POS Hyundai Steel Manufacturing Private Ltd., Sriperambudur V. CIT(A), CHENNAI

ITA 30/CHNY/2017

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9594 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2016
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 27-02-2017
• Assessment Year: 2003-2004
• Appeal Filed On: 04-01-2017
• Court: TRIBUNAL
• Department Lawyers: DURAI
• Assessee Lawyers: PRAVEEN RANKA
• Keywords: Reopening of assessment; Transfer pricing; Principle of natural justice; International transaction; Cost of acquisition
• Section: 92C; 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: CHENNAI . . . , '.. $ , ) BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO.30/MDS/2017 * * /ASSESSMENT YEAR: 2003-04 M/S.POS HYUNDAI STEEL MANUFACTURING PVT. LTD., F-70, SIPCOT INDUSTRIAL PARK, IRUNGATTUKOTTAI, NH-4, BANGALORE HIGHWAY, SRIPERUMBUDUR-602 105. VS. THE COMMISSIONER OF INCOME TAX (APPEALS)-3, AAYAKAR BHAWAN, MAHATMA GANDHI ROAD, CHENNAI. [PAN: AAACP 6484 G ] ( - /APPELLANT) ( ./- /RESPONDENT) - 0 / APPELLANT BY : MR.PRAVEEN RANKA, CA ./- 0 /RESPONDENT BY : MR.DURAI PANDIAN, JCIT 0 /DATE OF HEARING : 27.02.2017 0 /DATE OF PRONOUNCEMENT : 26.04.2017 / O R D E R PER D.S.SUNDER SINGH , ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER DATED 30.09.2016 OF COMMISSIONER OF INCOME TAX (APPEALS)- 3, CHENNAI, IN ITA NO.08/2006-07/CIT(A)-3 FOR THE AY 2003-04 AND RAISE D THE FOLLOWING GROUNDS: ITA NO.30/MDS/2017 :- 2 -: 2.0 GROUNDS OF APPEAL : THE GROUNDS OF APPEAL STATED HEREUNDER ARE INDEPEND ENT OF, AND WITHOUT PREJUDICE TO ONE ANOTHER: 1. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE, THE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)] IS ERR ONEOUS AND CONTRARY TO THE PRINCIPLES OF NATURAL JUSTICE AND BAD IN LAW. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN DETE RMINING AN ERRONEOUS ARMS LENGTH PRICE (ALP) FOR THE INTERNATIONAL TRANSACTIONS REL ATING TO IMPORT OF STEEL COILS, AND IN CONFIRMING THE TRANSFER PRICING ADJUSTMENT OF INR 2 ,99,05,100 MADE BY THE LEARNED TRANSFER PRICING OFFICER (TPO). ADDITION ON ACCOUNT OF DIFFERENCES IN SPCEN AND SPC D MANUFACTURINT GRADES 2. THE LEARNED CIT(A) AND THE TPO ERRED IN LAW AND ON FA CTS BY DETERMINING THE ALP USING COMPARABLE UNCONTROLLED PRICE (CUP) METHOD WITHOU T APPLYING THE PRINCIPLES OF APPLICATION OF CUP METHOD AS PROVIDED IN RULE 10B(1 )(A) AND RULE 10B(2) OF THE INCOME TAX RULES, 1962 (THE RULES). 3. THE LEARNED CIT(A) AND THE TPO ERRED IN LAW AND ON FA CTS IN FAILING TO APPRECIATE THE MATERIAL DIFFERENCES BETWEEN THE UNCONTROLLED TRANS ACTIONS AND THE INTERNATIONAL TRANSACTIONS. SPECIFICALLY, THE CIT(A) AND THE TPO GR OSSLY ERRED IN DISREGARDING THE 5% VOLUME DISCOUNT GRANTED BY THE ASSOCIATED ENTERPRIS E FOR SALE TO A THIRD PARTY, AND BY /FAILING TO MAKE SUITABLE ADJUSTMENTS TO ELIMINATE T HE MATERIAL EFFECT OF SUCH VOLUME DIFFERENCE THEREBY DISREGARDING RULE 10B(3) OF THE R ULES. 4. THE LEARNED CIT(A) AND THE TPO ERRED IN LAW AND ON FA CTS IN FAILING TO AGGREGATE THE SAME CLASS OF INTERNATIONAL TRANSACTIONS UNDERTAKEN BY T