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31-12-2019, Alcoa India, Section 92D, 92C(3), 92CA, Tribunal Delhi
Appellant, M/s. Alcoa India Private Ltd., (hereinafter referred to as ‘the taxpayer’) by filing the present appeal sought to set aside the impugned order dated 28.02.2014 passed by the AO in consonance with the orders passed by the ld. DRP/TPO under section 143 (3) qua the assessment year 2009-10 on the grounds inter alia that :-
“1. That on the facts and in the circumstances of the case and in law, the order passed by the learned Assessing Officer ("Ld. AO") is bad in law.
2. The Ld. AO/Transfer Pricing Officer ("TPO")I Dispute Resolution Panel ("DRP") erred on facts and circumstances of the case in disturbing the arm's length price of the Appellant's international transactions with its Associated Enterprises ("AEs") which resulted in the enhancement of returned income of theAppellant by Rs. 25,811,607.
3. The Ld. AO/Ld. TPO erred on facts and in law in making an adjustment to the arm's length price of the Appellant's international transactions by :
3.1 Not accepting the analysis conducted in the TP documentation maintained by the Assessee as per section 92D of the Act read with Rule 10D of the Income Tax Rules, 1962 ("Rules") without appreciating that none of the conditions given under section 92C (3) have been satisfied.
3.2 Rejecting the Resale Price Method adopted by the Assessee for the Trading business segment and instead applied Transactional Net Margin Method without ascribing valid and cogent reasoning for the same.
3.3 Applying inappropriate filters to select comparable companies for application of Transaction Net Margin Method.
3.4 Rejecting comparable companies selected by the Assessee in its TP documentation.
4. The Ld. AO/Ld. TPO/Ld. DRP erred in making an adjustment to the entire income of the Appellant and by not confining the addition to the international
transactions as mandated by law.
5. AO/Ld.TPO/Ld.DRP erred in adopting different ways of computing the profit level indicators of the Appellant and the comparable companies by according
different treatment to inventory (which was treated as revenue item for the appellant and as a cost item for the comparable companies.”
2. Briefly stated the facts necessary for adjudication of the controversy at hand are : M/s. Alcoa India Private Ltd., the taxpayer was established in 2006 as an Indian subsidiary of the Alcoa Group known as aluminum company of America . The taxpayer provides market support services to its Associated Enterprises (AE). It is also having trading segment that procures goods from its AE for the purpose of resale to other parties in India. The taxpayer is a subsidiary company of Aloca International Holding Company, USA. During the year under assessment, the taxpayer entered into international transactions with its AE as under:-
3. The present appeal filed by the taxpayer is primarily to challenge the Transactional Net Margin Method (TNMM) with Operating Profit / Sales (OP/Sales) as Profit Level Indicator (PLI) applied by the Transfer Pricing Officer (TPO) to benchmark its international transactions by rejecting RPM as Most Appropriate Method (MAM) with Gross Profit/Sales (GP/Sales) as the Profit Level Indicator (PLI) applied by the taxpayer to benchmark its international transactions qua trading segment. Ld. TPO, however, found remaining international transactions entered into with its AE at arm’s length.
4. The taxpayer in its TP analysis applied RPM with GP/Sales as PLI as MAM to benchmark its international transactions qua trading segment at arm’s length as margin earned by the taxpayer was more than the margin earned by the comparables, which is as under :-
5. However, ld. TPO, after rejecting RPM applied by the taxpayer for benchmarking the international transactions qua trading segment applied TNMM, rejected 6 of the comparables out of 8 comparables chosen by the taxpayer and introduced 4 new comparables on the basis of modified filters applied by using current year’s data only. Ld. TPO selected 6 comparables with average of 13.84% which are as under :-
6. Ld. TPO proceeded to compute the arm’s length value of the international transactions entered into by the taxpayer with its AE as under :-
7. The taxpayer carried the matter before the ld. DRP by way of filing objections, who has upheld the order proposed by the Ld. TPO but directed to correct the margin computation in case of one comparable and excluded two comparables chosen by the TPO and thereby the margin of comparables reduced to 3.96% from 13.84% and restricted the arm’s length price of the transaction to Rs.25,811,607/-. Feeling aggrieved, the taxpayer has come up before the Tribunal by way of filing the present appeal.
8. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
GROUNDS NO.1 & 2
9. Grounds No.1 & 2 need no findings being general in nature.
10. Ground No.3.1 is dismissed having not been pressed during the course of arguments.
11. Now, the only dispute raised by the taxpayer is qua selection of TNMM with OP/Sales as PLI applied by the ld. TPO by rejecting the RPM with GP/Sales as MAM applied by the taxpayer.
12. The ld. AR for the taxpayer challenging the impugned order passed by the TPO/DRP/AO contended inter alia that since taxpayer is a pure distributor without adding any value addition to the goods sold, RPM is the MAM to benchmark the international transactions qua trading segment; that the taxpayer ismaintaining very high inventory (almost 35.29% of purchases as per Note-2F of