M/s. Tilda Riceland Private Ltd., New Delhi V. ACIT, New Delhi

ITA 6279/DEL/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5441 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 24-12-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 19-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PEEYUSH JAIN; Y K VERMA
• Keywords: Depreciation; Transfer pricing; International transaction
• Section: 92C; 143(3); 92F; 10B; 92

Judgement Text

I.T.A. NO.: 6279/DEL/2012 ASSESSMENT YEAR: 2008-09 PAGE 1 OF 21 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI I BENCH, NEW DELHI [CORAM : PRAMOD KUMAR AM AND RAJPAL YADAV JM] I.T.A. NO.: 6279/DEL/2012 ASSESSMENT YEAR: 2008-09 TILDA RICELAND PVT LTD .APPELLANT EROS CORPORATE TOWERS, LEVEL 15 NEHRU PLACE, NEW DELHI 110 019 [PAN : AAACU0649N] VS. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 16(1), NEW DELHI .RESPONDENT APPEARANCES BY: DEEPAK CHOPRA, FOR THE APPELLANT PEEYUSH JAIN AND YK VERMA, FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : DECEMBER 24, 201 3 DATE OF PRONOUNCING THE ORDER : FEBRUARY 21, 2014 O R D E R PER PRAMOD KUMAR: 1. THIS IS AN APPEAL FILED BY THE TAXPAYER AGAINST THE ASSESSMENT ORDER DATED 15 TH NOVEMBER 2012 PASSED BY THE ASSESSING OFFICER UNDE R SECTION 143(3) R.W.S. 144 C OF THE INCOME TAX ACT, 1961 ( H EREINAFTER REFERRED TO AS THE ACT) , FOR THE ASSESSMENT YEAR 2008-09. 2. THE CORE ISSUE THAT WE ARE REQUIRED TO ADJUDICAT E IN THIS APPEAL IS WHETHER OR NOT THE ASSESSING OFFICER WAS JUSTIF IED IN MAKING AN ARMS LENGTH PRICE (ALP) ADJUSTMENT OF RS. 26,07,70,513 U NDER SECTION 92 C OF I.T.A. NO.: 6279/DEL/2012 ASSESSMENT YEAR: 2008-09 PAGE 2 OF 21 THE ACT. TO DECIDE THIS CORE ISSUE, WE ALSO HAVE T O DEAL WITH THE QUESTION AS TO WHICH METHOD, ON THE FACTS AND IN THE CIRCUMS TANCES OF THIS CASE, IS THE MOST APPROPRIATE METHOD OF DETERMINING THE ALP, AND CERTAIN APPLIED ASPECTS RELATING TO ALP DETERMINATION MECHANISM UND ER SUCH A METHOD. FOR THE RECORDS, HOWEVER, WE DEEM IT APPROPRIATE TO REPRODUCE THE GRIEVANCES RAISED BY THE APPELLANT, AS SET OUT IN T HE MEMORANDUM OF APPEAL, AS FOLLOWS: 1. THE LEARNED ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE- 16(1), NEW DELHI (THE ASSESSING OFFICER OR THE A O) / HONBLE DISPUTE RESOLUTION PANEL (DRP) HAVE ERRED IN CONF IRMING THE ORDER PASSED U/S 92CA(3) OF THE INC OME TAX ACT, 1961 (ACT) MAKING AN ADDITION OF RS.26,07,70,513 TO THE TOTAL INCOME OF THE APPELLANT ON ACCOUNT OF ADJUSTMENT IN THE ARMS LENGTH PRICE DET ERMINED BY THE LEARNED TRANSFER PRICING OFFICER (TPO) AND THE AR MS LENGTH PRICE DETERMINED BY THE APPELLANT FOR THE INTERNATIONAL T RANSACTION ENTERED INTO BY THE APPELLANT WITH ITS ASSOCIATED E NTERPRISES. 2. THE DRP HAS ERRED IN CONCURRING WITH FINDINGS OF THE AO/TPO AND DISREGARDING THE ECONOMIC ANALYSIS UNDERTAKEN B Y THE APPELLANT FOR ESTABLISHING THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS WITHOUT APPROPRIATE JUSTIFICATION AND MECHANICALLY RELYING ON THE ORDER UNDER SECTION 92CA(3) OF THE A CT PASSED BY THE TPO. 3. THE TPO/AO/DRP HAVE ERRED IN LAW AND ON FACTS OF THE CASE IN REJECTING COMPARABLE UNCONTROLLED PRICE (CUP) METHO D AS THE MOST APPROPRIATE METHOD (MOM) AND SUBSEQUENTLY APPLYING TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOM OVER THE CUP ME THOD AS ADOPTED BY THE APPELLANT FOR THE PURPOSE OF BENCHMA RKING ITS INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTE RPRISES. I.T.A. NO.: 6279/DEL/2012 ASSESSMENT YEAR: 2008-09 PAGE 3 OF 21 4. (A) THE TPO/AO HAVE FURTHER ERRED IN LAW ON FACT S OF THE CASE IN APPLYING, AND DRP HAS ERRED IN CONFIRMING, AN EX PORT TURNOVER FILTER OF 25% WHILE APPLYING TNMM AS THE MOM, AS AG AINST 50% PROPOSED BY THE ASSESSEE, WITHOUT PROVIDING ANY COG ENT REASONS FOR THE SAME. (B) FURTHER THE TPO/AO/DRP HAS ERRED IN REJECTING THE ONE COMPANY (RT EXPORTS LTD.) IDENTIFIED BY THE TPO I N THE SHOW CAUSE NOTICE, WITHOUT PROVIDING COGENT REASONS. 5. THE DRP HAS ERRED IN LAW ON THE FACTS OF THE CAS E IN EXCLUDING ENTIRE OTHER INCOME AMOUNTING TO RS.85,030,000 WH ILE COMPUTING THE OPERATING MARGIN OF THE ASSESSEE WITHOUT APPREC IATING THAT A SIGNIFICANT PORTION OF THE OTHER INCOME IS INTRIN SICALLY LINKED TO THE BUSINESS OPERATION OF THE ASSESSEE AND HENCE SHOULD BE CONSIDERED AS PART OF THE OPERATING INCOME. 6. THE TPO/AO/DRP HAVE ERRED IN LAW AND ON FACTS OF THE CASE IN NOT ALLOWING APPROPRIATE ADJUSTMENTS FOR DIFFERENCE IN WORKING CAPITAL EMPLOYED BY THE APPELLANT VIS--VIS THE COM PARABLE COMPANIES. 7. THE TPO/AO/DRP HAVE ERRED IN LAW AND ON FACTS OF THE CASE IN NOT ALLOWING APPROPRIATE ADJUSTMENTS FOR GRANTING T HE ADJUSTMENT FOR DIFFERENCE IN THE CAPACITY UTILIZATION AND EXCE SS DEPRECIATION OF THE ASSESSEE VIS--VIS THE COMPARABLE COMPANIES. 