE ORDER OF THE TPO, LEARNED COUNSEL SUBMITTED THAT TPO HAS WRONGLY SELECTED THE PRICE OF MOLYBDENUM CONTENT OF 5.7% WHICH IS A QUOTE FOR MOLYBDENU M OXIDE, FINAL PRODUCT BUT NOT FOR THE MOLYBDENUM CONCENTRA TE ORE. FURTHER, TPO HAS SELECTED THE DATA OF 15.07.06 ON W HICH DATE THE ASSESSEE DOES NOT HAVE ANY PURCHASE. THE PERCEN TAGE OF 46.77% RELATES TO PURCHASE MADE ON 02.07.2006 ON WHI CH DATE ALSO, THE RATE IS BENCH MARKED WITH THE ASIAN ME TAL WEB SITE FOR MOLYBDENUM CONCENTRATE ORE WHICH IS AT 45%. THI S WAY, THE TPO HAS WRONGLY COMPARED THE DIFFERENCE IN QUAL ITY, WHEREAS, THE ASSESSEE JUSTIFIED THE PRICE DEPENDING ON THE QUOTES FROM ASIAN METAL MARKET FOR SIMILAR QUALITY OF PROD UCT. IT WAS FURTHER SUBMITTED THAT IN THE LINE OF BUSINESS , BILLING IS DONE FOR THE QUALITY OF MOLYBDENUM CONTENT IN THE ORE A ND EXPLAINED THAT FACTORISATION OF PRICE IS ON THE BASIS OF EX-WORKS PRICE. SO, THE TPOS OBJECTION THAT PRICE DO NOT CONTENT THE PARTIES WHO ARE CONTRACTING AND THE TERMS OF CONTRACT HAS NO BEARING. IT WAS FURTHER SUBMITTED THAT PRICE GIVEN ON ASI AN METAL WEBSITE ARE EX-CHINA, SINCE MOST OF THE MINES A RE LOCATED IN CHINA. NON-AVAILABILITY OF PURCHASES AND SEL LERS DETAILS CANNOT BE A REASON FOR NOT RELYING ON QUOTATION S ITA.NO.297/VIZ/2011 M/S. KTC FERRO ALLOYS PVT. LTD. VISAKHAPATNAM AVAILABLE ON EXCHANGE. SINCE THE PRICE QUOTED ARE EX-WORKS , THE PARTIES BUYING HAVE TO BEAR THE OTHER EXPENSES OF FREIGHT, INSURANCE ETC., FROM WORKS TO THE DESTINATION POINT. LIK EWISE, ASSESSEE HAS GIVEN COMPARABLE FIGURES BASED ON ASIAN M ETAL QUOTES WHICH CAN BE COMPARED AS EXTERNAL CUP. NOT ONLY THAT THE ASSESSEE HAS ALSO JUSTIFIED THE PRICES ON THE BA SIS OF INTERNAL CUP. 11.4. IT WAS SUBMITTED BY THE LEARNED COUNSEL, WITHOUT PREJUDICE TO HIS SUBMISSIONS MADE, THAT MOLYBDENUM CONCENTRATE ORE PURCHASED BY THE ASSESSEE FROM KTC KOREA WAS ORIGINALLY SOURCED BY AE FROM CHILE. THE INVOICES RAIS ED BY THE CHILE COMPANY ON ASSESSEES AE -KTC KOREA ARE GIVEN IN THE PAPER BOOK. THE SUPPLIES WERE MADE DIRECTLY BY THE CHILE PARTY TO INDIA ONLY AND NOT TO HIS AE IN KOREA. AS PER THE INVOICES RAISED BY THE CHILE COMPANY ON ASSESSEE AE, T HE TOTAL PRICE FOR THE ENTIRE QUANTITY SUPPLIED DURING THIS YEA R WAS USD 33,66,507.82 WHEREAS, THE TOTAL BILLING BY KTC KOREA FOR THE SAME QUANTITY WAS USD 37,38,215.71. THUS, THE EXCESS BI LLING BY KOREA AMOUNTS TO USD 3,61,707.89 (USD 37,38,215.71 USD 33,66,507.82) OR RS.1,67,23,290/-. IN OTHER WORDS , THE LEARNED COUNSEL EXPLAINED THAT HAD THE ASSESSEE DIREC TLY PURCHASED FROM CHILE, THE ASSESSEE WOULD HAVE PAID