HE APPELLANT DURING THE YEAR FOR THE PURPOSE OF DETERMINATION OF ALP, THEREBY DISREGARDI NG THE PROVISIONS OF SECTION 92C OF THE INCOME TAX ACT, 1961 (THE ACT), READ WITH RULE 10 B(1)(A) AND RULE 10B(2) OF THE RULES. SPECIFICALLY, THE LEARNED CIT(A) AND THE TPO ERRED IN TAKING INTO ACCOUNT ONLY THOSE TRANSACTIONS WHERE THE PURCHASE PRICE FROM ASSOCIAT ED ENTERPRISE WAS HIGHER THAN THE PRICE TO NON-ASSOCIATED ENTERPRISE, IGNORING THE INSTANCE S WHERE THE PURCHASE PRICE FROM ASSOCIATED ENTERPRISE WAS LOWER THAN THE PRICE TO N ON-ASSOCIATED ENTERPRISE. ADDITION ON ACCOUNT OF DIFFERENCES IN SPCEN AND SPC D TRADING GRADES 5. THE LEARNED CIT(A) AND THE TPO ERRED IN LAW AND ON FA CTS IN DETERMINING ALP BY COMPARING DISSIMILAR GOODS UNDER THE CUP METHOD WITHOUT CONSI DERING THE MATERIAL DIFFERENCES IN THE PRODUCTS BEING COMPARED, AND IGNORING THE REQUIREME NT OF HIGH DEGREE OF COMPARABILITY IN PRODUCT, CHARACTERISTICS AND QUALITY (INTER ALIA) FO R APPLYING THE CUP METHOD. THE LEARNED CIT(A) AND THE TPO GROSSLY ERRED IN DISRE GARDING THE TECHNICAL COMPARISON REPORT AND THE MILL TEST CERTIFICATES SUBMITTED, WH ICH EVIDENCE THE MATERIAL DIFFERENCES IN QUALITY, SPECIFICATION AND END USAGE OF THE STEEL C OILS. SELECTION OF TNMM AS THE MOST APPROPRIATE METHOD 6. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS AND CIR CUMSTANCES OF THE CASE IN REJECTING THE TRANSACTIONAL NET MARGIN METHOD (TNMM) ANALYSIS PR ESENTED DURING THE CIT(A) PROCEEDINGS CONSIDERING THE LIMITATIONS IN APPLYING THE CUP METHOD, AND WITHOUT CONSIDERING THE FUNCTIONS, ASSETS AND RISKS PERFORM ED BY THE APPELLANT AND THE COMPARABLES SELECTED. THE LEARNED CIT(A) ERRED IN IG NORING THE FACT THAT THE APPELLANTS NET MARGIN OF 6.13 PERCENT WAS HIGHER THAN THE ARIT HMETIC MEAN OF COMPARABLES NET MARGINS, THEREBY INDICATING THAT THE IMPORTS FROM A ES WERE AT ALP. THE LEARNED CIT(A) ERRED IN NOT EXAMINING THE DETAIL ED ANALYSIS SUBMITTED BY THE APPELLANT USING THE TNMM, AND IN SUMMARILY REJECTING THE SAME WITHOUT PROVIDING COGENT REASONS. ITA NO.30/MDS/2017 :- 3 -: 7. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THERE I S NO BAR IN LAW THAT ESTOPS THE APPELLANT FROM PROPOSING THE TNMM AS THE MOST APPROPRIATE MET HOD, GIVEN THE LIMITATIONS IN APPLYING THE CUP METHOD. 8. THE LEARNED CIT (A) FURTHER ERRED IN IGNORING THE FA CT THAT, FOR IDENTICAL FACTS, THE TNMM HAS BEEN CONSISTENTLY APPLIED BY THE APPELLANT AND ACCEPTED BY THE TPO IN APPELLANTS SUBSEQUENT ASSESSMENT YEARS. 9. THE LEARNED CIT(A) AND THE TPO ERRED IN LAW IN NOT GR ANTING THE BENEFIT OF THE 5 PERCENT STANDARD DEDUCTION AS PER PROVISO TO SECTION 92C(2) OF THE ACT TO THE APPELLANT. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND /OR WITHDRAW ANY OF THE ABOVE GROUNDS OF APPEAL AND TO SUBMIT SUCH STATEMENTS, DOCUMENTS AND PAPERS AS MAY BE CONSIDERED NECESSARY EITHER AT OR BEFORE THE HEARING OF THIS A PPEAL AS PER LAW. 3.0 BACKGROUND OF THE COMPANY BRIEF FACTS, INTERNATIO NAL TRANSACTION AND THE METHOD ADOPTED BY THE ASSESSEE ARE EXTRACTED FO R THE SAKE OF CONVENIENCE FROM THE ORDER OF THE TPO WHICH READS ASUNDER: M/S.POS-HYUNDAI IS A JOINT VENTURE COMPANY PROMOTED B Y THREE KOREAN MULTI NATIONALS HYUNDAI CORPORATION (HC), POHANG IRON & STEEL COMPA NY (POSCO) AND POSCO STEEL SERVICE SAND SALES COMPANY (POSTEEL) TO MANUFACTURE S TEEL SHEETS AND COMPONENTS OUT OF COLD ROLLED STEEL COILS FOR SUPPLY PREDOMINANTLY TO HYUNDAI MOTOR INDIA LIMITED (HMIL) AND OTHER AUTOMOBILE & WHITE GOODS INDUSTRIES. POS-HYUNDAI WAS INCORPORATED IN 1997 WITH THE MAIN O BJECTS TO CARRY ON BUSINESS OF STEEL SHEET FABRICATION AND MANUFACTURE OF STEEL COMPONEN TS AND PARTS IN PRIMARY SEMI-FINISHED AND FINISHED FORM FOR AUTOMOBILE, CAPITAL GOODS AND OTHER INDUSTRIES. SUBSEQUENTLY, THE MAIN OBJECT WAS INSERTED WITH THE FOLLOWING: TO CARRY ON THE BUSINESS OF IMPORT, TRADING & WARE HOUSING/STORAGE FACILITY THROUGH WHOLESALE CASH AND CARRY ROUTE OF ITEMS DIRECTLY RE LATED TO MANUFACTURING PROCESS NAMELY CR COILS, HR COILS AND GI COILS, ETC. VIDE A SPECIAL RESOLUTION PASSED IN THE EGM DATED 0 5.12.2001. 4. ASSOCIATED ENTERPRISES: SL.NO. NAME AND ADDRESS OF THE ASSOCIATED ENTERPRISES NATURE OF RELATIONSHIP 1 HYUNDAI CORPORATION, 140-2, KYE-DONG, CHONGRO- KU, SEOUL, KOREA (110 793) SHAREHOLDING COMPANY 2 HYUNDAI HYSCO, 265, YUMPO-DONG, POK-KU, ULSAN, KOREA (683-040) GROUP COMPANY 6. METHOD ADOPTED BY THE ASSESSEE: 6.1 IN THE INSTANT CASE, THE ASSESSEE HAS ADOPTED C OMPARABLE UNCONTROLLED PRICE METHOD AS THE MOST APPROPRIATE METHODS TO ARRIVE AT ARMS LENGTH PRICE. THE REASON FOR ADOPTION OF CUP METHOD AND THE STEP INVOLVED IN ARR IVING AT THE ALP BY THE COMPANY HAS BEEN SPELT OUT IN THE TPD WHICH IS REPRODUCED BELOW : ITA NO.30/MDS/2017 :- 4 -: THE COMPANYS ACTIVITY IS TO IMPORT STEEL MOTHER C OILS FROM OUR SHAREHOLDER COMPANY M/S.HYUNDAI CORPORATION, KOREA HOLDING 70-50 % OF TOTAL EQUITY SHAREHOLDING, AND THE SAID MOTHER COILS ARE SUBJECT TO A PROCESS OF SLITTING AND SHEARING OPERATING AND TURN OUT A FINISHED PRODUCTS CALLED SHEETS, STRIPS AND SKELP. AS THE ENTIRE SOURCE OF RAW MATERIAL IS FROM HYUNDAI CORPORATION, KOREA AND THE CERTAIN SIMILAR STEEL COILS ARE IMPORTED BY THE UNRELATED INDIAN IMPORTERS FROM THE SHAREHOL DER COMPANY, IT IS BELIEVED THAT THE TRANSACTIONS ENTERED INTO BY HYUNDAI CORPORATION WI TH UNRELATED IMPORTERS IN INDIA BEING INTERNAL COMPARABLES WOULD PROVIDE MORE RELIABLE DA TA AS COMPARED TO THE TRANSACTIONS BY AND BETWEEN THE THIRD PARTIES BEING EXTERNAL COMPAR ABLES. ABOVE ALL THE DATA REQUIRED FOR EXTERNAL COMPARABLES MAY BE DIFFICULT TO OBTAIN AND INTERPRET OR IT MAY BE INCOMPLETE. FOR THE AFORESAID REASONS, THE ASSESSEE HAS CHOSEN THE INTERNAL COMPARABLES OF COMPARABLE UNCONTROLLED PRICE METHOD. 