8. THE TPO/AO/DRP HAVE ERRED IN NOT COMPUTING THE A DJUSTMENT PROPORTIONATE TO THE VALUE OF INTERNATIONAL TRANSAC TIONS. I.T.A. NO.: 6279/DEL/2012 ASSESSMENT YEAR: 2008-09 PAGE 4 OF 21 9. THE DRP/TPO/AO HAVE ERRED IN NOT PROVIDING THE B ENEFIT OF THE ARMS LENGTH RANGE AS PROVIDED UNDER PROVIS O TO SECTION 92C FOR PURPOSE OF COMPUTING THE ARMS LENGTH PRICE UNDER SE CTION 92F OF THE ACT. 10. THAT ON FACTS AND IN LAWS, THE AO ERRED IN HOLD ING THAT THE APPELLANT HAS FURNISHED INACCURATE PARTICULARS OF I NCOME IN RESPECT OF EACH ITEM OF DISALLOWANCE/ADDITIONS AND IN INITI ATING PENALTY PROCEEDINGS UNDER SECTION 274 READ WITH SECTION 271 OF THE ACT. 3. THE RELEVANT MATERIAL FACTS ARE AS FOLLOWS. THE ASSESSEE BEFORE US IS AN EXPORTER OF BROWN BASMATI RICE AND MILLED BAS MATI RICE TO ITS ASSOCIATED ENTERPRISES. THE ASSESSEE PROCURES PADDY , STORES, PROCESSES/ MILLS, PACKS AND EXPORTS VARIOUS KINDS OF RICE. DU RING THE RELEVANT PREVIOUS YEAR, THE ASSESSEES EXPORTS OF BASMATI R ICE AND NON -BASMATI RICE TO THE AES WAS RS 367,50,02,759 AND RS 7,48,79 ,475 RESPECTIVELY. IT IS NOT IN DISPUTE THAT THE ORDERS PLACED BY THE AES WERE PRICED ON THE BASIS OF MARKET TRENDS, AND THAT, DURING THE RELEVA NT PREVIOUS YEAR, THERE WERE NO FIXED PRICE CONTRACTS. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE DETERMI NATION OF ARMS LENGTH PRICE OF THESE TRANSACTIONS WITH THE AES WAS REFERRED TO THE TRANS FER PRICING OFFICER. THE TPO NOTED, AS SET OUT IN HIS ORDER DATED 25 TH OCTOBER 2011, THAT THE TRANSFER PRICING APPROACH ADOPTED BY THE ASSESSEE W AS AS FOLLOWS: THE ASSESSEE EXPORTS DIFFERENT VARIETIES OF RICE, V IZ TRADITIONAL BASMATI RICE, EVOLVED BASMATI RICE, RAW MILLED BASM ATI RICE, SELLA MILLED BASMATI RICE, RAW BROWN BASMATI RICE, SONA MAOORI RICE AND PERMAL RICE TO COUNTRIES IN EUROPEAN UNION , UNITED STATES AND MIDDLE EASTERN COUNTRIES. THE ASSESSEE H AS ACCEPTED CUP AS THE MOST APPROPRIATE METHOD. THE COMPARISON HAS BEEN I.T.A. NO.: 6279/DEL/2012 ASSESSMENT YEAR: 2008-09 PAGE 5 OF 21 DONE BETWEEN THE PRICES CHARGED BY THE ASSESSEE AND RATES PREVAILING IN THE INTERNATIONAL MARKET AS REPORTED IN DAILY EXPORT PORT DATA- APRIL 2007 TO MARCH 2008 COMPILED BY TIPS SOFTWARE SERVICES PVT LTD, MUMBAI. ON THE BASIS OF COMPARISON, IT HAS BEEN ESTABLISHED THAT BOTH THE PRICES ARE SI MILAR AND, THEREFORE, THE TRANSACTIONS ARE AT AN ARMS LENGTH. 4. AS FOR THE NATURE OF COMPARABLES RELIED UPON IN THE TRANSFER PRICING STUDY, IT WAS STATED BY THE ASSESSEE THAT FOR INDUSTRY DATA, WE LOOKED FOR THE INFORMATION FROM PUBLICLY AVAILABLE DATA ON THE SIMILAR TRANSACTIONS ENTERED INTO BY THE UNRELATED PARTIES IN INDIA , TH AT (W)E OBTAINED A ND RELIED ON THE DAILY EXPORT PORT DATA APRIL 2007- MARCH 2008 (HEREINAFTER REFERRED TO AS DATABASE) COMPILED BY TIPS SOFTWARE SERVICES PVT LTD MUMBAI WITH RESPECT TO EX PORT OF BASMATI RICE FROM INDIA TO EU, ME, AND NORTH AMERICA/ US AN D EXPORT OF OTHER VARIETIES OF RICE, VIZ. SONA MASOORI AND PERMAL RIC E TO NORTH AMERICA/ US, ME AND THAT THE DATABASE PROVIDES QUANTUM, PRICE, DATE, QUANTITY AND THE TYPE OF RICE EXPORTED BY PAR TIES IN INDIA TO PARTIES IN EU, ME AND NORTH AMERICA . THE EXPORTS WERE C ATEGORISED ON THE BASIS OF DIFFERENT PRODUCTS AND DIFFERENT MARKE TS AND IN THE LIGHT OF MANNER AND FORMAT IN WHICH DATA WAS AVAILABLE. WHI LE APPLYING THE CUP METHOD, TRANSACTIONS WITH REGARD TO THE ORGANIC RIC E WERE ELIMINATED AS PRICING OF ORGANIC RICE COMMANDS A PREMIUM VIS--VI S NON ORGANIC RICE. THE TRANSACTIONS IN UNITS OTHER THAN MTS AND QUANTI TIES LESS THAN 10 MTS WERE ALSO ELIMINATED. THE AVERAGE PRICE WAS ADOPTED ON QUARTERLY BASIS SINCE MONTHLY AVERAGE COULD RESULT IN DISTORTIONS D UE TO FEWER COMPARABLES AND EXTRANEOUS FACTORS. 5. THIS APPROACH, HOWEVER, DID NOT FIND FAVOUR WITH THE TRANSFER PRICING OFFICER. HE OBSERVED THAT THE WORKING OF ARMS LENGTH PRICE, I.T.A. NO.: 6279/DEL/2012 ASSESSMENT YEAR: 2008-09 PAGE 6 OF 21 WHICH WAS DONE BY ADOPTING THE QUARTERLY AVERAGE PR ICES AND ADJUSTING THE SAME FOR TOLERANCE BAND OF + 5%, IS BASED ON CE RTAIN FILTERS, AND THAT WHILE APPLYING CUP, IT IS ESSENTIAL THAT THE COMPAR ABILITY BETWEEN CONTROLLED AND UNCONTROLLED TRANSACTIONS SHOULD NOT BE ONLY JUDGED FROM THE POINT OF VIEW OF PRODUCT COMPARABILITY, BU T SHOULD ALSO TAKE INTO CONSIDERATION THE EFFECT ON PRICE OF OTHER BRO ADER BUSINESS FUNCTIONS . IT WAS ALSO NOTED THAT WHERE DIFFERENCES EXIST BETWEEN CONTROLLED AND UNCONTROLLED TRANSACTIONS OR BETWEEN THE ENTERPRISES UNDERTAKING THESE TRANSACTIONS, IT MAY BE DIFFICULT TO DETERMINE REASONABLE ACCURATE