USD 33,66,507.82. THUS, ASSESSEES PURCHASE VALUE IF AT AL L, WAS IN EXCESS BY RS.1,67,23,290/- ONLY AND THE ADJUSTMENT IF ANY, SHOULD BE RESTRICTED TO THE MAXIMUM OF THIS AMOUNT, AS AGAINST ADJUSTMENT OF RS.7.39 CRORES PROPOSED BY THE L EARNED TPO. 11.5. THE LEARNED COUNSEL FURTHER SUBMITTED THAT THI S AMOUNT OF RS.1,67,23,290/- IS TO BE REDUCED BY (I) THE PAYMENT TO BE MADE BY ASSESSEE AE TO THE CHILE COMPAN Y IS ITA.NO.297/VIZ/2011 M/S. KTC FERRO ALLOYS PVT. LTD. VISAKHAPATNAM AGAINST LC WHEREAS THE ASSESSEE COMPANY HAS BEEN GIV EN 60- 90 DAYS CREDIT PERIOD FOR MAKING THE PAYMENT. HENCE, ADJUSTMENT HAS TO BE MADE FOR EXCHANGE RISK AND CREDIT RISK TAKEN BY ASSESSEE AE AND TOWARDS ADMINISTRATIVE COSTS INCURRED FOR PROCUREMENT BY AE. FOR ADJUSTMENT TOWARDS CREDIT RISK LIBOR PLUS 2% MAY BE TAKEN AS THE BENCHMA RK RATE WHICH WORKS OUT TO 5% + 2% = 7% AND SUBMITTED THAT SUITABLE ADJUSTMENT FOR EXCHANGE RISK UNDERTAKEN BY KTC KOREA MAY ALSO BE MADE. 11.6. CONTINUING THE ARGUMENTS, LEARNED COUNSEL SUBMITTED THAT TPO IN THE LATER YEARS HAVE ACCEPTED TH E ASSESSEES INTERNAL CUP AND EXTERNAL CUP ON THE BASIS OF T.P. STUDY IN LATER YEARS. HE PLACED ON RECORD THE ORDERS OF TP O FOR ASSESSMENT YEARS 2008-2009 WHEREIN ON IMPORT OF LAM COK E OF RS.68.16 CRORES, THE TPO HAS ACCEPTED THE ALP UNDER T HE CUP METHOD BY HOLDING THAT PRICES AT WHICH KTC INDIA PURCHASED COKE FROM M/S. KTC KOREA ARE, BY AND LARGE, COMPARABLE AND PRICE AT WHICH COKE SOLD TO THIRD PARTIES, ALTHOUGH, THERE ARE MINUTE VARIATIONS, IN THE ABSENCE OF ANY OTHER DATA, THE TRANSACTIONS PERTAINING TO COKE FROM M/S . KTC KOREA, IS ACCEPTED WITHOUT ANY ADJUSTMENTS. THERE IS A MARK- UP ON SUPPLIES TO ASSESSEE BECAUSE OF CREDIT PERIOD AND COST OF TRANSPORTATION ETC., WHICH WERE ALSO ACCEPTED BY THE T PO. HE REFERRED TO THE DETAILS ENCLOSED TO THE TPO ORDER TO COM PARE THE METHODOLOGY ADOPTED BY THE ASSESSEE. LIKEWISE, IN ASSESSMENT YEAR 2009-2010 THE TPO ACCEPTED THE IMPORT OF LAM COKE AND IMPORT OF MOLYBDENUM FROM M/S. KTC KOREA AND COMPARED THE PRICES PAID THEREIN WITH THE PRICE PAID IN THIS YEAR TO SUBMIT THAT IN THE TWO LATER YEARS, NO ADVERS E INFERENCE WERE DRAWN IN RESPECT OF INTERNATIONAL TRANSACTI ONS ENTERED INTO BY AND BETWEEN ASSESSEE AND AE AND ASSES SEE ITA.NO.297/VIZ/2011 M/S. KTC FERRO ALLOYS PVT. LTD. VISAKHAPATNAM WAS PURCHASING THE MOLYBDENUM CONCENTRATE ORE FROM M/S. KTC KOREA AFTER MARK-UP OF AN AVERAGE 10.87% ON AN AVERAGE OVER THE PRICE M/S. KTC KOREA PURCHASED FROM THIRD PARTI ES. THIS MARK-UP IS DUE TO CREDIT PROVIDED TO THE ASSESSEE AND ALSO DUE TO INSURANCE