Amphenol Interconnect India Pvt. Ltd.,, Pune v. Addl. CIT, Range 8, Pune

ITA 678/PUN/2013 | 2005-2006
Pronouncement Date: 27-04-2015 | Result: Partly Allowed

Appeal Details

RSA Number 67824514 RSA 2013
Assessee PAN AACCA3419J
Bench Pune
Appeal Number ITA 678/PUN/2013
Duration Of Justice 2 year(s) 1 month(s) 13 day(s)
Appellant Amphenol Interconnect India Pvt. Ltd.,, Pune
Respondent Addl. CIT, Range 8, Pune
Appeal Type Income Tax Appeal
Pronouncement Date 27-04-2015
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 27-04-2015
Date Of Final Hearing 03-11-2014
Next Hearing Date 03-11-2014
Assessment Year 2005-2006
Appeal Filed On 15-03-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A PUNE BEFORE MS SUSHMA CHOWLA JUDICIAL MEMBER AND SHRI R.K. PANDA ACCOUNTANT MEMBER ITA NO.678/PN/2013 ASSESSMENT YEAR: 2005-06 AMPHENOL INTERCONNECT INDIA PVT. LTD. 105 BHOSARI INDUSTRIAL ESTATE PUNE 411026 . APPELLANT PAN: AACCA3419J VS. THE ADDL. COMMISSIONER OF INCOME TAX RANGE 8 PUNE . RESPONDENT APPELLANT BY : SHRI NIKHIL PATHAK RESPONDENT BY : SHRI RAJESH DAMOR DATE OF HEARING : 24-02-2015 DATE OF PRONOUNCEMENT : 27-04-2015 ORDER PER SUSHMA CHOWLA JM: THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE OR DER OF CIT(A)-IT/TP PUNE DATED 15.01.2013 RELATING TO ASSESSMENT YEAR 2 005-06 PASSED UNDER SECTION 143(3) R.W.S. 145 OF THE INCOME-TAX ACT 19 61. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- ON FACTS AND IN LAW 1] THE LEARNED TPO / CIT(A) ERRED IN RECOMPUTING TH E TRANSFER PRICE OF THE INTERNATIONAL TRANSACTIONS RELATING TO EXPORTS AND IMPORT OF GOODS DESPITE THE FACT THAT NONE OF THE CONDITIONS AS PRESCRIBED IN SECTION 92C(3) OF THE INCOME TAX ACT 1961 ('THE ACT') HAD BEEN VIOLATED BY THE APPELLANT. THUS THE A.O. / DRP ERRED IN MAKING AN ADDITION OF RS.33 91 959/- U/S 92C ON THE BASIS OF THE ORDER OF THE TPO U/S 92CA(3 ) DATED 31.03.2008 IN THE CASE OF THE APPELLANT COMPANY. 2] THE LEARNED TPO / CIT(A) ERRED IN MAKING AN ADDI TION OF RS.33 91 959/- WITHOUT APPRECIATING THE FACT THAT SUCH AN ADHOC AD DITION WAS NOT PERMISSIBLE UNDER LAW IN VIEW OF THE DECISION OF SU PREME COURT IN THE CASE OF K.P. VERGHESE [131 ITR 597]. 3] THE LEARNED TPO / CIT(A) ERRED IN NOT APPRECIATI NG THE FACT THAT THE ADJUSTMENT OF RS.33 91 959/- MADE TO THE TOTAL INCO ME AS RETURNED IS BEYOND THE SCOPE OF TOTAL INCOME AS DEFINED IN SECT ION 5 OF THE ACT. THE LEARNED TPO/CIT(A) ALSO ERRED IN NOT APPRECIATING T HE FACT THAT THE ADJUSTMENT OF RS.33 91 959/- DOES NOT PARTAKE THE C HARACTER OF INCOME AS DEFINED IN SECTION 2 OF THE ACT. IN VIEW OF THE ABO VE THE ADJUSTMENT MADE ITA NO.678/PN/2013 AMPHENOL INTERCONNECT (I) PVT. LTD. 2 BY THE TPO / CIT(A) ARE NOT WITHIN THE PURVIEW OF T HE CONCEPT OF 'INCOME' AS PER IT ACT AND HENCE IT REQUIRES TO BE DELETED. 4] THE LEARNED TPO / CIT(A) ERRED IN MAKING AN ADJU STMENT OF RS.31 74 314/- BY ADOPTING THE COMPARABLE UNCONTROL LED PRICE (CUP) METHOD FOR DETERMINING THE ARM'S LENGTH PRICE (ALP) IN RESPECT OF SOME OF THE INTERNATIONAL TRANSACTIONS PERTAINING TO FIN ISHED GOODS. 4.1] THE LEARNED TPO / CIT(A) ERRED IN HOLDING THAT THE CUP METHOD WAS THE MOST APPROPRIATE METHOD FOR DETERMINING THE ALP IN RESPECT OF SOME OF THE TRANSACTIONS OF EXPORT OF GOODS MERELY ON THE B ASIS THAT THE DATA PERTAINING TO SIMILAR TRANSACTIONS WITH THIRD PARTI ES WERE AVAILABLE. 4.2] THE LEARNED TPO / CIT(A) FAILED TO APPRECIATE THAT THERE WERE VARIOUS DIFFERENCES ON ACCOUNT OF FUNCTIONAL TRANSACTIONAL GEOGRAPHICAL VOLUME TIMING BUSINESS RISKS ETC. IN RESPECT OF ALLEGED COMPARABLE TRANSACTIONS WHICH OUGHT TO HAVE BEEN CONSIDERED AND SINCE SUITA BLE ADJUSTMENTS WERE NOT POSSIBLE THERE WAS NO REASON TO ADOPT THE CUP METHOD FOR DETERMINING THE ALP. 4.3) THE LEARNED TPO / CIT(A) FAILED TO APPRECIATE THAT THE TRANSACTIONAL NET MARGIN METHOD (TNMM) WAS THE MOST APPROPRIATE METHO D FOR DETERMINING THE ALP IN RESPECT OF EXPORT OF GOODS TO AE AND THE NET PROFIT MARGIN OF THE ASSESSEE WAS COMPARABLE TO THE NET PROFIT MARGI N OF THE COMPARABLE COMPANIES AND HENCE THE TRANSACTIONS WITH THE AE W ERE AT ALP. 4.4] THE LEARNED TPO / CIT(A) HAVE ERRED IN REJECT ING THE TNMM AS THE MOST APPROPRIATE METHOD FOR BENCHMARKING CERTAIN INTERNA TIONAL TRANSACTIONS ON THE GROUNDS THAT THESE TRANSACTIONS SHOULD HAVE BEEN SEPARATELY BENCHMARKED AND THEREBY CONTRADICTING THEMSELVES S INCE NO SUCH SEPARATE BENCHMARKING WAS CONDUCTED BY THE LD TPO H IMSELF WHILE BENCHMARKING THE BALANCE INTERNATIONAL TRANSACTIONS FOR WHICH THE TNMM WAS ACCEPTED. 4.5] WITHOUT PREJUDICE TO THE ABOVE GROUNDS THE A SSESSEE SUBMITS THAT IF AT ALL THE CUP METHOD WAS TO BE ADOPTED FOR DETERMINI NG THE ALP SUITABLE ADJUSTMENTS OUGHT TO HAVE BEEN MADE FOR DIFFERENCES ON ACCOUNT OF VOLUME TIMING GEOGRAPHICAL BUSINESS RISKS ETC B ETWEEN THE ALLEGED COMPARABLE TRANSACTIONS. 5] THE LEARNED A.O. / DRP ERRED IN MAKING AN ADJUS TMENT OF RS.2 17 645/- BY ADOPTING THE COMPARABLE UNCONTROLLED PRICE (CUP) METHOD FOR DETERMINING THE ARM'S LENGTH PRICE (ALP) IN RESPECT OF SOME OF THE INTERNATIONAL TRANSACTIONS PERTAINING TO IMPORT OF GOODS. 5.1] THE LEARNED TPO / CIT(A) ERRED IN HOLDING THA T THE CUP METHOD WAS THE MOST APPROPRIATE METHOD FOR DETERMINING THE ALP IN RESPECT OF CERTAIN TRANSACTIONS OF IMPORT OF CERTAIN GOODS MERELY ON T HE BASIS THAT THE DATA PERTAINING TO SIMILAR TRANSACTIONS WITH THIRD PARTI ES WERE AVAILABLE. 5.2] THE LEARNED TPO / CIT(A) FAILED TO APPRECIATE THAT THERE WERE VARIOUS DIFFERENCES ON ACCOUNT OF TRANSACTIONAL FUNCTIONAL GEOGRAPHICAL VOLUME TIMING BUSINESS RISKS ETC. IN RESPECT OF ALLEGED COMPARABLE TRANSACTIONS WHICH OUGHT TO HAVE BEEN CONSIDERED AND SINCE SUITA BLE ADJUSTMENTS WERE NOT POSSIBLE THERE WAS NO REASON TO ADOPT THE CUP METHOD FOR DETERMINING THE ALP. 5.3] THE LEARNED TPO / CIT(A) FAILED TO APPRECIATE THAT THE TNMM WAS THE MOST APPROPRIATE METHOD FOR DETERMINING THE ALP IN RESPECT OF IMPORT OF GOODS FROM THE AE SINCE THE NET PROFIT MARGIN OF TH E ASSESSEE COMPANY WAS COMPARABLE TO THE NET PROFIT MARGIN OF THE COMP ARABLE COMPANIES AND HENCE THE TRANSACTIONS WITH THE AE WERE AT ALP . 5.4] THE LEARNED TPO / CIT(A) HAVE ERRED IN REJECT ING THE TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD FOR BENCHMARKING CERTAIN INTERNATIONAL TRANSACTIONS ON THE GROUNDS THAT THESE ITA NO.678/PN/2013 AMPHENOL INTERCONNECT (I) PVT. LTD. 3 TRANSACTIONS SHOULD HAVE BEEN SEPARATELY BENCHMARKE D AND THEREBY CONTRADICTING THEMSELVES SINCE NO SUCH SEPARATE BE NCHMARKING WAS CONDUCTED BY THE LD. TPO HIMSELF WHILE BENCHMARKIN G THE BALANCE INTERNATIONAL TRANSACTIONS FOR WHICH THE TNMM WAS A CCEPTED. 