ADJUSTMENTS TO ELIMINATE THE EF FECT ON PRICE . THE TRANSFER PRICING OFFICER WAS FURTHER OF THE VIE W THAT THE ASSESSEE HAS RELIED UPON THE DATA FURNISHED BY TIPS SOFTWARE SER VICES PVT LTD BUT THE SAID COMPANY IS A PRIVATE COMPANY AND THE QUOTES (GIVEN BY TIPS SOFTWARE) ARE NOT COVERED WITHIN THE PROVISIONS OF RULE 10D(3 ). THE TPO WAS FURTHER OF THE VIEW THAT THE CRITERIA ADOPTED FOR ARRIVING AT THE CUP PRICE BY THE ASSESSEE, IN ITS TP REPORT, SH OWS THAT THE FILTERS HAVE BEEN APPLIED TO ARRIVE AT CUP , THAT AS PER THE PROVISION IN THE INCOME TAX STATUTE AND SEVERAL DECISIONS OF HIGHER APPELLATE BODIES, IT IS INFERRED THAT UNDER CUP METHOD, STRINGENT COM PARABILITY IS REQUIRED AND THAT TRANSACTIONS CANNOT BE COMPARED IF THERE ARE GEOGRAPHICAL DIFFERENCES, DIFFERENCES IN QUALITY OF PRODUCTS . THE TPO ALSO NOTED THAT THERE ARE VARIOUS ADJUSTMENTS MADE TO THE CUP DATA ON ACCOUNT OF FACTORS LIKE ADOPTING QUARTERLY ANALYSIS , ELIMINATING TRANSACTIONS WITH EXTRA ORDINARY HIGH PRICES ETC. I T WAS IN THIS BACKDROP THAT THE TPO REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE CUP DATA NOT BEING RELIABLE, THE TPO SHOULD NOT REJECT THE C UP AS MOST APPROPRIATE METHOD ON THE FACTS OF THIS CASE. THE TPO THEN PR OCEEDED TO REFER TO TNMM FOR BEING APPLIED TO THIS CASE AND THE COMPARA BLE DATE FOR THAT PURPOSE. I.T.A. NO.: 6279/DEL/2012 ASSESSMENT YEAR: 2008-09 PAGE 7 OF 21 6. IT WAS CONTENDED BY THE ASSESSEE THAT THE CUP, B EING A DIRECT AND TRADITIONAL METHOD, IS PREFERABLE OVER AN INDIRECT METHOD LIKE THE TNMM. RELIANCE WAS PLACED, IN SUPPORT OF THIS PROPOSITION , ON JUDICIAL PRECEDENTS IN THE CASES OF ACIT VS MSS INDIA PVT LTD (123 TTJ 657), SERDIA PHARMACEUTICALS PVT LTD VS ACIT (136 TTJ 129) , CLEAR PLUS INDIA PVT LTD VS DCIT (ITA NO. 3944/DEL/2010), AND COASTAL ENERGY PVT LTD VS ACIT (12 ITR TRIB 347). 7. THE TPO WAS, HOWEVER, OF THE VIEW THAT IN TERMS OF THE OECD GUIDELINES, AN UNCONTROLLED TRANSACTION IS COMPARAB LE TO A CONTROLLED TRANSACTION, FOR THE PURPOSE OF CUP METHOD AND WHER E PRODUCTS ARE NOT EXACTLY THE SAME, ONLY IF EITHER NONE OF THE DIFFER ENCES BETWEEN THE TRANSACTIONS BEING COMPARED OR BETWEEN THE ENTERPRI SE UNDERTAKING THOSE TRANSACTIONS COULD MATERIALLY AFFECT THE PRIC E, OR, IF WHERE DIFFERENCES DO AFFECT THE PRICE, REASONABLY ACCURAT E ADJUSTMENTS COULD BE MADE TO ELIMINATE THE EFFECT OF SUCH DIFFERENCES. HE ALSO REFERRED TO RULE 10C(2)(E) OF THE INCOME TAX RULES 1962, IN SELECTIN G THE MOST APPROPRIATE METHOD, THE EXTENT TO WHICH RELIABLE AN D ACCURATE ADJUSTMENTS CAN BE MADE FOR DIFFERENCES IS AN IMPO RTANT FACTOR IN SELECTI NG THE MOST APPROPRIATE METHOD. WHILE THE TPO DID NOTE THAT THE PRODUCT DATA COMPILED IN THE TIPS DATABASE IS TAKEN FROM CUSTOM DATA RELATING TO RICE, BUT ALSO SPECIFIES THE VARIE TY AND BRAND OF BASMATI/ NON BASMATI RICE , THE TPO WAS OF THE VIEW THAT BRAND OF RICE WAS AN IMPORTANT FACTOR WHICH CANNOT BE QUANTIFIED FOR ADJUSTMENT. HE OBSERVED THAT. THE ADJUSTMENTS CARRIED OUT BY THE ASSESSEE TO THE PRICE OF THE UNCONTROLLED TRANSACTION CANNOT QUANTI FY THE PRICE WHICH TILDA BRAND WOULD COMMAND IN TH E MARKETS IN EU COUNTRIES, USA, MIDDLE EAST COMPARED TO ANY OTHER BRAND IN TIP S DATA . THE TPO WAS OF THE VIEW THAT , THE CHARACTERISTICS OF THE PROPERTY BEING SUCH THAT EVEN ECONOMIC ADJUSTMENT, LIKE THE VALUE OF THE BRA ND, CANNOT BRING ON PARITY THE CONTROLLED AND UNCONTROLLED TRANSACTION, THEN SUCH I.T.A. NO.: 6279/DEL/2012 ASSESSMENT YEAR: 2008-09 PAGE 8 OF 21 UNCONTROLLED TRANSACTIONS WOULD NOT BE COMPARABLE B Y APPLICATION OF CUP METHOD. WHILE REJECTING THE APPLICATION OF CUP MET HOD ON THE FACTS OF THIS CASE, THE TPO CONCLUDED AS FOLLOWS: AS THE CHARACTERISTICS OF THESE GOODS VARY SPECIALL Y BECAUSE OF THE BRAND NAME ASSOCIATED WITH EACH OF VARIOUS VARI ETIES OF RICE, IN SUCH A SITUATION, ECONOMIC ADJUSTMENTS CAN NOT BRING ON PARITY BETWEEN THE CONTROLLED AND UNCONTROLLED TRAN SACTIONS, SUCH UNCONTROLLED TRANSACTION APPLIED BY THE ASSESS EE IS NOT COMPARABLE BY USING THE CUP METHOD, AND, HENCE, REJ ECTED. 