AND OTHER REASONS UNDERTAKEN. THESE TWO FACTORS WERE ALSO ACCEPTED IN LATER YEARS BY THE A.O./ TPO. THEREFORE, SINCE FACTS ARE SIMILAR, THE LATER YEARS ORDE RS DO INDICATE THAT ASSESSEES TRANSACTIONS ARE AT ARMS LENGT H. LEARNED COUNSEL FOR THE ASSESSEE RELYING ON THE COORDINA TE BENCH DECISION OF ITAT, DELHI BENCH-C IN THE CASE OF HO SLEY INDIA PVT. LTD. ITA. NO. 5904/DEL/2010 DATED 25.10.2 012 TO SUBMIT THAT RULE OF CONSISTENCY HAS TO BE FOLLOWED. IN THAT CASE, IT WAS HELD AS UNDER : 11. AFTER HEARING BOTH THE PARTIES ON THIS ISSUE AN D TAKING INTO CONSIDERATION THE PECULIAR FACTS OF THE PRESENT CASE THAT IN SUBSEQUENT YEARS THE DEPARTMENT HAS RELIED UP ON FRESH SET OF COMPARABLES AND ALSO KEEPING IN VIEW THE FACT THAT ID. CIT, DR HAS NO OBJECTION TO REMITTING THE M ATTER BACK, FOLLOWING THE RULE OF CONSISTENCY AS DESCRIBED IN THE AFOREMENTIONED DECISION OF PUNE BENCH IN THE CASE O F BRINTONS CARPETS ASIA P. LTD. (SUPRA), WE RESTORE TH E ISSUE RAISED BY THE ASSESSEE IN THE PRESENT APPEAL TO THE FILE OF ASSESSING OFFICER FOR RE-DETERMINATION OF THE ARM'S LENGTH PRICE OF THE SUBJECT INTERNATIONAL TRANSACTION. IT W ILL ALSO BE RELEVANT TO REPRODUCE THE OBSERVATIONS OF PUNE BENCH RELYING UPON WHICH IT IS CONSIDERED PROPER TO RESTORE THE M ATTER BACK TO THE FILE OF ASSESSING OFFICER. '11.1 REGARDING THE 'RULE OF CONSISTENCY' AND THE R ELEVANT DECISIONS ON THE TOPIC, WE HAVE EXAMINED THE FACTS FOR THE ASSESSMENT YEARS 2006-07 AND 2007-08. SO FAR AS THE EXTERNAL COMPARABLES, TURN OVER DETAILS OF EXPORT AND DOMESTIC SEGMENTS AND OTHER RELEVANT FACTS ARE CONC ERNED. WE FIND SIMILARITY OF THE FACTS BETWEEN BOTH THE YE ARS. THE ARGUMENT OF THE ASSESSEE IS THAT THE EXTERNAL COMPA RABLE PRICES FOR THE IMPUGNED ASSESSMENT YEAR 2006-07 SUPPLIED BY THE ASSESSEE, WHEN ACCEPTED BY THE ASSE SSING OFFICER FOR THE ASSESSMENT YEAR 2007-08, MUST BE ACCEPTED FOR THAT YEAR IN VIEW OF THE ABSENCE OF MATERIAL FA CTS AND ITA.NO.297/VIZ/2011 M/S. KTC FERRO ALLOYS PVT. LTD. VISAKHAPATNAM ALSO IN VIEW OF 'THE RULE OF CONSISTENCY. WE HAVE C ONSIDERED THIS ARGUMENT AND IN OUR OPINION, IT IS A SETTLED LAW, THAT THE PRINCIPLE OF RES JUDICATA IS INAPPLICABLE TO INCOME-TAX MATTERS. HOWEVER. THE SAME IS TRUE AS LONG AS THE F ACTS OF DIFFERENT IN DIFFERENT ASSESSMENT YEARS. OTHERWISE, THE RULE OF CONSISTENCY IS RELEVANT TO INCOME-TAX MATTERS AN D ASSESSING OFFICER, CANNOT BE IGNORE THE SAME. THERE OUGHT TO BE UNIFORMITY IN TREATMENT AND CONSISTENCY WHEN THE FACTS AND CIRCUMSTANCES ARE IDENTICAL AS HELD BY TH E MUMBAI TRIBUNAL IN GOPAL PUROHIT V. JT. CIT [ 2009] 122 