AT&S India Private Limited, Karnataka V. D.C.I.T., Circle-11(1), Kolkata, Kolkata

ITA 69/KOL/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4775 (ITAT-KOLKATA)
• Duration Of Justice: 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 11-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K SRIHARI
• Assessee Lawyers: RITUPARNA SINHA
• Keywords: Business income; Transfer pricing; International transaction; Rule of consistency; Valuation report; Reassessment proceedings; Capital expenditure
• Section: 92C; 143(3); 92D; 92B; 37(1); 10B; 147; 37; 154; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C, BENCH KOLKATA BEFORE SHRI S. S. GODARA, JM & DR. A.L.SAINI, AM ITA NO.69/KOL/2018 (ASSESSMENT YEAR: 2013-14) AT&S INDIA PRIVATE LIMITED 12A, INDUSTRIAL AREA, NANJANGUD 571 301 MYSORE DISTRICT, KARNATAKA, INDIA VS. DCIT, CIRCLE 11(1), KOLKATA P-7, CHOWRINGHEE SQUARE, KOLKATA 700 069. ./ ./PAN/GIR NO. : AAECA 2930 J ( /APPELLANT ) .. ( / RESPONDENT ) APPELLANT BY : SHRI ANUP SINHA & MS. RITUPARNA SINHA, AR REVENUE BY : SHRI P.K. SRIHARI, CIT, DR / DATE OF HEARING : 16/08/2018 /DATE OF PRONOUNCEMENT: 10/10/2018 / O R D E R PER DR. ARJUN LAL SAINI, AM: THE CAPTIONED APPEAL FILED BY THE ASSESSEE, PERTAINING TO ASSESSMENT YEAR 2013-14, IS DIRECTED AGAINST A FAIR ASSESSMENT ORDER PASSED BY THE DCIT, CIRCLE- 11(1), KOLKATA (ASSESSING OFFICER) UNDER SECTION 143(3) READ WITH SECTION 144C(13) OF THE INCOME TAX ACT, 1961 ( HEREINAFTER REFERRED TO AS THE ACT) DATED 06.12.2017, WHICH INCORPORATES THE DIRECTIONS GIVEN BY THE DISPUTE RESOLUTION PANEL (DRP)-2, NEW DELHI, ORDER DATED 19.09.2017. 2. GRIEVANCES RAISED BY THE ASSESSEE ARE AS FOLLOWS: 1 . THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO ERRED IN MAKING THE ARM'S LENGTH PRICE ('ALP') ADJUSTMENT OF INR 46,43,69,272/- SALE OF FINISHED GOODS 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP ERRED IN CONFIRMING THE ALP ADJUSTMENT OF INR 42,45,62,079/- IN RESPECT OF EXPORT OF FINISHED GOODS BY THE APPELLANT TO ITS PARENT COMPANY FOR FURTHER SALE TO INDEPENDENT CUSTOMERS AT SAME PRICES. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. TPO / LD. DRP ERRED IN REJECTING THE ARM'S LENGTH PRICE ANALYSIS UNDERTAKEN BY THE APPELLANT UNDER THE COMPARABLE UNCONTROLLED PRICE (CUP) METHOD IN RESPECT OF THE AFORESAID INTERNATIONAL TRANSACTION. AT&S INDIA PVT. LTD. ITA NO.69/KOL/2018 ASSESSMENT YEAR: 2013-14 2 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. TPO / LD. DRP ERRED IN NOT APPRECIATING THAT THE APPLICATION OF THE CUP METHOD ON THE SAME FACTS AND CIRCUMSTANCES OF THE CASE WAS CONFIRMED BY THE HON'BLE JURISDICTIONAL TRIBUNAL IN APPELLANT'S OWN CASE FOR THE ASSESSMENT YEARS 201 1-12 AND 2012-13. PAYMENT FOR INFORMATION TECHNOLOGY ('IT') SERVICE COST 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO ERRED IN DISREGARDING THE DIRECTION OF THE LD. DRP TO DELETE THE ALP ADJUSTMENT OF INR 3, 58, 02,269/- IN RESPECT OF PAYMENT OF IT SERVICE COST, THOUGH THE DIRECTION OF THE LD. DRP WAS BINDING ON LD. AO AS PER LAW. 6. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER PASSED BY THE LD. AO DISREGARDING THE DIRECTION OF THE LD. DRP WAS WITHOUT JURISDICTION AND VOID AB INITIO AND HENCE, MAY PLEASE BE QUASHED. WITHOUT PREJUDICE TO WHAT WE HAVE STATED IN GROUND NO. (5) AND (6): 7. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. TPO ERRED IN DETERMINING THE ALP OF THE SAID INTERNATIONAL TRANSACTION AT NIL VALUE WITHOUT APPLYING ANY OF THE METHODS PRESCRIBED UNDER SUB-SECTION (1) READ WITH SUB-SECTION (2) OF SECTION 92C OF THE INCOME-TAX ACT, 1961 ('ACT'), WHICH LED TO VIOLATION OF THE RELEVANT PROVISIONS OF THE ACT. 8. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. TPO ERRED IN DETERMINING THE ALP OF THE SAID INTERNATIONAL TRANSACTION AT NIL VALUE BY EXCEEDING HIS OWN JURISDICTION AND UNLAWFULLY ASSUMING THE JURISDICTION OF THE LD. AO UNDER SECTION 37(1)OF THE ACT. 9. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO IN THE DRAFT ASSESSMENT ORDER UNDER SECTION 143(3) READ WITH 144C(1) OF THE ACT DID NOT MAKE ANY ADVERSE COMMENT UNDER SECTION 37(1) OF THE ACT IN RESPECT OF THE SAID INTERNATIONAL TRANSACTION AFTER EXAMINING THE DETAILS IN CONNECTION THEREWITH SUBMITTED BY THE APPELLANT TO THE LD. TPO AND SUBSEQUENTLY, TO THE LD. AO AS PER HIS DIRECTION. WITHOUT FURTHER PREJUDICE TO WHAT WE HAVE STATED IN GROUND NO. (7), (8) AND (9): 10. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. TPO ERRED IN DIRECTING AN ADJUSTMENT OF INR 3,58,02,269/- BASED ON BENEFIT TEST WITHOUT DULY CONSIDERING EVIDENCES OF RECEIPT OF SERVICES SUBMITTED BY THE APPELLANT TO THE LD. TPO AND SUBSEQUENTLY TO THE LD. A.O. AND LD. DRP. PAYMENT FOR TECHNICAL SUPPORT SERVICE COST AT&S INDIA PVT. LTD. ITA NO.69/KOL/2018 ASSESSMENT YEAR: 2013-14 3 11. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO ERRED IN DISALLOWING THE PAYMENT OF TECHNICAL SUPPORT SERVICE COST AMOUNTING TO INR 40,04,924/-. 12. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP ERRED IN NOT APPRECIATING THAT THE TPO DETERMINED THE ALP OF THE SAID TRANSACTION AT NIL VALUE WITHOUT APPLYING ANY OF THE METHODS PRESCRIBED UNDER SUB-SECTION (1) READ WITH SUB-SECTION (2) OF SECTION 92C OF THE ACT WHICH LED TO VIOLATION OF THE RELEVANT PROVISIONS OF THE ACT. 13. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP ERRED IN NOT APPRECIATING THAT THE TPO DETERMINED THE ALP OF THE SAID TRANSACTION AT NIL VALUE BY EXCEEDING HIS OWN JURISDICTION AND UNLAWFULLY ASSUMING THE JURISDICTION OF THE LD. AO UNDER SECTION 37(1) OF THE ACT. 14. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP ERRED IN CONFIRMING THE AFORESAID DISALLOWANCE WITHOUT APPRECIATING THAT THE LD. AO IN THE DRAFT ASSESSMENT ORDER UNDER SECTION 143(3) READ WITH 144C(1) OF THE ACT DID NOT MAKE ANY ADVERSE COMMENT UNDER SECTION 37 (1) OF THE ACT IN RESPECT OF THE SAID TRANSACTION AFTER EXAMINING THE DETAILS OF THE SAID TRANSACTION SUBMITTED BY THE APPELLANT TO THE LD. TPO AND SUBSEQUENTLY TO THE LD. AO AS PER HIS DIRECTION. WITHOUT PREJUDICE TO WHAT WE HAVE STATED IN GROUND NO. (1 1) TO (14): 15. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP ERRED IN CONFIRMING THE ADJUSTMENT OF INR 40,04,924/- BASED ON BENEFIT TEST WITHOUT DULY CONSIDERING THE EVIDENCE OF RECEIPT OF SERVICE SUBMITTED BY THE APPELLANT TO THE LD. TPO AND SUBSEQUENTLY, TO THE LD. AO AND LD. DRP. 16. THAT THE APPELLANT CRAVES LEAVE TO ADD TO AND / OR AMEND, ALTER, MODIFY OR RESCIND THE GROUNDS HEREINABOVE BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 3. GROUND NOS. 2, 3 AND 4 RAISED BY THE ASSESSEE ARE DIRECTED AGAINST THE TRANSFER PRICING ADJUSTMENT OF RS. 42,45,62,079/-, MADE IN RESPECT OF EXPORT OF FINISHED GOODS BY THE ASSESSEE TO ITS PARENT COMPANY AT&S AG, FOR FURTHER SALE TO INDEPENDENT CUSTOMERS AT THE SAME PRICES. 4. WHEN THIS APPEAL WAS CALLED OUT FOR HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE, MS. RITUPARNA SINHA, INVITED OUR ATTENTION TO THE ORDER DATED AT&S INDIA PVT. LTD. ITA NO.69/KOL/2018 ASSESSMENT YEAR: 2013-14 4 11.05.2018, PASSED BY THE DIVISION BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO. 77/KOL/2017, FOR THE A.Y. 2012-13, WHEREBY THE ISSUE RELATING TO TRANSFER PRICING ADJUSTMENT IN RESPECT OF THE INTERNATIONAL TRANSACTION INVOLVING OF EXPORT OF PRINTED CIRCUIT BOARDS (PCBS) BY THE ASSESSEE COMPANY TO ITS ASSOCIATED ENTERPRISE (AT&S AG-EUROPE), HAS BEEN DISCUSSED IN DETAIL AND ADJUDICATED IN FAVOUR OF THE ASSESSEE. THEREFORE, THE LEARNED COUNSEL, MS. RITUPARNA SINHA, LEARNED COUNSEL FOR THE ASSESSEE, SUBMITTED BEFORE THE BENCH THAT THE PRESENT ISSUE INVOLVING GROUND NOS. 2, 3 AND 4 ARE SQUARELY COVERED BY THE AFORESAID ORDER OF THE TRIBUNAL, A COPY OF WHICH WAS ALSO PLACED BEFORE THE HONBLE BENCH. 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE, DID NOT HAVE MUCH TO SAY BUT HE NEVERTHELESS RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 6. WE SEE NO REASON TO TAKE ANY OTHER VIEW OF THE MATTER OTHER THAN THE VIEW SO TAKEN BY THE DIVISION BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE, VIDE ITA NO. 77/KOL/2017, FOR A.Y. 2012-13, ORDER DATED 11.05.2018. IN THIS ORDER THE TRIBUNAL AS INTER ALIA OBSERVED AS FOLLOWS: 14. AGGRIEVED BY THE ORDER OF THE LD. DRP/ASSESSING OFFICER, THE ASSESSEE IS IN APPEAL BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMITTED BEFORE US THAT SUITABLE METHOD FOR THE ASSESSEE COMPANY IS ONLY COMPARABLE UNCONTROLLED PRICE (CUP) METHOD. THE CUP METHOD FOR COMPUTING ARMS LENGTH PRICE OF THE ASSESSEES SALE OF FINISHED GOODS TO ITS AE IS SUITABLE, AS THE SPECIFIC CHARACTERISTICS OF PCBS (INDICATED BY PRODUCT IDENTIFICATION NUMBER) SOLD BY THE ASSESSEE TO AT&S AG WERE EXACTLY THE SAME AS THE SPECIFIC CHARACTERISTICS OF PCBS SOLD BY AT&S AG TO INDEPENDENT CUSTOMERS IN BACK TO BACK TRANSACTIONS. THE PRICES AT WHICH PCBS WERE SOLD BY THE ASSESSEE TO AT&S AG WERE EXACTLY EQUAL TO THE PRICES AT WHICH PCBS WERE SOLD BY AT&S AG TO INDEPENDENT CUSTOMERS IN BACK TO BACK TRANSACTIONS. THE QUANTITIES IN WHICH PCBS WERE SOLD BY THE ASSESSEE TO AT&S AG WERE EXACTLY EQUAL TO THE QUANTITIES IN WHICH PCBS WERE SOLD BY AT&S AG TO INDEPENDENT CUSTOMERS IN BACK TO BACK TRANSACTIONS. THE CONTROLLED TRANSACTIONS AS WELL AS UNCONTROLLED TRANSACTIONS TOOK PLACE IN EUROPE I.E. IN THE SAME GEOGRAPHICAL LOCATION AS DISCLOSED IN THE COPIES OF BACK TO-BACK INVOICES SUBMITTED TO THE TPO/DRP ON SAMPLE BASIS. FOR ADMINISTRATIVE CONVENIENCE, AT&S AG RETAINED DISTRIBUTION COMMISSION AND WARRANTY EXPENSE OUT OF THE SALE PROCEEDS COLLECTED FROM THE INDEPENDENT CUSTOMERS AND REMITTED THE BALANCE TO THE ASSESSEE. THEREFORE, THE CUP METHOD IS SUITABLE FOR THE ASSESSEE. AT&S INDIA PVT. LTD. ITA NO.69/KOL/2018 ASSESSMENT YEAR: 2013-14 5 APART FROM THIS, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT THIS IDENTICAL ISSUE IS FULLY COVERED BY THE HONBLE JURISDICTIONAL TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.179/KOL/2016, FOR ASSESSMENT YEAR 2011-12, ORDER DATED 03.08.2016, WHEREIN THE HONBLE TRIBUNAL HELD AS FOLLOWS: 11. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FOREGOING DISCUSSION WE FIND THAT THE TPO HAS MADE AN UPWARD ADJUSTMENT FOR RS. 69,30,53,397/- OF THE GOODS EXPORTED TO THE AE. THE TPO TREATED THE ASSESSEE AS TESTED PARTY AND SELECTED VARIOUS COMPANIES FOR COMPARABLES. THE TPO HAS TAKEN THE PLI AS OPERATING PROFIT TO SALES FOR THE WORKING OF ALP. THE DRP CONFIRMED THE SAME AFTER MAKING SOME CHANGES IN THE COMPANIES SELECTED FOR COMPARABLES BY THE TPO. IN THE LIGHT OF ARGUMENTS ADVANCED BY THE LD. AR AND DR WE FIND THAT THE ACTION OF LOWER AUTHORITIES WITH REGARD TO THE SELECTION OF TESTED PARTY IS CORRECT IN THE LIGHT OF FOLLOWING JUDGMENTS. ONWARD TECHNOLOGIES LIMITED VS DCIT 35 TAXMANN.COM 584 WHEREIN IT WAS HELD AS UNDER: 'A CONJOINT READING OF THE ABOVE PROVISIONS INDICATES THAT FIRSTLY, A TRANSACTION BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES IS CALLED AN INTERNATIONAL TRANSACTION; SECONDLY, ANY INCOME FROM SUCH INTERNATIONAL TRANSACTION IS REQUIRED TO BE DETERMINED AT ALP; THIRDLY, THE ALP IN RESPECT OF SUCH INTERNATIONAL TRANSACTION SHOULD BE DETERMINED BY ONE OF THE PRESCRIBED METHODS, WHICH ALSO INCLUDE THE TNMM. UNDER THIS METHOD, THE NET PROFIT MARGIN REALIZED BY THE ENTERPRISE FROM AN INTERNATIONAL TRANSACTION ENTERED INTO WITH AN ASSOCIATED ENTERPRISE IS COMPUTED IN RELATION TO COSTS INCURRED OR SALES EFFECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED BY THE ENTERPRISE OR HAVING REGARD TO ANY OTHER RELEVANT BASE, WHICH IS THEN COMPARED WITH THE NET PROFIT MARGIN REALIZED BY THE ENTERPRISE OR BY AN UNRELATED ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTION. THE MODUS OPERANDI OF DETERMINING ALP OF AN INTERNATIONAL TRANSACTION UNDER THIS METHOD IS THAT FIRSTLY, THE PROFIT RATE EARNED BY THE ASSESSEE FROM A TRANSACTION WITH ITS AE IS DETERMINED (SAY, PROFIT A), WHICH IS THEN COMPARED WITH THE RATE OF PROFIT OF COMPARABLE CASES (SAY, PROFIT B) FOR ASCERTAINING AS TO WHETHER PROFIT A IS AT ARM'S LENGTH VIS--VIS THE PROFIT B. IF IT IS NOT, THEN THE TRANSFER PRICING ADJUSTMENT IS MADE HAVING REGARD TO THE DIFFERENCE BETWEEN THE RATES OF PROFIT A AND PROFIT B. THE RATE OF PROFIT OF COMPARABLE CASES (PROFIT B) MAY BE COMPUTED FROM INTERNALLY OR EXTERNALLY COMPARABLE CASES, DEPENDING UPON THE FAR ANALYSIS AND THE FACTS AND CIRCUMSTANCES OF EACH CASE. THUS, THE CALCULATION OF PROFIT B MAY UNDERGO CHANGE WITH THE VARYING SET OF COMPARABLE CASES. HOWEVER, IN SO FAR AS CALCULATION OF PROFIT A IS CONCERNED, THERE CANNOT BE ANY DISPUTE AS THE SAME HAS TO NECESSARILY RESULT ONLY FROM THE TRANSACTION BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES, AS IS THE MANDATE OF SECTIONS 92 READ WITH 92B IN JUXTAPOSITION TO RULE 10B. THE NATURAL COROLLARY WHICH, THUS, FOLLOWS IS THAT UNDER NO SITUATION CAN THE CALCULATION OF 'PROFIT A' BE SUBSTITUTED WITH ANYTHING OTHER THAN FROM THE INTERNATIONAL TRANSACTION, THAT IS, A TRANSACTION BETWEEN THE ASSOCIATED ENTERPRISES. SO, IT IS THE PROFIT ACTUALLY REALIZED BY THE INDIAN ASSESSEE FROM THE TRANSACTION WITH ITS FOREIGN AE WHICH IS COMPARED WITH THAT OF THE COMPARABLES. THERE CAN BE NO QUESTION OF SUBSTITUTING THE PROFIT REALIZED BY THE INDIAN ENTERPRISE FROM ITS FOREIGN AE WITH THE PROFIT REALIZED BY THE FOREIGN AE FROM THE ULTIMATE CUSTOMERS FOR THE PURPOSES OF DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION OF THE INDIAN ENTERPRISE WITH ITS FOREIGN AE. THE SCOPE OF TP ADJUSTMENT UNDER THE INDIAN TAXATION LAW IS LIMITED TO TRANSACTION BETWEEN THE ASSESSEE AND ITS FOREIGN AE. IT CAN NEITHER CALL FOR ALSO ROPING IN AND TAXING IN INDIA THE MARGIN FROM THE ACTIVITIES UNDERTAKEN BY THE FOREIGN AE NOR CAN IT CURTAIL THE PROFIT ARISING OUT OF TRANSACTION BETWEEN THE INDIAN AND FOREIGN AE AT ARM'S LENGTH. THE CONTENTION OF THE LD. AR IN CONSIDERING THE PROFIT OF THE FOREIGN AE AS 'PROFIT A' FOR THE PURPOSES OF AT&S INDIA PVT. LTD. ITA NO.69/KOL/2018 ASSESSMENT YEAR: 2013-14 6 COMPARISON WITH PROFIT OF COMPARABLES, BEING 'PROFIT B', TO DETERMINE THE ALP OF TRANSACTION BETWEEN THE ASSESSEE AND ITS FOREIGN AE, MISSES THE WOOD FROM THE TREE BY MAKING THE SUBSTANTIVE SECTION 92 OTIOSE AND THE DEFINITION OF 'INTERNAL TRANSACTION' U/S 92B AND RULE 10B REDUNDANT. THIS IS PATENTLY AN UNACCEPTABLE POSITION HAVING NO SANCTION OF THE INDIAN TRANSFER PRICING LAW. BORROWING A CONTRARY MANDATE OF THE TP PROVISIONS OF OTHER COUNTRIES AND READING IT INTO OUR PROVISIONS IS NOT PERMISSIBLE. THE REQUIREMENT UNDER OUR LAW IS TO COMPUTE THE INCOME FROM AN INTERNATIONAL TRANSACTION BETWEEN TWO AES HAVING REGARD TO ITS ALP AND THE SAME IS REQUIRED TO BE STRICTLY ADHERED TO AS PRESCRIBED. THIS CONTENTION, IS THEREFORE, REPELLED.' RELIANCE IS ALSO PLACED IN ANOTHER DECISION OF HON'BLE MUMBAI BENCH IN THE CASE OF CYBERTECH SYSTEMS & SOFTWARE LIMITED VS. ACIT (33 TAXMANN.COM 371) WHEREIN THE ASSESSEE HAD TRIED TO JUSTIFY THE ARM'S LENGTH VALUE OF THE TRANSACTION ON THE GROUND THAT THE OVERSEAS AE HAD BEEN INCURRING LOSSES ON THE MARGIN RETAINED FROM THE ASSESSEE. ON APPEAL, THE TRIBUNAL REJECTED THE ASSESSEE'S ARGUMENT THAT SUCH TRANSACTIONS HAVE TO BE CONSIDERED AT ARM'S LENGTH ON GROUND THAT THERE IS NO SHIFTING OF PROFITS. THE TRIBUNAL CATEGORICALLY HELD THAT THE ASSESSEE I.E., THE INDIAN PARTY HAS TO BE TAKEN AS THE TESTED PARTY AND THE TNMM METHOD IS TO BE FOLLOWED. RECENTLY THE DELHI BENCH OF ITAT IN THE CASE OF RANBAXY LAB LTD. VS. ADDL CIT (AY 2004-05) REJECTED THE ASSESSEE'S CASE SINCE IT HAD TAKEN THE FOREIGN AES AS 'TESTED PARTIES' AND CALCULATED ITS ALP. THE ITAT AGREED WITH THE AO'S CONTENTION THAT SUCH BENCHMARKING IS NOT IN CONSONANCE WITH THE INCOME TAX RULES. BESIDES THE ABOVE THE AE CANNOT BE TREATED AS TESTED PARTY BECAUSE ITS ACCOUNTS ARE BASED ON AUSTRIA GAAP WHICH IS DIFFERENT FROM INDIAN GAAP. ACCORDINGLY, THE METHOD OF ACCOUNTING, ALLOCATION OF COSTS, RECOGNITION OF REVENUE ETC. DIFFER FOR MAKING THE COMPARISON. IN THE INSTANT CASE WE NEED TO DETERMINE THE ALP OF THE TRANSACTION BETWEEN THE ASSESSEE AND AE FOR THE EXPORT OF THE PCB. THEREFORE, THE TESTED PARTY WILL BE THE INDIAN PARTY. IN VIEW OF ABOVE WE FIND NO REASON TO INTERFERE IN THE ORDER OF DRP. HENCE THE ASSESSEE HAS RIGHTLY BEEN TREATED AS TESTED PARTY. WITH REGARD TO THE TNMM METHOD ADOPTED BY THE LOWER AUTHORITIES FOR THE COMPUTATION OF ALP WE FIND THAT THE VARIOUS COURTS HAVE HELD TO ADOPT THE CUP METHOD IN THE AFORESAID FACTS AND CIRCUMSTANCES. AT THIS JUNCTURE IT IS IMPORTANT TO UNDERSTAND THE CUP METHOD AS PER THE PROVISIONS OF CLAUSE (A) OF SUB-RULE (1) OF RULE 10B OF THE INCOME-TAX RULES (HEREINAFTER REFERRED TO AS THE 'RULES'), WHICH INTER ALIA READS AS FOLLOWS: '10B. (1) FOR THE PURPOSES OF SUB-SECTION (2) OF SECTION 92C, THE ARM'S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION [OR A SPECIFIED DOMESTIC TRANSACTION] SHALL BE DETERMINED BY ANY OF THE FOLLOWING METHODS, BEING THE MOST APPROPRIATE METHOD, IN THE FOLLOWING MANNER, NAMELY :- (A) COMPARABLE UNCONTROLLED PRICE METHOD, BY WHICH,- (I) THE PRICE CHARGED OR PAID FOR PROPERTY TRANSFERRED OR SERVICES PROVIDED IN A COMPARABLE UNCONTROLLED TRANSACTION, OR A NUMBER OF SUCH TRANSACTIONS, IS IDENTIFIED; (II) SUCH PRICE IS ADJUSTED TO ACCOUNT FOR DIFFERENCES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION [OR THE SPECIFIED DOMESTIC TRANSACTION] AND THE COMPARABLE UNCONTROLLED TRANSACTIONS OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS, WHICH COULD MATERIALLY AFFECT THE PRICE IN THE OPEN MARKET; (III) THE ADJUSTED PRICE ARRIVED AT UNDER SUB-CLAUSE (II) IS TAKEN TO BE AN ARM'S LENGTH PRICE IN RESPECT OF THE PROPERTY TRANSFERRED OR SERVICES PROVIDED IN THE INTERNATIONAL TRANSACTION [OR THE SPECIFIED DOMESTIC TRANSACTION] ;' AT&S INDIA PVT. LTD. ITA NO.69/KOL/2018 ASSESSMENT YEAR: 2013-14 7 THE TERM 'COMPARABLE UNCONTROLLED TRANSACTION' HAS NOT BEEN DEFINED IN THE ACT AND THE RULE. AS PER CLAUSE OF RULE 10A OF THE RULES, AN UNCONTROLLED TRANSACTION MEANS A TRANSACTION BETWEEN ENTERPRISES OTHER THAN ASSOCIATED ENTERPRISES, WHETHER RESIDENT OR NON-RESIDENT. THE TERM 'COMPARABLE UNCONTROLLED TRANSACTION' HAS BEEN DEFINED IN THE OECD TRANSFER PRICING GUIDELINES FOR MULTINATIONAL ENTERPRISES AND TAX ADMINISTRATION, JULY 2010 (HEREINAFTER REFERRED TO AS THE 'OECD GUIDELINES), WHICH INTER-ALIA READS AS UNDER: 'COMPARABLE UNCONTROLLED TRANSACTION A COMPARABLE UNCONTROLLED TRANSACTION IS A TRANSACTION BETWEEN TWO INDEPENDENT PARTIES THAT IS COMPARABLE TO THE CONTROLLED TRANSACTION UNDER EXAMINATION. IT CAN BE EITHER A COMPARABLE TRANSACTION BETWEEN ONE PARTY TO THE CONTROLLED TRANSACTION AND AN INDEPENDENT PARTY ('INTERNAL COMPARABLE') OR BETWEEN TWO INDEPENDENT PARTIES, NEITHER OF WHICH IS A PARTY TO THE CONTROLLED TRANSACTION ('EXTERNAL COMPARABLE'). THE OECD GUIDELINES INTER ALIA DEFINES THE CUP METHOD AS FOLLOWS: 'COMPARABLE UNCONTROLLED PRICE (CUP) METHOD A TRANSFER PRICING METHOD THAT COMPARES THE PRICE FOR PROPERTY OR SERVICES TRANSFERRED IN A CONTROLLED TRANSACTION TO THE PRICE CHARGED FOR PROPERTY OR SERVICES TRANSFERRED IN A COMPARABLE UNCONTROLLED TRANSACTION IN COMPARABLE CIRCUMSTANCES. ' 11.1 WE ALSO FIND SUPPORT FROM THE DECISION OF THE HON'BLE MUMBAI TRIBUNAL IN THE MATTER OF DCIT VS. ISAGRO (ASIA) AGROCHEMICALS (P.) LTD REPORTED IN [2013] 31 TAXMANN.COM 388 (MUMBAI - TRIB.), WHEREIN THE HON'BLE TRIBUNAL INTERALIA HELD THAT : 'VARIOUS BENCHES OF THE TRIBUNAL INCLUDING ASSTT. CIT V. MSS INDIA (P .) LTD.