8. THE TPO THEN PROCEEDED TO DETERMINE THE ARMS LENGT H PRICE ON THE BASIS OF THE TRANSACTIONAL NET MARGIN METHOD (TNMM) ON THE ENTITY LEVEL, BUT, FOR THE REASONS WE WILL SET OUT IN A SHORT WHI LE, IT IS NOT REALLY RELEVANT TO TAKE NOTE OF THE FACTS SO FAR AS THIS A SPECT OF THE MATTER IS CONCERNED. SUFFICE TO NOTE THAT BASED ON TPOS ALP DETERMINATION UNDER THE TNMM AND ON THE BASIS OF COMPARABLES OF SOME EN TITIES ENGAGED IN SIMILAR ACTIVITY, AN ADJUSTMENT OF RS. 26,07,70,513 WAS FINALLY MADE BY THE ASSESSING OFFICER. THE ASSESSEE DID TAKE UP, I NTER ALIA, GRIEVANCE AGAINST REJECTION OF CUP METHOD BEFORE THE DISPUTE RESOLUTION PANEL, BUT WITHOUT ANY SUCCESS. THE DRP REJECTED THIS GRIEVANC E, AND, WHILE DOING SO, OBSERVED AS FOLLOWS: WE HAVE CONSIDERED THE CONTENTIONS OF THE ASSESSEE. AS MENTIONED ABOVE, THE DATA RELIED BY THE ASSESSEE HA S BEEN OBTAINED FROM DATABASE MAINTAINED BY A PRIVATE COMP ANY. THE ASSESSEE HAS NOT BEEN ABLE TO REBUT THE ARGUMENT OF THE TPO THAT RULE 10D(3) DOES NOT ALLOW THE USE OF PRIVATE DATABASES. FURTHER, IN A COMMODITY LIKE BASMATI RICE, IT IS VE RY DIFFICULT TO I.T.A. NO.: 6279/DEL/2012 ASSESSMENT YEAR: 2008-09 PAGE 9 OF 21 FIND THE EXACT COMPARABLES WHICH CAN MEET THE STRIN GENT STANDARDS REQUIRED FOR APPLICATION OF CUP METHOD. T HE PRICE OF RICE VARIES DEPENDING ON THE AREA WHERE IT IS GROWN , THE VARIETY, THE AROMA AND SIZE OF THE RICE GRAINS. THE SAME VARIETY GROWN IN DEHRADUN WOULD FETCH A DIFFERENT PRICE AS COMPARED TO THAT GROWN IN PUNJAB OR HARYANA. THE PRICE ALSO FLU CTUATES FROM TIME TO TIME ALMOST ON WEEKLY BASIS. THEREFORE, THI S PANEL IS IN AGREEMENT WITH THE OPINION OF THE AO THAT CUP IS NO T THE MOST APPROPRIATE METHOD TO BE USED IN THIS KIND OF BUSIN ESS. ACCORDINGLY, THESE GROUNDS OF OBJECTIONS ARE REJECT ED. 9. THE ASSESSEE IS AGGRIEVED, INTER ALIA , OF REJECTION OF THE CUP METHOD ON THE FACTS OF THIS CASE, AND IS IN APPEAL BEFORE US. 10. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CA SE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 11. WE HAVE NOTED THAT THE INFORMATION INPUTS GIVEN BY THE TIPS SOFTWARE, ON THE FACTS OF THIS CASE, ARE INPUTS WIT H REGARD TO THE INFORMATION PUBLICLY AVAILABLE WITH THE CUSTOMS DEP ARTMENT AT THE DIFFERENT PORTS. THESE INPUTS ARE NOT THE INDEPENDENT QUOTES , AS REFERRED TO BY THE TPO, BUT ONLY COMPILATION OF THE DATA AVA ILABLE IN PUBLIC DOMAIN. IN OUR CONSIDERED VIEW, THE TRANSFER PRICI NG OFFICER WAS CLEARLY IN ERROR IN REJECTING THESE INPUTS ON THE GROUND TH AT SUCH INFORMATION IS NOT COVERED BY RULE 10D (3) FOR THE SIMPLE REASON T HAT RULE 10 D(3) IS ONLY ILLUSTRATIVE IN NATURE AND IT MERELY DESCRIBES THE INFORMATION, REQUIRED TO BE MAINTAINED BY THE ASSESSEE UNDER SEC TION 92 D, SHALL BE SUPPORTED BY AUTHENTIC DOCUMENTS, WHICH MAY INCLUDE THE FOLLOWIN G ( I.T.A. NO.: 6279/DEL/2012 ASSESSMENT YEAR: 2008-09 PAGE 10 OF 21 I.E. DOCUMENTS SPECIFIED THEREIN) . THE LOGIC EMPLOYED BY THE TRANSFER PRICING OFFICER IS THAT SINCE DATABASES COMPILED BY PRIVATE ENTITIES IS NOT INCLUDED IN RULE 10 D(3), SUCH DATABASES CANNOT BE RELIED UPON BY THE ASSESSEE. THIS LOGIC IS CLEARLY FALLACIOUS INASMUCH AS AN ITEM NOT BEING INCLUDED IN ILLUSTRATIVE LIST OF REQUIRED DOCUMENTS DOES NOT TAKE OUTSIDE THE AMBIT OF ACCEPTABLE DOCUMENT FOR THE REQUIRED PURPOSES. IN ANY EVENT, ALL THAT TIPS SOFTWARE DOES IS TO COLLECT TH E DATA, COMPILE THE SAME IN EASY TO REFER FORMAT AND MAKE IT AVAILABLE TO TH E END-USER OF SUCH DATA ONLINE ( WWW.TIPSEXIM.COM ) OR ON ELECTRONIC MEDIA, BUT THIS DATA, NONETHELESS, IS PUBLIC DATA MAINTAINED BY THE CUSTO MS DEPARTMENT AT VARIOUS PORTS. IT WAS ALSO OPEN TO THE TRANSFER PR ICING OFFICER TO, IF HE HAD ANY DOUBTS, CALL FOR FURTHER INFORMATION FROM T HIS DATABASE SUPPLIER AND EXAMINE AUTHENTICITY OF THE DATA SO FURNISHED. YET, INSTEAD OF DOING SO, HE SUMMARILY REJECTED THE DATA AS UNRELIABLE ON A TECHNICAL GROUND WHICH, AS WE HAVE SEEN ABOVE, IS NOT TENABLE IN LAW . 12. WE HAVE ALSO SEEN THAT THE INFORMATION SO FURNI SHED BY THE DATABASE USED BY THE ASSESSEE IS FAIRLY COMPREHENSI VE INFORMATION, INCLUDING DESCRIPTION AND PRICES AS PER INVOICES PR ESENTED TO CUSTOMS A FACT NOTED BY THE TPO HIMSELF, WHICH CAN BE CROSS C HECKED AND VERIFIED, IN CASE OF DOUBTS. THE TPO HAS, AT PAGE 11 OF THE TR ANSFER PRICING ORDER, HIMSELF STATED THAT THE PRODUCT DATA COMPILED IN THE TIPS DATABASE IS TAKEN FROM CUSTOM DATA RELATING TO RICE, BUT ALSO S PECIFIES THE VARIETY AND BRAND OF BASMATI/ NON BASMATI RICE . IN THESE CIRCUMSTANCES, THE VAGUE DOUBTS EXPRESSED BY THE TPO ON THE RELEVANCE OF THIS DATABASE ARE CLEARLY UNFOUNDED. HIS ACTION IS INCORRECT IN LAW A S INDEED INAPPROPRIATE TO THE FACTS OF THIS CASE. THEREFORE, IN OUR CONSID ERED VIEW, THE TRANSFER PRICING OFFICER WAS CLEARLY IN ERROR IN REJECTING T HE INFORMATION INPUTS RECEIVED FROM THE TIPS SOFTWARE AND THE DATABASE MA DE AVAILABLE BY THE SAID ENTITY. THE DRP LAID SO MUCH OF EMPHASIS ON T HE OBSERVATION THAT THE ASSESSEE HAS NOT BEEN ABLE TO REBUT THE ARGUMENT OF THE TPO THAT I.T.A. NO.: 6279/DEL/2012 ASSESSMENT YEAR: 2008-09 PAGE 11 OF 21 RULE 10D(3) DOES NOT ALLOW THE USE OF PRIVATE DATAB ASES BUT DID NOT NOTE OF THE GLARINGLY ILLUSTRATIVE, RATHER THAN EXH AUSTIVE, CHARACTER OF THE DOCUMENTS LISTED IN THE SAID RULE. AS A QUASI-JUDI CIAL AUTHORITY, AND WHILE PURSING THE GOAL OF JUSTICE, ONE CANNOT REMAIN AT T HE MERCY OF THE WISDOM OF REPRESENTATIVES OF THE PARTIES APPEARING BEFORE SUCH AN AUTHORITY; IT IS BOUNDEN DUTY OF EVERY QUASI-JUDICIAL AUTHORITY TO A PPRECIATE THE SCOPE OF THE LEGAL PROVISIONS AND APPLY THEM IN LETTER AND I N SPIRIT. WE UPHOLD THE GRIEVANCE OF THE ASSESSEE TO THE EXTENT THE AUT HORITIES BELOW HAVE INDEED ERRED IN SUMMARILY REJECTING ASSESSEES RELI ANCE ON THE DATABASE, WITH RESPECT TO INFORMATION PUBLICLY AVAILABLE WITH CUSTOMS DEPARTMENT AT VARIOUS PORTS, COMPILED BY A PRIVATE ENTITY. 