5.5] WITHOUT PREJUDICE TO THE ABOVE GROUNDS THE AS SESSEE SUBMITS THAT IF AT ALL THE CUP METHOD WAS TO BE ADOPTED FOR DETERMINI NG THE ALP SUITABLE ADJUSTMENTS OUGHT TO HAVE BEEN MADE FOR DIFFERENCES ON ACCOUNT OF VOLUME TIMING GEOGRAPHICAL BUSINESS RISKS ETC B ETWEEN THE ALLEGED COMPARABLE TRANSACTIONS. 6] THE LEARNED TPO / CIT(A) ERRED IN IGNORING THE F ACT THAT BASED ON THE DETAILED TRANSFER PRICING STUDY CONDUCTED BY THE AP PELLANT THE TNMM HAD BEEN DEMONSTRATED TO BE THE MOST APPROPRIATE METHOD TO DETERMINE THE ALP OF THE APPELLANT'S EXPORT AND IMPORT TRANSACTIO NS PERTAINING TO THE MANUFACTURING SEGMENT. HE ALSO FAILED TO APPRECIATE THAT THE TNMM HAD BEEN ACCEPTED BY THE LD. TPO AS THE MOST APPROPRIAT E METHOD FOR AY 2004-05 IN WHICH YEAR THE SURROUNDING FACTS AND CI RCUMSTANCES WERE SIMILAR. 7] WITHOUT PREJUDICE TO THE ABOVE GROUNDS THE ASSE SSEE SUBMITS THAT THE LEARNED TPO / CIT(A) FAILED TO APPRECIATE THAT IN R ESPECT OF CERTAIN PRODUCTS EXPORTED BY THE ASSESSEE IT HAD CHARGED H IGHER PRICE TO THE AE AS COMPARED TO NON AE AND HENCE THIS AMOUNT SHOULD HAVE BEEN ADJUSTED AND ONLY THE NET AMOUNT COULD BE ADDED. 8] WITHOUT PREJUDICE TO THE ABOVE GROUNDS THE ASS ESSEE SUBMITS THAT THE LEARNED TPO / CIT(A) FAILED TO APPRECIATE THAT IN R ESPECT OF CERTAIN PRODUCTS IMPORTED BY THE ASSESSEE IT HAD PAID LESS ER PRICE TO THE AE AS COMPARED TO NON AE AND HENCE THIS AMOUNT SHOULD HA VE BEEN ADJUSTED AND ONLY THE NET AMOUNT COULD BE ADDED. 9) THE ASSESSEE SUBMITS THAT WITHOUT PREJUDICE TO I TS CONTENTION THAT THE ADDITION MADE U/S 92C IS NOT WARRANTED AT ALL IT I S SUBMITTED THAT THE LEARNED TPO / CIT(A) OUGHT TO HAVE GRANTED THE BENE FIT OF 5% TO THE ASSESSEE COMPANY AS PER THE PROVISO TO SECTION 92C( 2). 10] THE APPELLANT RESERVES ITS RIGHT TO ADD ALTER AMEND OR WITHDRAW ANY GROUND OF APPEAL EITHER BEFORE OR AT THE TIME OF HE ARING OF THIS APPEAL. 3. THE ISSUE ARISING IN THE PRESENT APPEAL IS IN RE LATION TO THE TRANSFER PRICING ADJUSTMENT MADE BY THE ASSESSING OFFICER / TRANSFER PRICING OFFICER AND UPHELD BY THE CIT(A) RESULTING IN AN ADDITION OF RS.33 91 959/-. 4. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE AS SESSEE AT THE OUTSET POINTED OUT THAT THE ISSUE OF TRANSFER PRICING ARIS ING IN THE PRESENT APPEAL IS SIMILAR TO THE ISSUE RAISED BY THE ASSESSEE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEARS 2006-07 2007-08 AND 2008-09. IT WAS FURTHER POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIV E FOR THE ASSESSEE THAT THE GROUND OF APPEAL NO.1 WAS GENERAL IN NATURE AND GRO UNDS OF APPEAL NOS.2 AND 3 ARE NOT PRESSED. THE ISSUE IN GROUND OF APPEAL NO. 4 IS IN RESPECT OF THE DETERMINATION OF ARM'S LENGTH PRICE PERTAINING TO E XPORT OF FINISHED GOODS AND ITA NO.678/PN/2013 AMPHENOL INTERCONNECT (I) PVT. LTD. 4 VIDE GROUND OF APPEAL NO.5 SIMILAR ADJUSTMENT IN R ESPECT OF INTERNATIONAL TRANSACTIONS PERTAINING TO IMPORT OF GOODS. VIDE G ROUND OF APPEAL NO.6 THE ASSESSEE HAS RELIED ON THE TRANSFER PRICING STUDY C ONDUCTED BY IT IN WHICH THE TNMM METHOD WAS DEMONSTRATED TO BE THE MOST APPROPR IATE METHOD TO DETERMINE THE ARM'S LENGTH PRICE OF THE ASSESSEES EXPORT AND IMPORT TRANSACTIONS PERTAINING TO THE MANUFACTURING SEGMENT. IN THE AL TERNATE VIDE GROUND OF APPEAL NO.7 THE ASSESSEE HAS AGITATED THAT IN RESPECT OF CERTAIN PRODUCTS EXPORTED BY THE ASSESSEE IT HAD CHARGED HIGHER PRICE TO ITS AS SOCIATED ENTERPRISES AS COMPARED TO NON-ASSOCIATED ENTERPRISES AND SIMILAR WAS THE POSITION IN RESPECT OF IMPORT OF GOODS AGAINST WHICH THE ALTERNATE PLE A WAS RAISED VIDE GROUND OF APPEAL NO.8. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE STRESSED THAT THE TPO HAD APPLIED CUP METHOD WHICH WAS NOT PRACTICAL AND THE SAME SHOULD BE IGNORED. 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACING RELIANCE ON THE ORDERS OF AUTHORITIES BELOW FAIRLY ADMITTED THAT THE ISSUE RAISED IN THE PRESENT APPEAL WAS SIMILAR TO THE ISSUE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEARS 2006-07 2007-08 AND 2008-09. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE ADDITIO N OF RS.33 91 959/- MADE TO THE VALUE OF INTERNATIONAL TRANSACTIONS ENTERED INT O BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES IN RESPECT OF EXPORT OF FINI SHED GOODS AND IMPORT OF GOODS. 7. BRIEFLY IN THE FACTS OF THE CASE THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF AMPHENOL CORPORATION USA. THE ASSESSEE WAS ENG AGED IN THE MANUFACTURING OF BROAD RANGE INTER-CONNECTED PRODUC TS AND ASSEMBLIES FOR VOICE VIDEO AND DATA COMMUNICATION SYSTEMS COMMERCIAL AN D MILITARY AEROSPACE SYSTEM AUTOMATION AND MASS TRANSPORTATION APPLICATI ON AND INDUSTRIAL AND FACTORY AUTOMATION EQUIPMENTS. THE MANUFACTURING ACTIVITY CARRIED ON BY THE ASSESSEE ITA NO.678/PN/2013 AMPHENOL INTERCONNECT (I) PVT. LTD. 5 WAS CUSTOMIZED. THE TOTAL TURNOVER OF THE ASSESSEE COMPANY FOR THE YEAR UNDER CONSIDERATION WAS RS.63.23 CRORES AS AGAINST WHICH THE ASSESSEE HAD MADE EXPORTS TO ITS ASSOCIATED ENTERPRISES OF RS.22 18 9 5 168/- AND IMPORT OF RAW MATERIALS WAS OF RS.6 96 36 395/-. ADMITTEDLY THE ASSESSEE HAD APPLIED TRANSACTIONAL NET MARGIN METHOD (TNMM) METHOD FOR D ETERMINING INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES AND WA S AT MARGIN HIGHER THAN THE COMPARABLES. THE ASSESSEE HAD AGGREGATED THE FOLLO WING INTERNATIONAL TRANSACTIONS:- SR. NO. DETAILS OF TRANSACTION AMOUNT (RS.) METHOD ADOPTED 1 IMPORT OF RAW MATERIAL 6 96 36 395 TNMM 2 EXPORT OF CONNECTORS I.E. FINISHED GOODS 22 18 95 168 TNMM 3 PURCHASE OF TRADED GOODS 1 24 69 776 RPM 4 RECEIPT OF INDENTING COMMISSION 50 04 556 TNMM 5 RECEIPT OF BANK GUARANTEE CHARGES 1 14 726 TNMM 6 REIMBURSEMENT OF EXPENSES 47 27 547 (NORMAL) TOTAL 31 38 48 168 8. THE TPO ON THE ANALYSIS OF THE DATA NOTED THAT T HE ASSESSEE HAD EXPORTED FINISHED GOODS TO THE ASSOCIATED ENTERPRIS ES AND ALSO TO THE THIRD PARTIES. ON THE PERUSAL OF THE PRODUCT-WISE DETAIL S IN RESPECT OF EACH SEPARATE PRODUCT AND ALSO AFTER PERUSING THE DETAILS IN RESP ECT OF SIMILAR PRODUCTS IMPORTED FROM ASSOCIATED ENTERPRISES AND THIRD PARTIES THE TPO OBSERVED THAT ON PRODUCT- WISE COMPARABILITY OF GOODS EXPORTED AND IMPORTED A ND BY TAKING AVERAGE SELLING PRICE PER UNIT OR AVERAGE PURCHASE PRICE PER UNIT I N RESPECT OF ASSOCIATED ENTERPRISES AND THIRD PARTIES WERE DIFFERENT. THE TPO DID NOT FIND FAVOUR WITH THE BENCHMARKING OF ALL THE TRANSACTIONS BY THE ASSESSE E TOGETHER UNDER ONE SEGMENT I.E. MANUFACTURING SEGMENT EXCEPT THE TRAN SACTION RELATING TO PURCHASE OF TRADING GOODS. IT WAS FURTHER OBSERVED BY THE T PO THAT THE ASSESSEE HAD FOLLOWED TNMM METHOD FOR THE MANUFACTURING SEGMENT AND HAS BENCHMARKED THE ENTITY LEVEL PROFITABILITY VIS--VIS EXTERNAL C OMPARABLES BUT THE ASSESSEE HAD FAILED TO BENCHMARK ITS TRANSACTION SEPARATELY. TH E TPO WAS OF THE VIEW THAT IN ITA NO.678/PN/2013 AMPHENOL INTERCONNECT (I) PVT. LTD. 6 SUCH CIRCUMSTANCES WHERE THE ASSESSEE EXPORTS SAME PRODUCTS TO THE THIRD PARTIES AND ALSO SELLS THE SAME IN DOMESTIC MARKET AS WELL THEN COMPARABILITY BASED ON THE SALE PRICES OF THE SAME PRODUCT WOULD GIVE MORE THAN FAIR AND REASONABLE RESULTS. THE TPO WAS OF THE VIEW THAT C UP METHOD SHOULD BE APPLIED IN THE INSTANT CASE AND APPLYING THE SAME THE TPO WORKED OUT AN ADJUSTMENT OF RS.33 91 959/- TO BE MADE TO THE ARM' S LENGTH PRICE COMPUTED BY THE ASSESSEE. THE TPO THUS PROPOSED AN ADDITION O F RS.33 91 959/- AS PER ITS ORDER PASSED UNDER SECTION 92CA(3) OF THE ACT. THE ASSESSING OFFICER VIDE ORDER PASSED UNDER SECTION 143(3) R.W.S. 145 OF THE ACT A DDED THE ADJUSTMENT OF RS.33 91 959/- AS INCOME OF THE ASSESSEE FOR THE YE AR UNDER CONSIDERATION. 