TTJ 87 I 29 SOT 117 . RECENT JUDGMENT OF THE MUMBAI HIGH COURT IN THE CASE OF CIT V. GOPAL PUROHIT [2010] 188 TAXMAN 140, OF COURSE, IN CONNECTION WITH THE ISSUE OF PROPER HEAD OF INCOME FOR TAXING THE GAINS ON SALE OF THE SHARES IS RELEVANT FOR THE CONCLUSION AND IT READ A S FOLLOWS. '.......THERE OUGHT TO BE UNIFORMITY IN TREATMENT A ND CONSISTENCY IN VARIOUS YEARS WHEN THE FACTS AND CIRCUMSTANCES ARE IDENTICAL NO SUBSTANTIAL QUESTION OF LAW ARISES.' 11.7. RELYING ON THE ABOVE PRINCIPLE, LEARNED COUNSE LS FIRST ARGUMENT IS THAT ON THE RULE OF CONSISTENCY, CUP METHOD IS THE MOST APPROPRIATE METHOD. 12. COMING TO THE SELECTION OF COMPARABLES AND DETERMINATION OF OPERATING PROFITS, LEARNED COUNSEL OBJECTE D TO VARIOUS COMPANIES SELECTED BY THE TPO. THE MAIN OBJECT ION IS WITH REFERENCE TO THE COMPARABLES IS THAT, THOSE COMPANIE S ARE FUNCTIONALLY DIFFERENT AND THEY DO NOT PROCESS MOLYBD ENUM AT ALL. MOST OF THE COMPANIES SELECTED MAY BE IN THE F ERRO ALLOYS BUSINESS BUT THEY USE DIFFERENT RAW MATERIALS LIKE LAM COKE, COPPER, AND COAL ETC. AND REFERRED TO THE VARIOUS DETAIL S OF RESPECTIVE COMPANIES TO SUBMIT THAT THEY ARE NOT AT AL L COMPARABLE TO THE ASSESSEE. IT WAS ALSO SUBMITTED THAT HINDUJA FOUNDRIES LTD. IS USING RAW MATERIALS LIKE ALUM INIUM ALLOY, CARBORISER, FERRO ALLOYS, IRON SCRAP, STEEL SCRAP ET C., AND NOT ORE. LIKEWISE, SARDA ENERGY AND MINERALS LTD. THE MAT ERIAL USED BY THIS COMPANY IN ITS MANUFACTURING PROCESS ARE COAL, ITA.NO.297/VIZ/2011 M/S. KTC FERRO ALLOYS PVT. LTD. VISAKHAPATNAM IRON AND STEEL SCRAP, MANGANESE ORE. FROM THESE RAW MATERI ALS THE COMPANY MANUFACTURES FERRO ALLOYS, SPONGE IRON ETC., AN D THIS COMPANY DOES NOT USE MOLYBDENUM IN ANY OF ITS PRO DUCTS, WHEREAS, THE ASSESSEE COMPANY IMPORTS ONLY MOLYBDENUM WHICH IS THE ONLY RAW MATERIAL USED AND THEREFORE, IT IS NOT A COMPARABLE COMPANY. IN THE CASE OF SHYAM FERRO ALLOYS A LSO THIS COMPANY USES MANGANESE ORE AND THE FINISHED PROD UCT IS SILICON MANGANESE AND MS INGOTS AND BILLETS AND AS S UCH, THE RAW MATERIALS USED BY THIS COMPANY ARE NOT SIMILAR TO THAT OF ASSESSEE COMPANY. LIKE WISE, EL FORGE LTD. THE COMPANY IS IN THE BUSINESS OF FORGINGS AND THE FINISHED PRODUCT SOLD BY THIS COMPANY ARE CRANK SHAFTS, CONNECTING RODS, ROCKER ARMS, TRANSMISSION PARTS, WHEEL HUBS, VALVE PARTS ETC., THESE PRODUCTS ARE NO WAY SIMILAR TO THE ASSESSEE COMPANY PRODUCT SOLD. IT WAS THE SUBMISSION THAT NONE OF THE COMPANIE S SELECTED BY THE TPO EVEN IF TNMM IS ACCEPTED AS A ME THOD, ARE NOT COMPARABLE. 