6.2 ANALYSIS OF ARMS LENGTH PRICE: STEP-1: THE WEIGHTED AVERAGE PRICE OF OUR IMPORTS IS COMPUTED BY TAKING THE SUM OF TOTAL IMPORT VALUE FOR THE YEAR 2002-03 FOR THE PARTICULA R SPEC/GRADE AND DIVIDED BY THE TOTAL IMPORT QUANTITY OF PARTICULAR SPEC. FOR THE ABOVE P ERIOD. STEP-2: SIMILARLY THE WEIGHTED AVERAGE PRICE OF TH E UNRELATED IMPORTS IS COMPUTED BY TAKING THE SUM OF TOTAL IMPORTS MADE DURING THE CUR RENT PERIOD FROM THE SAME OVERSEAS SUPPLIER FOR A PARTICULAR SPEC/GRADE AND DIVIDED BY THE TOTAL IMPORT QUANTITY OF PARTICULAR SPEC FOR THE ABOVE PERIOD. STEP-3: ON THE ABOVE PRICE OF UNRELATED IMPORTER AD JUSTMENT IS MADE AS APPROPRIATE TOWARDS VOLUME DISCOUNT. IN THE INSTANT CASE, THE IMPORT VOLUME OF PARTICULAR GRADE OF UNRELATED IMPORTED IS 12 TIMES MORE THAN OUR OWN IM PORTS FOR THE SAME SPEC/GRADE. ON A REASONABLE BASIS, A 5% DISCOUNT ADJUSTMENT IS CONSI DERED IN THEIR AVERAGE IMPORT PRICE. STEP-4: ADJUSTED IMPORT PRICE OF UNRELATED IMPORTE R IS ARRIVED. STEP-5: THE IMPORT PRICE DETERMINED ABOVE, USING T HE UNCONTROLLED TRANSACTION OF UNRELATED IMPORTER IS MORE THAN THE ACTUAL IMPORT P RICE FROM THE SAME SUPPLIER/RELATED COMPANY THE ACTUAL IMPORT PRICE IS THE ARMS LENGTH PRICE. THE IMPORT PRICE DETERMINED ABOVE, USING THE UNCONT ROLLED TRANSACTION OF UNRELATED IMPORTER IS LESS THAN THE ACTUAL IMPORT PRICE FROM THE SAME SUPPLIER/RELATED COMPANY, THE UNRELATED IMPORT PRICE IS THE ARMS LENGTH PRICE. STEP-6: IF THE ARMS LENGTH PRICE IS LESS THAN THE ACTUAL IMPORT PRICE OF PARTICULAR SPEC/GRADE, THERE WILL BE AN ADDITION TO THE TOTAL I NCOME TAKEN FOR TAX PURPOSE. THE ADDITION IS DETERMINED TAKING THE DIFFERENCE OF ABO VE TWO PRICES MULTIPLIED BY THE TOTAL ACTUAL IMPORT QUANTITY OF THE PARTICULAR SPEC/GRADE. 4.0 THE ASSESSEE HAS ADOPTED COMPARABLE UNCONTROLLED P RICE (IN SHORT CUP) METHOD AS MOST APPROPRIATE METHOD FOR COMPUT ING THE ALP ON INTERNATIONAL TRANSACTION. THE ASSESSEE HAS ADOPTE D WEIGHTED AVERAGE METHOD WHICH IS NOT ACCEPTED BY THE TPO THE ASSESSE E ALSO CLAIMED 5 TO 10% VOLUME DISCOUNT ON THE SALE PRICES OF NON-AE. FURTHER, THE ASSESSEE SOUGHT ADJUSTMENTS FOR SPCEN AND SPCD MATERIALS WHI CH IS USED FOR ITA NO.30/MDS/2017 :- 5 -: MANUFACTURING SPCEN-HMI AND SPCD-HMI AND THE SAME W AS REJECTED BY THE TPO AND DETERMINED THE ALP AT RS.49,24,23,458/- AGAINST THE INTERNATIONAL TRANSACTION ADMITTED BY THE ASSESSEE AT RS.52,23,28,558/- AND SUGGESTED FOR DOWNWARD ADJUSTMENT OF RS.2,99,05 ,100/- AS UNDER: FOR IMPORT OF STEEL: VALUE OF INTERNATIONAL TRANSACTION AS ADMITTED BY T HE ASSESSEE RS. 52,23,28,558.00 ADJUSTMENT FOR DIFFERENCES AS DISCUSSED ABOVE: SPCEN & SPCD RS. 58,07,322.24 SPCEN-HMI & SPCD-HMI RS.2,69,34,151.10 --------------------- LESS: AMOUNT TO BE REDUCED FROM PURCHASE COST AND ADDED TO TOTAL INCOME RS. 28,36,373.00 --------------------- RS. 2,99,05,100.00 ARMS LENGTH PRICE NOW DETERMINED AT RS. 49,24,23,458.00 TOTAL VALUE OF ADJUSTMENTS MADE AS DISCUSSED ABOVE RS. 2,99,05,100.00 THE AO PASSED THE ASSESSMENT ORDER MAKING THE ABOV E ADJUSTMENTS AS SUGGESTED BY THE TPO. THE ASSESSEE WENT ON APPEAL BEFORE THE LD.CIT(A) AND THE LD.CIT(A) CONFIRMED TH E ORDER OF THE AO AGAINST WHICH THE ASSESSEE PREFERRED AN APPEAL BEFO RE THIS TRIBUNAL. 