13. AS REGARDS LEARNED DRPS ADDITIONAL OBSERVATION THA T, FURTHER, IN A COMMODITY LIKE BASMATI RICE, IT IS VERY DIFFICULT TO FIND THE EXACT COMPARABLES WHICH CAN MEET THE STRINGENT STANDARDS REQUIRED FOR APPLICATION OF CUP METHOD , WE ARE UNABLE TO SEE ANY MERITS IN THIS APPROACH EITHER. UNDOUBTEDLY, PRODUCT COMPARABILIT Y SHOULD BE CLOSELY EXAMINED IN APPLYING THE CUP METHOD AS A PRICE MAY BE MATERIALLY INFLUENCED BY DIFFERENCES BETWEEN THE GOODS IN THE CONTROLLED AND UNCONTROLLED TRANSACTIONS, BUT PRODUCT COMPARABILIT Y DOES NOT REQUIRE THE COMPARABLES TO BE EXACTLY THE SAME. THE PRODUCT CATEGORIZATION HAS BEEN DONE ON THE BASIS OF REASONABLE GENERIC DESCRI PTION, AND THE PRODUCT BEING GENERIC IN NATURE, SUCH CATEGORIZATION IN REA SONABLE AND SUFFICIENT. GENERIC GOODS, EVEN UNDER DIFFERENT BRAND NAMES, DO NOT CEASE TO BE COMPARABLE WITH EACH OTHER- UNLESS THE IMPACT OF BR AND OR OTHER INTANGIBLES IS SO SUBSTANTIAL THAT IT DISTORTS THE COMPARISON ALTOGETHER. IN ANY EVENT, EVEN IF THERE ARE MINOR VARIATIONS IN PR ICES OF GENERIC GOODS, SUCH FACTORS ARE ADEQUATELY TAKEN CARE OF BY AVERAG E IN THE CASE OF LARGE SIZE OF COMPARABLES, AS IS THE SITUATION BEFORE US. AS NOTED IN THE UN TRANSFER PRICING MANUAL FOR DEVELOPING COUNTRIES, W ITH WHICH WE ARE IN CONSIDERED AGREEMENT, TH E CUP METHOD IS APPROPRIATE ESPECIALLY IN CASES I.T.A. NO.: 6279/DEL/2012 ASSESSMENT YEAR: 2008-09 PAGE 12 OF 21 WHERE AN INDEPENDENT ENTERPRISE BUYS OR SELLS PRODU CTS THAT ARE IDENTICAL OR VERY SIMILAR TO THOSE SOLD IN THE CONT ROLLED TRANSACTION . . IT WOULD, THEREFORE, INDEED SEEM THAT FOR THE P URPOSE OF APPLYING CUP METHOD WOULD BE, A REASONABLE CLASSIFICATION, WHICH COULD JUSTIFIABLY DEFINE THE PRICES, WOULD SUFFICE. WE HAVE ALSO NO TED THAT THE ASSESSEE HAS DONE CATEGORIZATION OF BASMATI RICE, AS EVIDENT FROM PAGES 352 AND 253 OF THE TRANSFER PRICING STUDY FILED BEFORE US, IN THREE BROAD GEOGRAPHICAL CATEGORIES AND SEVEN SUB CATEGORIES, A ND OF NON-BASMATI RICE IN FOUR BROAD GEOGRAPHICAL CATEGORIES AND SIX SUB C ATEGORIES. LET US ALSO NOT FORGET THAT THE CLASSIFICATION IS DONE ON THE B ASIS OF GEOGRAPHICAL MARKETS AND NORMALLY THE PRODUCTS SOLD IN A GEOGRAP HICAL MARKET, DUE TO SHEER COMPETITIVE FORCES, ARE BROADLY SIMILAR. IT I S ALSO USEFUL TO REFER TO CERTAIN OBSERVATIONS MADE IN UN TRANSFER PRICING MA NUAL, WITH WHICH WE ARE IN CONSIDERED AGREEMENT, TO THE EFFECT THAT EXTERNAL COMPARABLES MAY BE DIFFICULT TO FIND IN PRACTICE UNLESS THE TRA NSACTIONS INVOLVE A FAIRLY COMMON AND HOMOGENEOUS PRODUCT OR SERVICE. H OWEVER, THE ADVANTAGES OF THE CUP METHOD ARE GREAT ENOUGH TO WA RRANT A SIGNIFICANT EFFORT TO APPLY THE METHOD AS NOT TO BE INFLUENCED BY MINOR VARIATIONS IN THE FINE POINTS ABOUT PRODUCT Q UALITY . VIEWED THUS, EVEN IF THERE BE SOME MINOR VARIATIONS IN THE QUALITY EVEN UNDER THE ELABORATE CATEGORIZATION OF RICE VARIETIES, SUCH VA RIATIONS, WHICH DONOT MATERIALLY AFFECT THE PRICES OF UNCONTROLLED TRANSA CTIONS DUE TO LARGE SIZE OF COMPARABLES AND THE SAME GEOGRAPHICAL CONSUMPTIO N MARKET BEING COVERED BY THE COMPARABLES, CAN BE IGNORED. 14. AS FOR REJECTION OF CUP METHOD ON THE GROUND TH AT PRICES OF UNCONTROLLED TRANSACTIONS OFTEN FLUCTUATE ON WEEKLY AND EVEN DAILY BASIS. THE TPO HIMSELF HAS NOTED IN HIS ORDER, THE ASSESSE E DID NOT HAVE ANY CONTRACTUAL ARRANGEMENT AND THESE WERE MARKET DRIVE N PRICES ON WHICH THE EXPORTS TO AES TOOK PLACE. IT IS ALSO IMPORTANT TO BEAR IN MIND THE FACT THAT THE ASSESSEE HAS TAKEN AVERAGE OF A QUARTER SO AS TO ENSURE THAT DAY I.T.A. NO.: 6279/DEL/2012 ASSESSMENT YEAR: 2008-09 PAGE 13 OF 21 TO DAY VARIATIONS IN PRICES DO NOT DISTORT THE COMP ARABILITY. NEITHER THERE IS ANY SPECIFIC OBJECTION TO THIS AVERAGING, NOR HA S THE TPO SUGGESTED ANY BETTER ALTERNATIVE TO THIS APPROACH. IN OUR HUMBLE UNDERSTANDING, THIS METHOD DOES PROVIDE FOR A REASONABLE, EVEN IF NOT P ERFECT, SOLUTION TO THE DISTORTION WHICH MAY CREEP IN CASE COMPARISON OF PR ICES IS DONE ON DAY TO DAY BASIS, AND DUE TO LIMITED COMPARABLES BEING AVA ILABLE FOR THE SAME. TRANSFER PRICING IS NOT A PERFECT SCIENCE BUT WE ST ILL HAVE TO CHOOSE A LESS IMPERFECT ALTERNATIVE FROM THE VARIOUS ALTERNATIVES AVAILABLE. 