13. THE LAST OBJECTION OF THE LEARNED COUNSEL IS WITH REFERENCE TO THE CALCULATION MADE BY THE DRP IN PAGE 5 OF THE ORDER TO ARRIVE AT AN ADJUSTMENT OF RS.5,45,18,174/- AS AG AINST ASSESSEES CALCULATED FIGURE OF RS.3,43,81,690/-. I T WAS SUBMITTED THAT DRP CALCULATED IN A CONVOLUTED MANNER AND THE ALP WHICH WAS DETERMINED IS NOT CORRECT ON THE FACTS OF THE CASE. 14. LEARNED DR, HOWEVER, RELIED ON THE DETAILED ORDER OF THE TPO WHILE REJECTING THE ASSESSEES CUP METHOD AN D ALSO THE ORDER OF THE DRP WHICH MODIFIED THE TPO ORDER TO THE EXTENT OF REDUCING THE ALP DETERMINED BY THE TPO. HE A LSO EXPLAINED TOTHE METHODOLOGY FOLLOWED, THE PRINCIPLES INV OLVED AND ALSO SUPPORTED THE VARIOUS COMPARABLES SELECTED BY TH E ITA.NO.297/VIZ/2011 M/S. KTC FERRO ALLOYS PVT. LTD. VISAKHAPATNAM TPO. HE VEHEMENTLY SUBMITTED THAT THE ORDER OF THE DR P IS CORRECT BOTH ON FACTUAL ASPECTS AND IN LAW. 15. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE VARIOUS CONTENTIONS AND DOCUMENTS PLACED ON RECORD. TH ERE IS NO DISPUTE WITH REFERENCE TO THE FACT THAT ASSESSEES INTERNATIONAL TRANSACTIONS ARE ONLY WITH REFERENCE TO I MPORT OF MOLYBDENUM PURCHASED THROUGH M/S. KTC KOREA. M/S. KTC KOREA IS 100% HOLDING COMPANY OF THE ASSESSEE AND HAS INTURN, PURCHASED RAW MATERIAL FROM THE MINES IN CHILE, ADDED A MARK-UP COST AND SUPPLIED TO THE INDIAN COMPANY. THE DETAILS OF MARK-UP MADE AND VARIOUS TRANSACTIONS AS SUBMITTED BY THE ASSESSEE ARE AS UNDER : TABLE A NAME OF THE SUPPLIER DATE OF SHIPMENT NET KGS. VALUE IN USD LOADING PRICE IN USD % OF LOADING PRICE LOADED BY KTC KOREA IN RS. CORPORACION NACIONA DEL COBRE DE CHILE 02.07.06 27,600 622,444.04 69,394.33 11.15% 32,47,654 CORPORACION NACIONA DEL COBRE DE CHILE 02.07.2006 27,600 621,959.11 69,340.71 11.15% 32,45,145 CORPORACION NACIONA DEL COBRE DE CHILE 02.07.2006 27,600 622,686.50 55,301.40 8.88% 25,88,105 CORPORACION NACIONA DEL COBRE DE CHILE 02.07.2006 27,646 619,578.58 69,108.36 11.15% 32,34,271 MINERA LOS PELAMBRES 24.01.2006 17,500 402,441.00 36,356.71 9.03% 16,30,598 CORPORACION NACIONA DEL COBRE DE CHILE 31.12.2005 22,800 477,398.59 62,206.38 13.03% 27,77,514 TOTAL 3,366,507.82 361,707.89 10.74% 1,67,23,289 16. AS CAN BE SEEN FROM THE ABOVE TABLE, M/S. KTC KOREA PURCHASED RAW MATERIALS FROM THIRD PARTIES AND MADE A MARK-UP OF 10.74% ON THE ACTUAL PURCHASE PRICE, FOR TH E REASON THAT ASSESSEE HAS GIVEN CREDIT PERIOD OF 90 DAY S AND ALSO UNDERTAKING RISK ON BEHALF OF THE INDIAN COMPANY. O N ITA.NO.297/VIZ/2011 M/S. KTC FERRO ALLOYS PVT. LTD. VISAKHAPATNAM SIMILAR SORT OF ARRANGEMENT BY M/S. KTC KOREA ON PURCHASES MADE BY M/S. KTC INDIA OF LAM-COKE AND MOLYBDENUM IN LATER TWO ASSESSMENT YEARS, TPO ACCEPTED THE INTERNAL CUP WHICH WAS ALSO JUSTIFIED BY EXTERNAL CUP OF ASIAN METAL QUOTA TIONS. TPO ACCEPTED THE TRANSACTIONS AS ALP. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THAT ASSESSEE HAS JUSTIFIED THE PRICE PAID BY WAY OF INTERNAL CUP AS SUPPORTED BY QUOTATION FROM ASIA N METAL AS EXTERNAL CUP. 17. WE ALSO NOTICE THAT T.P.O. HAS WRONGLY REJECTED T HE QUOTATIONS FROM ASIAN METAL. THERE IS NO DISPUTE THAT ASI AN METAL IS ONE OF THE LEADING MARKETING RESEARCHER. ASIAN METAL IS ONE SUCH WEBSITE WHICH IS USED FOR OBTAINING METAL PRICES. ON VERIFYING THE OBJECTIONS RAISED BY THE TPO, WE NOTI CE THAT TPO CONSIDERED THE PRICE OF MOLYBDENUM OXIDE WHICH IS A FINAL PRODUCT TO THAT OF RAW MATERIAL PURCHASED BY THE ASSESSEE. FUNDAMENTALLY, THE COMPARISON ITSELF IS WRO NG. MOREOVER, ASSESSEE ALSO JUSTIFIED THE PRICES PAID ON TH E BASIS OF QUOTATIONS AND ADJUSTMENTS BEING MADE FOR THE EX-WORKS QUOTATION TO THE CIF QUOTATIONS OF THE ASSESSEE. THUS, THERE IS AN INTERNAL CUP IN THE FORM OF ACTUAL PRICE PAID TO THIRD PARTIES BY THE HOLDING COMPANY WITH MARK-UP AND IT ALSO JUSTIF IED BY EXTERNAL CUP BY WAY OF ASIAN METAL QUOTATIONS WITH DUE ADJUSTMENTS. 18. THE CUP METHOD ALLOWS AN ASSESSEE TO APPLY INTERNAL CUP OR EXTERNAL CUP. EXTERNAL CUP CANNOT BE BRUSHED ASIDE. IT MAY BE APPRECIATED THAT FOR EVERY TRAN SACTION A SEPARATE EXTERNAL CUP IS ESTABLISHED BY THE ASSESSEE COMPANY. IT IS PERTINENT TO NOTE THAT CBDT HAS ISSUED INCOME TAX (SIXTH AMENDMENT) RULES, 2012 INSERTION OF RULE 10AB VIDE NOTIFICATION NO. 18/2012 TO PROVIDE THAT EVEN QUO TATIONS ITA.NO.297/VIZ/2011 M/S. KTC FERRO ALLOYS PVT. LTD. VISAKHAPATNAM AND ESTIMATES CAN BE CONSIDERED AS EXTERNAL CUPS. THIS ENDORSES THE SPIRIT OF LAW MAKERS THAT EXTERNAL CUPS ARE ACCEPTABLE IN A COMPARABILITY ANALYSIS. 19. OECD-TP GUIDELINES ALSO ENDORSES THE POSITION TH AT CUP METHOD IS MOST PREFERABLE OVER ALL METHODS, IN CASE COMPARABLE UNCONTROLLED TRANSACTIONS ARE AVAILABLE WITH THE TAX PAYER. IT IS ALSO PROVIDED IN THE OECD GUIDELINES T HAT APPLICATION OF CUP METHOD IS JUSTIFIABLE EVEN WITH SOME DIFFERENCES BETWEEN INTERNATIONAL TRANSACTIONS AND COMPARABLE UNCONTROLLED TRANSACTIONS, SUBJECT TO PROPER ADJUSTMENTS FOR REMOVING THE DIFFERENCES. CUP METHOD SHOU LD NOT BE DENIED ON THE BASIS OF DIFFERENCES. IN THIS RE GARD, THE RELEVANT PORTION OF THE TEXT OF PARA 29 IS REPRODUCED. WHERE DIFFERENCES EXIST BETWEEN THE CONTROLLED AND UNCONTROLLED TRANSACTIONS OR BETWEEN THE ENTERPRISES UNDERTAKING THOSE TRANSACTIONS, IT MAY BE DIFFICULT TO DETERMINE REASONABLY ACCURATE ADJUSTMENTS TO ELIMINA TE THE EFFECT ON PRICE. THE DIFFICULTIES THAT ARISE IN ATTEMPTING TO MAKE REASONABLY ACCURATE ADJUSTMENTS SHOULD NOT ROUTINELY PRECLUDE THE POSSIBLE APPLICATION OF THE CUP METHOD. 