5.0 GROUND NO.1 IS GENERAL IN NATURE WHICH DO NOT RE QUIRE SPECIFIC ADJUDICATION 6.0 GROUND NOS.2 TO 4 ARE RELATED TO THE VOLUME DISC OUNT ALLOWED BY THE AE FOR SALE TO THIRD PARTIES. DURING THE TP PROCEED INGS, THE ASSESSEE EXPLAINED TO THE TPO THAT THE AE HAS ALLOWED 5% VOL UME DISCOUNT TO NON- ITA NO.30/MDS/2017 :- 6 -: AE ENTERPRISES DEPENDING ON THE TURNOVER. IT WAS B ROUGHT TO THE NOTICE OF THE TPO THAT AE HAS ALLOWED 5% DISCOUNT TO MAHENDRA INTERTRADE LTD., A COMPARABLE COMPANY SINCE IT HAD TURNOVER OF 12889 M T. HENCE, THE PROFIT MARGIN OF NON-AE COMPANY HAS INCREASED TO THAT EXTE NT AND ACCORDINGLY SOUGHT FOR AN ADJUSTMENT OF 5% VOLUME DISCOUNTS ON THE PRICES OF NON AE. THE ASSESSEE ALSO FURNISHED A LETTER FROM HYUNDAI C ORPORATION LTD., STATING THAT VOLUME DISCOUNTS ARE ALLOWED TO MAHIND RA INTERTRADE LTD DURING THE PERIOD UNDER CONSIDERATION @5% ON ITS SA LES. THE TPO REJECTED ADJUSTMENT SOUGHT BY THE ASSESSEE ON THE REASONING THAT THE PRICES OF THE NON-AE COMPANY WAS LESS EVEN AFTER VOLUME DISCOUNT AND NO FURTHER ADJUSTMENT IS REQUIRED TO BE MADE. THE LD.CIT(A) HA S DISMISSED THE ASSESSEES APPEAL FOR ALLOWING THE VOLUME DISCOUNT PLACING RELIANCE ON THE ASSESSMENT ORDER. HENCE THE ASSESSEE IS IN APPEAL B EFORE US. 7.0 APPEARING FOR THE ASSESSEE, THE LD.AR ARGUED THAT THE AE HAS GRANTED 5% VOLUME DISCOUNT FOR SALE OF THIRD PARTY SALES WHICH WAS NOT GRANTED TO THE ASSESSEE. THEREFORE, THE LD.AR REQU ESTED AN ADJUSTMENT OF 5% VOLUME DISCOUNT ON ITS PURCHASES. THE ASSESSE E HAS TAKEN US TO PAPER BOOK PAGE NO.241 WHEREIN M/S.HYUNDAI CORPORAT ION HAS GIVEN A LETTER TO THE LD.CIT(A) STATING THAT 5% OVERSEAS VO LUME DISCOUNT IS ALLOWED ON C&F PRICE WHO PURCHASES IN EXCESS OF 100 00 MT AND ACCORDINGLY, IT WAS STATED THAT M/S.MAHENDRA INTERT RADE LTD., WAS ALLOWED TRADE DISCOUNT @5% SINCE IT HAS PURCHASED 12889 MT. HENCE, THE ASSESSEE SOUGHT FOR ADJUSTMENT TOWARDS THE VOLUME D ISCOUNT OF 5%. THE ITA NO.30/MDS/2017 :- 7 -: LD.AR OF THE ASSESSEE HAS NOT PRODUCED ANY COPY OF THE AGREEMENT ENTERED BY THE NON-AE COMPANY WITH M/S.HYUNDAI CORP ORATION FOR GRANTING VOLUME DISCOUNT. ON THE OTHER HAND, THE L D.DR RELIED ON THE LOWER AUTHORITYS ORDERS. 8.0 WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PAR TIES AND PERUSED THE MATERIAL PLACED BEFORE US. WE RE-PRODUCE THE C ERTIFICATE GIVEN BY THE M/S.HYUNDAI CORPORATION TO THE LD.CIT(A) WHICH IS M ADE AVAILABLE AT PAGE NO.241 AS UNDER: TO THE COMMISSIONER OF INCOME TAX, APPEAL (X), CHENNAI-600 034. SUB: OFFERING OF VOLUME DISCOUNT TO OVERSEAS CUTOM ERS REG. KINDLY REFER TO OUR EARLIER LETTER DATED FEBRUARY 1 0, 2006, IN CONTINUATION OF THE SAME WE WISH TO SATE THEAT DURING THE PRIOD APRIL 2002 TO M ARCH 2003, IT WAS OUR BUSINESS PRACTICE TO OFFER VOLUME DISCOUNT OF 5% ON CIF PRICE IN USD/M T TO OUR OVERSEAS CUSTOMER WHO PURCHASE IN EXCESS OF 10,000 METRIC TONS. ACCORDIN GLY, WE HAD GIVEN A VOLUME DISCOUNT OF 5% TO M/S.MAHENDRA INTERTRADE LTD., FOR HAVING PURCH ASED 12.889 METRIC TONS DURING THAT PERIOD. KINDLY ACKNOWLEDGE RECEIPT OF THE SAME. THANKING YOU, YOURS TRULY, FOR HYUNDAI CORPORATION. 