[2009] 32 SOT 132 (PUNE) AND PHILIPS SOFTWARE CENTRE (P.) LTD. V. ASSTT . CIT ITA NO.179/KOL/2016 A.Y 2011-12 [2008] 26 SOT 226 (BANG.) HAVE PREFERRED THE FOLLOWING OF CUP METHOD. IT IS OBVIOUS THAT WHEN THE PRICE OF SIMILAR GOODS OR SERVICES AS SOLD OR PROVIDED TO THE NON-AES IS AVAILABLE, SUCH A PRICE CONSTITUTES THE BEST GUIDE TO FIND OUT WHETHER THE PRICE CHARGED OR PAID TO THE AES IS AT ALP OR NOT. IT IS MORE SO WHEN SUCH COMPARABLE UNCONTROLLED TRANSACTIONS IS INTERNAL. WHEN SIMILAR GOODS AS TRADED WITH AES CONSTITUTING INTERNATIONAL TRANSACTIONS ARE TRADED WITH NON-AES, IT ALWAYS PROPER TO CONSIDER THE PRICE OF GOODS TRADED WITH NON- AES, FOR BENCHMARKING PRICE OF GOOD TRADED WITH AES. IN OUR CONSIDERED OPINION THE ID. CIT(A) WAS JUSTIFIED IN UPHOLDING THE PREFERENCE OF CUP METHOD OVER TNMM. ' IN THE INSTANT CASE, THE TRANSACTIONS INVOLVING SALE OF PCBS BY THE APPELLANT TO AE DURING THE FINANCIAL YEAR 2010-11 STOOD AS CONTROLLED TRANSACTIONS, WHEREAS THE TRANSACTIONS INVOLVING SALE OF EXACTLY THE SAME PCBS IN THE SAME QUANTITY AS THOSE TRANSACTED BETWEEN THE APPELLANT AND AE AND BY AE (I.E. ONE OF THE PARTIES TO THE CONTROLLED TRANSACTION) TO INDEPENDENT CUSTOMERS IN EUROPE DURING THE RELEVANT FINANCIAL YEAR STOOD AS COMPARABLE UNCONTROLLED TRANSACTIONS. THE PRICES AT WHICH PCBS WERE SOLD BY THE ASSESSEE TO AE ARE EQUAL TO THE PRICES AT WHICH PCBS WERE SOLD BY AE TO INDEPENDENT CUSTOMERS. THUS, THE INTERNATIONAL TRANSACTION INVOLVING SALE OF FINISHED GOODS BY THE ASSESSEE TO AE ADHERES TO THE ARM'S LENGTH PRINCIPLE EMBODIED IN THE INDIAN TRANSFER PRICING REGULATION UNDER THE CUP METHOD. BESIDES THE ABOVE THE ASSESSEE HAS SUBMITTED BACK TO BACK INVOICES AND ON WHICH NO ADVERSE COMMENT HAS BEEN PASSED BY THE LOWER AUTHORITIES ON ITS GENUINENESS. IT WAS ALSO OBSERVED THAT THE FINANCIAL DISTRIBUTION SEGMENT REPORT OF AE SUBMITTED BY THE ASSESSEE WAS REJECTED BY THE TPO WITHOUT ASSIGNING ANY SPECIFIC REASONS AND DEFECTS IN THE REPORT. WE THEREFORE AT&S INDIA PVT. LTD. ITA NO.69/KOL/2018 ASSESSMENT YEAR: 2013-14 8 INCLINED TO TREAT THE PRICE CHARGED BY THE ASSESSEE OF THE GOODS EXPORTED TO AE AS ALP AS THE SAME PRICE WAS CHARGED BY THE AE FROM THE OTHER CUSTOMERS. 11.2 WE ALSO FIND THAT IN FORM NO. 3CEB FOR THE PREVIOUS YEAR UNDER CONSIDERATION THE ASSESSEE MENTIONED THE METHOD OF DETERMINING ARM'S LENGTH PRICE AS 'TNMM' IN RESPECT OF EXPORT OF PCBS VALUED INR 197,55,10,000/- WITH REGARD TO THE COMMISSION AND PRELIMINARY WARRANTY GUARANTEE. TRANSFER PRICING STUDY WAS SILENT ABOUT THE METHOD FOR BENCHMARKING THE GROSS PRICES RECEIVABLE BY THE APPELLANT FROM AE FOR EXPORT OF PCBS. BUT THE DRP IDENTIFIED THE AFORESAID EXPORT AS A SEPARATE TRANSACTION ('SALE') AND CONFIRMED THE APPLICATION OF THE TNMM AT THE ENTITY LEVEL. HOWEVER, WE FIND THAT THE DRP SHOULD HAVE APPLIED THE METHOD WHICH IS THE MOST APPROPRIATE AND IN THE INSTANT WE HAVE ALREADY HELD THAT THE CUP METHOD AS THE MOST APPROPRIATE METHOD. 11.3 IN THIS CONNECTION, WE RELY IN THE DECISION OF THE HON'BLE MUMBAI TRIBUNAL IN THE MATTER OF MATTEL TOYS (I) (P.) LTD VS. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE - 6(3) REPORTED IN [2013] 34 TAXMANN.COM 203 (MUMBAI - TRIB.), WHEREIN THE HON'BLE TRIBUNAL INTER ALIA HELD THAT: '41. NOW COMING TO THE ARGUMENT OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT ONCE THE ASSESSEE ITSELF HAS CHOSEN TNMM AS MOST APPROPRIATE METHOD IN TPR, THEN IT CANNOT RESORT TO CHANGE ITS METHOD AT AN ASSESSMENT OR APPELLATE STAGE. IN OUR OPINION, SUCH A CONTENTION CANNOT BE UPHELD BECAUSE IF IT IS FOUND ON THE FACTS OF THE CASE THAT A PARTICULAR METHOD WILL NOT RESULT INTO PROPER DETERMINATION OF THE ALP, THE TPO OR THE APPELLATE AUTHORITIES CAN VERY WELL HOLD THAT WHY A PARTICULAR METHOD CAN BE APPLIED FOR GETTING PROPER DETERMINATION OF ALP OR THE ASSESSEE CAN DEMONSTRATE A PARTICULAR METHOD TO JUSTIFY ITS ALP. THUS, EVEN IF THE ASSESSEE HAD ADOPTED TNMM AS THE MOST APPROPRIATE METHOD IN THE TRANSFER PRICING REPORT, THEN ALSO IT IS NOT PRECLUDED FROM RAISING THE CONTENTIONS/OBJECTIONS BEFORE THE TPO OR THE APPELLATE COURTS THAT SUCH A METHOD WAS NOT AN APPROPRIATE METHOD AND IS NOT RESULTING INTO PROPER DETERMINATION OF ALP AND SOME OTHER METHOD SHOULD BE RESORTED. THE ULTIMATE AIM OF THE TRANSFER PRICING IS TO EXAMINE WHETHER THE PRICE OR THE MARGIN ARISING FROM AN INTERNATIONAL TRANSACTIONS WITH THE RELATED PARTY IS AT ALP OR NOT. THE DETERMINATION OF APPROXIMATE ALP IS THE KEY FACTOR FOR WHICH MOST APPROPRIATE METHOD IS TO BE FOLLOWED. THEREFORE, IF AT ANY STAGE OF THE PROCEEDINGS, IT IS FOUND THAT BY ADOPTING ONE OF THE PRESCRIBED METHODS OTHER THAN CHOSEN EARLIER, THE MOST APPROPRIATE ALP CAN BE DETERMINED, THE ASSESSMENT AUTHORITIES AS WELL AS THE APPELLATE COURTS SHOULD TAKE INTO CONSIDERATION SUCH A PLEA BEFORE THEM PROVIDED, IT IS DEMONSTRATED AS TO HOW A CHANGE IN THE METHOD WILL PRODUCE BETTER OR MORE APPROPRIATE ALP ON THE FACTS OF THE CASE. ACCORDINGLY, WE REJECT THE CONTENTIONS OF THE LEARNED DEPARTMENTAL REPRESENTATIVE AND ALSO THE OBSERVATIONS OF THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS) THAT THE ASSESSEE CANNOT RESORT TO ADOPTION OF RPM METHOD INSTEAD OF TNMM.' FROM THE ABOVE WE FIND THAT THE HON'BLE MUMBAI TRIBUNAL HAS INTER ALIA HELD THAT THE ULTIMATE AIM OF TRANSFER PRICING IS TO EXAMINE WHETHER THE PRICE OR THE MARGIN ARISING FROM AN INTERNATIONAL TRANSACTIONS WITH THE RELATED PARTY IS AT ARM'S LENGTH PRICE (IN SHORT, 'ALP) OR NOT. ACCORDINGLY, EVEN IF AN ASSESSEE HAS ADOPTED TNMM AS THE MOST APPROPRIATE METHOD IN THE TRANSFER PRICING REPORT, THEN ALSO IT IS NOT PRECLUDED FROM RAISING THE CONTENTIONS/OBJECTIONS BEFORE THE ASSESSMENT AUTHORITIES AND THE APPELLANT COURTS THAT SUCH A METHOD WAS NOT AN APPROPRIATE METHOD AND IS NOT RESULTING INTO PROPER DETERMINATION OF ALP AND SOME OTHER METHOD SHOULD BE RESORTED. IN VIEW OF THE PRINCIPLE ENUNCIATED BY THE HON'BLE MUMBAI TRIBUNAL IN THE AFORESAID CASE, WE APPLY THE CUP METHOD IN RESPECT OF THE INTERNATIONAL TRANSACTION INVOLVING EXPORT OF PRINTED CIRCUIT BOARDS AND AT&S INDIA PVT. LTD. ITA NO.69/KOL/2018 ASSESSMENT YEAR: 2013-14 9 ACCORDINGLY DELETE THE ADJUSTMENT OF INR 69,30,53,397/- MADE IN THE ASSESSMENT ORDER. 11.4 WE ALSO FIND THAT VARIOUS HON'BLE COURT HAVE HELD THAT THE CUP METHOD BEING PREFERRED OVER THE PROFIT BASED METHODS. IN THIS CONNECTION WE RELY IN THE DECISION OF THE HON'BLE DELHI TRIBUNAL IN THE MATTER OF HUGHES SYSTIQUE INDIA (P.) LTD VS. ACIT REPORTED IN [2013] 36 TAXMANN.COM 41 (DELHI - TRIB.), WHEREIN THE HON'BLE TRIBUNAL INTER ALIA HELD THAT: '6.5 THE CUP METHOD PROVIDES THE MOST DIRECT COMPARISON FOR THE PURPOSE OF DETERMINING THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS AND IS TO BE PREFERRED OVER THE OTHER PROFIT BASED METHODS. RELIANCE IS PLACED IN THIS REGARD ON THE FOLLOWING DECISIONS: - AZTEC SOFTWARE & TECHNOLOGIES SERVICES LTD. V. ASSTT. CIT [2007] 107 ITD 141/162 TAXMAN 119 (BANG.) (SB) - UCB INDIA (P.) LTD. V. ASSTT . CIT [2009] 30 SOT 95 (MUM.) - GHARDA CHEMICALS LTD. V. OY. CIT [2010] 35 SOT 406 (MUM.) - INTERVET INDIA (P.) LTD. V. ASSTT . CIT [2010] 39 SOT 93 (MUM.) - ASSTT. CIT V. DUFON LABORATORIES [2010] 39 SOT 59 (MUM.) 11. RELIANCE IN THIS REGARD IS ALSO PLACED ON THE DECISION OF HON'BLE MUMBAI TRIBUNAL IN THE CASE OF SERDIA PHARMACEUTICALS (INDIA) (P.) LTD. V. ASSTT . CIT REPORTED IN [2011] 44 SOT 391/9 TAXMANN.COM 13 WHEREIN THE HON'BLE TRIBUNAL WHILE DEALING WITH THE PRIORITY OF APPLICATIONS OF METHODS FOR THE DETERMINATION OF ALP, HAS HELD AS UNDER: '64... AS LONG AS CUP METHOD CAN BE REASONABLY APPLIED IN DETERMINING THE ARM'S LENGTH PRICE OF AN INTERNATIONAL TRANSACTION IN A PARTICULAR FACT SITUATION, AND UNLESS ANOTHER METHOD IS PROVEN TO BE MORE RELIABLE A METHOD VIS-A-VIS THE FACT SITUATION OF THAT PARTICULAR CASE, THE CUP METHOD IS TO BE PREFERRED. THE REASON IS SIMPLE. WHEN ASSOCIATED ENTERPRISES ENTER INTO A TRANSACTION AT SUCH CONDITIONS IN COMMERCIAL AND FINANCIAL TERMS, WHICH ARE DIFFERENT FROM COMMERCIAL AND FINANCIAL TERMS IMPOSED IN COMPARABLE TRANSACTION BETWEEN INDEPENDENT ENTERPRISES, THE DIFFERENCE IN THESE TWO SETS OF CONDITIONS IN FINANCIAL AND COMMERCIAL TERMS RE-ATTRIBUTED TO INTER RELATIONSHIP BETWEEN THE ASSOCIATED ENTERPRISES THAT IS SOUGHT TO BE NEUTRALIZED BY THE TRANSFER PRICING REGULATIONS. AS LONG AS CUP METHOD CAN BE RELIABLY APPLIED ON THE FACTS OF A CASE, 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. ' RELYING ON THE DECISION OF SERDIA PHARMACEUTICALS INDIA (P.) LTD. (SUPRA), THE HON'BLE DELHI TRIBUNAL IN THE CASE OF CLEAR PLUS INDIA (P.) LTD. V. DY. CIT REPORTED IN [2011] 10 TAXMANN.COM 249, INTERALIA HELD THAT: '7 .... IN THE CASE OF SERDIA PHARMACEUTICALS INDIA (P) LIMITED, IT HAS BEEN HELD THAT CUP METHOD IS A PREFERRED METHOD AND IT LEADS TO MORE RELIABLE RESULTS VIS- A-VIS THE RESULTS OBTAINED BY APPLYING TRANSACTION PROFIT METHOD. IN THE CASE OF SNF (AUSTRALIA) PTY. LIMITED, IT HAS BEEN HELD THAT THE FOCUS IS ON THE MARKET IN WHICH PRODUCTS ARE ACQUIRED. THE RATIO OF THIS CASE IS APPLICABLE MUTATIS- AT&S INDIA PVT. LTD. ITA NO.69/KOL/2018 ASSESSMENT YEAR: 2013-14 10 MUTANDIS TO THE FACTS OF THE CASE AS THE FOCUS IS ON THE MARKET IN WHICH PRODUCTS ARE SOLD.' IN THE CASE OF GHARDA CHEMICALS LTD. (SUPRA), THE HON'BLE INCOME TAX APPELLATE TRIBUNAL HELD THAT INTERNAL COMPARABLE SHOULD BE PREFERRED OVER EXTERNAL COMPARABLES. THE RELEVANT EXTRACT OF THE JUDGMENT IS FURNISHED HERE IN BELOW: 'INTERNAL CUP METHOD ENVISAGES COMPARING THE UNCONTROLLED TRANSACTIONS OF THE APPELLANT ITSELF WITH OTHER UNRELATED PARTIES SO AS TO DETERMINE THE ALP WITH THE AE. HOWEVER, THE EXTERNAL CUP METHOD DISREGARDS THE PRICE CHARGED OR PAID BY THE APPELLANT TO OR FROM ITS UNRELATED PARTIES AND CONTEMPLATES THE COMPARISON OF THE PRICE SO CHARGED FROM OR PAID TO ITS AE WITH SOME EXTERNAL INDEPENDENT RELIABLE PRICE DATA UNDER SIMILAR CIRCUMSTANCES OF TRANSACTIONS WITH AE. ORDINARILY THE INTERNAL CUP METHOD SHOULD BE PREFERRED OVER THE EXTERNAL CUP METHOD AS IT NEUTRALIZES SEVERAL DISTINGUISHING FACTORS, SUCH AS THE LOCAL FACTORS AND THE ECONOMIES AVAILABLE OR UNAVAILABLE TO THE APPELLANT IN PARTICULAR, HAVING BEARING OVER THE COMPARISON OF PRICE CHARGED FROM UNRELATED PARTIES AND AE.' 11.5 IN VIEW OF THE ABOVE JUDICIAL PRECEDENTS, WE FIND THAT THE CUP METHOD PROVIDES THE MOST DIRECT COMPARISON FOR THE PURPOSE OF DETERMINING THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS AND IS TO BE PREFERRED OVER THE OTHER PROFIT BASED METHODS. ACCORDINGLY, IN THE INSTANT CASE INTERNAL CUP METHOD SHOULD BE PREFERRED OVER THE EXTERNAL CUP METHOD. HENCE, WE HOLD THAT IN THE INSTANT CASE, THE CUP METHOD (INTERNAL) IS THE MOST APPROPRIATE METHOD IN DETERMINING THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION INVOLVING EXPORT OF PCBS BY THE ASSESSEE TO AE AND ACCORDINGLY, DELETE THE ADJUSTMENT OF INR 69,30,53,397/- MADE IN THE ASSESSMENT ORDER. 15. ON THE OTHER HAND, THE LD DR FOR THE REVENUE SUBMITTED BEFORE US THAT THE OECD GUIDELINES DEFINES 'TESTED PARTY' AS 'THE ONE TO WHICH A TRANSFER PRICING METHOD CON BE APPLIED IN THE MOST RELIABLE MANNER AND FOR WHICH THE MOST RELIABLE COMPARABLE CAN BE FOUND, I.E. IT WILL MOST OFTEN BE THE ONE THAT HAS THE LESS COMPLEX FUNCTIONAL ANALYSIS.' UN MANUAL DEFINES TESTED PARTY IN THE SIMILAR MANNER. A TESTED PARTY SHOULD HAVE THE FOLLOWING ATTRIBUTES ON BASES OF THESES DEFINITIONS AVAILABLE OF RELIABLE AND ACCURATE DATA FOR COMPARISON LEAST COMPLEX (AMONGST THE PARTIES TO THE TRANSACTION) DATA AVAILABLE CAN BE USED WITH MINIMAL ADJUSTMENTS THUS, IT IS CLEAR FROM THE ABOVE THAT, TESTED PARTY IS THE ONE TO WHICH TP METHOD CAN BE EASILY APPLIED. THIS MEANS, IN THIS CASE INDIAN COMPANY BEING THE TESTED PARTY, THE TP PROVISIONS OR METHOD SHALL BE PURELY WITH REFERENCE TO INDIAN COMPANY ONLY. FURTHER TO MAKE THINGS MORE CLEAR THE TP ANALYSIS HAS TO BE UNDER TAKEN FOR THE TRANSACTION UNDERTAKEN BY INDIAN COMPANY WITH FOREIGN AE. IN ORDER TO APPLY CUP METHOD TO THE ASSESSEES CASE, IT IS RELEVANT TO EXAMINE AS TO WHETHER CONDITIONS REQUIRED EXIST OR NOT. THE LD DR EXPLAINS THE PROVISIONS OF RULE 10B (1) (A), IN THE CONTEXT OF THE ASSESSEE UNDER CONSIDERATION AS FOLLOWS: COMPARABLE UNCONTROLLED PRICE METHOD RULE 10B(1)(A) COMPARES THE PRICE CHARGED IN A CONTROLLED TRANSACTION WITH THE PRICE IN AN UNCONTROLLED TRANSACTION AT&S INDIA PVT. LTD. ITA NO.69/KOL/2018 ASSESSMENT YEAR: 2013-14 11 REQUIRES STRICT COMPARABILITY IN PRODUCTS, CONTRACTUAL TERMS, ECONOMIC TERMS, ETC. THERE ARE TWO KINDS OF THIRD PARTY TRANSACTIONS. FIRSTLY, A TRANSACTION BETWEEN THE TAXPAYER AND AN INDEPENDENT ENTERPRISE (INTERNAL CUP) SECONDLY, A TRANSACTION BETWEEN TWO INDEPENDENT ENTERPRISES (EXTERNAL CUP) THE BELOW EXAMPLE SHOWS THE DIFFERENCE BETWEEN THE TWO TYPES OF CUP METHODS: SHAREHOLDER INTERNAL CUP THIRD PARTY ASSOCIATED CONTROLLED TRANSACTION ASSOCIATED DISTRIBUTOR DISTRIBUTOR MANUFACTURER THIRD PARTY EXTERNAL CUP THIRD PARTY MANUFACTURER DISTRIBUTOR WITH THE HELP OF THE ABOVE DIAGRAM, THE LD DR EXPLAINED THE BENCH THAT IN ORDER TO APPLY CUP METHOD EITHER INTERNAL OR EXTERNAL, THE CUP IS NECESSARY AND FOR THAT THE RELEVANT RULES ARE 10B (2), 10B (3), 10B (4) OF THE INCOME TAX RULES. THEREFORE, TO APPLY THE CUP METHOD, THE TRANSACTION ENTERED INTO BY THE TESTED PARTY SHOULD BE COMPARED WITH UNCONTROLLED TRANSACTION AND SUCH UNCONTROLLED TRANSACTIONS DO NOT INCLUDE TRANSACTIONS BETWEEN THE ASSOCIATED ENTERPRISES. INDIAN TP REGULATIONS PRESCRIBE THAT MOST APPROPRIATE METHOD HAS TO BE IDENTIFIED FOR BENCHMARKING ON INTERNATIONAL TRANSACTION AND COMPARISON HAS TO BE DONE WITH UNCONTROLLED TRANSACTIONS AND NOT CONTROLLED TRANSACTIONS TO ARRIVE AT THE ARMS LENGTH PRICE. ACCORDINGLY, THE APPROACH OF BENCH MARKING THE TRANSACTION PERTAINING TO SALE BY AE BY COMPARING THE SAME WITH CONTROLLED TRANSACTION OF ASSESSEE ITSELF DOES NOT FALL UNDER ANY OF THE METHODS PRESCRIBED UNDER THE PROVISIONS OF SECTION 92C OF THE ACT. LT IS CONTRARY TO INDIAN TP REGULATIONS AND NOT ACCEPTABLE UNDER THE LNDIAN TP REGULATIONS. SIMILAR VIEW HAS BEEN TAKEN BY ITAT IN CASE OF SKODO AUTO LNDIA PVT. LTD. VS. ACIT (122TTJ 699), M.S.S. INDIA PVT. LTD. (123 ITJ 657) AND BECHTELLNDIA PVT. LTD. VS. DCIT (136TTJ 212). THE LD DR POINTED OUT THAT AS PER PARA 2.6 OF OECD TP GUIDELINES, IT IS OBVIOUS THAT FOR APPLICATION OF ANY TP METHOD FOR BENCHMARKING INTERNATIONAL TRANSACTIONS COMPARISON HAS TO BE WITH UNCONTROLLED TRANSACTIONS. FURTHER, THE ASSESSEES RELIANCE ON THE DECISION OF DCIT VS. CALANCE SOFTWARE (P). LTD. REPORTED IN 82 TAXMAN. COM 390 (DELHI ITAT) IS MISPLACED, AS FACTS ARE DIFFERENT BUT FOR BACK TO BACK TRANSACTIONS OF SOFTWARE DEVELOPMENT SERVICES AT THE SAME PRICE. THEREFORE, THE LD DR POINTED OUT THE FOLLOWINGS: 1.THE ASSESSEE IS A MANUFACTURER WHEREAS THE AE IS A DISTRIBUTOR. HENCE, FUNCTIONS ARE DIFFERENT. 2. IN THE REFERRED CASE, THERE IS NO ISSUE OF TESTED PARTY. AT&S INDIA PVT. LTD. ITA NO.69/KOL/2018 ASSESSMENT YEAR: 2013-14 12 3. ONCE THE TESTED PARTY ISSUE COMES INTO EXISTENCE, THE SCENARIO CHANGES AND THE MECHANISM OF TP HAS TO BE APPLIED TO THE TESTED PARTY. 4. AS EXPLAINED ABOVE, AS PER INDIAN TP REGULATIONS AS WELL AS OECD GUIDELINES UNCONTROLLED TRANSACTIONS SHOULD BE TAKEN INTO ACCOUNT FOR COMPARABILITY. 5. THE REFERRED CASES HAS ASSUMED THAT THE TRANSACTIONS ENTERED BY AE WITH THIRD PARTIES CAN BE CONSIDERED AS COMPARABLES, WHICH IS NOT DEFINED EITHER IN INDIAN TP REGULATIONS OR IN OECD GUIDELINES. 6. EVEN IN THE CASE OF GHARDIA CHEMICALS ON WHICH HONBLE KOLKATA HAS RELIED UPON, THE ASSESSEE NAMELY GHARDIA CHEMICALS HAS SOLD DICAMBA TO THIRD PARTIES. IN ADDITION TO THE ABOVE, IT SHOULD BE NOTED THAT FOR THE APPLICATION OF THE CUP METHOD IN GENERAL, A HIGH DEGREE OF COMPARABILITY IS NEEDED BETWEEN THE TRANSACTION UNDER REVIEW AND THE COMPARABLE UNCONTROLLED TRANSACTION. IN THIS RESPECT, THE OECD GUIDELINES HAVE LISTED FIVE COMPARABILITY FACTORS THAT SHOULD BE TAKEN INTO CONSIDERATION WHEN DETERMINING IF UNCONTROLLED TRANSACTION IS COMPARABLE TO A CONTROLLED TRANSACTION VIZ: CHARACTERISTICS OF THE PRODUCT OR SERVICE, FUNCTIONAL ANALYSIS, CONTRACTUAL TERMS, ECONOMIC CIRCUMSTANCES AND BUSINESS STRATEGIES. THE LD DR ALSO POINTED OUT THAT IN ORDER TO APPLY THE CUP METHOD, THE FOLLOWING FACTORS SHOULD BE TAKEN INTO CONSIDERATION: AS EXPLAINED ABOVE, THE FUNCTIONS WILL BE DIFFERENT FOR A MANUFACTURER AND FOR A DISTRIBUTOR, ITSELF EXPLANATORY. CONTRACTUAL TERMS, (E.G., SCOPE AND TERMS OF WARRANTIES PROVIDED, SALES OR PURCHASE VOLUME, CREDIT TERMS, TRANSPORT TERMS). THE ASSESSEE AS PER THE DISTRIBUTION AGREEMENT, IS PAYING COMMISSION AND WARRANTY, WHEREAS THE AE IS NOT CHARGING SUCH COMMISSION AND WARRANTY TO THIRD PARTIES. LEVEL OF THE MARKET (I.E., WHOLESALE, RETAIL, ETC.): THE ASSESSEE IS A MANUFACTURER AND AS SUCH SELLING PRODUCTS ON WHOLESALE BASIS TO AE, WHEREAS AE IS DISTRIBUTING BY CATERING TO DIFFERENT PARTIES ON RETAIL BASIS. GEOGRAPHIC MARKET IN WHICH THE TRANSACTION TAKES PLACE. THE TRANSACTION BETWEEN ASSESSEE AND AE IS BETWEEN INDIA AND AUSTRIA WHILE AE IS SELLING INTERNALLY ONLY. FOREIGN CURRENCY RISKS. INVENTORY RISKS DELIVERY TERMS MEANS SALES AT FOB BASIS OR CIF BASIS INSURANCE AND TRANSPORTATION COSTS MARKET CONDITIONS AND COMPETITION IN THE MARKET ALTERNATIVES REALISTICALLY AVAILABLE TO THE BUYER AND SELLER IN VIEW OF THE ABOVE FACTUAL MATRIX, THE LD DR FOR THE REVENUE REQUESTED THE BENCH TO RELOOK INTO THE ISSUE OF APPLICABILITY OF CUP METHOD. THE LD DR STATED THAT THERE ARE SUPREME COURT DECISIONS WHERE IT WAS HELD THAT COORDINATE BENCHES AT&S INDIA PVT. LTD. ITA NO.69/KOL/2018 ASSESSMENT YEAR: 2013-14 13 OF TRIBUNAL CAN TAKE DIFFERENT VIEW IF THE APPLICATION OF LAW AND FACTS HAVE NOT BEEN PROPERLY APPRECIATED IN THE PREVIOUS JUDGMENTS. THEREFORE, LD DR SUBMITTED THAT THE ORDER OF DRP AND TPO MAY BE UPHELD OR SENT BACK TO TPO WITH A DIRECTION TO ASSESSEE TO PROVIDE NECESSARY INTERNAL OR EXTERNAL COMPARABLES FOR EXAMINATION BY TPO. 16. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD, WE NOTE THAT LD DR FOR THE REVENUE SUBMITTED BEFORE US ABOUT THE APPLICABILITY OF COMPARABLE UNCONTROLLED PRICE METHOD ( CUP- METHOD) AND EXPLAINED THE CIRCUMSTANCES WHERE THE CUP METHOD MAY NOT BE APPLICABLE. HE EXPLAINED THE INTERNAL CUP AND EXTERNAL CUP AND RELIED ON CERTAIN JUDGMENTS OF THE TRIBUNAL, WHICH ARE GIVEN IN PARA 15 OF THIS ORDER. WE NOTE THAT ALL THESE ARE THEORETICAL AND ACADEMIC EXERCISE. THE LD DR FAILED TO BRING ON RECORD ANY COGENT EVIDENCE OR MATERIAL WHICH CAN PROVE THAT CUP METHOD IS NOT SUITABLE FOR THE ASSESSEE. WHY AND HOW THE UNCONTROLLED PRICE DOES NOT EXIST IN THE ASSESSEE`S CASE UNDER CONSIDERATION? THE MAIN FOCUS OF THE LD DR FOR THE REVENUE IS THAT SINCE THE ASSESSEE IS A MANUFACTURER WHEREAS THE ASSOCIATED ENTERPRISE (AE) IS A DISTRIBUTOR, HENCE, FUNCTIONS ARE DIFFERENT, THEREFORE CUP METHOD IS NOT APPLICABLE TO THE ASSESSEE. WE NOTE THAT UNDER THE DISTRIBUTION AGREEMENT, THE ASSESSEE HAS GRANT TO AT & S AG (AE), THE EXCLUSIVE RIGHT TO MARKET, DISTRIBUTE AND SELL THE PRODUCTS MANUFACTURED BY THE ASSESSEE IN THE SPECIFIED TERRITORY (EUROPE). THE ASSESSEE, AS A PRINCIPAL, HAS THE FULL AUTHORITY TO SELL THE PRODUCTS MANUFACTURED BY IT AS PER OWN BUSINESS DECISION, THEREFORE, THE ASSESSEE HAS FUNCTIONED AS A FULL-FLEDGED MANUFACTURER OF ITS PRODUCT AND AT & S AG (AE) FUNCTIONED AS A DISTRIBUTOR OF THE ASSESSEE. THE AT& S AG (AE), WITH THE PRIOR WRITTEN AGREEMENT OF THE ASSESSEE, CAN SEEK CUSTOMERS FOR THE PRODUCTS MANUFACTURED BY THE ASSESSEE OUTSIDE THE SPECIFIED TERRITORY OR ESTABLISH BRANCH OR MAINTAIN ANY DISTRIBUTION DEPOT FOR THE PRODUCTS OF THE ASSESSEE OUTSIDE THE SPECIFIED TERRITORY IN COUNTRIES WHERE THE ASSESSEE HAS NO EXCLUSIVE DISTRIBUTORS. THE AT & S AG (AE) IS ENTITLED TO GET COMMISSION AS PER THE DISTRIBUTION AGREEMENT AND FROM TIME TO TIME THE COMMISSION MAY BE REVIEWED BY THE ASSESSEE. THE ASSESSEE PAID COMMISSION TO AT&S AG (AE) @ 6% OF GROSS DISTRIBUTOR`S PRICE FOR CARRYING OUT DISTRIBUTION ACTIVITIES IN THE SPECIFIED TERRITORY. AS PER THE DISTRIBUTION AGREEMENT, THE AT & S AG (AE) FURTHER DEDUCTS PRELIMINARY WARRANTY GUARANTEE @ 2% OF THE GROSS DISTRIBUTOR`S PRICE OUT OF THE AFORESAID SALE PROCEEDS FOR THE PURPOSE OF INCURRING WARRANTY EXPENSES ARISING FROM FURTHER SALE OF PCB`S TO INDEPENDENT CUSTOMERS. THE AT & S AG (AE) REMITTED THE SALE PROCEEDS COLLECTED BY IT FROM INDEPENDENT CUSTOMERS IN THE OPEN MARKET UNDER UNCONTROLLED CONDITIONS, TO THE ASSESSEE COMPANY, WHICH WAS RECORDED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE COMPANY AS SALES. THEREFORE, IN THE ASSESSEE`S CASE UNDER CONSIDERATION THERE ARE INDEPENDENT CUSTOMERS, AND THE PRICE IS FIXED BY THE PRINCIPAL (ASSESSEE), THE PRODUCT DESIGN AND SPECIFICATION IS DECIDED BY THE ASSESSEE. THE ASSOCIATED ENTERPRISE, THE AT & S AG (AE) PLAYS A LIMITED ROLE, THAT IS, IT COLLECT THE MONEY ON BEHALF OF THE ASSESSEE AND REMITS THE SAME TO ASSESSEE, FOR THAT AE IS PAID AT&S INDIA PVT. LTD. ITA NO.69/KOL/2018 ASSESSMENT YEAR: 2013-14 14 COMMISSION. EVEN COMMISSION AND WARRANTY EXPENSES ARE DETERMINED AND DECIDED BY THE ASSESSEE (PRINCIPAL). THE AT & S AG (AE) DOES NOT DO ANY VALUE ADDITION IN THE GOODS MANUFACTURED BY THE ASSESSEE. THEREFORE, IN THIS SCENARIO, THE STAND OF THE LD DR THAT CUP METHOD IS NOT APPLICABLE TO THE ASSESSEE, IS NOT ACCEPTABLE. 17. NOW WE DEAL WITH THE ISSUE OF 'TESTED PARTY'. THE TESTED PARTY IS ONE TO WHICH A TRANSFER PRICING METHOD CON BE APPLIED IN THE MOST RELIABLE MANNER AND FOR WHICH THE MOST RELIABLE COMPARABLE CAN BE FOUND. THE SELECTION OF TESTED PARTY DEPENDS ON THE FOLLOWING FACTORS: (I) LEAST COMPLEX (AMONGST THE PARTIES TO THE TRANSACTION) (II) DATA AVAILABLE CAN BE USED WITH MINIMAL ADJUSTMENTS THEREFORE, IT IS ABUNDANTLY CLEAR FROM THE ABOVE THAT, A TESTED PARTY IS THE ONE TO WHICH TP METHOD CAN BE EASILY APPLIED. THIS MEANS, IN THIS CASE INDIAN COMPANY BEING THE TESTED PARTY AND THE TP PROVISIONS OR METHOD SHALL BE PURELY WITH REFERENCE TO INDIAN COMPANY ONLY. THE TRANSFER PRICING ANALYSIS HAS TO BE UNDER TAKEN FOR THE TRANSACTION UNDERTAKEN BY INDIAN COMPANY WITH FOREIGN INDEPENDENT CUSTOMERS. BESIDES, THE COORDINATE BENCH OF ITAT MUMBAI HAS HELD IN CASE OF AURIONPRO SOLUTION LIMITED (ITA NO 7872 OF 2011) THAT FOR THE PURPOSE OF DETERMINING THE ALP, TESTED PARTY CAN BE THE ASSESSEE. THE INDIAN TP REGULATION PER CHAPTER X OF THE INCOME TAX ACT 1961 IS AN ANTI-EVASION TOOL TO PREVENT ADVERSE PROFIT SHIFTS. THE MATERIALITY OF EXAMINATION OF THE INTERNATIONAL TRANSACTIONS HAS TO BE IN THIS LIGHT. THEREFORE, THE TESTING HAS TO BE DONE IN ORDER TO EXAMINE IF THE INDIAN ENTITY IS OFFERING ITS PROFITS TO LAWFUL TAXATION IN INDIA. IN ORDER TO DETERMINE THE CORRECT PROFITS BY ASCERTAINING CORRECT ALP, THE TRANSACTIONS HAVE TO BE EXAMINED BY KEEPING THE INDIAN ENTITY IN PRIMARY FOCUS. THEREFORE, KEEPING THE AE AS A TESTED PARTY WOULD FUNDAMENTALLY DEFEAT THE BASIC PURPOSE OF THE TP REGULATIONS. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSEE INDIAN COMPANY IS JUSTIFIED TO BE TAKEN AS THE TESTED PARTY. 18. WE NOTE THAT AS THE ISSUE (INCLUDING TESTED PARTY) IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE JURISDICTIONAL TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.179/KOL/2016, FOR ASSESSMENT YEAR 2011-12,(SUPRA) AND THERE IS NO CHANGE IN FACTS AND IN LAW AND THE REVENUE IS UNABLE TO PRODUCE ANY MATERIAL TO CONTROVERT THE AFORESAID FINDINGS. THEREFORE, WE ARE OF THE VIEW THAT THE ARMS LENGTH PRICE COMPUTED BY THE DRP/TPO NEEDS TO BE DELETED. ACCORDINGLY, WE DELETE THE ARMS LENGTH ADJUSTMENT TO THE TUNE OF RS.90,32,40,004/-. 7. AS THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE (SUPRA) AND THERE IS NO CHANGE IN AT&S INDIA PVT. LTD. ITA NO.69/KOL/2018 ASSESSMENT YEAR: 2013-14 15 FACTS AND LAW AND THE REVENUE IS UNABLE TO PRODUCE ANY MATERIAL TO CONTROVERT THE AFORESAID FINDINGS OF THE DIVISION BENCH, IN ASSESSEE`S OWN CASE (SUPRA). RESPECTFULLY FOLLOWING THE ABOVE BINDING PRECEDENT, WE UPHOLD THE CONTENTION OF THE ASSESSEE AND WE DELETE THE ALP ADJUSTMENT OF RS.42,45,62,079/- MADE BY LD TPO/AO, HENCE THE GROUND NOS. 2, 3 AND 4 RAISED BY THE ASSESSEE ARE ALLOWED. 8. GROUND NOS. 5 TO 10 RAISED BY THE ASSESSEE ARE DIRECTED AGAINST THE ARMS LENGTH PRICE ADJUSTMENT OF RS.3,58,02,269/-MADE IN RESPECT OF PAYMENT OF INFORMATION TECHNOLOGY (IT SERVICE COST), AND GROUND NOS. 11 TO 15 RAISED BY THE ASSESSEE ARE DIRECTED AGAINST ARMS LENGTH PRICE ADJUSTMENT OF RS. 40,04,924/- MADE IN RESPECT OF PAYMENT OF TECHNICAL SUPPORT SERVICE COST. BOTH THE ISSUES ARE IDENTICAL AND SIMILAR THEREFORE, THESE HAVE BEEN CLUBBED AND HEARD TOGETHER AND A CONSOLIDATED ORDER IS BEING PASSED FOR THE SAKE OF CONVENIENCE AND BREVITY. 9. WHEN THIS APPEAL WAS CALLED OUT FOR HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE, MS. RITUPARNA SINHA, INVITED OUR ATTENTION TO THE ORDER DATED 11.05.2018, PASSED BY THE DIVISION BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 77/KOL/2017, A.Y. 2012-13, WHEREBY THE ISSUE OF ARMS LENGTH PRICE ADJUSTMENT IN RESPECT OF PAYMENT OF INFORMATION TECHNOLOGY (IT SERVICE COST) HAS BEEN DEALT WITH AND ADJUDICATED AND THE ISSUE RELATING TO ARMS LENGTH PRICE ADJUSTMENT OF RS.40,04,924/- MADE IN RESPECT OF PAYMENT OF TECHNICAL SUPPORT SERVICE COST IS ALSO IDENTICAL AND SIMILAR. MS. RITUPARNA SINHA, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE THE BENCH THAT BOTH THESE ISSUES ARE SQUARELY COVERED BY THE AFORESAID ORDER OF THE TRIBUNAL, A COPY OF WHICH WAS PLACED BEFORE THE HONBLE BENCH. 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE DID NOT HAVE MUCH TO SAY BUT HE NEVERTHELESS RELIED ON THE ORDER OF THE AUTHORITIES BELOW. 11. WE SEE NO REASON TO TAKE ANY OTHER VIEW OF THE MATTER OTHER THAN THE VIEW SO TAKEN BY THE DIVISION BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE, VIDE ITA AT&S INDIA PVT. LTD. ITA NO.69/KOL/2018 ASSESSMENT YEAR: 2013-14 16 NO. 77/KOL/2017 FOR A.Y. 2012-13 ORDER DATED 11.05.2018. IN THIS ORDER THE TRIBUNAL AS INTER ALIA OBSERVED AS FOLLOWS: 30. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD, WE NOTE THAT THE CORNERSTONE OF TRANSFER PRICING PRINCIPLE IS THE COMPARABILITY ANALYSIS OF A CONTROLLED TRANSACTION WITH AN UNCONTROLLED TRANSACTION WHICH IS SUBSTRATUM OF ARRIVING AT ARMS LENGTH PRICE. THE CONTROLLED AND UNCONTROLLED TRANSACTIONS ARE COMPARABLE IF NONE OF THE DIFFERENCES BETWEEN THE TRANSACTIONS MATERIALLY AFFECT THE FACTOR BEING EXAMINED IN A GIVEN METHODOLOGY, WHETHER DETERMINATION OF PRICES OR FOR PROFIT MARGIN AND FOR SUCH DETERMINATION A REASONABLE ACCURATE ADJUSTMENT CAN BE MADE TO ELIMINATE THE MATERIAL EFFECTS OF ANY SUCH DIFFERENCES. RULE 10B(2) OF INCOME TAX RULES, PROVIDES THE COMPARABILITY OF THE TRANSACTION WITH UNCONTROLLED TRANSACTION WHICH HAS TO BE JUDGED WITH REFERENCE TO SPECIFIC CHARACTERISTICS OF THE PROPERTY TRANSFERRED OR SERVICES PROVIDED; FAR ANALYSIS; CONTRACTUAL TERMS; CONDITIONS PREVAILING IN THE MARKETS, THAT IS, ECONOMIC CONDITIONS IN WHICH RESPECTIVE PARTIES TRANSACT OR OPERATE INCLUDING GEOGRAPHICAL LOCATIONS, SIZE ETC. THUS, COMPARISON OF ATTRIBUTES OF THE TRANSACTION IS CARRIED WHICH WOULD AFFECT CONDITIONS IN ARMS LENGTH DEALING. RULE 10B (3) SPECIFICALLY PROVIDES AS UNDER:- AN UNCONTROLLED TRANSACTION SHALL BE COMPARABLE TO AN INTERNATIONAL TRANSACTION OR A SPECIFIED DOMESTIC TRANSACTION IF- (I) NONE OF THE DIFFERENCES, IF ANY, BETWEEN THE TRANSACTIONS BEING COMPARED, OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS ARE LIKELY TO MATERIALLY AFFECT THE PRICE OR COST CHARGED OR PAID IN, OR THE PROFIT ARISING FROM, SUCH TRANSACTIONS IN THE OPEN MARKET; OR (II) REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO ELIMINATE THE MATERIAL EFFECTS OF SUCH DIFFERENCES. THIS, RULE SPECIFICALLY RECOGNIZES THAT REASONABLY ACCURATE ADJUSTMENT SHOULD BE MADE TO ELIMINATE THE MATERIAL EFFECTS OF DIFFERENCES, IF ANY. SUB-RULE (2) LAYS DOWN THE FACTORS FOR DETERMINING COMPARABILITY WHEREAS; SUB-RULE (3) LAYS DOWN THE STANDARD OF COMPARABILITY. THE STANDARD COMPARABILITY NOT NECESSARILY ENTAILS COMPLETE IDENTITY BETWEEN THE TWO TRANSACTIONS BUT SUFFICIENT SIMILARITY. IT CAN BE HELD TO BE SUFFICIENT SIMILAR IF THE DIFFERENCES BETWEEN THEM IS NOT MATERIAL SO AS TO EFFECT PRICE OR PROFIT IN THE OPEN MARKET AND IF THERE IS ONE SUCH THING, THEN SUCH A MATERIAL DIFFERENCE NEEDS TO BE ELIMINATED THROUGH ADJUSTMENTS. THE FACTORS GOVERNING THE PRICE OR PROFIT IN A TRANSACTION MAY DEPEND UPON BUSINESS STRATEGIES, MARKET CONDITIONS, COMPETITIONS, MARKET PENETRATION SCHEMES, GEOGRAPHICAL LOCATIONS, CLIMATIC CONDITIONS, ETC. GUIDELINES ISSUED BY OECD ALSO RECOGNIZED THE BUSINESS STRATEGIES ADOPTED BY THE COMPANIES WHICH HAVE A BEARING ON PROFITABILITY LEVELS. PARA 1.60 AND 1.62 OF OECD GUIDELINES FOR THE SAKE OF READY REFERENCE ARE REPRODUCED HEREUNDER: PARA 1.60 OF THE GUIDELINES STATES AS UNDER: AT&S INDIA PVT. LTD. ITA NO.69/KOL/2018 ASSESSMENT YEAR: 2013-14 17 BUSINESS STRATEGIES ALSO COULD INCLUDE MARKET PENETRATE SCHEMES. A TAXPAYER SEEKING TO PENETRATE A MARKET OR TO INCREASE ITS MARKET SHARE MIGHT TEMPORARILY CHARGE A PRICE FOR ITS PRODUCT THAT IS LOWER THAN THE PRICE CHARGED FOR OTHERWISE COMPARABLE PRODUCTS IN THE SAME MARKET. FURTHERMORE, A TAXPAYER SEEKING TO ENTER A NEW MARKET OR EXPAND (OR DEFEND) ITS MARKET SHARE MIGHT TEMPORARILY INCUR HIGHER COSTS (E.G. DUE TO START-UP COSTS OR INCREASED MARKETING EFFORTS) AND HENCE ACHIEVE LOWER PROFIT LEVELS THAN OTHER TAXPAYERS OPERATING IN THE SAME MARKET. FURTHER, PARA 1.62 OF THE OECD GUIDELINES STATES AS UNDER: WHEN EVALUATING A TAXPAYERS CLAIM THAT IT WAS FOLLOWING A BUSINESS STRATEGY THAT TEMPORARILY DECREASED PROFITS IN RETURN FOR HIGHER LONG-RUN PROFITS, SEVERAL FACTORS SHOULD BE CONSIDERED. TAX ADMINISTRATIONS SHOULD EXAMINE THE CONDUCT OF THE PARTIES TO DETERMINE IF IT IS CONSISTENT WITH THE PROFESSED BUSINESS STRATEGY. ANOTHER FACTOR TO CONSIDER IS WHETHER THE NATURE OF THE RELATIONSHIP BETWEEN THE PARTIES TO THE CONTROLLED TRANSACTION WOULD BE CONSISTENT WITH THE TAXPAYER BEARING THE COSTS OF THE BUSINESS STRATEGY. FOR EXAMPLE, IN ARMS LENGTH DEALINGS A COMPANY ACTING SOLELY AS A SALES AGENT WITH LITTLE OR NO RESPONSIBILITY FOR LONG- TERM MARKET DEVELOPMENT WOULD GENERALLY NOT BEAR THE COSTS OF A MARKET PENETRATION STRATEGY. THUS, BUSINESS STRATEGIES, MARKET PENETRATION, INCREASE OR SAVE ITS MARKET SHARE ARE RELEVANT AND MATERIAL FACTORS DETERMINING PRICES AND PROFIT. ALL THESE FACTORS HAVE TO BE TAKEN INTO CONSIDERATION WHILE ELIMINATING THE MATERIAL EFFECTS WHICH WARRANTS SOME KIND OF REASONABLE ACCURATE ADJUSTMENTS. 31. BEFORE US THE MATERIAL FACTORS RELATING TO PRINCIPLE OF CONSISTENCY, WHICH HAVE BEEN POINTED OUT BY THE ASSESSEE IS THAT ON THE SAME FACTS AND CIRCUMSTANCES OF THE CASE, NO ALP ADJUSTMENTS WERE DIRECTED BY THE LD TPO IN RESPECT OF INTERNATIONAL TRANSACTIONS INVOLVING PAYMENTS MADE BY THE ASSESSEE UNDER THE COST CONTRIBUTION AGREEMENT (CCA) FOR RECEIVING PURCHASE SERVICES, ORDER HANDLING SERVICES AND SALES SERVICES FOR LAST THREE ASSESSMENT YEARS I.E. AY 2009- 10, AY 2010-11 AND AY 2011-12. THOUGH THERE WAS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE FOR THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2012-13, THE TPO/DRP DETERMINED THE ARM'S LENGTH PRICE OF THE SAID TRANSACTIONS AT NIL VALUE THEREBY VIOLATING THE RULE OF CONSISTENCY ENUNCIATED BY THE HON'BLE SUPREME COURT IN THE MATTER OF COMMISSIONER OF LNCOME TAX, DELHI-LV VERSUS M/S. DALMIA PROMOTERS & DEVELS. (P) LTD, REPORTED IN [2015] 5 ITR-OL277 (SC). LN THE AFORESAID DECISION, THE HON'BLE SUPREME COURT HAS HELD THAT: WE ARE NOT GOING INTO THIS ISSUE IN AS MUCH AS THIS APPEAL CAN BE DISPOSED OF ON THE GROUND THAT CONSISTENCY DOES DEMAND THAT THERE BEING NO CHANGE IN CIRCUMSTANCES, THE INCOME FOR THE YEAR 1993-94 WOULD ALSO HAVE TO BE TREATED BUSINESS INCOME AS FOR THE PREVIOUS THREE YEARS. ACCORDINGLY, THE APPEAL IS DISMISSED.' AT&S INDIA PVT. LTD. ITA NO.69/KOL/2018 ASSESSMENT YEAR: 2013-14 18 WE NOTE THAT THE DEPARTMENT HAS BEEN CONSISTENTLY ACCEPTING THE ASSESSEE`S TRANSFER PRICING DOCUMENTATION ON THE SAME FACTS AND CIRCUMSTANCES OF THE CASE, AND NO ALP ADJUSTMENTS WERE DIRECTED BY THE LD TPO IN RESPECT OF INTERNATIONAL TRANSACTIONS INVOLVING PAYMENTS MADE BY THE ASSESSEE UNDER THE COST CONTRIBUTION AGREEMENT (CCA) FOR RECEIVING PURCHASE SERVICES, ORDER HANDLING SERVICES AND SALES SERVICES FOR LAST THREE ASSESSMENT YEARS I.E. AY 2009-10, AY 2010-11 AND AY 2011-12, THEREFORE WE DO NOT AGREE WITH THE STAND TAKEN BY THE TPO IN THE CURRENT ASSESSMENT YEAR UNDER CONSIDERATION, BY FOLLOWING THE RULE OF CONSISTENCY. FOR THAT WE RELY ON THE ORDER OF THE HONBLE SUPREME COURT IN RADHASOAMISATSANG VS. CIT 193 ITR 321 (SC), WHEREIN IT WAS HELD AS FOLLOWS: 'WE ARE AWARE OF THE FACT THAT, STRICTLY SPEAKING, RES JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS. AGAIN, EACH ASSESSMENT YEAR BEING A UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. ON THESE REASONING, IN THE ABSENCE OF ANY MATERIAL CHANGE JUSTIFYING THE REVENUE TO TAKE A DIFFERENT VIEW OF THE MATTER - AND, IF THERE WAS NO CHANGE, IT WAS IN SUPPORT OF THE ASSESSEE WE DO NOT THINK THE QUESTION SHOULD HAVE BEEN REOPENED AND CONTRARY TO WHAT HAD BEEN DECIDED BY THE COMMISSIONER OF LNCOME-TAX IN THE EARLIER PROCEEDINGS, A DIFFERENT AND CONTRADICTORY STAND SHOULD HAVE BEEN TAKEN.' WE ARE OF THE VIEW THAT THE ABOVE CITED PRECEDENTS ON PRINCIPLE OF CONSISTENCY ARE SQUARELY APPLICABLE TO THE ASSESSEE UNDER CONSIDERATION, AS THE FACTS UNDER THE COST CONTRIBUTION AGREEMENT (CCA) FOR RECEIVING PURCHASE SERVICES, ORDER HANDLING SERVICES AND SALES SERVICES FOR LAST THREE ASSESSMENT YEARS I.E. AY 2009- 10, AY 2010-11 AND AY 2011-12, REMAIN SAME AND THE LD. DR FOR THE REVENUE IS UNABLE TO PRODUCE ANY MATERIAL TO CONTROVERT THE AFORESAID FACTS IN CCA AGREEMENT. THEREFORE, THE REVENUE HAS TO HAVE SOME CONSISTENCY IN ITS VIEWS AND IT CANNOT BLOW HOT AND COLD AT ITS SWEET-WILL AND HENCE THE ASSESSEE SUCCEEDS ON THIS SCORE. 32. ON THE NEXT OBJECTION OF THE LD COUNSEL OF THE ASSESSEE, WE NOTE THAT THE ACTION OF THE TPO/AO IN DETERMINING THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS UNDER CONSIDERATION WITHOUT APPLYING ANY OF THE METHODS PRESCRIBED UNDER SUB-SECTION (1) AND SUB-SECTION (2)OF SECTION 92C OF THE ACT, WHICH LEADS TO VIOLATION OF THE PROVISION OF SUB-SECTION(3) OF SECTION 92CA OF THE ACT READ WITH SUB-SECTION (3) OF SECTION 92C OF THE ACT. THE RELEVANT PROVISIONS OF SECTION 92C ARE GIVEN BELOW FOR READY REFERENCE: SECTION 92C: COMPUTATION OF ARMS LENGTH PRICE. (1) THE ARMS LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION [OR SPECIFIED DOMESTIC TRANSACTION] SHALL BE DETERMINED BY ANY OF THE FOLLOWING METHODS, BEING THE MOST APPROPRIATE AT&S INDIA PVT. LTD. ITA NO.69/KOL/2018 ASSESSMENT YEAR: 2013-14 19 METHOD, HAVING REGARD TO THE NATURE OF TRANSACTION OR CLASS OF TRANSACTION OR CLASS OF ASSOCIATED PERSONS OR FUNCTIONS PERFORMED BY SUCH PERSONS OR SUCH OTHER RELEVANT FACTORS AS THE BOARD MAY PRESCRIBE, NAMELY: (A) COMPARABLE UNCONTROLLED PRICE METHOD; (B) RESALE PRICE METHOD; (C) COST PLUS METHOD; (D) PROFIT SPLIT METHOD; (E) TRANSACTIONAL NET MARGIN METHOD; (F) SUCH OTHER METHOD AS MAY BE PRESCRIBED BY THE BOARD. (2) THE MOST APPROPRIATE METHOD REFERRED TO IN SUB-SECTION (1) SHALL BE APPLIED, FOR DETERMINATION OF ARMS LENGTH PRICE, IN THE MANNER AS MAY BE PRESCRIBED: PROVIDED THAT WHERE MORE THAN ONE PRICE IS DETERMINED BY THE MOST APPROPRIATE METHOD, THE ARM'S LENGTH PRICE SHALL BE TAKEN TO BE THE ARITHMETICAL MEAN OF SUCH PRICES: PROVIDED FURTHER THAT IF THE VARIATION BETWEEN THE ARM'S LENGTH PRICE SO DETERMINED AND PRICE AT WHICH THE INTERNATIONAL TRANSACTION [OR SPECIFIED DOMESTIC TRANSACTION] HAS ACTUALLY BEEN UNDERTAKEN [ DOES NOT EXCEED SUCH PERCENTAGE NOT EXCEEDING THREE PERCENTAGE OF THE LATTER, AS MAY BE NOTIFIED] BY THE CENTRAL GOVERNMENT IN THE OFFICIAL GAZETTE IN THIS BEHALF] THE PRICE AT WHICH THE INTERNATIONAL TRANSACTION [OR SPECIFIED DOMESTIC TRANSACTION] HAS ACTUALLY BEEN UNDERTAKEN SHALL BE DEEMED TO BE THE ARM'S LENGTH PRICE. PROVIDED ALSO THAT WHERE MORE THAN ONE PRICE IS DETERMINED BY THE MOST APPROPRIATE METHOD, THE ARMS LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION OR SPECIFIED DOMESTIC TRANSACTION UNDERTAKEN ON OR AFTER THE 1 ST DAY OF APRIL, 2014, SHALL BE COMPUTED IN SUCH MANNER AS MAY BE PRESCRIBED AND ACCORDINGLY THE FIRST AND SECOND PROVISO SHALL NOT APPLY.] EXPLANATION.FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT THE PROVISIONS OF THE SECOND PROVISO SHALL ALSO BE APPLICABLE TO ALL ASSESSMENT OR REASSESSMENT PROCEEDINGS PENDING BEFORE AN ASSESSING OFFICER AS ON THE 1ST DAY OF OCTOBER, 2009. (2A) WHERE THE FIRST PROVISO TO SUB-SECTION (2) AS IT STOOD BEFORE ITS AMENDMENT BY THE FINANCE (NO. 2) ACT, 2009, IS APPLICABLE IN RESPECT OF AN INTERNATIONAL TRANSACTION FOR AN ASSESSMENT YEAR AND THE VARIATION BETWEEN THE ARITHMETICAL MEAN REFERRED TO IN THE SAID PROVISO AND THE PRICE AT WHICH SUCH TRANSACTION HAS ACTUALLY BEEN UNDERTAKEN EXCEEDS FIVE PER CENT. OF THE ARITHMETICAL MEAN, THEN, THE ASSESSEE SHALL NOT BE ENTITLED TO EXERCISE THE OPTION AS REFERRED TO IN THE SAID PROVISO. (2B) NOTHING CONTAINED IN SUB-SECTION (2A) SHALL EMPOWER THE ASSESSING OFFICER EITHER TO ASSESS OR REASSESS UNDER SECTION 147 OR PASS AN ORDER ENHANCING THE ASSESSMENT OR REDUCING A REFUND ALREADY MADE OR OTHERWISE INCREASING THE LIABILITY OF THE ASSESSEE UNDER SECTION 154 FOR ANY ASSESSMENT YEAR THE PROCEEDINGS OF WHICH HAVE BEEN COMPLETED BEFORE THE 1ST DAY OF OCTOBER, 2009. (3) WHERE DURING THE COURSE OF ANY PROCEEDING FOR THE ASSESSMENT OF INCOME, THE ASSESSING OFFICER IS, ON THE BASIS OF MATERIAL OR INFORMATION OR DOCUMENT IN HIS POSSESSION, OF THE OPINION THAT (A) THE PRICE CHARGED OR PAID IN AN INTERNATIONAL TRANSACTION [OR SPECIFIED DOMESTIC TRANSACTION] HAS NOT BEEN DETERMINED IN ACCORDANCE WITH SUB-SECTIONS (1) AND (2); OR AT&S INDIA PVT. LTD. ITA NO.69/KOL/2018 ASSESSMENT YEAR: 2013-14 20 (B) ANY INFORMATION AND DOCUMENT RELATING TO AN INTERNATIONAL TRANSACTION [OR SPECIFIED DOMESTIC TRANSACTION] HAVE NOT BEEN KEPT AND MAINTAINED BY THE ASSESSEE IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SUB-SECTION (1) OF SECTION 92D AND THE RULES MADE IN THIS BEHALF; OR (C) THE INFORMATION OR DATA USED IN COMPUTATION OF THE ARMS LENGTH PRICE IS NOT RELIABLE OR CORRECT; OR (D) THE ASSESSEE HAS FAILED TO FURNISH, WITHIN THE SPECIFIED TIME, ANY INFORMATION OR DOCUMENT WHICH HE WAS REQUIRED TO FURNISH BY A NOTICE ISSUED UNDER SUB-SECTION (3) OF SECTION 92D, THE ASSESSING OFFICER MAY PROCEED TO DETERMINE THE ARMS LENGTH PRICE IN RELATION TO THE SAID INTERNATIONAL TRANSACTION [OR SPECIFIED DOMESTIC TRANSACTION] IN ACCORDANCE WITH SUB-SECTIONS (1) AND (2), ON THE BASIS OF SUCH MATERIAL OR INFORMATION OR DOCUMENT AVAILABLE WITH HIM: PROVIDED THAT AN OPPORTUNITY SHALL BE GIVEN BY THE ASSESSING OFFICER BY SERVING A NOTICE CALLING UPON THE ASSESSEE TO SHOW CAUSE, ON A DATE AND TIME TO BE SPECIFIED IN THE NOTICE, WHY THE ARMS LENGTH PRICE SHOULD NOT BE SO DETERMINED ON THE BASIS OF MATERIAL OR INFORMATION OR DOCUMENT IN THE POSSESSION OF THE ASSESSING OFFICER WE NOTE THAT IT IS ABUNDANTLY CLEAR FROM THE PROVISIONS OF SUB-SECTIONS (1), (2) AND (3) OF SECTION 92C, AS EXPLAINED ABOVE, THAT AO/TPO SHOULD DETERMINE THE ARM`S LENGTH PRICE (ALP) BY APPLYING THE SIX METHODS PRESCRIBED IN SUB-SECTION (1) OF SECTION 92C OF THE ACT. NORMALLY, THE ARM`S LENGTH PRICE IS TO BE DETERMINED BY APPLYING THE FIVE METHODS VIZ: (A) COMPARABLE UNCONTROLLED PRICE METHOD; (B) RESALE PRICE METHOD;(C) COST PLUS METHOD;(D) PROFIT SPLIT METHOD;(E) TRANSACTIONAL NET MARGIN METHOD. HOWEVER, THE SIXTH METHOD MAY BE PRESCRIBED BY THE CBDT. THEREFORE, THE ARM`S LENGTH PRICE (ALP) HAS TO BE COMPUTED BY APPLYING ONLY THESE SIX METHODS AND THE AO/TPO CANNOT IGNORE THESE METHODS. THEREFORE, THE AO/TPO CANNOT SAY AT ANY POINT OF TIME THAT NONE OF THE METHODS PRESCRIBED IN SECTION 92C(1) ARE APPLICABLE TO THE ASSESSEE. THE AO/TPO HAS TO APPLY THE APPROPRIATE METHOD TO FIND THE ARM`S LENGTH PRICE (ALP) OF THE ASSESSEE. HENCE CONSIDERING THE PROVISIONS OF SECTION 92C OF THE ACT, IT IS SAFELY CONCLUDED THAT THE AO/TPO CANNOT IGNORE THESE SIX METHODS WHICH IS PRESCRIBED IN THE STATUTE TO DETERMINE THE ARM`S LENGTH PRICE (ALP). BESIDES, SECTION 92CA (3) ALSO ADVOCATES THAT AO/TPO SHOULD NOT DEVIATE FROM THE SIX METHODS PRESCRIBED IN SECTION 92C(1), THE RELEVANT PROVISIONS OF SUB- SECTION (3) OF SECTION 92CA ARE GIVEN BELOW: SECTION 92CA: REFERENCE TO TRANSFER PRICING OFFICER. (3) ON THE DATE SPECIFIED IN THE NOTICE UNDER SUB-SECTION (2), OR AS SOON THEREAFTER AS MAY BE, AFTER HEARING SUCH EVIDENCE AS THE ASSESSEE MAY PRODUCE, INCLUDING ANY INFORMATION OR DOCUMENTS REFERRED TO IN SUB-SECTION (3) OF SECTION 92D AND AFTER CONSIDERING SUCH EVIDENCE AS THE TRANSFER PRICING OFFICER MAY REQUIRE ON ANY SPECIFIED POINTS AND AFTER TAKING INTO ACCOUNT ALL RELEVANT MATERIALS WHICH HE HAS GATHERED, THE TRANSFER PRICING OFFICER SHALL, BY ORDER IN WRITING, DETERMINE THE ARMS LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTION [OR SPECIFIED DOMESTIC TRANSACTION] IN ACCORDANCE WITH SUB-SECTION (3) OF SECTION 92C AND SEND A COPY OF HIS ORDER TO THE ASSESSING OFFICER AND TO THE ASSESSEE. THEREFORE, IT IS ABUNDANTLY CLEAR THAT THE TPO HAS TO COMPUTE THE ARM`S LENGTH PRICE (ALP), BY APPLYING THE PROVISIONS OF SUB-SECTION (3) OF SECTION 92C OF THE ACT. IT MEANS THE TPO CAN NOT APPLY HIS OWN METHOD TO COMPUTE THE ARM`S LENGTH PRICE (ALP) OF THE ASSESSEE. THAT IS, THE STATUTE DOES NOT GIVE RIGHT TO THE TPO/AO TO ADOPT THEIR OWN DEVELOPED METHODS. THE MOST APPROPRIATE METHOD (MAM) HAS AT&S INDIA PVT. LTD. ITA NO.69/KOL/2018 ASSESSMENT YEAR: 2013-14 21 TO BE SELECTED BY THE TPO/AO OUT OF THE SIX METHODS PRESCRIBED BY THE STATUTE. HE HAS TO SELECT ANY ONE METHOD AS MAM, OUT OF THE SIX METHODS PRESCRIBED IN SECTION 92C (1) OF THE ACT TO COMPUTE THE ARM`S LENGTH PRICE (ALP). WE NOTE THAT IN THE ASSESSEE`S CASE UNDER CONSIDERATION, THE TPO/AO DETERMINED THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION UNDER CONSIDERATION AT NIL VALUE, WITHOUT APPLYING ANY OF THE METHODS PRESCRIBED UNDER SUB-SECTION (1) READ WITH SUB-SECTION (2) OF SECTION 92C OF THE ACT, AS EXPLAINED ABOVE. THE DRP ALLEGED THAT THE ASSESSEE FAILED TO SATISFY BENEFIT TEST IN RESPECT OF PURCHASE & ORDER HANDLING SERVICES AND SALES SERVICES UNDER THE CCA AND HENCE, THE DRP CONFIRMED THE ACTION OF THE TPO IN DETERMINING THE ARM'S LENGTH PRICE OF THE SAID SERVICES AT NIL VALUE. LT IS PERTINENT TO NOTE THAT THE AFORESAID ACTIONS OF THE DRP AND THE TPO GO AGAINST THE BASIC TENET OF THE LNDIAN TRANSFER PRICING LAWS AND VIOLATE THE PROVISION OF SUB-SECTION (3) OF SECTION 92CA OF THE ACT READ WITH SUB- SECTION (3)OF SECTION 92C OF THE ACT. FOR THAT WE RELY OF THE DECISION OF THE COORDINATE BENCH KOLKATA TRIBUNAL IN THE MATTER OF NLC NALCO (INDIA) LTD VS. DCIT [2016] 71 TAXMANN.COM 57 (KOL. - TRIB.). LN THE AFORESAID CASE, THE ASSESSEE RECEIVED TECHNICAL AND MANAGEMENT ASSISTANCE FROM ITS AE. THE TPO DETERMINED THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION AT 'NLL' VALUE BASED ON BENEFIT TEST AND WITHOUT APPLYING ANY OF THE METHODS PRESCRIBED UNDER SUB-SECTION (1) READ WITH SUB-SECTION (2) OF SECTION 92C OF THE ACT. ON FIRST APPEAL, THE CIT (A) UPHELD THE ORDER PASSED BY THE AO/TPO, ON SECOND APPEAL, THE HON'BLE TRIBUNAL NOTED THAT NOTHING WAS FOUND IN THE TPO'S ORDER WHICH WAS INDICATIVE OF THE EXISTENCE OF ANY OF THE CIRCUMSTANCES PRESCRIBED UNDER (A) TO (D) OF SECTION 92C(3) OF THE ACT WHICH WOULD NECESSITATE INTERVENTION OF THE ASSESSING OFFICER/TPO FOR DETERMINATION OF ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS UNDER REVIEW AT 'NLL' VALUE SOLELY BASED ON THE ALLEGATION THAT THE BENEFITS CLAIMED TO HAVE BEEN RECEIVED BY THE ASSESSEE FROM THE AE UNDER THE CONTROLLED SERVICE AGREEMENT WOULD NOT BE ONES FOR WHICH AN INDEPENDENT ENTERPRISE WOULD BE WILLING TO PAY. THE TRIBUNAL NOTED THAT THE TPO DID NOT APPLY ANY OF THE METHODS PRESCRIBED UNDER SUB-SECTION (1) READ WITH SUB-SECTION (2) OF SECTION 92C OF THE ACT, AND PRIMARILY BASED ON THE ABOVE OBSERVATIONS, THE TRIBUNAL ALLOWED THE ASSESSEE'S APPEAL AND DIRECTED TO DELETE THE ALP ADJUSTMENT MADE BY THE AO/TPO. WE NOTE THAT IN THE ASSESSEES CASE UNDER CONSIDERATION, THE TPO/AO HAS NOT SELECTED ANY METHOD (OUT OF SIX METHODS), THEREFORE, THE ARM`S LENGTH PRICE (ALP) COMPUTED BY THE AO/TPO IS NOT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 92C (1) OF THE ACT, HENCE WE DIRECT THE TPO/AO TO DELETE THE ADDITION. 33. NOW, WE ADDRESS THE ISSUE RELATING TO BENEFIT TEST. THE LD DR FOR THE REVENUE ALLEGED THAT THE ASSESSEE HAD FAILED TO SATISFY THE BENEFIT TEST IN RESPECT OF PAYMENTS MADE BY THE ASSESSEE UNDER THE CCA( AGREEMENT) FOR RECEIVING PURCHASE SERVICES, ORDER HANDLING SERVICES AND SALES SERVICES. WE NOTE THAT THE ASSESSEE HAS SUBMITTED BEFORE THE LD. TPO, THE DETAILED NATURE OF THE AFORESAID SERVICES AND COPIES OF DOCUMENTARY EVIDENCES OF RECEIPT OF SERVICES ON SAMPLE AT&S INDIA PVT. LTD. ITA NO.69/KOL/2018 ASSESSMENT YEAR: 2013-14 22 BASIS. WE NOTE THAT THE LD COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US A BRIEF CHART WHICH IS MENTIONED IN PARA 27 OF THIS ORDER TO PROVE THE BENEFIT TEST. THIS CHART EXPLAINS THE NATURE OF SERVICES, MAIN FUNCTIONS, AND DOCUMENTARY EVIDENCES FOR RECEIPT OF SERVICES ALONG WITH PAPER BOOK REFERENCE. THIS CHART ALSO EXPLAINS THE RELEVANT PARA OF THE COST CONTRIBUTION AGREEMENT (CCA). THE ASSESSEE RECEIVED THE PURCHASE & ORDER HANDLING SERVICES AND SALES SERVICES AND DOCUMENTED THEM PROPERLY. THE ASSESSEE ALSO SUBMITTED THE CERTIFICATE ISSUED BY PWC AUSTRIA (PB.NO. 997 TO 999), ABOUT THE COSTS ALLOCATED TO AT&S INDIA PVT. LTD. THE COPIES OF 78 CHAINS OF E-MAIL, JOB DESCRIPTION SHEETS OF 10 INDIVIDUAL EMPLOYEES OF THE CCA TEAM, EVALUATION REPORTS OF 6 GLOBAL CUSTOMERS AND FLOW CHART OF QUOTATION PROCESSING SERVICES PROVE THAT ASSESSEE HAS RECEIVED BENEFIT FROM THESE SERVICES. THE LD DR FOR THE REVENUE HAS NOT DISPUTED THAT THESE SERVICES HAVE NOT BEEN RECEIVED BY THE ASSESSEE, HE DISPUTED ONLY THE BENEFIT TEST, THAT ASSESSEE DID NOT GET THE BENEFIT OUT OF THESE SERVICES. WE ARE OF THE VIEW THAT ASSESSEE HAS PROVED THAT HE HAD RECEIVED THE BENEFIT FROM THESE SERVICES, BY WAY OF SUBMITTING A BRIEF CHART CONTAINING THE SERVICES OBTAINED, WHICH IS MENTIONED IN PARA 27 OF THIS ORDER. THEREFORE, WE NOTE THAT THE ASSESSEE HAS SATISFIED THE BENEFIT TEST, AND FOR THAT WE RELY OF THE JUDGMENT OF THE COORDINATE BENCH KOLKATA IN THE CASE OF DCIT VS. LANDIS + GYR LTD. [2017] 86 TAXMANN.COM, 109 (KOL. TRIB.), WHEREIN IT WAS HELD THAT THE ASSESSEE HAD DERIVED COMMERCIAL BENEFITS OUT OF RENDERING OF INTRA GROUP SERVICES BY AE AND PAYMENT MADE THEREON WERE IN THE NATURE OF THIRD PARTY, WHICH WOULD WILLING TO PAY. 34. WE NOTE THAT LD. AO IN THE DRAFT ASSESSMENT ORDER UNDER SECTION 143(3) READ WITH 144C (1)OF THE ACT, HAS NOT MADE ANY ADVERSE COMMENT UNDER SECTION 37 OF THE ACT IN RESPECT OF THE SERVICES RECEIVED UNDER THE CCA, FOR PURCHASE SERVICES, ORDER HANDLING SERVICES AND SALES SERVICES. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSEE SUBMITTED BEFORE THE AO THE SAME EVIDENCES OF RECEIPT OF PURCHASE SERVICES, ORDER HANDLING SERVICES AND SALES SERVICES AS THOSE SUBMITTED TO THE TPO, AS PER THE DIRECTION OF THE AO. LT IS PERTINENT TO NOTE THAT THE AO, AFTER EXAMINING THE AFORESAID DETAILS, DID NOT MAKE ANY ADVERSE COMMENT UNDER SECTION 37 OF THE ACT. AS PER THE PROVISION OF SUB-SECTION (1) OF SECTION 37 OF THE ACT, THE AO IS AUTHORIZED TO EXAMINE WHETHER AN EXPENDITURE (NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE) IS INCURRED BY AN ASSESSEE WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS IN THE MATTER OF COMPUTATION OF THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION. WE NOTE THAT THE HON'BLE HIGH COURT OF BOMBAY IN THE MATTER OF CIT VS. LEVER LNDIA EXPORTS LTD.[2017] 78 TAXMANN.COM 88 (BOM) WHEREIN THE HON'BLE HIGH COURT HAS HELD AS FOLLOWS: 7. WE NOTE THAT THE TRIBUNAL HAS RECORDED THE FACT THAT THE RESPONDENT ASSESSEE HAS LAUNCHED NEW PRODUCTS WHICH INVOLVED HUGE ADVERTISEMENT EXPENDITURE. THE SHARING OF SUCH EXPENDITURE BY THE RESPONDENT ASSESSEE IS A STRATEGY TO DEVELOP ITS BUSINESS. THIS RESULTS IN IMPROVING THE BRAND IMAGE OF THE PRODUCTS, RESULTING IN HIGHER PROFIT TO THE RESPONDENT ASSESSEE DUE TO HIGHER SALES. FURTHER, IT MUST BE EMPHASIZED AT&S INDIA PVT. LTD. ITA NO.69/KOL/2018 ASSESSMENT YEAR: 2013-14 23 THAT THE TPO'S JURISDICTION WAS TO ONLY DETERMINE THE ALP OF AN INTERNATIONAL TRANSACTION. IN THE ABOVE VIEW, THE TPO HAS TO EXAMINE WHETHER OR NOT THE METHOD ADOPTED TO DETERMINE THE ALP IS THE MOST APPROPRIATE AND ALSO WHETHER THE COMPARABLES SELECTED ARE APPROPRIATE OR NOT. IT IS NOT PART OF THE TPO'S JURISDICTION TO CONSIDER WHETHER OR NOT THE EXPENDITURE WHICH HAS BEEN INCURRED BY THE RESPONDENT ASSESSEE PASSED THE TEST OF SECTION 37 OF THE ACT AND/OR GENUINENESS OF THE EXPENDITURE. THIS EXERCISE HAS TO BE DONE, IF AT ALL, BY THE ASSESSING OFFICER IN EXERCISE OF HIS JURISDICTION TO DETERMINE THE INCOME OF THE ASSESSEE IN ACCORDANCE WITH THE ACT. IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT DISALLOWED THE EXPENDITURE BUT ONLY ADOPTED THE TPO'S DETERMINATION OF ALP OF THE ADVERTISEMENT EXPENSES. THEREFORE, THE ISSUE FOR EXAMINATION IN THIS APPEAL IS ONLY THE ISSUE OF ALP AS DETERMINED BY THE TPO IN RESPECT OF ADVERTISEMENT EXPENSES. THE JURISDICTION OF THE TPO IS SPECIFIC AND LIMITED I.E. TO DETERMINE THE ALP OF AN INTERNATIONAL TRANSACTION IN TERMS OF CHAPTER X OF THE ACT READ WITH RULE 10A TO 10E OF THE INCOME TAX RULES. THE DETERMINATION OF THE ALP BY THE RESPONDENT ASSESSEE OF ITS ADVERTISEMENT EXPENSES HAS NOT BEEN DISPUTED ON THE PARAMETERS SET OUT IN CHAPTER X OF THE ACT AND THE RELEVANT RULES. IN FACT, AS FOUND BOTH BY THE CIT (A) AS WELL AS THE TRIBUNAL THAT NEITHER THE METHOD SELECTED AS THE MOST APPROPRIATE METHOD TO DETERMINE THE ALP IS CHALLENGED NOR THE COMPARABLES TAKEN BY THE RESPONDENT ASSESSEE IS CHALLENGED BY THE TPO. THEREFORE, THE AD-HOC DETERMINATION OF ALP BY THE TPO DEHORS SECTION 92C OF THE ACT CANNOT BE SUSTAINED. WE NOTE THAT IN THE ASSESSEE`S CASE UNDER CONSIDERATION, THE AO HAS NOT DISALLOWED THE BENEFIT OF SERVICES RECEIVED BY THE ASSESSEE UNDER THE COST CONTRIBUTION AGREEMENT. THE AUTHORITY OF THE TPO WOULD BE TO CONDUCT A TRANSFER PRICING ANALYSIS TO DETERMINE THE ARM'S LENGTH PRICE ('ALP') AND NOT TO DETERMINE WHETHER THERE IS A SERVICE OR NOT FROM WHICH THE ASSESSEE BENEFITS. THAT EXERCISE OFF ACTUAL VERIFICATION WOULD BE LEFT TO THE AO UNDER SECTION 37 OF THE ACT. THE AO COULD, THEREFORE, DETERMINE UNDER SECTION 37 OF THE ACT THAT THE EXPENDITURE CLAIMED WAS NOT FOR THE BENEFIT OF THE BUSINESS, AND THUS, DISALLOW THAT AMOUNT. THIS DOES NOT RESTRICT OR IN ANY WAY BYPASS THE FUNCTIONS OF THE TPO. THE JURISDICTION OF THE TPO IS SPECIFIC AND LIMITED I.E. TO DETERMINE THE ARM'S LENGTH PRICE OF AN INTERNATIONAL TRANSACTION IN TERMS OF CHAPTER X OF THE ACT READ WITH RULE 10A TO 10E OF THE LNCOME TAX RULES. THEREFORE, WE ARE OF THE VIEW THAT THE ASSESSEE HAS DERIVED BENEFITS FROM THESE SERVICES AS PER CCA AGREEMENT AND HENCE THE ARGUMENTS ADVANCED BY THE LD DR FOR THE REVENUE IS NOT ACCEPTABLE. HENCE, BASED ON THE FACTS AND CIRCUMSTANCES AND THE CASE LAW CITED ABOVE, WE DIRECT THE AO/TPO TO DELETE THE ARM`S LENGTH PRICE ADJUSTMENT TO THE TUNE OF RS.9,97,50,264/- IN RESPECT OF THE INTERNATIONAL TRANSACTIONS INVOLVING PAYMENTS MADE BY THE ASSESSEE IN RESPECT OF PURCHASE, ORDER HANDLING SERVICES AND SALES SERVICES. 35. IN THE RESULT, APPEAL FILED BY THE ASSESSEE, IS ALLOWED. AT&S INDIA PVT. LTD. ITA NO.69/KOL/2018 ASSESSMENT YEAR: 2013-14 24 12. AS THE BOTH THE ISSUES ARE SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF THE DIVISION BENCH IN ASSESSEES OWN CASE (SUPRA) AND THERE IS NO CHANGE IN THE FACTS AND LAW AND THE REVENUE IS UNABLE TO PRODUCE ANY MATERIAL TO CONTROVERT THE AFORESAID FINDINGS OF THE DIVISION BENCH. RESPECTFULLY FOLLOWING THE ABOVE BINDING PRECEDENT, WE UPHOLD THE CONTENTION OF THE ASSESSEE AND WE DELETE THE ALP ADJUSTMENT OF RS.3,58,02,269/-MADE IN RESPECT OF PAYMENT OF INFORMATION TECHNOLOGY (IT SERVICE COST), AND ARMS LENGTH PRICE ADJUSTMENT OF RS. 40,04,924/- MADE IN RESPECT OF PAYMENT OF TECHNICAL SUPPORT SERVICE COST. HENCE, GROUND NOS. 5 TO 15 RAISED BY THE ASSESSEE ARE ALLOWED. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE, IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10/10/2018. SD/- (S. S. GODARA) SD/- (A. L. SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA; DATED: 10/10/2018 RS, SR.PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT- AT&S INDIA PVT. LTD. 2. / THE RESPONDENT.- DCIT, CIRCLE 11(1), KOLKATA. 3. ( ) / THE CIT(A), 4. / CIT 5. , , / DR, ITAT, KOLKATA 6. [ / GUARD FILE. //TRUE COPY// BY ORDER SENIOR PRIVATE SECRETARY, HEAD OF OFFICE/D.D.O, I.T.A.T, KOLKATA BENCHES, KOLKATA .