9. THE CIT(A) UPHELD THE ADDITION IN THE HANDS OF T HE ASSESSEE IN VIEW OF THE SIMILAR ISSUE HAVING BEEN RAISED BEFORE THE DIS PUTE RESOLUTION PANEL (DRP) IN ASSESSMENT YEARS 2007-08 AND 2008-09 WHEREIN TH E DRP HAD HELD AGAINST THE ASSESSEE ON BOTH THE ISSUES I.E. THE ISSUE OF A PPLICATION OF CUP METHOD AND THE ISSUE OF GROUPING THE TRANSACTION UNDER THE HEA D MANUFACTURING SEGMENT. 10. BEFORE US THE PLEA OF THE ASSESSEE WAS THAT TH E TPO HAD ERRED IN APPLYING THE CUP METHOD AS AGAINST THE TNMM METHOD APPLIED BY THE ASSESSEE IN ITS TRANSFER PRICING STUDY. 11. WE FIND THAT SIMILAR ISSUE AROSE BEFORE THE TRI BUNAL IN ASSESSEES OWN CASE IN ITA NO.1486/PN/2010 ITA NO.1548/PN/2011 AN D ITA NO.142/PN/2013 RELATING TO ASSESSMENT YEARS 2006-07 2007-08 AND 2 008-09 RESPECTIVELY AND VIDE CONSOLIDATED ORDER DATED 30.05.2014 THE TRIBU NAL DELIBERATED UPON BOTH THE ISSUES I.E. WHETHER THE CUP METHOD IS TO BE APPLIED BY BENCHMARKING THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE AND / OR WHETHER THE ASSESSEE WAS CORRECT IN BUNCHING THE INTERNATIONAL TRANSACTIONS AS ONE UNDER THE HEAD MANUFACTURING SEGMENT AND WORKING OUT THAT THE SAID TRANSACTION WAS AT ARM'S LENGTH PRICE AS COMPARED TO THE OTHER COMPARABLES P ICKED UP BY THE ASSESSEE. ITA NO.678/PN/2013 AMPHENOL INTERCONNECT (I) PVT. LTD. 7 12. AS POINTED OUT BY US IN THE PARAS HEREINABOVE THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD ENTERED INTO THE INTER NATIONAL TRANSACTIONS OF IMPORT OF RAW MATERIALS TOTALING RS.6.96 CRORES AND EXPORT OF FINISHED GOODS OF RS.22.18 CRORES. IN ADDITION THE ASSESSEE HAD RECEIVED IND ENTING COMMISSION OF RS.50 04 556/- AND THERE WAS REIMBURSEMENT OF BANK GUARANTEE CHARGES OF RS.1 14 726/- REIMBURSEMENT OF EXPENSES WERE TO TH E TUNE OF RS.47 27 547/-. ALL THE SAID TRANSACTIONS EXCEPT IMPORT OF FINISHE D GOODS FOR RE-SALE AT RS.1.24 CRORES WERE AGGREGATED UNDER MANUFACTURING SEGMENT. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT OU T OF THE TOTAL EXPORT OF FINISHED GOODS OF RS.22.18 CRORES ONLY EXPORT OF G OODS TOTALING RS.1.35 CRORES WAS ON ACCOUNT OF SIMILAR MANUFACTURED GOODS WHICH WERE SOLD BOTH TO ASSOCIATED ENTERPRISES AND THIRD PARTIES. IT WAS F URTHER POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT OUT OF TOTAL IMPORT OF GOODS OF RS.6.97 CRORES ONLY GOODS TOTALING RS.50.14 LAKHS IMPORTED FROM THE ASSOCIATED ENTERPRISES WERE SIMILAR TO THE IMPORT MADE FROM TH IRD PARTIES. OUR ATTENTION WAS DRAWN TO THE COMPARATIVE DETAILS FURNISHED AT PAGE 15 ONWARDS OF THE PAPER BOOK UNDER WHICH THE ASSESSEE HAD SOLD PRODUCT NO. 621N-12E-8-4P TO ITS ASSOCIATED ENTERPRISES I.E. QUANTITY OF 600 @ EUR 2 .09 I.E. SELLING PRICE OF RS.117.96 AS AGAINST THE SAME THE SAID PRODUCT WAS SOLD TO NON-ASSOCIATED ENTERPRISES I.E. QUANTITY OF 7 @ AUD 3.73 EQUIVALEN T TO RS.120.81. ANOTHER SALE WAS MADE TO THE ASSOCIATED ENTERPRISES OF QUANTITY OF 47 @ EUR 2.89 AT RS.170.77. THE LEARNED AUTHORIZED REPRESENTATIVE F OR THE ASSESSEE POINTED OUT THAT THE PRICE CHARGED FROM THE ASSOCIATED ENTERPRI SES AND / OR THE THIRD PARTIES DEPENDENT ON VARIOUS ISSUES I.E. TIMING OF THE TRAN SACTION VOLUME OF ORDER AND GEOGRAPHICAL LOCATIONS. IN SUCH CIRCUMSTANCES THE APPLICATION OF CUP METHOD WAS NOT PRACTICAL. SIMILAR REFERENCE WAS MADE TO T HE TRANSACTIONS OF IMPORT OF GOODS DETAILS OF WHICH WERE PLACED AT PAGES 79 TO 88 OF PAPER BOOK. 13. WE FIND MERIT IN THE PLEA OF THE ASSESSEE THAT FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION THE ITA NO.678/PN/2013 AMPHENOL INTERCONNECT (I) PVT. LTD. 8 CUP METHOD IS TO BE IGNORED IN TURN RELYING ON THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEARS 20 06-07 2007-08 AND 2008- 09 (SUPRA). THE TRIBUNAL HAD ELABORATELY CONSIDERE D THE ARGUMENTS OF THE ASSESSEE VIS--VIS THE APPLICATION OF APPROPRIATE M ETHOD WHETHER THE TNMM METHOD OR CUP METHOD IS TO BE APPLIED AND HAD COME TO A FINDING THAT IN THE CIRCUMSTANCES OF THE CASE WHERE THE PRICES VARIED ON ACCOUNT OF VARIOUS ISSUES I.E. TIMING OF THE TRANSACTION VOLUME OF ORDER AND GEOGRAPHICAL LOCATION THEN CUP METHOD CANNOT BE APPLIED AND IT WAS MOST APPROP RIATE TO APPLY TNMM METHOD. THE RELEVANT FINDING OF THE TRIBUNAL IS AS UNDER:- 3.1 ACCORDING TO THE TPO IN RESPECT OF THE PRODUC TS WHICH WERE SOLD BY THE ASSESSEE TO ITS AES AS WELL AS THIRD PARTIES THE C UP METHOD IS THE MOST APPROPRIATE METHOD FOR DETERMINING ALP. THE TPO HAS HELD THAT THE CUP METHOD COULD BE APPLIED IN THIS SCENARIO. HE HAS FU RTHER STATED THAT THE ASSESSEE DID NOT SUBMIT ANY DATA FOR THE ADJUSTMENTS TO BE M ADE ON ACCOUNT OF THE DIFFERENCES IN RESPECT OF SALES TO AES AND THIRD PA RTIES. ACCORDINGLY HE HAS MADE THE ADDITION IN RESPECT OF THOSE PRODUCTS WHER EIN THE AVERAGE SELLING PRICE CHARGED BY THE ASSESSEE TO THE AES WAS LESSER THAN THE AVERAGE SELLING PRICE CHARGED TO THIRD PARTIES. IN THIS REGARD THE STAN D OF THE ASSESSEE HAS BEEN THAT THE ADDITION IS QUESTION IS NOT JUSTIFIED. WE FIND THAT OUT OF THE TOTAL EXPORTS TO AE OF 28.64 CRORES THE TPO HAS ACCEPTED THAT EXPORTS OF 27.24 CRS. ARE AT ALP. ONLY IN RESPECT OF EXPORTS OF 1.40 CRS. WHICH ACCOUNT FOR 5% OF TOTAL EXPORTS THE TPO HAS APPLIED THE CUP METHOD. THE TPO HAS MA DE THE ADDITION ONLY ON THE BASIS THAT THERE IS PRODUCT SIMILARITY. THE TP O HAS NOT APPRECIATED THAT THE CUP METHOD IS NOT THE MOST APPROPRIATE METHOD TO DE TERMINE ALP IN THE CASE OF THE ASSESSEE BECAUSE THE ASSESSEE MANUFACTURES CUST OMIZED PRODUCTS. THE PRICING OF THE PRODUCT DEPENDS UPON VARIOUS FACTORS LIKE THE GEOGRAPHICAL LOCATION OF THE CUSTOMER THE VOLUME OF THE ORDER TIMING OF THE ORDER URGENCY OF THE CUSTOMER COMPETITION IN THE MARKET ETC. THE PRICI NG DEPENDS UPON SO MANY FACTORS AND SUITABLE ADJUSTMENTS COULD NOT BE MADE TO ACCOUNT FOR SUCH DIFFERENCES. THE LEARNED AUTHORIZED REPRESENTATIVE HAS POINTED OUT THAT IN RESPECT OF THE SAME PARTY AND THE SAME PRODUCT THE ASSESSEE HAS CHARGED DIFFERENT PRICES WHICH ITSELF INDICATES THAT THE PR ICING IS DEPENDENT UPON VARIOUS FACTORS FOR WHICH SUITABLE ADJUSTMENTS COULD NOT BE MADE. IN THIS REGARD THE ATTENTION WAS DRAWN TO PAGE 165 OF THE PAPER BOOK W HEREIN WHICH MAKE IT CLEAR THAT THE ASSESSEE COMPANY HAS CHARGED DIFFERENT PRI CES TO AMPHENOL LTD. GREAT BRITAIN FOR THE SAME PRODUCT. 3.2 THE ASSESSEE EMPHASIZED THAT THERE ARE VARIOUS DIFFERENCES IN TRANSACTIONS WITH AES AND THE THIRD PARTIES PERTAIN ING TO SIMILAR PRODUCTS. THESE DIFFERENCES ARE AS UNDER A. VOLUME DIFFERENCES - THIS ASPECT WAS CLARIFIED BY THE ASSESSEE ON PAGE 1 50 OF THE PAPER BOOK. THE ASSESSEE INTER ALIA HAD EXPLAINED TO TH E ASSESSING OFFICER THAT VOLUMES INVOLVED FOR AES ARE MUCH HIGHER AS CO MPARED TO THIRD PARTIES. THE ASSESSEE HAS FURTHER STATED THAT VOLUM E DISCOUNT OFFERED DEPENDS UPON VARIOUS FACTORS LIKE PREVAILING MARKET CONDITIONS LEVEL OF COMPETITION IN THE MARKET AND FUTURE GROWTH PROSPEC TS. THIS FACT HAS NOT BEEN APPRECIATED BY THE TPO. B. GEOGRAPHICAL DIFFERENCES - THIS ASPECT WAS CLARIFIED BY THE ASSESSEE ON PAGE 1 52 OF THE PAPER BOOK INTER ALIA CLARIFIED TO THE ASSESSING OFFICE R THAT THE PRICES CHARGED ITA NO.678/PN/2013 AMPHENOL INTERCONNECT (I) PVT. LTD. 9 DEPENDS UPON THE COUNTRY WHERE THE AE/ THIRD PARTY IS SITUATED AND ALSO THE DEMAND AND SUPPLY FACTORS IN THE RESPECTIVE COU NTRIES. THE ASSESSEE EXPLAINED THAT CUP METHOD CAN BE APPLIED ONLY WHEN THE CONDITIONS PREVAILING IN THE MARKET IN WHICH THE RESPECTIVE PA RTIES OPERATE ARE THE SAME AND ALSO THE SIZE AND LOCATION OF THE MARKET I S TO BE TAKEN INTO CONSIDERATION. THIS ASPECT HAS NOT BEEN ANALYZED B Y THE TPO JUDICIOUSLY. C. TIMING DIFFERENCES THIS ASPECT WAS CLARIFIED BY THE ASSESSEE ON PAGES 153 - 154 OF THE PAPER BOOK INTER ALIA SUBMITTED THAT TIMING DIFFE RENCES IN THE SALES MADE TO THE AES AND THIRD PARTIES HAVE A BEARING SINCE T HE PRICES ARE DEPENDENT UPON VARIOUS FACTORS. AS CLARIFIED THE A SSESSEE MANUFACTURES AFTER RECEIVING THE ORDER FROM THE PARTY AND THE RE LEVANT RAW MATERIAL COST AT THAT TIME IS ALSO A CRUCIAL FACTOR TO DETERMINE THE PRICES OF THE END PRODUCT. THUS CONSIDERING TIMING DIFFERENCES OF TR ANSACTION APPLICATION OF CUP METHOD IS NOT JUSTIFIED. D. RISK DIFFERENCE - THIS ASPECT EMPHASIZED BY THE ASSESSEE FROM THE DET AILS AT PAGE 154 OF THE PAPER BOOK INTER ALIA EMPHASIZED THAT THE RIS K MAINLY MARKET RISK AND PRODUCT RELATED RISK ASSUMED BY THE COMPANY IN CASE OF TRANSACTIONS WITH AES ARE SIGNIFICANTLY LOWER AS COMPARED TO THE TRANSACTIONS WITH THIRD PARTIES. THEREFORE CONSIDERING THE RISK DIFF ERENCES THE PRICES CHARGED TO THIRD PARTIES ARE HIGHER THAN THE PRICES CHARGED TO AES IN CERTAIN CASES. HENCE CUP METHOD COULD NOT BE APPLI ED IN THE CASE OF THE ASSESSEE. FURTHER THE ASSESSEE DOES NOT HAVE A NY CREDIT RISK IN RESPECT OF SALES TO THE AES WHICH IS AN IMPORTANT F ACTOR. THIS DIFFERENCE IS DISCUSSED ABOVE HAS NOT BEEN JUDICIOUSLY APPRECI ATED BY THE ASSESSEE. E. FUNCTIONAL DIFFERENCES THIS ASPECT WAS CLARIFIED BY THE ASSESSEE AS PER DE TAILS ON PAGE 154 OF THE PAPER BOOK INTER ALIA ASSESSEE EXPLAINED TO T HE ASSESSING OFFICER THAT IN RESPECT OF SALES TO AES IT WAS NOT REQUIRE D TO UNDERTAKE MARKETING FUNCTIONS WHILE IN RESPECT OF SALES TO THIRD PARTIE S THE ASSESSEE HAS TO EXTENSIVELY UNDERTAKE MARKETING OPERATIONS. IGNORI NG UNDERTAKING OF MARKETING FUNCTION IS NOT JUSTIFIED. F. OTHER DIFFERENCES THIS ASPECT WAS CLARIFIED BY THE ASSESSEE ON PAGE 1 54 OF THE PAPER BOOK INTER ALIA ASSESSEE EXPLAINED THAT THE AES A RE USUALLY ORIGINAL EQUIPMENT MANUFACTURERS WHILE THE THIRD PARTIES ARE USUALLY DISTRIBUTORS. THUS THERE WAS A DIFFERENCE IN VALUE CHAIN. SIMILA RLY ASSESSEE EXPLAINED THAT IT IS ABLE TO REALIZE HIGHER PRICE ON ACCOUNT OF AMPHENOL BRAND FOR WHICH NO CONSIDERATION WAS PAID BY THE ASSESSEE. 3.3 CONSIDERING THE ABOVE DIFFERENCES CUP METHOD W AS CLAIMED TO BE NOT THE MOST APPROPRIATE METHOD TO DETERMINE ALP. THE S UITABLE ADJUSTMENTS WERE NOT POSSIBLE FOR THE ABOVE DIFFERENCES AND THEREFOR E THE TPO WAS NOT JUSTIFIED IN ADOPTING CUP FOR EXPORTS OF 1.40 CRS. TO THE AES SPECIALLY WHEN IN RESPECT OF SOME OF THE PRODUCTS THE ASSESSEE HAS CHARGED HIGH ER PRICE TO THE AES AS COMPARED TO THE PRICES CHARGED TO THIRD PARTIES. T HIS FACT WAS CLARIFIED BY THE ASSESSEE TO THE TPO BY THE DETAILS AS MENTIONED ON PAGE 161 OF THE PAPER BOOK. CONSIDERING THE ABOVE FACT WE FIND THAT IN R ESPECT OF SOME OF THE INSTANCES THE ASSESSEE HAS CHARGED HIGHER PRICES T O THE AES AS COMPARED TO THIRD PARTIES. THIS FACT ITSELF INDICATES THAT THE PRICING OF THE PRODUCTS IS INFLUENCED BY ECONOMIC CIRCUMSTANCES AND UNDERLYING TRANSACTIONAL DIFFERENCES. THE ASSESSEE HAS CHARGED HIGHER AMOUNT OF 16 18 244/- TO THE AES IN RESPECT OF THE SAME PRODUCTS WHICH WERE ALSO SOLD TO THIRD PARTIES AS REFERRED ON PAGE 198 OF THE PAPER BOOK. CONSIDERING THE ABOVE DIFFE RENCES THE CUP METHOD WAS NOT THE MOST APPROPRIATE METHOD SINCE SUITABLE ADJU STMENTS WERE NOT POSSIBLE TO BE MADE FOR THE VARIOUS DIFFERENCES. THE TPO HAS A PPLIED CUP ONLY ON THE ITA NO.678/PN/2013 AMPHENOL INTERCONNECT (I) PVT. LTD. 10 BASIS OF PRODUCT SIMILARITY WITHOUT APPRECIATING TH E VARIOUS OTHER DIFFERENCES AS DISCUSSED ABOVE. 3.4 WE FIND THAT THE MUMBAI BENCH IN THE CASE OF GH ARDA CHEMICALS LTD. [130 TTJ 556 (MUM)] HAS HELD THAT THE ASSESSEE HAD SOLD A PRODUCT NAMED 'DICAMBA' TO GHARDHA USA INC. AE OF THE ASSESSEE CO MPANY. TOTAL AMOUNT RECEIVED BY THE ASSESSEE AS 'ALP' TOWARDS EXPORT OF DICAMBA WAS DECLARED AT 20.71 CRORES. THE ASSESSEE HAD DETERMINED THE ALP B Y COMPARABLE UNCONTROLLED PRICE METHOD. THE TPO NOTED THAT THE SALE OF DICAMB A TO UNRELATED PARTIES WAS ALSO MADE BY THE ASSESSEE IN VARIOUS OTHER COUNTRIE S AT THE RATES RANGING BETWEEN 19.47 US $ TO 25.00 US $ PER KG. AS AGAINST THAT THE DICAMBA SOLD BY THE ASSESSEE TO ITS AE WAS AT THE RATE OF 14.66 US $. IT WAS FOUND RELEVANT TO MENTION THAT THE TOTAL QUANTITY EXPORTED BY THE ASS ESSEE TO DIFFERENT COUNTRIES WAS 418803 KGS. INCLUSIVE OF 272100 KGS. SOLD TO IT S AE. THE TPO DETERMINED THE AVERAGE RATE OF SALE TO ALL INDEPENDENT ENTERPR ISES AT 20.67 US $ PER KG. WHICH WAS FOUND TO BE SUBSTANTIALLY HIGHER THAN 14. 66 US $ CHARGED BY THE ASSESSEE FROM ITS AE. THE ITAT HELD THAT THE INTERN AL CUP METHOD ENVISAGES COMPARING THE UNCONTROLLED TRANSACTIONS OF THE ASSE SSEE ITSELF WITH OTHER UNRELATED PARTIES SO AS TO DETERMINE THE ALP WITH T HE AE. HOWEVER THE EXTERNAL CUP METHOD DISREGARDS THE PRICE CHARGED OR PAID BY THE ASSESSEE TO OR FROM ITS UNRELATED PARTIES AND CONTEMPLATES THE COMPARISON O F THE PRICE SO CHARGED FROM OR PAID TO ITS AE WITH SOME EXTERNAL INDEPENDENT RE LIABLE PRICE DATA UNDER SIMILAR CIRCUMSTANCES OF TRANSACTIONS WITH AE. ORDINARILY T HE INTERNAL CUP METHOD SHOULD BE PREFERRED OVER THE EXTERNAL CUP METHOD AS IT NEUTRALIZES SEVERAL DISTINGUISHING FACTORS SUCH AS THE LOCAL FACTORS A ND THE ECONOMIES AVAILABLE OR UNAVAILABLE TO THE ASSESSEE IN PARTICULAR HAVING B EARING OVER THE COMPARISON OF PRICE CHARGED FROM UNRELATED PARTIES AND AE. THE ES SENCE OF DETERMINING ALP UNDER CUP METHOD IS TO ENSURE THAT THE PRICE CHARGE D BY THE INDIAN ENTERPRISE FROM ITS AE SHOULD BE CONSISTENT WITH THAT CHARGED FROM UNRELATED PARTIES UNDER SIMILAR CIRCUMSTANCES. THE IMPORTANCE OF THE 'SIMIL AR CIRCUMSTANCES' COULD NOT BE LOST SIGHT OF IN THIS CONTEXT BECAUSE A ROUND CA NNOT BE COMPARED WITH A SQUARE AND A RECTANGLE WITH A TRIANGLE. IN OTHER WO RDS THE UNCONTROLLED TRANSACTIONS WHICH ARE CONTEMPLATED FOR COMPARISON SHOULD BE ALIKE IF NOT IDENTICAL. SIMILARITY BETWEEN THE TWO SETS OF TRANS ACTIONS COULD BE JUDGED BY THE QUALITY GRADE AND QUANTITY OF THE MATERIAL. IN AD DITION THE FACTORS LIKE LOCATION OF THE PARTIES AVAILABILITY OF RAW MATERIAL; DEMAND A ND SUPPLY EQUATION ALSO PLAY PIVOTAL ROLE IN FINDING OUT AS TO WHETHER THE TWO A RE REALLY COMPARABLE OR NOT. THUS IN THE INTERNAL CUP METHOD THE LOCAL FACTORS O F AE IN THE OTHER COUNTRY AND ALL THE RELEVANT FACTORS WHICH COULD HAVE BEARING O N THE PRICE SO CHARGED FROM AE MUST BE TAKEN INTO CONSIDERATION. THE TRIBUNAL WAS DEALING WITH A CASE IN WHICH THE ASSESSEE HAS ITS AE IN USA AND RATE CHARGED WAS 14.66 US $ PER KG. OF DICAMBA. THERE WAS NO OTHER EXPORT BY THE ASSESSEE TO USA. THE UNCONTROLLED TRANSACTIONS OF EXPORT MADE BY THE ASSESSEE ARE TO OTHER COUNTRIES SUCH AS UK NETHERLANDS NEW ZEALAND AUSTRALIA FRANCE ETC. I N RESPECT OF WHICH AVERAGE RATE OF 20.67 US $ PER KG. OF DICAMBA HAS BEEN DETE RMINED BY THE TPO FOR COMPUTING THE ALP. ALL OTHER TRANSACTIONS OF EXPORT BY THE ASSESSEE ARE TO NON- USA COUNTRIES. THE PRICE ON WHICH A PARTICULAR PROD UCT IS AVAILABLE IN ONE COUNTRY MAY LARGELY VARY FROM THE PRICE PREVAILING IN OTHER COUNTRIES DUE TO VARIOUS FACTORS. THE COUNTRY WHICH IS PRODUCER OF A PARTICU LAR COMMODITY OR ITS RAW MATERIAL MAY HAVE LOWER SALE PRICE IN COMPARISON WI TH THE COUNTRY WHICH IS SHORT OF SUCH NATURAL RESOURCES. SIMILARLY THE PRICE MAY VARY FROM ONE COUNTRY TO ANOTHER DEPENDING UPON CLIMATIC CONDITIONS AND THE DEMAND AND SUPPLY FACTORS. THUS THE PRICE CHARGED BY AN INDIAN PARTY FROM UK O R AUSTRALIA MAY BE AT MUCH VARIANCE WITH THAT CHARGED FROM USA. IN SUCH A SCEN ARIO NO VALID COMPARISON COULD BE MADE BETWEEN THE PRICE CHARGED BY THE ASSE SSEE FROM OTHER COUNTRIES WITH THAT FROM USA MORE PARTICULARLY WHEN THE TRIB UNAL WAS OF THE VIEW THAT QUANTITY EXPORTED TO USA ON WHOLESALE BASIS WITH TH AT TO OTHER COUNTRIES IN SMALL LOTS ON RETAIL BASIS. IN THIS SITUATION THE TRIBUN AL HELD THAT THE INTERNAL CUP METHOD WAS NOT SUITABLE IN THE PRESENT CIRCUMSTANCE S. 3.5 WE FIND IN DUFON LABORATORIES [(39 SOT 59 (MUM) ] THE TPO HAD MADE THE ADDITION BASED ON THE FACT THAT THE ASSESSEE HA D CHARGED LESSER PRICE TO ITS AE AS COMPARED TO THE PRICE CHARGED TO THIRD PARTY FOR THE SAME PRODUCT. THE ITAT HELD THAT IF THE DIFFERENCES ARE TAKEN INTO CO NSIDERATION LIKE GEOGRAPHICAL VOLUME PROFILE OF THE CUSTOMER ETC. ETC. NO ADDI TION WAS WARRANTED. ITA NO.678/PN/2013 AMPHENOL INTERCONNECT (I) PVT. LTD. 11 3.6 IN UCB INDIA LTD. [121 ITD 131 (MUM)] THE ASSE SSEE HAD MADE IMPORTS FROM ITS AE. THE ASSESSEE HAD APPLIED TNMM. THE TPO ADOPTED CUP METHOD TO DETERMINE ALP. THE ITAT HELD THAT THOUGH CUP WAS A DIRECT METHOD IT COULD NOT BE APPLIED IN ALL SITUATIONS. MUCH DEPENDS ON T HE AVAILABILITY OF DATA ON COMPARABLES. JUST BECAUSE IT IS THE ONLY DIRECT MET HOD IT DOES NOT AUTOMATICALLY BECOME THE MOST APPROPRIATE METHOD. THE CUP METHOD IS THE MOST DIRECT METHOD FOR DETERMINING ALP. UNDER THIS METHOD THE PRICE AT WHICH CONTROLLED TRANSACTION IS CARRIED OUT IS COMPARED TO THE PRICE OBTAINED IN COMPARABLE UNCONTROLLED TRANSACTION. AN UNCONTROLLED PRICE IS THE PRICE AGREED BETWEEN UNCONNECTED PARTIES FOR THE TRANSFER OF GOODS OR SE RVICES. THE CUP CAN BE EITHER (A) INTERNAL CUP OR (B) EXTERNAL CUP. IN THI S CASE ON HAND EXTERNAL CUP IS CONSIDERED. UNDER THE CUP METHOD THE PROPERTIES OF A PRODUCT AND ACCOMPANYING CIRCUMSTANCES AND CONDITIONS HAVE TO B E EVALUATED FOR COMPARISON. EVEN A MINOR CHANGE IN THE PROPERTIES O F THE PRODUCTS CIRCUMSTANCES OF TRADE (BILLING PERIOD AMOUNT OF C REDIT THEREIN ETC.) MAY HAVE A SIGNIFICANT EFFECT ON THE PRICE. PRODUCT COMPARABIL ITY IS ABSOLUTELY KEY IN PARTICULAR PHYSICAL FEATURES SUCH AS SIZE WEIGHT APPEARANCE ALONG WITH VOLUME RELIABILITY/STORAGE REQUIREMENTS REGULATORY REQUIR EMENTS ETC. PRICING OF A PRODUCT IS A VERY SUBJECTIVE EXERCISE AND ITS TRUE VALUE A S RECEIVED BY THE RECEIVER CAN DIFFER FROM THAT RECEIVED BY OTHERS IN THE MARKET P LACE. BROADER BUSINESS FUNCTIONS AND NOT JUST THE PRODUCT COMPARABILITY HA VE TO BE CONSIDERED. IT WOULD ALSO BE NECESSARY TO COME TO A CONCLUSION WITH SOM E SCIENTIFIC STUDY OR ENQUIRY THAT THE APIS IMPORTED BY INDEPENDENT ENTITIES ARE SAME AS THE API IMPORTED BY THE ASSESSEE AS EVEN A MINOR DIFFERENCE COULD MATE RIALLY AFFECT THE PRICE. THERE SHOULD BE A SCIENTIFIC BASIS TO SAY THAT APIS ARE I DENTICAL WITH THE SAME PURITY POTENCY AND CHARACTERISTICS. APIS ARE UNIQUE COMPO UND MAKING AND THE EFFECT OF USAGE OF A PARTICULAR PDF USING AN API WOULD DEP END ON THE COMPOSITION PURITY METHOD OF USAGE DOSAGE USED SIDE-EFFECTS. ALL SUCH DATA SHOULD BE FIRST OBTAINED BY THE REVENUE OR THE ASSESSEE WHO WISH T O COMPARE PRODUCTS AND THEN ARRIVE AT THE ALP OR WISH TO MAKE ADJUSTMENTS TO A PRICE COST OR MARGIN. 3.7 IN THE CASE OF WELSPUN ZUCCHI TEXTILES LTD. [15 3 TTJ 153 (MUM)] THE ASSESSEE HAD EXPORTED BATHROBES TO ITS AES. THE ASS ESSEE HAD ADOPTED CUP METHOD TO DETERMINE ALP. THE TPO REJECTED CUP METHO D AND APPLIED TNMM. THE ITAT HELD THAT THE ASSESSEE HAD WRONGLY ADOPTED CUP METHOD AND IT WAS HELD THAT THE ASSESSEE HAD MADE COMPARISON OF THE A VERAGE PRICE OF ALL THE BATHROBES SOLD TO AES VIS-A-VIS THIRD PARTIES. THE ITAT HELD THAT SUCH COMPARISON IS NOT CORRECT AND SECONDLY THERE WERE DIFFERENCES IN GEOGRAPHICAL LOCATIONS AND SIZE OF THE MARKETS WHICH AFFECTED TH E PRICE. ACCORDINGLY CUP WAS REJECTED AS THE MOST APPROPRIATE METHOD. 3.8 IN INTERVET INDIA PVT. LTD. [39 SOT 59 (MUM)] ITAT HAS HELD THAT FOR APPLICABILITY OF CUP VARIOUS DIFFERENCES INCLUDING ECONOMIC AND MARKET CONDITIONS GEOGRAPHICAL LOCATIONS VOLUME DISCOUNT CREDIT RISKS ETC. ETC. ARE TO BE TAKEN INTO ACCOUNT AND SIMPLY PRODUCT SIMILARIT Y IS NOT THE ONLY CRITERIA FOR APPLYING CUP METHOD. 3.9 WE FIND IN THE CASE OF ARVIND MILLS LTD. [11 TA XMANN.COM 67 (AHD)] ITAT HAS HELD THAT FOR APPLYING THE CUP METHOD THERE SH OULD NOT ONLY BE PRODUCT SIMILARITY BUT IMPACT OF BROADER BUSINESS FUNCTIONS ON PRICES SHOULD BE CONSIDERED. THE ITAT HELD THAT EVEN MINOR DIFFEREN CES IN CONTRACTUAL TERMS ECONOMIC CONDITIONS GEOGRAPHICAL AREAS RISKS ASSU MED FUNCTIONS ASSUMED COULD AFFECT THE PRICES OF THE PRODUCTS. 4. NEW LET US ANALYSE THE ARGUMENTS OF LEARNED CIT DR ON BROAD PROPOSITION THAT THE ASSESSEE WAS NOT JUSTIFIED IN AGGREGATING THE TRANSACTIONS OF EXPORTS IMPORTS AND COMMISSION INTO A SINGLE ACTIV ITY FOR THE PURPOSES OF DETERMINING THE ALP UNDER TNMM METHOD. IT WAS ARGUE D BY THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE TRANSACTIONS A RE DISTINGUISHABLE IN THEIR NATURE AND SCOPE AND SEPARATE PROFITABILITY CAN BE ARRIVED AT IN RESPECT THESE TRANSACTIONS AND HENCE THE AGGREGATION APPROACH AD OPTED BY THE ASSESSEE IS NOT JUSTIFIED. IN THIS REGARD WE FIND THAT THE AS SESSEE SUBMITS THAT THE ABOVE CONTENTION IS NOT CORRECT. IT IS SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS ACTIVITY OF MANUFACTURING CONNECTORS AND O THER PRODUCTS AND SELLING THEM SUBSEQUENTLY TO VARIOUS PARTIES. THUS IT IS T O BE NOTED THAT THE TRANSACTIONS ITA NO.678/PN/2013 AMPHENOL INTERCONNECT (I) PVT. LTD. 12 OF EXPORTS OF GOODS IMPORT OF GOODS ARE ALL PART O F THE ASSESSEE'S BUSINESS. FURTHER THE COMMISSION IS PAID TO VARIOUS PARTIES TO BOOST THE SALES OF THE ASSESSEE'S PRODUCTS. THEREFORE THE TRANSACTIONS OF EXPORTS IMPORTS AND PAYMENT OF COMMISSION TO AGENTS ARE CLOSELY INTER R ELATED AND ARE PART OF SINGLE BUSINESS ACTIVITY OF THE ASSESSEE AND THE PROFIT EA RNED BY THE ASSESSEE IS COLLECTIVE RESULT OF ALL THESE TRANSACTIONS AND HEN CE IT IS IMPRACTICAL TO ANALYSE THE PROFITS OF EACH INDIVIDUAL TRANSACTIONS. ACCORD INGLY THE ASSESSEE HAS RIGHTLY AGGREGATED THE ABOVE TRANSACTIONS FOR THE PURPOSES OF DETERMINING THE ALP UNDER TNMM. EVEN IF THE VARIOUS TRANSACTIONS ARE E VALUATED INDEPENDENTLY THE NET FINAL RESULT REMAINS THE SAME. THE ASSESSEE HA S ADOPTED TNMM FOR DETERMINING THE ALP FOR THE VARIOUS TRANSACTIONS AN D THE ASSESSEE HAD CONTENDED THAT ITS NET OPERATING MARGIN IS MUCH HIG HER THAN THE COMPARABLE COMPANIES. THIS FACT HAS NOT BEEN DISPUTED BY THE L EARNED TPO SINCE HE HIMSELF HAS ACCEPTED THAT MORE THAN 95% OF THE EXPORTS AND IMPORTS ARE AT ALP AS PER THE TNMM METHOD. ACCORDINGLY EVEN IF THE VARIOUS I NTERNATIONAL TRANSACTIONS ARE EVALUATED SEPARATELY THE FINAL RESULT REMAINS THE SAME. THE ASSESSEE HAS ADOPTED TNMM WHEREIN THE NET OPERATING MARGIN OF TH E ASSESSEE IS COMPARED WITH THE NET OPERATING MARGIN OF THE COMPARABLES. O NCE THE NET MARGIN OF THE ASSESSEE IS HIGHER IT MEANS THAT ALL THE INTERNATI ONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS AES ARE AT ALP. 4.1 THE LEARNED CIT DR HAS FURTHER SUBMITTED THAT C UP IS A MORE DIRECT METHOD FOR DETERMINING THE ALP OF INTERNATIONAL TRA NSACTIONS ENTERED INTO BY A COMPANY AND HENCE IT SHOULD BE PREFERRED OVER TNMM METHOD. IN THIS RESPECT SHE HAS PLACED RELIANCE ON THE DECISION IN THE CASE OF ACIT V. MSS INDIA [32 SOT 132(PUNE)]. ACCORDINGLY IT HAS BEEN CONTENDED THAT THE LEARNED TPO HAS RIGHTLY APPLIED CUP METHOD FOR DETERMINING THE ALP OF CERTAIN TRANSACTIONS RELATING TO EXPORTS AND IMPORTS OF GOODS AND COMMIS SION WHERE SIMILAR TRANSACTIONS WERE AVAILABLE FOR COMPARISON. IN THI S REGARD THE STAND OF THE ASSESSEE HAS BEEN THAT THE ABOVE CONTENTION IS NOT CORRECT. THE LEARNED TPO HAS RELIED ON THE DECISION OF MSS INDIA (SUPRA) TO STATE THAT CUP METHOD IS TO BE PREFERRED OVER TNMM METHOD. ACCORDING TO US AS GE NERAL PROPOSITION THERE IS NO DISPUTE TO THE FACT THAT THE CUP METHOD IS A MOR E DIRECT METHOD AND HENCE IT SHOULD BE PREFERRED OVER TNMM METHOD WHEN COMPARABL E TRANSACTIONS ARE AVAILABLE. HOWEVER IT IS TO BE APPRECIATED THAT IN THE INSTANT CASE WHERE THERE ARE VARIOUS DIFFERENCES LIKE GEOGRAPHICAL DIFFERENC ES VOLUME DIFFERENCES DIFFERENT MARKET CONDITIONS ETC. ETC. IN THE TRANS ACTIONS ENTERED BY THE ASSESSEE WITH ITS AES AND THE THIRD PARTIES. IT IS NOT POSS IBLE TO MAKE SUITABLE ADJUSTMENTS IN RESPECT OF SUCH DIFFERENCES HENCE CUP METHOD I S NOT THE MOST APPROPRIATE METHOD IN THE INSTANT CASE. IN THE COURSE OF THE H EARING THE LEARNED CIT DR SUBMITTED THAT THE TPO HAS RIGHTLY ADOPTED CUP FOR THE PRODUCTS IN RESPECT OF WHICH COMPARABLE TRANSACTIONS WERE AVAILABLE. WHILE RAISING THIS CONTENTION THE LEARNED CIT DR HAS NOT CONTROVERTED THE VARIOUS DIF FERENCES BETWEEN THE TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS AES AND THIRD PARTIES. CONSIDERING THE VARIOUS DIFFERENCES AS DISCUSSED AB OVE BETWEEN THE TWO TRANSACTIONS CUP METHOD IS NOT APPLICABLE TO THE F ACTS OF THE PRESENT CASE. THE LEARNED CIT DR HAD ALSO STATED THAT THE ONUS IS ON THE ASSESSEE TO DEMONSTRATE THAT THE METHOD SELECTED BY IT WAS MOST APPROPRIAT E. THERE IS NO DISPUTE REGARDING THIS PROPOSITION AS WELL. HOWEVER ONCE THE TPO HAS TRIED TO SELECT A DIFFERENT METHOD THE ONUS IS ON THE TPO TO DEMONST RATE THAT THE OTHER METHOD IS THE MOST APPROPRIATE METHOD. THIS PRINCIPLE HAS BEE N LAID DOWN BY SPECIAL BENCH IN THE CASE OF AZTEC SOFTWARE LTD. [107 ITD 1 41 (BANG)(SB)]. THE LEARNED CIT DR FURTHER ARGUED THAT THE ASSESSEE HAD MADE IN ADEQUATE COMPLIANCE. IN THIS REGARD THE STAND OF THE ASSESSEE HAS BEEN THA T IT HAD SUBMITTED ALL THE RELEVANT DETAILS TO DEMONSTRATE THAT TNMM WAS THE M OST APPROPRIATE METHOD AND THE DETAILED REPORT IN THIS REGARD IS ENCLOSED ON P AGES 54 - 84 OF THE PAPER BOOK. CONSIDERING THE VARIOUS DIFFERENCES BETWEEN THE TRA NSACTIONS ENTERED INTO WITH THE AES AND THE THIRD PARTIES THE CUP IS NOT APPLI CABLE TO THE FACTS OF THE PRESENT CASE. SAME HOLDS GOOD FOR IMPORT AND COMMISSION IS SUES AS FAR AS DETERMINATION OF ALP IS CONCERNED. 4.2 THE LEARNED CIT DR HAS PLACED RELIANCE ON TH E DECISION IN THE CASE OF KNORR- BREMSE INDIA PVT. LTD. V. ACIT [ITA NO. 5097 /DEL/2011] AND CONTENDED THAT THE TRANSACTIONS OF EXPORT IMPORT AND COMMISS ION PAYMENT SHOULD HAVE BEEN BENCHMARKED SEPARATELY. THE AGGREGATION OF TH ESE TRANSACTIONS IS NOT ITA NO.678/PN/2013 AMPHENOL INTERCONNECT (I) PVT. LTD. 13 JUSTIFIED. THE SAID DECISION IS DISTINGUISHABLE ON FACTS. IN THE SAID CASE THE ASSESSEE HAD AGGREGATED TRANSACTIONS LIKE PAYMENT O F 'PROFESSIONAL CONSULTANCY FEE' AND PAYMENT OF 'MANAGEMENT FEE FOR SUPPORT SERVICES' 'AND THEREBY DETERMINED THE ALP UNDER TNMM METHOD. IN TH E SAID CASE BENCH HELD THAT THE ASSESSEE WAS NOT ABLE TO ESTABLISH THAT TH E TRANSACTIONS WERE CLOSELY LINKED WITH EACH OTHER AND HENCE IT WAS HELD THAT THE AGGREGATION OF SUCH TRANSACTIONS WAS NOT JUSTIFIED. HOWEVER IN THE INS TANT CASE THE ASSESSEE HAS DEMONSTRATED THAT THE TRANSACTIONS OF EXPORTS IMPO RTS AND PAYMENT OF COMMISSION TO AGENTS ARE CLOSELY INTERRELATED AND P ART OF SINGLE BUSINESS ACTIVITY OF THE ASSESSEE AND THEREFORE THE RATIO OF THE ABO VE DECISION IS NOT APPLICABLE TO THE CASE OF THE ASSESSEE. 4.3 THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS A LSO PLACED RELIANCE ON THE DECISION OF DELPHI TVS V. ACIT [24 TAXMANN.COM 179(CHENNAI)] IN SUPPORT OF HIS CONTENTION THAT CUP SHOULD BE APPLIED ON THE FA CTS OF THE ASSESSEE'S CASE AND NOT TNMM. WE FIND THAT IN THE DELPHI TVS (SUPR A) ITAT HAS REJECTED TNMM METHOD MAINLY BECAUSE THE COMPARABLE ENTITIES SELECTED BY THE ASSESSEE COMPANY HAD SUBSTANTIAL RELATED PARTY TRANSACTIONS. HENCE THE COMPARISON UNDER TNMM WAS NOT POSSIBLE. SECONDLY IN THE SAID DECISION BENCH HAS HELD THAT WHEN A TRANSACTION TO TRANSACTION COMPARISON I S TO BE PREFERRED ONLY IF PROPER ADJUSTMENT CAN BE CARRIED OUT TO ACCOUNT FOR THE DI FFERENCES THAT COULD MATERIALLY AFFECT THE PRICES IN THE OPEN MARKET OF THE RELATED ITEMS. HOWEVER IN THE INSTANT CASE THE ASSESSEE HAS DEMONSTRATED THAT SUITABLE A DJUSTMENTS COULD NOT BE MADE ON ACCOUNT OF THE VARIOUS DIFFERENCES AND HENC E THE CUP CANNOT BE APPLIED TO THE FACTS OF THIS CASE. IT IS PERTINENT TO MENTION THAT THE TNMM HAS NOT BEEN REJECTED IN THE ASSESSEE'S CASE AS THE TPO HIM SELF HAS ADOPTED IT FOR DETERMINING THE ALP FOR MAJORITY OF THE TRANSACTION S. ACCORDINGLY THE RATIO OF DELPHI TVS (SUPRA) IS NOT APPLICABLE TO THE FACTS O F THE ASSESSEE'S CASE. 4.4 REGARDING RELIANCE OF LEARNED DEPARTMENTAL R EPRESENTATIVE ON THE RATIO IN THE CASE OF WRIGLEY INDIA PVT. LTD. V. ADDL. CIT [14 TAXMANN.COM 91 (DEL)(ITAT)] WHEREIN THE ASSESSEE WAS INVOLVED IN MANUFACTURE OF CHEWING GUM. THE ASSESSEE EXPORTED SOME OF ITS PRODUCTION T O ITS AES AND ALSO MADE DOMESTIC SALES OF THE SAME PRODUCT TO UNRELATED PAR TIES. THE TPO REJECTED TNMM METHOD ADOPTED BY THE ASSESSEE AND APPLIED INT ERNAL COST PLUS METHOD THEREBY COMPARING THE MARGIN EARNED IN THE DOMESTIC SEGMENT WITH THE MARGIN EARNED IN THE EXPORTS SEGMENT AND ACCORDINGLY MADE ADJUSTMENTS. IN THE SAID CASE THE ISSUE WAS REGARDING APPLICABILITY OF TNMM OR THE COST PLUS METHOD. IN THE SAID CASE THE ISSUE OF APPLICABILITY OF CUP ME THOD WAS NOT INVOLVED AND HENCE THE SAID DECISION HAS BEEN RENDERED IN DIFFE RENT FACTS AND CIRCUMSTANCES. 4.5 THE LEARNED CIT DR HAS PLACED RELIANCE ON TH E DECISIONS OF DCIT V. HELLOSOFT INDIA PVT. LTD. [32 TAXMANN.COM 101 (HYD) ] & COCA COLA INDIA INC. V ASST. CIT [309 ITR 194] AND CONTENDED THAT IT IS OP EN FOR THE TPO TO REJECT THE METHOD ADOPTED BY THE ASSESSEE AND APPLY A DIFFEREN T METHOD WHICH IS FOUND TO BE MORE APPROPRIATE ON FACTS OF THE CASE. THIS PRO POSITION IS NOT IN DISPUTE. HOWEVER IN 'THE INSTANT CASE THE ASSESSEE HAS DEM ONSTRATED THAT THE CUP METHOD ADOPTED BY THE LEARNED TPO IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE AND TNMM IS A MORE APPROPRIATE METHOD AS D ISCUSSED ABOVE THE SAME SHOULD BE APPLIED. 4.6 IN THE CASE OF ATUL LTD. V. ACIT [ITA NO. 31 18/AHD/2010] WHEREIN BOTH THE ASSESSEE AND THE TPO HAD ADOPTED CUP METHOD AS THE MOST APPROPRIATE METHOD. THE BENCH HELD THAT IN THE CUP METHOD A T RANSACTION IS HELD TO BE COMPARABLE ONLY IF BOTH THE PRODUCT SOLD AND THE C IRCUMSTANCES SURROUNDING THE CONTROLLED TRANSACTION ARE SUBSTANTIALLY THE SAME AS THOSE OF THE UNCONTROLLED TRANSACTION. THUS THE COMPARABILITY DEPENDS UPON THE QUALITY OF PRODUCT VOLUME OF SALE MARKET LEVEL GEOGRAPHICAL CONDITIO NS DATE AND OTHER REALISTIC FACTORS GOVERNING THE SALE PRICE. HOWEVER IN THE INSTANT CASE THE ASSESSEE HAS DEMONSTRATED THAT THE TRANSACTIONS WITH RELATED PAR TIES AND UNRELATED PARTIES ARE NOT COMPARABLE ON ACCOUNT OF VARIOUS DIFFERENCES AS DISCUSSED ABOVE. THEREFORE THE RATIO IN ATUL LTD. (SUPRA) IS NOT AG AINST THE ASSESSEE. THIS LEGAL PROPOSITION WILL BE APPLICABLE ONLY TO THE ADJUSTME NT TOWARDS IMPORT AND COMMISSION. ITA NO.678/PN/2013 AMPHENOL INTERCONNECT (I) PVT. LTD. 14 14. THE CONCLUSION OF THE TRIBUNAL VIDE PARA 5 IS A S UNDER:- 5. IN VIEW OF THE ABOVE WE HOLD THAT THE TPO HAS WRONGLY APPLIED THE CUP METHOD FOR DETERMINING THE ALP IN RESPECT OF SOME M ENTIONED TRANSACTIONS PERTAINING TO EXPORT OF FINISHED GOODS. MORE SO WH EN THE TPO ACCEPTS THAT MORE THAN 90% OF THE EXPORTS TO THE AES ARE AT ALP THER E IS NO REASON TO APPLY CUP METHOD FOR PART OF THE EXPORTS. ACCORDINGLY THE A DDITIONS MADE ON THIS ACCOUNT ARE NOT JUSTIFIED AND THEY ARE DIRECTED TO BE DELET ED. 15. THE TRIBUNAL ALSO DELIBERATED ON THE ADJUSTMENT MADE ON ACCOUNT OF IMPORT OF GOODS AND OBSERVED AS UNDER:- 6. REGARDING ADJUSTMENT TOWARDS IMPORTS THE AS SESSEE HAS MADE TOTAL IMPORTS OF RAW MATERIAL AND FINISHED GOODS OF 14 59 18 186/- FROM ITS AES AS REFERRED AT PAGE 2 OF TPO ORDER. OUT OF THESE IMPOR TS THE TPO HAS ACCEPTED TNMM METHOD FOR IMPORTS AMOUNTING TO 13 72 10 348/-. HOWEVER IN RESPECT OF IMPORTS AMOUNTING TO 87 07 838/- THE TPO HAS STATED THAT SIMILAR PRODU CTS HAVE ALSO BEEN PURCHASED BY THE ASSESSEE FROM THIRD PARTIES AND IN WHICH CASE THE ASSESSEE HAS PAID HIGHER AMOUNT TO THE AES. ACC ORDINGLY THE TPO HAS HELD THAT IN RESPECT OF SUCH IMPORTS CUP METHOD SHOULD BE APPLIED. THE TPO HAS COMPUTED AVERAGE PURCHASE PRICE OF THE PRODUCTS PUR CHASED FROM AES AND AVERAGE PURCHASE PRICE OF SAME PRODUCTS PURCHASED F ROM THIRD PARTIES AS REFERRED IN PAGES 199-217 OF PAPER BOOK. THUS HE HAS HELD THAT IN CASE OF CERTAIN PRODUCTS THE AVERAGE PURCHASE PRICE PAID B Y THE ASSESSEE TO ITS AES WAS MORE THAN THE AVERAGE PURCHASE PRICE PAID TO TH IRD PARTIES AND HENCE HE HAS MADE AN ADJUSTMENT OF 2 55 003/- IN RESPECT OF SUCH IMPORTS BY APPLYING CUP METHOD. ACCORDING TO THE TPO IN RESPECT OF TH E PRODUCTS WHICH ARE PURCHASED BY THE ASSESSEE FROM ITS AES AS WELL AS T HIRD PARTIES THE CUP METHOD IS THE MOST APPROPRIATE METHOD FOR DETERMINI NG ALP. THE TPO HAS HELD THAT THE CUP METHOD CAN BE APPLIED IN THIS SCENARIO . HE HAS FURTHER STATED THAT THE ASSESSEE DID NOT SUBMIT ANY DATA FOR THE ADJUST MENTS TO BE MADE ON ACCOUNT OF THE DIFFERENCES IN RESPECT OF PURCHASES FROM AES AND THIRD PARTIES. ACCORDINGLY HE HAS MADE THE ADDITION IN RESPECT OF THOSE PRODUCTS WHEREIN THE AVERAGE PURCHASE PRICE PAID BY THE ASSESSEE TO THE AES WAS MORE THAN THE AVERAGE PURCHASE PRICE PAID TO THIRD PARTIES. 6.1 IN THIS REGARD THE STAND OF LEARNED AUTHORIZ ED REPRESENTATIVE HAS BEEN THAT OUT OF THE TOTAL IMPORTS FROM THE AES OF 14.59 CRS. THE TPO HAS ACCEPTED THAT IMPORTS OF 13.72 CRS. ARE AT ALP. ONLY IN RESPECT OF IMPORTS OF 0.87 CRS. WHICH ACCOUNT FOR 5.96 % OF TOTAL IMPORTS THE TPO HAS APPLIED THE CUP METHOD. THE TPO HAS MADE THE ADDITION ONLY ON THE BASIS THA T THERE IS PRODUCT SIMILARITY. THE TPO HAS NOT APPRECIATED THAT THE CUP METHOD IS NOT THE MOST APPROPRIATE METHOD TO DETERMINE ALP IN THE CASE OF THE ASSESSEE . AS DISCUSSED BY US WITH REGARD TO EXTENT OF THE PRICING OF THE PRODUCT DEPE NDS UPON VARIOUS FACTORS LIKE THE GEOGRAPHICAL LOCATION OF THE VENDOR THE VOLUME OF THE ORDER TIMING OF THE ORDER URGENCY OF REQUIREMENT COMPETITION IN THE M ARKET ETC. IN THIS REGARD RELIANCE WAS PLACED ON THE DETAILED ARGUMENTS AS TA KEN WITH REGARD TO ADJUSTMENT FOR EXPORT AS DISCUSSED ABOVE IN PARAS 3 & 4 OF THIS ORDER. ACCORDING TO HIM THE PRICING DEPENDS UPON SO MANY FACTORS AN D SUITABLE ADJUSTMENTS CANNOT BE MADE TO ACCOUNT FOR SUCH DIFFERENCES. AS DISCUSSED ABOVE IN RESPECT OF THE SAME PARTY AND THE SAME PRODUCT THE ASSESSE E HAS PAID DIFFERENT PRICES WHICH ITSELF INDICATES THAT THE PRICING IS DEPENDEN T UPON VARIOUS FACTORS FOR WHICH SUITABLE ADJUSTMENTS COULD NOT BE MADE. IN THIS CON TEXT REFER PAGE 199 OF THE PAPER BOOK WHEREIN IT IS EVIDENT THAT THE ASSESSEE COMPANY HAS PAID DIFFERENT PRICES TO AMPHENOL AEROSPACE OPERATIONS USA FOR TH E SAME PRODUCT. ACCORDINGLY IN VIEW OF THE VARIOUS DIFFERENCES ENU MERATED ABOVE. THE CUP METHOD IS NOT THE MOST APPROPRIATE METHOD IN THE CA SE OF THE ASSESSEE SINCE SUITABLE ADJUSTMENTS ARE NOT POSSIBLE TO BE MADE IN RESPECT OF THE ABOVE DIFFERENCES. SO THE ADDITION ON THIS ACCOUNT IS NO T JUSTIFIED. 6.2 IT WAS ALSO POINTED OUT ON BEHALF OF ASSESSE E THAT IN RESPECT OF MOST OF THE PRODUCTS THE ASSESSEE HAS PAID LOWER PRICE TO ITS AES AS COMPARED TO THE PRICES PAID TO THIRD PARTIES. THIS FACT HAS BEEN CL ARIFIED BY THE ASSESSEE TO THE ITA NO.678/PN/2013 AMPHENOL INTERCONNECT (I) PVT. LTD. 15 TPO AS DETAILED ON PAGE 161 OF THE PAPER BOOK FILED BY THE ASSESSEE. IN THIS BACKGROUND IT WAS SUBMITTED THAT CONSIDERING THE F ACT THAT IN RESPECT OF MOST OF THE INSTANCES THE ASSESSEE HAS PAID LOWER PRICES T O THE AES AS COMPARED TO THIRD PARTIES WHICH INDICATES THAT THE PRICING OF THE PRODUCTS IS INFLUENCED BY ECONOMIC CIRCUMSTANCES AND UNDERLYING TRANSACTIONAL DIFFERENCES. IN SOME OF THE PRODUCTS WHERE THE PRICE PAID BY THE ASSESSEE T O ITS AES IS MORE THAN THE PRICE PAID TO THIRD PARTIES SUCH HIGHER PRICE PAID AMOUNTS TO 2 55 063/-. HOWEVER IN MOST CASES WHERE THE PRICES PAID BY TH E ASSESSEE TO ITS AES IS LOWER THAN THE PRICE PAID TO THIRD PARTIES THE LOW ER PRICE PAID IS TO THE TUNE OF 18 08 201/- AS DETAILED ON PAGE 217 OF THE PAPER BO OK. THIS ASPECT HAS NOT BEEN APPRECIATED BY THE TPO. 7. IN VIEW OF ABOVE DISCUSSION THE TPO WAS NOT JUS TIFIED IN ADOPTING CUP METHOD FOR DETERMINING ALP IN RESPECT OF SOME OF TH E INTERNATIONAL TRANSACTIONS PERTAINING TO IMPORT OF GOODS. 16. ANOTHER ASPECT NOTED BY THE TRIBUNAL WAS WITH R EGARD TO THE ADJUSTMENT MADE TOWARDS COMMISSION PAID TO ASSOCIATED ENTERPRI SES AND IT WAS HELD THAT THERE WAS NO MERIT IN MAKING ANY ADJUSTMENT ON THIS ACCOUNT BY APPLYING CUP METHOD AND IT WAS HELD AS UNDER:- 8. REGARDING ADJUSTMENT TOWARDS COMMISSION PAID TO AE THE ASSESSEE HAS PAID COMMISSION OF 20 98 224/- TO ITS AES AT THE AVERAGE RATE OF 9.33 % OF SALES MADE TO CLIENTS IDENTIFIED BY AES. THIS COMMISSION HAS BEEN PAID BY THE ASSESSEE TO ITS AES LOCATED IN EUROPE FOR THE VARIO US FUNCTIONS PERFORMED BY THEM WHICH ARE ENUMERATED ON PAGE 245 OF THE PAPER BOOK FILED BY THE ASSESSEE. THE RATE OF COMMISSION PAID TO DIFFERENT AES VARIES FROM 3.50% TO 10.50%. THE ASSESSEE APPLIED TNMM METHOD FOR DETER MINING THE ALP OF THE COMMISSION PAID TO ITS AES AND THUS IT WAS SUBMITT ED THAT THE SAID COMMISSION WAS AT ALP. HOWEVER THE TPO HAS NOT ACCEPTED THE C ONTENTION OF THE ASSESSEE. ACCORDING TO THE TPO CUP METHOD IS THE MOST APPROP RIATE METHOD FOR COMPUTING THE ALP OF THE COMMISSION PAYMENT MADE BY THE ASSESSEE TO ITS AES. THE TPO HAS COMPARED THE RATE OF COMMISSION PAID BY THE ASSESSEE TO UNRELATED DOMESTIC AGENTS AGAINST THE RATE OF COMMI SSION PAID TO THE AES LOCATED IN EUROPE. THE TPO HAS OBSERVED THAT THE WE IGHTED AVERAGE RATE OF COMMISSION PAID BY THE ASSESSEE TO UNRELATED DOMEST IC AGENTS WAS 2.05% ON SALES MADE IN INDIA WHEREAS THE WEIGHTED AVERAGE RA TE OF COMMISSION PAID TO AES IN EUROPE WAS 9.33% ON SALES MADE TO CLIENTS RE FERRED BY SUCH AES. 8.1 ACCORDINGLY THE TPO HAS HELD THAT THE ASSESSEE HAS PAID COMMISSION AT A HIGHER RATE TO IT AES AS COMPARED TO THE COMMISSI ON PAID TO UNRELATED DOMESTIC AGENTS AND SUCH DIFFERENCE IN THE RATE OF COMMISSION WORKS OUT TO 7.28% OF RESPECTIVE SALES. THUS THE TPO HAS MADE A N ADJUSTMENT OF RS. 16 37 200/- IN RESPECT OF COMMISSION PAID BY THE AS SESSEE TO ITS AES BY APPLYING CUP METHOD. 8.2 IN THIS REGARD THE ASSESSEE HAS SUBMITTED TH AT THE ADDITION MADE BY THE TPO IS NOT JUSTIFIED. IT IS SUBMITTED THAT THE ASSE SSEE HAD CLARIFIED THAT THE FUNCTIONS PERFORMED BY THE AES WERE MUCH WIDER THAN THE FUNCTIONS PERFORMED BY THE NON AES. ON PAGE 245 OF THE PAPER BOOK THE ASSESSEE HAS GIVEN THE COMPARISON OF THE FUNCTIONS PERFORMED BY THE AES AN D THE THIRD PARTIES. 9. WE FIND THAT CONSIDERING THE VAST DIFFERENCES IN THE FUNCTIONS PERFORMED THE COMPARISON OF THE RATE OF COMMISSION PAID BY TH E ASSESSEE TO THE AES AND THIRD PARTIES IS NOT JUSTIFIED. IT IS FURTHER TO BE APPRECIATED THAT ON PAGE 142 THE ASSESSEE HAS GIVEN THE DETAILS OF THE PARTIES TO WH OM COMMISSION IS PAID IN THE DOMESTIC MARKET. THE RATE OF COMMISSION VARIES FROM 1 % TO 7% WHICH ITSELF INDICATES THAT DEPENDING UPON THE SERVICES RENDERED THE COMMISSION IS PAID. ACCORDINGLY THE TPO HAS WRONGLY APPLIED THE CUP ME THOD FOR DETERMINING THE ALP IN RESPECT OF TRANSACTIONS OF PAYMENT OF COMMIS SION BY THE ASSESSEE COMPANY TO ITS AES. ITA NO.678/PN/2013 AMPHENOL INTERCONNECT (I) PVT. LTD. 16 17. IN VIEW THEREOF AND FOLLOWING THE SAME PARITY O F REASONING WE HOLD THAT NO ADJUSTMENT IS TO BE MADE FOR DETERMINING THE ARM'S LENGTH PRICE IN RESPECT OF INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESS EE FOR THE YEAR UNDER CONSIDERATION. ACCORDINGLY WE ALLOW THE GROUNDS O F APPEAL NOS.4 5 AND 6 RAISED BY THE ASSESSEE IN THIS REGARD AND DISMISS T HE ALTERNATE PLEA RAISED BY THE ASSESSEE IN GROUNDS OF APPEAL NOS.7 8 AND 9. THE GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE BEING GENERAL IN NATURE IS DISMISSED. FURTHER THE GROUNDS OF APPEAL NOS.2 AND 3 RAISED BY THE ASSESSE E WERE NOT PRESSED AND THE SAME ARE DISMISSED AS NOT PRESSED. 18. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED ON THIS 27 TH DAY OF APRIL 2015. SD/- SD/- (R.K. PANDA) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE DATED: 27 TH APRIL 2015 GCVSR COPY OF THE ORDER IS FORWARDED TO: - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-IT/TP PUNE; 4) THE CIT IT/TP PUNE; 5) THE DR A BENCH I.T.A.T. PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T. PUNE