{"id":358,"date":"2015-09-09T10:04:34","date_gmt":"2015-09-09T10:04:34","guid":{"rendered":"http:\/\/caindelhiindia.com\/blog\/?p=358"},"modified":"2021-07-14T12:14:00","modified_gmt":"2021-07-14T12:14:00","slug":"alp-tpo-could-not-make-addition-to-assessees-alp-by-adopting-cup-method-during-relevant-year-without-conducting-any-far-analysis","status":"publish","type":"post","link":"https:\/\/www.caindelhiindia.com\/blog\/alp-tpo-could-not-make-addition-to-assessees-alp-by-adopting-cup-method-during-relevant-year-without-conducting-any-far-analysis\/","title":{"rendered":"ALP: TPO COULD NOT MAKE ADDITION TO ASSESSEE’S ALP BY ADOPTING CUP METHOD DURING RELEVANT YEAR WITHOUT CONDUCTING ANY FAR ANALYSIS."},"content":{"rendered":"

ALP: TPO COULD NOT MAKE ADDITION TO ASSESSEE’S ALP BY ADO<\/span>PTING CUP METHOD DURING RELEVANT YEAR WITHOUT CONDUCTING ANY FAR ANALYSIS.<\/span><\/strong><\/span><\/p>\n

Schutz Dishman Bio-Tech (P.) Ltd<\/span><\/strong>\u00a0<\/strong>vs DCIT [2015] (Ahmadabad – Trib.)<\/span><\/strong><\/span><\/p>\n

In a recent ruling, Where Tribunal in earlier year adopted TNMM in assessee’s case for determining ALP, in absence of change in circumstances; TPO could not make addition to assessee’s ALP by adopting CUP method during relevant year without conducting any FAR analysis.<\/p>\n

F<\/span>acts<\/span><\/span><\/strong><\/span><\/p>\n

The assessee was engaged in business of manufacturing and trading chemicals and other materials. During year under consideration, the assessee sold various products to two associate enterprises\u00a0viz<\/em>. ‘A’ GmbH, Germany and ‘S’ (GmbH), Germany.\u00a0In transfer pricing proceedings, the assessee benchmarked its international transactions by adopting TNMM.\u00a0The TPO, however, adopted CUP method for determining ALP. He accordingly made adjustment of Rs. 1.59 crore to assessee’s ALP.\u00a0The Commissioner (Appeals) set aside addition made by Assessing Officer.<\/p>\n

Ru<\/span>l<\/span>ing<\/span><\/span><\/strong><\/p>\n

It was noted that in assessee’s own case relating to assessment year 2004-05, the Tribunal decided the similar issue in\u00a0favour of assessee. Domestic\u00a0and international rates cannot be compared. Fundamental requirement in any of the\u00a0method selected is selection of comparables for benchmarking international transaction. Whatever methodology is\u00a0chosen for the purpose of determination of ALP under section 92C, as specified in the Act and the Rules have to\u00a0form a basis of judging the comparability. There should be proper analysis of such transaction with respect to\u00a0functional performed, assets employed and risk assumed by respective parties with reference to transaction in question. This can be termed as functional, asset, risk analysis\u00a0i.e.<\/em>\u00a0FAR analysis. The provision also provides scope for carrying\u00a0out adjustments in cases where there are some differences or variations to make two transactions commercially comparable, for the purpose of benchmarking.<\/strong>\u00a0The underlying principal being that only likes can be compared with likes. Raw\u00a0materials purchased from Indian supplier were not qualitative compared to raw material purchased from ‘A’ Germany. Assessee\u00a0is responsible for qualitative product and it assumes risk thereof.\u00a0So, it was decided to continue with qualitative raw material being purchased from ‘A’ Germany Assessing Officer ought to have taken into consideration FAR analysis and should also take into account various factors such as quality, quantity, pricing factors, government policy and transportation cost before comparing controlled transaction with uncontrolled transaction. Assessing Officer ought to have evaluated all the methods of transfer pricing, however, he selected directly CUP method being easy to apply. Assessing Officer has taken price from Database without pointing out any comparable cases. The industry average is not a comparable instance as held by the Special Bench in case of\u00a0Aztec Software & Technology Services Ltd.\u00a0v.\u00a0Asstt. CIT\u00a0<\/strong>[2007](Bang.) (SB), where in it was held that Assessing Officer :<\/p>\n