8.1 THE HYUNDAI CORPORATION HAS GIVEN GENERAL LETTER A DDRESSED TO THE LD.CIT(A) STATING THAT M/S.MAHENDRA INTERTRADE LTD. , A NON-AE COMPANY WAS ALLOWED 5% DISCOUNT ON THE SUPPLIES MADE TO THE NON-AE. THIS COPY OF THE LETTER WAS SUBMITTED BY THE ASSESSEE BEFORE THE LD.CIT(A). IT IS GENERAL LETTER WITHOUT REFERRING TO ANY AGREEMENT O R THE BILLS. SUCH GENERAL LETTERS CANNOT BE TAKEN COGNIZANCE OF UNLES S IT IS EVIDENCED BY BILL ITA NO.30/MDS/2017 :- 8 -: TO BILL DISCOUNT. FURTHER, THE ASSESSEE IS A JOINT VENTURE COMPANY M/S.HYUNDAI CORPORATION AND THERE IS EVERY REASON T O EXTEND ALL THE CONCESSIONS TO THE ASSESSEE BY AE. THE LD.AR ALSO D ID NOT PLACE ANY AGREEMENT ENTERED IN TO BY AE WITH NON AE COMPANIES FOR SUCH VOLUME DISCOUNTS. ARMS LENGTH PRICE IS DETERMINED ON TRANS ACTION TO TRANSACTION OR ON NUMBER OF TRANSACTIONS BASIS IN CUP METHOD. IN THE ABSENCE OF BILL TO BILL OR INVOICE TO INVOICE DETAILS OF DISCOUNTS ALLOWED AND THE PRICES OF COMPARABLE COMPANY SUCH ADJUSTMENTS ARE NOT PERMISS IBLE. THE PURPOSE OF TRANSFER PRICING IS TO PLUG THE DIVERSION AND TR ANSFER PROFITS OUTSIDE THE COUNTRY WITHOUT PAYMENT OF DUE TAXES. THE ASSESSEE COMPANY IS A JOINT VENTURE COMPANY OF AE WHICH EXPECTS MORE CONCESSION S THAN UNRELATED COMPANIES. IN THE INSTANT CASE, THE ASSESSEE HAS NO T DEMONSTRATED THAT IT DID NOT GET VOLUME DISCOUNT WITH RELEVANT BILLS OF THE COMPARABLE COMPANIES. THE ALP IS DETERMINED TO ARRIVE AT THE R EASONABLE AND FAIR PRICE TO THE ASSESSEE FROM AE TO PLUG DIVERSION OF PROFITS. SINCE THE ASSESSE FAILED TO PROVE THAT THE NON AE COMPANY WAS ALLOWED VOLUME DISCOUNT WITH RELEVANT BILL OR ACCOUNT COPY, WE ARE UNABLE TO ACCEPT THE ADJUSTMENTS SOUGHT BY THE ASSESSEE ON ACCOUNT OF VO LUME DISCOUNT AND ACCORDINGLY DISMISSED THE APPEAL OF THE ASSESSEE ON THIS ISSUE. 9.0 GROUND NO.5 IS RELATED TO THE ADDITION ON ACCOUNT OF DIFFERENCE IN SPCEN AND SPCD TRADING GRADES. THE ASSESSEE ARGUED THAT BOTH THE SPCEN AND SPCD T RADING GRADES ARE DIFFERENT DEGREES IN COMPARABILITY, CHARACTERIS TICS FOR APPLYING THE CUP ITA NO.30/MDS/2017 :- 9 -: METHOD. HOWEVER, NO EVIDENCE IS PLACED BEFORE US TO ESTABLISH THE ARGUMENT. THE LD.AR ARGUED THAT THIS GROUND WAS RAI SED BEFORE THE CIT(A) BUT THE LD.CIT(A) HAS NOT ADJUDICATED THE GR OUND AND HENCE REQUESTED TO REMIT THE MATTER BACK TO THE FILE OF C IT(A) FOR ADJUDICATION. THE LD.DR DID NOT MAKE ANY OBJECTION FOR REMITTING THE MATTER BACK TO THE FILE OF THE CIT(A). 9.1 WE HAVE HEARD BOTH THE PARTIES AND OBSERVE THAT THE ASSESSEE HAS RAISED THIS GROUND BEFORE THE LD.CIT(A) BUT THE LD. CIT(A) HAS NOT ADJUDICATED THIS GROUND. THEREFORE, WE REMIT THE M ATTER BACK TO THE FILE OF THE LD.CIT(A) TO DECIDE THIS GROUND ON MERITS. T HE ASSESSEES APPEAL ON THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 10.0 GROUND NO.6 IS SELECTION OF MOST APPROPRIATE METHO D: THE ASSESSEE HAS SELECTED CUP METHOD AS MOST APPRO PRIATE METHOD AND HELD THAT THE TRANSACTIONS ARE AT ALP. THE TP STUDY WAS DONE BY THE ASSESSEE BY ADOPTING CUP METHOD. THE AO ACCEPTED T HE CUP METHOD AND COMPLETED THE TP STUDY AND SUGGESTED FOR DOWNWARD A DJUSTMENT OF PURCHASES AFTER MAKING THE SEARCH PROCESS AND TP ST UDY. THE TPO ALSO GIVEN OPPORTUNITY TO THE ASSESSEE. AFTER COMPLETIO N OF THE TP STUDY AND DETERMINING THE ALP, AND COMPLETION OF ASSESSMENT P ROCEEDINGS THE ASSESSEE HAS RAISED THIS GROUND BEFORE THE LD.CIT(A ) FOR SUBSTITUTING TNMM AS MOST APPROPRIATE METHOD. THE LD.CIT(A) CAL LED FOR THE REMAND REPORT AND THE AO SUBMITTED THE REMAND REPORT WHY T HE CUP METHOD IS ITA NO.30/MDS/2017 :- 10 -: MORE SUITABLE AND TNMM METHOD CANNOT BE ADOPTED. T HE SAME HAS BEEN REPORTED IN THE LD.CIT(A) ORDER IN PAGE NOS.9 & 10 WHICH IS RE-PRODUCED AS UNDER: IN THE ADDITIONAL GROUNDS OF APPEAL SUBMITTED BY T HE ASSESSEE DURING THE APPEAL PROCEEDINGS, ASSESSEE REQUESTED TO ADOPT TNMM METHO D FOR COMPARING THE MARGINS OF THE TESTED PARTY AND SUBMITTED SOME COMPARABLES AFTER D OING THE COMPARABILITY ANALYSIS. IN THIS REGARD, IT IS SUBMITTED AS UNDER: DURING THE TP PROCEEDINGS IN THE TP DOCUMENTATION S UBMITTED BY THE ASSESSEE, THE CUP METHOD WAS ADOPTED AS THE MOST APPROPRIATE METHOD A ND THE ASSESSEE HAS GIVEN REASONS FOR ADOPTING THE SAID METHOD AS FOLLOWS: THE COMPANYS ACTIVITY IS TO IMPORT STEEL MOTHER C OILS FROM OUR SHAREHOLDER COMPANY M/S.HYUNDAI CORPORATION, KOREA HOLDINS 70.50 OF TOT AL EQUITY SHEARING OPERATING AND TURN OUT A FINISHED PRODUCT CALLED SHEETS, STRIPS AND SK ELP. AS THE ENTIRE SOURCE OF RAW MATERIAL IS FROM HYUNDAI CORPORATION, KOREA AND THE CERTAIN SIMILAR SHEET STEEL COILS ARE IMPORTED BY THE UNRELATED ENTERED INTO BY HYUNDAI CORPORATION W ITH UNRELATED IMPORTERS IN INDIA BEING INTERNAL COMPARABLE WOULD PROVIDE MORE RELIABLE DAT A AS COMPARED TO THE TRANSACTIONS BY AND BETWEEN THE THIRD PARTIES BEING EXTERNAL COMPAR ABLE. ABOVE ALL, THE DATA REQUIRED FOR EXTERNAL COMPARABLES MAY BE DIFFICULT TO OBTAIN AND INTERPRET OR IT MAY BE INCOMPLETE. FOR THE AFORESAID REASONS, THE ASSESSEE HAS CHOSE THE I NTERNAL COMPARABLES OF COMPARABLE UNCONTROLLED PRICE METHOD. IN SUCH A SCENARIO, HAVING TAKEN A STAND TO ADOPT C UP METHOD AND NOW DURING THE APPELLATE PROCEEDINGS, RESORTING TO TNMM METHOD BY THE ASSESEE, IS ONLY AN AFTERTHOUGHT AND CANNOT BE ACCEPTED. HENCE, IN THE PRESENCE OF R ELIABLE INTERNAL COMPARABLE DATA, CUP METHOD WAS ADOPTED BY THE TPO AND DIFFERENCE IN PRIC ES CALCULATED. IN THE TP ANALYSIS, ONLY IN THE ABSENCE OF INTERNAL COMPARABLES, THE EXTERNAL COMPARABLES WILL BE TAKEN FOR THE COMPARABILITY PURPOSE USING T HE TNMM METHOD. BUT IN ASSESSEES CASE, THE INTERNAL COMPARABLES ARE VERY MUCH AVAILABLE AN D ALSO THE VARIOUS FACTORS, THAT WOULD BE ANALYZED IN THE CUP METHOD, WARE ALSO SATISFIED. THE ITEMS PURCHASED BETWEEN AE AND 3D PARTY WERE ALSO VERY WELL COMPARABLE IN THE ASSE SSEES CASE. HENCE, CUP IS THE SUITABLE METHOD. WHILE ANALYZING THE ASSESSEES ADDITIONAL COMPARABI LITY ANALYSIS SUBMITTED DURING THE APPELLATE PROCEEDINGS AS ADDITIONAL GROUNDS OF APPE AL, THE MAJORITY OF THE COMPARABLES ARE FUNCTIONALLY DIFFERENT AND THEY ARE INTO MULTIPLE A CTIVITIES. ALSO ASSESSEE HAS TAKEN WEIGHTED AVERAGE DATA PERTAINING TO 3 FINANCIAL YEARS, WHICH IS NOT IN ACCORDANCE WITH THE EXTANT RULES. IN VIEW OF THE ABOVE DISCUSSION, IT IS REQUESTED TH AT ASSESSEES ADDITIONAL GROUNDS OF APPEAL MAY BE REJECTED AND TPOS APPROACH OF ADOPTING CUP M ETHOD MAY BE UPHELD. FURTHER, TPO HAS STATED AS UNDER VIDE PARA 6 OF THE ORDER DT: 16.03.2006 ON THE METHOD ADOPTED BY THE