20. ADOPTING THE CUP METHOD TOWARDS IMPORT OF RAW MATERIAL, HAS BEEN UPHELD BY THE VARIOUS COORDINATE BENC HES. (A) IN THE CASE OF DESTINATION OF THE WORLD (SUBCONTINENT) (P.) LTD. VS. ACIT, CIRCLE 10(1), NEW DELHI (2011) 12 TAXMANN.COM 310 (DEL.) WHEREIN THE DELHI TRIBUNAL HELD THAT IN THE FIRST INSTANCE, ATTEMPT SHOULD BE MADE TO DETERMINE ARMS LENGTH PRICE OF CONTROLLED TRANSACTIONS BY COMPARING SAME WITH INTERNAL UNCONTROLLED TRANSACTIONS UNDERTAKEN IN SAME OR SIMILAR ECONOMIC SCENARIO. ITA.NO.297/VIZ/2011 M/S. KTC FERRO ALLOYS PVT. LTD. VISAKHAPATNAM (B) IN SERDIA PHARMACEUTICALS (INDIA) (P.) (LTD.) VS. ACI T, CIRCLE 7(2), MUMBAI (2011) 44 SOT 391 (MUM.) THE TRIBUNAL HELD THAT COMPARABLE UNCONTROLLED PRICE (CUP) METHOD IS TO BE PREFERRED, BECAUSE IT OFFERS MOST DIRECT METHOD OF NEUTRALIZING IMPACT OF INTERRELATIONSHIP BETWEEN ASSOCIATED ENTERPRISES (AES), ON PRICE AT WHICH TRANSACTIONS HAVE BEEN ENTERED INTO BY SUCH AES. (C) IN DELPHI TVS DIESEL SYSTEMS LTD. (2012) 24 TAXMANN.COM 179 (CHENNAI) THE CHENNAI TRIBUNAL HELD THAT CUP METHOD IS PREFERABLE AFTER MAKING NECESSARY ADJUSTMENTS. (D) IN DCIT VS. 3 GLOBAL SERVICES PVT. LTD. (2011) 11 TAXMANN.COM 136 (MUM) THE TRIBUNAL HELD THAT THE CUP METHOD FOLLOWED BY THE ASSESSEE COMPANY IS THE MOST APPROPRIATE METHOD. (E) IN VIPIN ENTERPRISES (2012) 18 TAXMANN.COM 85 (DEL.) THE DELHI TRIBUNAL HELD THAT LME PRICES SHOULD BE CONSIDERED AS EXTERNAL CUP. 21. AS SEEN FROM THE SELECTION OF TNMM ALSO, IT IS SURPRISING THAT TPO HAS SELECTED TNMM FOR COMPARING THE PROFITS OF THE ASSESSEE COMPANY, SO AS TO DETERMINE TH E RAW MATERIAL COST WHICH, IN OUR VIEW, MAY NOT GIVE A CORRECT COMPARISON. BE THAT AS IT MAY, EVEN THE SELECTION OF TH E COMPARABLES IS NOT CORRECT. AS ASSESSEE SUBMITTED IN D ETAIL, THESE COMPANIES SELECTED FOR COMPARISON ARE IN DIFFER ENT FUNCTIONAL AREAS OF USE OF RAW MATERIAL AS WELL AS FINAL PRODUCTS AND THEY ARE NOT DIRECTLY COMPARABLE. NO ATTEMPT H AS BEEN MADE BY TPO TO MAKE FAR ANALYSIS AND GIVE NECES SARY ITA.NO.297/VIZ/2011 M/S. KTC FERRO ALLOYS PVT. LTD. VISAKHAPATNAM ADJUSTMENTS REQUIRED TO MAKE THEM COMPARABLE. EVEN TH E CALCULATIONS MADE BY THE TPO ARE FOUND TO BE WRONG BY THE DRP. EVEN DRPS WORKING IN DETERMINING THE ALP AMOUNT IS ALSO NOT CORRECT. ONCE THE AMOUNT OF IMPORTED MATERIAL IS TAKEN IN ITS ENTIRETY FOR ITS COMPARISON, WHY THERE IS A REQUIREMENT TO