15. COMING TO THE INHERENT EDGE THAT DIRECT METHODS HAVE OVER INDIRECT METHODS OF DETERMINING THE ARMS LENGTH PRINCIPLE, WHICH JUSTIFIES SELECTION OF CUP METHOD AS THE MOST APPROPRIATE MET HOD, WE MAY REFER TO THE FOLLOWING OBSERVATIONS MADE BY A COORDINATE BENCH IN THE CASE OF SERDIA PHARMACEUTICALS PVT LTD VS ACIT (136 TTJ 139 ) : 60. THE THRUST OF LEARNED COUNSELS ARGUME NTS IS THAT SINCE TRANSFER PRICING LEGISLATION DOES NOT PROVIDE FOR A NY ORDER OF PREFERENCE IN SELECTION OF THE MOST APPROPRIATE MET HOD, NO SUCH ORDER OF PREFERENCE DIRECT OR IMPLIED, CAN BE EXERCISED BY US EITHER. 61. THIS ISSUE IS NO LONGER RES INTEGRA. IN THE CAS E OF ASSTT. CIT VS. MSS INDIA (P) LTD. (2009) 123 TTJ (PUNE) 657 : (2009) 25 DTR (PUNE)(TRIB) 1 : (2009) 32 SOT 132 (PUNE), A CO -ORDINATE BENCH OF THIS TRIBUNAL, SPEAKING THROUGH ONE OF US (I.E. THE AM), HAD, INTER ALIA, OBSERVED THAT 'WHILE THERE IS NO P ARTICULAR ORDER OR PRIORITY OF METHODS WHICH THE ASSESSEE MUS T FOLLOW, AND NO METHOD CAN INVARIABLY BE CONSIDERED TO BE MO RE RELIABLE THAN OTHERS, ON A CONCEPTUAL NOTE, TRANSACTIONAL PR OFIT METHODS I.T.A. NO.: 6279/DEL/2012 ASSESSMENT YEAR: 2008-09 PAGE 14 OF 21 (I.E., TNMM AND PROFIT SPLIT METHOD) ARE TREATED AS METHODS OF LAST RESORT WHICH ARE PRESSED INTO SERVICE ONLY WHE N THE STANDARD METHODS, WHICH ARE ALSO TERMED AS TRADITI ONAL METHODS (I.E., CUP METHOD, RESALE PRICE METHOD AND COST PLUS METHOD) CANNOT BE REASONABLY APPLIED'. IT WAS NOTED BY THE CO- ORDINATE BENCH THAT THE OECD GUIDELINES ALSO RECOGN IZE THIS APPROACH, AND THE BENCH EXPRESSED ITS CONSIDERED AG REEMENT WITH THIS APPROACH. WE ARE IN CONSIDERED AGREEMENT WITH THE VIEWS SO EXPRESSED BY THE CO-ORDINATE BENCH. IN OUR CONSIDERED VIEW, THE TRADITIONAL TRANSACTION METHODS HAVE AN I NHERENT EDGE OVER THE TRADITIONAL PROFIT METHODS IN MOST OF THE SITUATIONS, AND, THEREFORE, WHEREVER BOTH THE METHO DS CAN BE APPLIED IN AN EQUALLY RELIABLE MANNER, TRADITIONAL TRANSACTION METHODS ARE TO BE PREFERRED OVER TRADITIONAL PROFIT METHODS. 62. WE ARE ALIVE TO THE FACT THAT IN THE 2010 VERSI ON OF OECD GUIDELINES, OECD HAS DONE AWAY WITH HIERARCHICAL AP PROACH IN SELECTING THE METHOD FOR DETERMINATION OF ALP. THE OECD HAS ABANDONED ITS EARLIER POSITION THAT TRANSACTIONAL P ROFIT METHODS MAY BE USED 'TO APPROXIMATE ARMS LENGTH CO NDITIONS WHEN TRADITIONAL TRANSACTIONAL METHODS CANNOT BE RE LIABLY APPLIED ALONE, OR EXCEPTIONALLY CANNOT BE APPLIED A T ALL'. IN SHARP CONTRAST TO THE SAID OBSERVATION, 2010 OECD G UIDELINES, IN PARA 2.4, RECOGNIZE THAT 'THERE ARE SITUATIONS W HEN TRANSACTIONAL PROFIT METHODS ARE FOUND TO BE MORE S UITABLE (VIS- A-VIS TRADITIONAL TRANSACTIONAL METHODS)' SUCH AS, IN A SITUATION, 'WHERE EACH OF THE PARTY MAKES A UNIQUE CONTRIBUTIO N IN RELATION TO CONTROLLED TRANSACTION, OR WHERE THE PA RTIES ENGAGE IN HIGHLY INTEGRATED ACTIVITIES'. THIS CHANGE IN OE CD APPROACH IS QUITE IN LINE WITH INDIAN TRANSFER PRICING LEGIS LATION WHICH REQUIRES SELECTION OF MOST APPROPRIATE METHOD RATHE R THAN THE I.T.A. NO.: 6279/DEL/2012 ASSESSMENT YEAR: 2008-09 PAGE 15 OF 21 METHOD BEING PICKED UP IN THE ORDER OF PRIORITY. TO THIS EXTENT, THE APPROACH OF OECD AND INDIAN TRANSFER PRICING LE GISLATION IS NOW QUITE IN HARMONY WITH EACH OTHER. 63. IT WILL, HOWEVER, BE STRETCHING THE THINGS TOO FAR TO SUGGEST THAT IN THE 2010 VERSION OF OECD GUIDELINES, ALL TH E METHODS OF DETERMINING THE ALP HAVE BEEN PLACED AT PAR WITH EA CH OTHER. THE CHANGE IN THE OECD GUIDELINES, AS WE SEE IT, IS IN RESPECT OF THE ORDER IN WHICH SUITABILITY OF THE METHODS IS TO BE CONSIDERED AND IN RECOGNITION OF THE FACT THAT THER E CAN BE SITUATIONS IN WHICH TRANSACTIONAL PROFIT METHODS CA N HAVE AN EDGE OVER TRADITIONAL TRANSACTIONAL METHODS. HOWEVE R, WHEREVER TRANSACTIONAL PROFIT METHODS AS ALSO TRADI TIONAL TRANSACTIONAL METHODS CAN BE APPLIED IN EQUALLY REL IABLE MANNER, THE OECD GUIDELINES STILL CONSIDER THE TRAD ITIONAL TRANSACTIONAL METHODS TO BE PREFERABLE, AS IS EVIDE NT FROM FOLLOWING OBSERVATIONS IN PARA 2.3 OF THE OECD GUID ELINES 2010 : '2.3 TRADITIONAL TRANSACTION METHODS ARE REGARDED A S THE MOST DIRECT MEANS OF ESTABLISHING WHETHER CONDITION S IN THE COMMERCIAL AND FINANCIAL RELATIONS BETWEEN AES ARE AT ARMS LENGTH. THIS IS BECAUSE ANY DIFFERENCE IN THE PRICE OF A CONTROLLED TRANSACTION FROM THE PRICE OF A COMPAR ABLE UNCONTROLLED TRANSACTION CAN NORMALLY BE TRACED DIR ECTLY TO THE COMMERCIAL AND FINANCIAL RELATIONS MADE OR IMPOSED BETWEEN THE AES, AND THE ARMS LENGTH CONDI TIONS CAN BE ESTABLISHED BY DIRECTLY SUBSTITUTING THE PRI CE IN COMPARABLE UNCONTROLLED TRANSACTION FOR THE PRICE O F THE CONTROLLED TRANSACTION. AS A RESULT, WHERE, TAKING INTO I.T.A. NO.: 6279/DEL/2012 ASSESSMENT YEAR: 2008-09 PAGE 16 OF 21 ACCOUNT THE CRITERIA ESTABLISHED IN PARA 2.2, A TRA DITIONAL TRANSACTION METHOD AND A TRADITION PROFIT METHOD CA N BE APPLIED IN A EQUALLY RELIABLE MANNER, THE TRADITION AL TRANSACTION METHOD IS TO BE PREFERRED OVER TRADITIO NAL PROFIT METHOD. MOREOVER, WHERE, TAKING INTO ACCOUNT THE CRITERIA ESTABLISHED IN PARA 2.2, THE CUP METHOD AN D ANOTHER TRANSFER PRICING METHOD CAN BE APPLIED IN A N EQUALLY RELIABLE MANNER, THE CUP METHOD IS TO BE PREFERRED......' 