ASSESSEE: IN THE INSTANT CASE, THE ASSESSEE HAS ADOPTED COMP ARABLE UNCONTROLLED PRICE METHOD AS THE MOST APPROPRIATE METHODS TO ARRIVE AT ARMS LEN GTH PRICE. THE REASON FOR ADOPTION OF CUP METHOD AND THE STEP INVOLVED IN ARRIVING AT THE ALP BY THE COMPANY HAS BEEN SPELT OUT IN THE TPO WHICH IS REPRODUCED BELOW: THE COMPANYS ACTIVITY IS TO IMPORT STEEL. MOTHER C OILS FROM OUR SHAREHOLDER COMPANY M/S. HYUNDAI CORPORATION, KOREA HOLDING 70.50% OF TOTAL EQUITY SHAREHOLDING, AND THE SAID MOTHER COILS ARE SUBJECT TO A PROCESS OF SLITTING A ND SHEARING OPERATING AND TURN OUT A FINISHED PRODUCTS CALLED SHEETS, STRIPS AND SKELP. AS THE ENTIRE SOURCE OF RAW MATERIAL IS FROM HYUNDAI CORPORATION, KOREA AND THE CERTAIN SIM ILAR STEEL COILS ARE IMPORTED BY THE UNRELATED INDIA IMPORTERS FROM THE SHAREHOLDER COMP ANY, IT IS BELIEVED THAT THE ITA NO.30/MDS/2017 :- 11 -: TRANSACTIONS ENTERED INTO BY HYUNDAI CORPORATION WI TH UNRELATED IMPORTERS IN INDIA BEING INTERNAL COMPARABLES WOULD PROVIDE MORE RELIABLE DA TA AS COMPARED TO THE TRANSACTIONS BY AND BETWEEN THE THIRD PARTIES BEING EXTERNAL COMPAR ABLES. ABOVE ALL THE DATA REQUIRED FOR EXTERNAL COMPARABLES MAY BE DIFFICULT TO OBTAIN AND INTERPRET OR IT MAY BE INCOMPLETE. FOR THE AFORESAID REASONS, THE ASSESSEE HAS CHOSEN THE INTERNAL COMPARABLES OF COMPARABLE UNCONTROLLED PRICE METHOD. BEFORE THIS TRIBUNAL, THE ASSESSEE ARGUED THAT CON SIDERING THE FACTS AND MERITS OF THE CASE, FUNCTIONS, ASSETS AND RISKS INVOLVED TNMM AS MOST APPROPRIATE METHOD AND ARGUED FOR SUBSTITUTION OF T NMM METHOD. 11.0 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL PLACED ON RECORD. THE ASSESSEE IN HIS TP STUDY GIVEN A DETAILED REAS ONING WHY THE CUP METHOD IS MOST APPROPRIATE METHOD FOR ARRIVING THE ALP. ON THE BASIS OF THE TP STUDY CONDUCTED BY THE ASSESSEE, THE AO AFTE R MAKING ANALYSIS, COLLECTING THE INFORMATION, COMPLETING THE ENQUIRIE S, ACCEPTED THE METHOD ADOPTED BY THE ASSESSEE AND DETERMINED THE ALP AND SUGGESTED FOR DOWNWARD ADJUSTMENT OF PURCHASES. AFTER COMPLETIN G THE PROCEEDINGS AND PASSING THE ASSESSMENT ORDERS U/S 143(3) MAKING ARGUMENT FOR SUBSTITUTION OF ANOTHER METHOD AS MOST APPROPRIATE METHOD AMOUNTS TO REOPENING OF ASSESSMENT. RE-OPENING OF ASSESSMENT IS POSSIBLE AS PER THE PROVISIONS OF SEC.147 OF IT ACT IN THE SPECIFIC FACTS AND CIRCUMSTANCES PROVIDED IN THE RELEVANT PROVISIONS OF IT ACT. MER ELY TO SUIT THE NEEDS OF THE ASSESSE, THE COMPLETED ASSESSMENTS CANNOT BE AL LOWED TO RE-OPEN. THE TRANSFER PRICING PROVISIONS ARE NOT AN EXCEPTIO N. SINCE, THE ASSESSEE ITA NO.30/MDS/2017 :- 12 -: ITSELF HAS ADOPTED THE CUP METHOD AND MADE TP STUDY WHICH WAS ACCEPTED BY THE TPO/AO WE DO NOT FIND ANY INFIRMITY IN THE ORDERS OF THE LD.CIT(A) AND THE ASSESSEES GROUND ON THIS ISSUE I S DISMISSED. 12.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH APRIL, 2017, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ' . . $ ) (D.S.SUNDER SINGH) /ACCOUNTANT MEMBER /CHENNAI, 5 /DATED: 26 TH APRIL, 2017. TLN 0 .$6 76 /COPY TO: 1. - /APPELLANT 4. 8 /CIT 2. ./- /RESPONDENT 5. 6 . /DR 3. 8 ( ) /CIT(A) 6. * /GF