ADD FURTHER AMOUNT FOR THE AMOUNT UTILIS ED IN THE PRODUCTION IS NOT EXPLAINED. WE ARE OF THE OPINION TH AT SELECTION OF CUP IS THE APPROPRIATE METHOD IN THIS CAS E AND SINCE ASSESSEE HAS BOTH DETAILS FOR INTERNAL CUP AS WEL L AS EXTERNAL CUP, CUP METHOD SHOULD HAVE BEEN ADOPTED AS MOS T APPROPRIATE METHOD FOR COMPARING PURCHASE PRICE OF THE RAW MATERIALS OF MOLYBDENUM ACQUIRED BY THE ASSESSEE FROM AE. AS SEEN FROM THE ORDERS OF THE TPO IN LATER TWO YEARS, WE ARE OF THE OPINION THAT CUP IS THE MOST APPROPRIATE METHOD A ND ACCORDINGLY, WE ARE OF THE OPINION THAT TPO SHOULD HAVE B ASED HIS ANALYSIS ON THE BASIS OF THE CUP METHOD ALONE, AS IN LATER YEARS. RULE OF CONSISTENCY ALSO APPLIES TO THE FACTS OF THIS CASE. 22. AS BRIEFLY STATED ABOVE, ASSESSEE JUSTIFIED THE PRICE PAID BY WAY OF INTERNAL CUP IN RELATION TO ACTUAL PRICE P AID TO THIRD PARTIES BY M/S. KTC KOREA AND THE MARK-UP INVOICE WISE AND ALSO COMPARED WITH REFERENCE TO THE EXTERNAL CUP IN RELATION TO ASIAN METAL QUOTATIONS. THIS ASPECT HAS TO BE EXAMINED BY THE A.O. AND SINCE HE HAS REJECTED THE CUP METHOD BY GIVING EXTRANEOUS CONSIDERATIONS, WE DIRECT THE TPO TO EXAMINE THE ASSESSEES CONTENTIONS VIS-A-VIS DATA AVAILABLE KEEPING THE MOST APPROPRIATE METHOD, BEING CUP METHOD. THEREFORE, FOR ANALYSING THE TRANSACTIONS AGAIN, KEEPIN G IN MIND TPOS ORDER IN LATER TWO YEARS, WE RESTORE THE ISSUE TO THE FILE OF TPO BY SETTING ASIDE HIS ORDER AND ALSO THE ORDER O F A.O/ AND DRP FOR T.P. ANALYSIS AFRESH. WITH THESE DIRECTI ONS, ASSESSEES GROUNDS ARE ALLOWED FOR STATISTICAL PURPOSES. ITA.NO.297/VIZ/2011 M/S. KTC FERRO ALLOYS PVT. LTD. VISAKHAPATNAM 23. GROUND NO.7 PERTAIN TO APPLICATION OF (+) OR (-) 5% VARIATION ONCE ALP WAS DETERMINED. EVEN THOUGH THE VARI ATION CAN NOT BE CLAIMED AS STANDARD DEDUCTION, AO /TPO IS DIRECTED TO KEEP THE PROVISIONS OF SEC. 92 C(2) IN MIND WHILE DETERMINING THE ALP. GROUND IS ACCORDINGLY ALLOWED. 24. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 29.01.2014. SD/- SD/- (SAKTIJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACOUNTANT MEMBER HYDERABAD, DATE 29 TH JANUARY, 2014 VBP/- COPY TO : 1. M/S. KTC FERRO ALLOYS PVT. LTD. 74, IDA, PARVADA, VISAKHAPATNAM. C/O. PRASAD & PRASAD, CHARTERED ACCOUNTANTS, SHRI I. KAMA SASTRY, SRI SAI LALITHA RAMAM, GRO UND FLOOR, 9 - 16 - 29/1, RAMA TALKIES JN, CBM COMPOUND, VISAKHAPATNAM - 3. 2. ADDL. CIT, RANGE - 3, VISAKHAPATNAM 3. DISPUTES RESOLUTION PANEL, BANGALORE 4. ADDL. CIT (TRANSFER PRICING), 6 TH FLOOR, B-BLOCK, IT TOWERS, AC GUARDS, HYDERABAD 500 004. 5. D.R. ITAT, VISAKHAPATNAM BENCH, VISAKHAPATNAM.