64. IN OTHER WORDS, THEREFORE, EVEN AS THERE MAY NO T BE ANY ORDER OF PREFERENCE IN WHICH METHODS OF DETERMINING THE ALP MUST BE CONSIDERED, THE TRADITIONAL TRANSACTION MET HODS, AND PARTICULARLY CUP, HAVE AN EDGE IN THE SENSE THAT AL L THINGS BEING EQUAL, CUP AND TRADITIONAL TRANSACTION METHODS ARE PREFERRED OVER THE TRANSACTION PROFIT METHOD. WE ARE BROADLY IN AGREEMENT WITH THESE VIEWS. WHETHER WE PROCEED ON T HE BASIS THAT THERE IS AN ORDER OF PREFERENCE IN WHICH TRANS FER PRICING METHODS ARE TO BE APPLIED, OR WHETHER WE PROCEED WI THOUT ANY SUCH PRIORITY ORDER, THE FACT REMAINS THAT AS LONG AS CUP METHOD CAN BE REASONABLY APPLIED IN DETERMINING THE ALP OF AN INTERNATIONAL TRANSACTION IN A PARTICULAR FACT SITU ATION, AND UNLESS ANOTHER METHOD IS PROVEN TO BE MORE RELIABLE A METHOD VIS-A-VIS THE FACT SITUATION OF THAT PARTICULAR CAS E, THE CUP METHOD IS TO BE PREFERRED. THE REASON IS SIMPLE. WH EN AES ENTER INTO A TRANSACTION AT SUCH CONDITIONS IN COMM ERCIAL AND FINANCIAL TERMS, WHICH ARE DIFFERENT FROM COMMERCIA L AND FINANCIAL TERMS IMPOSED IN COMPARABLE TRANSACTION B ETWEEN INDEPENDENT ENTERPRISES, THE DIFFERENCES IN THESE T WO SETS OF CONDITIONS IN FINANCIAL AND COMMERCIAL TERMS ARE AT TRIBUTED TO INTER-RELATIONSHIP BETWEEN THE AES, AND IT IS THIS IMPACT OF I.T.A. NO.: 6279/DEL/2012 ASSESSMENT YEAR: 2008-09 PAGE 17 OF 21 INTER-RELATIONSHIP BETWEEN THE AES THAT IS SOUGHT T O BE NEUTRALIZED BY THE TRANSFER PRICING REGULATIONS. AS LONG AS CUP METHOD CAN BE RELIABLY APPLIED ON THE FACTS OF A CA SE, IT DOES OFFER MOST DIRECT METHOD OF NEUTRALIZING THE IMPACT OF INTER- RELATIONSHIP BETWEEN AES ON THE PRICE AT WHICH THE TRANSACTIONS HAVE BEEN ENTERED INTO BY SUCH AES. 16. IN VIEW OF THE ABOVE DISCUSSIONS, AND BEARING I N MIND ENTIRETY OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE AL P DETERMINATION UNDER CUP METHOD ON THE BASIS OF DAILY EXPORT PORT DATA APRIL 2007- MARCH 2008, BY ADOPTING QUARTERLY AVERAGES, WAS WRONGLY REJECTE D BY THE TPO AND THE DRP. 17. HOWEVER, HAVING HELD THAT THE CUP METHOD IS IND EED THE MOST APPROPRIATE METHOD ON THE FACTS OF THIS CASE, AND T HAT THE COMPILATION OF DAILY EXPORTS PORT DATA DOES CONSTITUTE A REASONAB LE SOURCE OF INPUTS, WE HAVE TO POINT OUT SOME APPARENT ERRORS, WHICH CAME TO THE LIGHT DURING THE COURSE OF HEARING BEFORE US, IN THE APPLICATION OF THIS METHOD. 18. THE FIRST THING WE HAVE NOTICED IS THAT THE ASS ESSEE HAS DETERMINED ARMS LENGTH PRICE OF ITS TRANSACTIONS WITH THE AES BY COMPARING AVERAGE EXPORT PRICE BY THE ASSESSEE TO ITS AES WITH THE AV ERAGE UNCONTROLLED EXPORT PRICE. THIS APPROACH IS PATENTLY INCORRECT INASMUCH AS WHILE UNDER RULE 10 B (1)(A)(I), IT IS INDEED OPEN TO COM PUTE ALP ON THE BASIS OF PRICE CHARGED IN A COMPARABLE CONTROLLED TRANSACTI ON OR A NUMBER OF SUCH TRANSACTIONS , BUT THE ARM S LENGTH PRICE SO COMPUTED IS, UNDER RULE 10B(1)(A)(III), TAKEN AS ARMS LENGTH PRICE IN RESP ECT OF PROPERTY TRANSFERRED IN THE INTERNATIONAL TRANSACTION. THE E XPRESSION THE INTERNATIONAL TRANSACTION REFERRED TO IN RULE 10 B(1)((A)(III) IS USED IN I.T.A. NO.: 6279/DEL/2012 ASSESSMENT YEAR: 2008-09 PAGE 18 OF 21 SINGULAR AND DOES NOT PERMIT TAKING INTO ACCOUNT, U NLIKE RULE 10B(1)(A)(I), A NUMBER OF SUCH TRANSACTIONS . WHILE AVERAGING IS THUS PERMISSIBLE FOR THE UNCONTROLLED TRANSACTIONS, EACH INTERNATIONAL TRANSACTION IS TO BE TAKEN ON STANDALONE BASIS. IN OUR HUMBLE UNDERSTANDING, IT IS NOT OPEN TO THE ASSESSEE TO CO MPARE THE AVERAGE PRICE IN HIS TRANSACTIONS WITH AES WITH AVERAGE PRI CE IN UNCONTROLLED TRANSACTIONS. DEALING WITH A SOMEWHAT SIMILAR ISSU E, THOUGH IN THE CONTEXT OF COST PLUS METHOD OF ASCERTAINING THE ARM S LENGTH PRICE, A COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF ACIT VS TARA ULTIMO PVT LTD (143 TTJ 91) , HAS EXPLAINED THIS PRINCIPLE AS FOLLOWS: ..THE WAY THIS RULE WORKS, THE BENCHMARK GROSS P ROFIT IS TO BE APPLIED ON EACH TRANSACTION WITH THE AES, WHILE, FOR COMPUTING THE BENCHMARK, ONE COULD TAKE INTO ACCOUN T A SERIES OF SAME OR SIMILAR TRANSACTIONS. IN OTHER WORDS, WH ILE SETTING THE BENCHMARK, ONE CAN TAKE INTO ACCOUNT SEVERAL TR ANSACTIONS WITH UNRELATED ENTERPRISE ON WHAT CAN BE TERMED AS GLOBAL BASIS, ESSENTIALLY IN RESPECT OF SAME OR SIMILAR P ROPERTY OR SERVICES THOUGH, THE BENCHMARK SO ARRIVED AT CANNOT BE APPLIED ON THE GLOBAL BASIS I.E. THE AVERAGE OF GROSS PROFI T EARNED FROM SAME OR SIMILAR TRANSACTIONS WITH AES. THE APPLICAT ION OF CPM HAS TO BE ON TRANSACTION BASIS RATHER THAN ON GLOBA L BASIS, AND THIS FUNDAMENTAL SCHEME OF CPM IS ALSO EVIDENT FROM THE PLAIN WORDINGS OF R. 10B AS WELL. ANY OTHER VIEW OF THE M ATTER WILL RESULT IN INCONGRUITIES. FOR EXAMPLE, IF OUR AVERAG E MARK-UPTO UNRELATED ENTERPRISES IS 20 PER CENT, AND WE CHARGE A MARK-UP OF 2 PER CENT IN ONE TRANSACTION WITH AE AND 38 PER CENT IN ANOTHER TRANSACTION WITH THE AE, BOTH THESE TRANSAC TIONS, BY APPLYING THE MARK-UP ON GLOBAL BASIS, WILL MEET THE TEST OF ALP WHEREAS IN THE FIRST CASE, THE MARK-UP CHARGED IS C ERTAINLY NOT A I.T.A. NO.: 6279/DEL/2012 ASSESSMENT YEAR: 2008-09 PAGE 19 OF 21 MARK-UP RESULTING IN AN ALP. IN THIS PARTICULAR CAS E, FOR EXAMPLE, THE NORMAL MARK-UP IN TRANSACTIONS WITH HA S BEEN COMPUTED AT 16.31 PER CENT, AND THE AVERAGE OF MARK -UP ON SALES TO AES HAVING BEEN TAKEN AT 17.08 PER CENT, E NTIRE SALES TO AES HAS BEEN TAKEN AT ALP, BUT, THE MARK-UP IN THE MANY CASES IS CLEARLY LESS THAN BENCHMARK. TO GIVE ONE EXAMPLE , AT P. 221 OF THE PAPER-BOOK, MARGIN OF 14.15 PER CENT (4 INVO ICES), 13.95 PER CENT, 13.81 PER CENT, 14 PER CENT (4 INVOICES), 14.14 PER CENT (2 INVOICES), AND 14.16 PER CENT IS GIVEN BY A SSESSEES OWN COMPUTATION, AND, ON THE SAME PAGE, ON ONE INVOICE, THE ASSESSEE HAS SHOWN A MARGIN AS HIGH AS 27 PER CENT. THE CPM, THEREFORE, HAS NOT BEEN CORRECTLY APPLIED. IN ANY C ASE, ONE OF THE MOST IMPORTANT INPUT, I.E. DIAMOND, HAS BEEN IM PORTED AT A PRICE FOR WHICH NO ALP DOCUMENTATION IS AVAILABLE A ND THE PRICE OF IMPORTS HAVE BEEN TAKEN INTO ACCOUNT IN COMPUTAT ION OF COSTS AS WELL. THE COSTS OF INPUTS HAVE NOT BEEN VERIFIED EITHER. NO EFFORTS ARE MADE TO SHOW THAT THE TERMS OF SALE TO THE AES AND ALL OTHER RELEVANT FACTORS ARE MATERIALLY SIMILAR V IS-A-VIS THE TRANSACTIONS WITH INDEPENDENT ENTERPRISES. THE CPM IS APPLIED BY COMPARING GROSS PROFIT ON SALES, WHEREAS THE MET HOD REQUIRES COMPARISON OF MARK-UP ON COSTS ON TRANSACT IONS WITH AES VIS-A-VIS MARK-UP ON COSTS ON TRANSACTIONS WITH NON AES. IN VIEW OF THESE DISCUSSIONS, THE CIT(A) WAS IN ERROR IN UPHOLDING ASSESSEES COMPUTATION OF ALP BY CPM 19. THE SECOND THING THAT WE HAS BEEN NOTICED IS TH AT THE ASSESSEE HAS EXCLUDED EXCEPTIONALLY HIGH PRICES. IN OUR CONSIDER ED VIEW, THE CUP METHOD DOES NOT ALLOW EXCLUSION OF HIGH PRICED SALE INSTANCES, UNLESS SUCH HIGH PRICES COULD BE EXPLAINED BY DIFFERENCES OF PRODUCT OR COMMERCIAL TERMS. IN ANY EVENT, EXCLUSION OF EXTREM E CASES, SUCH AS IN I.T.A. NO.: 6279/DEL/2012 ASSESSMENT YEAR: 2008-09 PAGE 20 OF 21 QUARTILE RANGES, IS NORMALLY NOT PERMISSIBLE UNDER THE SCHEME OF DETERMINATION OF ALP UNDER THE CUP METHOD. HOWEVER, WE DONOT WISH TO GIVE ANY FINDINGS, AS ASSESSEE HAS NOT BEEN GIVEN E FFECTIVE OPPORTUNITY OF HEARING ON THIS ISSUE, IN THIS RESPECT BEYOND STATI NG THAT WE ARE REMITTING THE MATTER TO THE FILE OF THE ASSESSING O FFICER FOR FRESH DETERMINATION OF ARMS LENGTH PRICE UNDER THE CUP M ETHOD, AND WHILE SO DETERMINING THE ALP, THE OBSERVATIONS MADE ABOVE, A S ALSO IN PRECEDING PARAGRAPHS, SHALL BE DULY CONSIDERED. DURING THE C OURSE OF OUR HEARING, THIS PROPOSITION WAS PUT TO THE LEARNED REPRESENTAT IVES, AND LEARNED REPRESENTATIVES FAIRLY AGREED TO ACCEPT THESE DIREC TIONS. IN EFFECT, THUS, THE CUP METHOD IS UPHELD IN PRINCIPLE BUT THE DETER MINATION OF ALP, UNDER THE CUP METHOD, IS RESTORED TO THE FILE OF TH E ASSESSING OFFICER IN THE LIGHT OF OUR OBSERVATIONS ABOVE. 20. AS WE HAVE APPROVED THE APPLICATION OF CUP METH OD IN PRINCIPLE, ON THE FACTS OF THIS CASE, WE SEE NO NEED TO DEAL WITH THE ISSUES RELATING APPLICATION OF TNMM METHOD AND THE COMPARABLES SELE CTED FOR THE SAID PURPOSE. ALL THOSE ISSUES ARE ACADEMIC IN THE PRESE NT CONTEXT. 21. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIS TICAL PURPOSES IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON 21 ST DAY OF FEBRUARY, 2014. SD/XX SD/XX RAJPAL YADAV PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) NEW DELHI, THE 21 ST DAY OF FEBRUARY, 2014 I.T.A. NO.: 6279/DEL/2012 ASSESSMENT YEAR: 2008-09 PAGE 21 OF 21 COPIES TO : (1) THE APPELLANT (2) THE RESPONDENT (3) D R P (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ETC DEPUTY/ ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI