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Sumitomo Corporation India Pvt. Ltd. 4th Floor, DLF Centre Sansad Marg, New Delhi Vs. DCIT, Circle-24(2), New Delhi
June, 06th 2015
                IN THE INCOME TAX APPELLATE TRIBUNAL
                      DELHI BENCH : `I : NEW DELHI
             BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER
                                        AND
            SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER

                              ITA No.6646/Del /2014
                           Assessment Year : 2010-2011

Sumitomo Corporation India Pvt. Ltd.    Vs.    DCIT, Circle-24(2),
4th Floor, DLF Centre                          New Delhi
Sansad Marg, New Delhi


      (Appellant)                      (Respondent)

             Date of Hearing            : 02.06.2015
             Date of Pronouncement      : 05.062015

             Assessee by :       Sri C.S. Agarwal, Sr. Advocate And
                                 Sri R.P. Mall Advocate
             Respondent by:      Sri Gunjan Prasad, CIR D.R.

                                       ORDER

PER CHANDRA MOHAN GARG, JUDICIAL MEMBER

1.    This appeal, by the assessee, has been directed against the order passed u/s

143(3) r.w.s. 144C of the Income Tax Act, 1961 (for short the `Act') dated 25.11.2014

passed in pursuant to the direction of the Dispute Resolution Panel (DRP) dated

21.10.2014 u/s 144C(5) of the Act.

2.    The grounds raised by the assessee reads as under:-

"1.   That the learned Deputy Commissioner of Income Tax, Circle 24(2), New Delhi
      has grossly erred both on facts and, in law in determining the income of the
      Appellant at Rs.1,11,09,85,160/- in an order of assessment dated November 25,
      2014 framed uls 143(3) read with section 144C(13) of the Act as against the
      declared income ofRs.6,13,95,092/-.
2.    That the learned AO/DRP/TPO have grossly erred both in law and on facts in
      making an addition of Rs.1,04,95,90,066/- on account of alleged understatement
                                                                         ITA No 6646/DEL/14
                                                                                              2


      of arm's length price in respect of indenting transaction on which it earned
      commission income from its Associated Enterprises ("herein after referred to as
      AE"), by completely overlooking the findings of the Hon'ble Tribunal for the
      three preceding years i.e. for AY 2007-2008, 2008-2009 and 2009-10, despite the
      fact that facts and circumstances of instant assessment year were identical to the
      preceding assessment years and no distinguishing facts are brought on record to
      take a contrary view as such, finding of the learned AO/DRP/TPO are highly
      arbitrary and thus the order is a vitiated order.
3.    That in making the aforesaid addition, the learned Deputy Commissioner of
      Income Tax had erred in referring the matter to the learned TPO u/s 92CA of the
      Act on the following amongst other grounds, rendering the order of the learned
      TPO as unsustainable both in law and on facts:
            a)     As the reference made by the learned AO to the learned TPO is not
                   in accordance with the provisions of Section 92CA(1) of the Act;
            b)     As no opportunity of being heard was granted at any stage of the
                   proceedings for this purpose, whether at the proposal or the
                   approval stage; and
            c)     By not furnishing the Letter of Reference ('LOR') to the Appellant.

3.1   That since the reference by the learned AO under section 92CA(1) of the Act was
      bad in law and void-ab-initio, consequentially the entire proceedings by the
      learned TPO, order of learned TPO, directions of Ld. DRP and, also the
      impugned adjustment to the arm's length price ofRs.I,04,95,90,066/- is vitiated,
      invalid, illegal and hence, a nullity.
4.    The Order of Ld. AO/TPO and directions of Ld. DRP is based on complete
      disregard of the facts of the case of the Appellant and the statutory provisions
      contained in the Income Tax Act, 1961.
4.1   The learned AO/TPO/DRP has erred in disregarding the following objections
      apparent on facts and in law on the facts and circumstances of the case of the
      Appellant:
      a)    That the learned AO/TPO/DRP has erred in disregarding the transfer
            pricing approach adopted by the Assessee to determine the arm's length
            price ("ALP") of its international transactions. The Assessee's use of
            TNMM with Operating Profit Margin upon Value Added Expenses ("OPN
            AE") as the Profit Level Indicator ("PLI") has been disregarded without
            any justification whatsoever;
      b)    That the learned AO/TPO/DRP has erred in making the transfer pricing
            adjustment without establishing the existence of anyone of the four pre
            conditions provided in Section 92C(3) which is a mandatory requirement,
            for making an adjustment under section 92CA(3) of the Act.
      c)    That the Ld. AO/TPO/DRP grossly erred in adopting Internal Resale
            Price Method as the most appropriate method of determining arm's length
                                                                 ITA No 6646/DEL/14
                                                                                      3


     price of international transactions without either explaining the basis
     thereof and failed to comprehend that the transactions did not involve re-
     sale between the Assessee and associated enterprises; Infact, the
     determination of the 'Arm's Length Price' as envisaged u/s 92C( 1) of the
     Act by the learned TPO is not based on any of the methods prescribed
     under sub-section (1) of section 92C and the adjustment made is based on
     an highly arbitrary approach adopted by the learned TPO and affirmed in
     the directions by the DRP.;
d)   The Ld. AO/TPO/DRP has erred in concluding that the Assessee has
     changed its method compared to earlier years which in her view is in
     contradiction to the claim of the Assessee that there has been no change
     in functions performed by it.
e)   Ld. AO/TPO/DRP has erred in concluding that indenting business and the
     trading business of the Assessee are similar and homogeneous in nature
     and in holding that the Functions performed, and risks assumed in the
     non-AE trading segment is similar to functions and risks in indenting
     segment completely disregarding the assertions and evidences filed by the
     Assessee in this regard.
f)   Ld. AO/TPO/DRP has erred in disregarding the commercial agreements
     entered into by the Assessee with AEs and non-AEs without any valid and
     cogent reasons and has assumed that the Assessee functions as a trader of
     goods in relation to indenting segment;
g)   Ld. AO/TPO/DRP have failed to appreciate that the books of accounts of
     the Assessee have duly been audited by a Chartered Accountant and no
     adverse observations have been made by the Chartered Accountant in his
     audit report. Thus, the Id. TPO had grossly erred in adding the FOB value
     of goods sourced by the AEs/other parties as part of total cost of the
     Assessee which tantamount to altering the accounting practices followed
     by the Assessee;
h)   Ld. AO/TPO/DRP has erred in choosing incorrect internal comparable
     and preferring the same over the external comparable without
     appreciating the facts and legal position involved in the case of the
     Assessee.
I)   That the learned AO/TPO/DRP has erred in assuming and concluding
     that indenting based transactions of the Assessee company with its AEs
     have same functions and, risk as the trading transactions with non-AEs
     overlooking the factual and legal submissions furnished by the Assessee
     during the transfer pricing proceedings.
J)   That the Ld. AO/TPO/DRP has erred in holding that difference in volume
     of indenting and trading transactions need to be analyzed on transaction
     to transaction basis and not on an aggregate basis and in not granting
     adjustment to account for-the difference in the volume of the two segments
     despite the fact that it was admitted that volume of transaction in the AE
     and non AE is not same;
                                                                  ITA No 6646/DEL/14
                                                                                       4


k)   Without prejudice to the ground above, there is a huge difference in the
     volume of each trading transaction with indenting transaction entered on
     a standalone basis and, therefore, the Ld. TPO erred in disregarding the
     difference in volume of trading and indenting transaction while
     concluding on comparability of indenting and trading transactions;
l)   The Ld. AO/TPO/DRP has erred in holding that the Assessee has assumed
     all major risks in its indenting business and also assumed "single
     customer risk", "risk associated with development and use of intangibles",
     "risk associated with quality service", and "capacity utilization risk".
m)   That in absence of valid basis much less any valid material, the learned
     AO/TPO/DRP has erred in holding that, indenting based transactions of
     the Assessee company with AEs are akin to trading transactions of non-
     AEs;
n)   That the learned AOITPOIDRP having found the Indenting transactions
     entered into with non-AE's on identical circumstances are indenting
     transactions i.e. service based transactions, he has erred in holding that,
     similar transactions with AE's are trading transactions and therefore,
     addition proposed is based on an inconsistent stand and contradictory
     approach;
0)   That the learned TPO has erred in disregarding the reliance placed by the
     Assessee on the HC judgment in Li & Fung case. The Learned TPO
     completely overlooked the Hon'ble Delhi High Court judgment where it
     was stated that for a service provider company operating margin on costs
     is an appropriate profit level indicator and remuneration of such a
     company cannot be linked with the value of goods bought/sold by the AE
     of the Assessee Company. The Assessee being a service provider company
     gets covered by the said Hon'ble Delhi High court ruling;
p)   Ld. AO/DRP has failed to appreciate that if the addition proposed in the
     order under" section 92CA(3) by the Id. TPO was to be adopted as ALP,
     the Assessee would be required to earn an absurdly high operating profit
     on cost of 355%
q)   That the learned TPO has failed to appreciate the difference in risk profile
     of the indenting and trading transactions. It is relevant to note that there
     is vast difference in indenting and trading activities. Trading activity
     requires effort for business creation, undertakes the risk in maintaining
     inventory, realization of sale proceeds, incurring interest and other costs
     in respect of maintaining and keeping the stock. In such a case, the
     functions also include unloading the goods, bringing them to its
     warehouse, loading and unloading at the customer's place so on and so
     forth. On the other hand, the indenting activity is confined only in
     assisting and providing support services in the nature of trade facilitation
     and other auxiliary services. There are no financial risks involved in
     indenting activity and further the costs incurred herein are substantially
                                                                       ITA No 6646/DEL/14
                                                                                            5


           less when compared with the trading activity. From here, it follows that
           trading and indenting activities are quite distinct from each other;
     r)    That the learned AO/TPO/DRP has overlooked that in respect of
           indenting based transactions, service tax is applicable and in respect of
           trading based transactions, sales tax is applicable. Thus, apparently, the
           two transactions are different class of transactions.
     s)    That the learned AO/TPO/DRP has failed to appreciate that, accountants
           report is merely an expression of opinion and, what is determinative is the
           real nature of transaction as held by Apex Court in the case of National
           Cement Mines Industries Ltd. v CIT reported in 42 ITR 69;
     t)    That the learned AO/TPO/DRP has erred in overlooking that transactions
           made by the Assessee Company are of different product segments and, at
           different intervals and different volumes and, therefore, as such the
           indenting transactions cannot be compared to the trading transactions.
     u)    That without prejudice& in the alternative (without admitting) the-
           learned AO/TPO/DRP has erred in disregarding the order of the
           Honorable Tribunal for the AY 2007-2008, AY 2008-2009 and AY 2009-
           10 in Assessee's own case and on identical facts and circumstances
           [although the orders have been appealed against by the Assessee and the
           matter has been admitted by the High court. For AY 2009- 10, the order of
           High Court admitting the appeal is yet to be received),by comparing
           indenting based transactions of AE's with trading transactions of non-
           AE's and not with indenting transaction of non-AE after allowing
           appropriate adjustments(like volume, business segments etc.) and, hence
           the addition so made of Rs.1,04,95,90,066/- is misconceived, misplaced,
           arbitrary and hence thus, unsustainable;
     v)    That learned DRP has further failed to appreciate that the finding of the
           learned ORP that both the segment are comparable without any
           adjustment of volume is wholly erroneous as the volume of transaction is
           highly relevant to determine the value of the transaction and hence unless
           suitable adjustment including volume adjustment is made, both the
           segments are not comparable;
     w)    That the learned AO/TPO/DRP conclusions are arbitrary and based on
           conjectures and surmises.
5.   That the learned AO/TPO/DRP has erred in not making adjustments to the
     uncontrolled transaction to account for the material impact of the economic
     differences between the controlled and uncontrolled transactions as mandated
     under Rule 10B(3) of the Income Tax Rules 1962. The Ld. TPO has further erred
     in negating the applicability of Li & Fung decision of the Delhi High Court and
     in concluding that the approach of the assessee in respect of volume and value of
     transactions is contradictory with its assertion regarding indenting and trading
     being separate and distinct segments.
                                                                          ITA No 6646/DEL/14
                                                                                               6


6.    That the learned AO/TPO/DRP has erred in holding that the Appellant has
      created human and supply chain intangibles for which it is not being adequately
      compensated by the AE which finding was reached on mere assumptions and had
      been found to be without substance and without any material on record for the
      preceding years on identical facts and circumstances and erred in relying on
      excerpts from the Sumitomo Corporation of America (sic) to conclude that the
      Assessee is creating human assets intangibles for which it is not being
      remunerated.
7.    That even otherwise, the learned Deputy Commissioner of Income Tax has erred
      in proposing the addition on theoretical and, mathematical calculations adopted
      by the learned TPO to determine the arm's length price, which is not in
      accordance with law and is highly arbitrary and, untenable."


      Ground Nos. 1 to 7




3.    Apropos these grounds of the assessee, we have heard arguments of both the

sides and carefully perused the relevant material placed on the record before us, inter-

alia, the order of the TPO dated 17.01.2014, direction of the DRP dated 21.10.2014 and

impugned order of the AO dated 25.11.2014 and two paper books of the assessee spread

over 778 pages and written contentions of the assessee placed in ground no.4. Ld. Sr.

Counsel of the assessee submitted that the Assessing Officer has grossly erred both on

facts and in law in determining the taxable income of the assessee at

Rs.1,11,09,85,160/- in the impugned order as against the declared income of

Rs.6,13,95,092/-. The Ld. Senior Counsel further contended that Ld. AO/DRP/TPO

have grossly erred in making an addition of Rs.1,04,95,90,066/- on account of alleged

understatement of arm's length price (ALP) in respect of indenting transaction on

which the assessee earned commission income from its Associate Enterprises (for short

`AE') by completely overlooking and ignoring the findings of the Tribunal for the

earlier three preceding years i.e. for AYs. 2007-08, 2008-09 and 2009-10, despite the

fact that the facts and circumstances of the instant assessment year under consideration
                                                                          ITA No 6646/DEL/14
                                                                                               7


are similar and identical to the preceding three assessment years and no distinguishing

facts are brought on record by the authorities below to take a contrary view as such, has

held that the findings and conclusion of the AO/DRP/TPO are highly arbitrary and not

sustainable and not in accordance with law.

4.    Ld. Senior Counsel vehemently contended that the margin of commission earned

by the assessee from uncontrolled transaction with non associate enterprises is less than

the commission earned from the AE. Ld. Senior Counsel drawn our attention towards

Page 461 of the assessee's Paper Book and submitted that the assessee earned

commission on FOB value of goods amounting to Rs.86,22,96,437/- from non

associated enterprises (AE) of Rs.1,47,60,299/- which is 1.71% of FOB value of the

goods. Ld. Senior Counsel further pointed out that the assessee earned commission on

FOB value of goods amounting to Rs.21,20,88,46,377/- of Rs.38,83,69,718/- at the rate

of 1.83% of the FOB value of the goods which is higher than the commission

income/service fees earned from the non associated enterprises, therefore, imposed

addition on account of alleged understatement arms' length price is not sustainable and

in accordance with law.

5.    Ld. Senior Counsel further took us to order of the Tribunal in assessee own case

for AY 2007-08 and submitted that in the similar facts and circumstances, the addition

made by the AO/TPO was deleted by holding that the commission percentage of non

AE segment and the same is at the arm's length and no addition is sustainable. Ld.

Senior Counsel further drawn our attention towards order of the Tribunal in assessee

own case for AY 2008-09 dated 15.03.2013 in ITA 5850/Del/2012 and submitted that

the similar kind of addition was further deleted by following order of the Tribunal for
                                                                            ITA No 6646/DEL/14
                                                                                                 8


AY 2007-08 dated 31.01.2013 for AY 2007-08, therefore, in the similar set of facts and

circumstances, impugned addition made by the AO is also not sustainable.

6.       Ld. Senior Counsel also drawn our attention towards order of the Tribunal dated

14.07.2014 for AY 2009-10 in ITA No.328/Del/2014 and submitted that in the similar

line of preceding AYs. 2007-08 and 2008-09 the Tribunal also deleted the same addition

made by the AO/DRP in assessee's own case. It was also contended that the impugned

addition on the similar set of facts and circumstances of the present case is not

sustainable and not in accordance with law and, therefore, the same may be directed to

be deleted.

7.       Ld. Departmental Representative supported the order of the AO/TPO. However,

he submitted that the figures shown by the assessee at Page 461 of the assessee's paper

book are not disputed and he fairly accepted that the commission earned by the assessee

during financial period under consideration from non AE segment is 1.71%, whereas

commission earned from Associated Enterprises segment is 1.83% of FOB value of the

goods.

8.       On careful consideration of our submissions of both the sides, at the very outset,

we respectfully take cognizance of the decision of the Tribunal for AY 2008-09 wherein

following the view taken by the Tribunal for AY 2007-08 in ITA No.509/Del/2011

(supra) similar kind of addition have been found to be unsustainable. The relevant

observations and conclusion of the Tribunal in AY 2008-09 read as under:-

         "6.   We      have carefully considered the submissions and perused the
         records. The tribunal in assessee's own case vide aforesaid order has held as
         under:-
                                                            ITA No 6646/DEL/14
                                                                                 9


21.    We have carefully considered the submissions and perused the
records. We agree with the proposition that in transfer pricing analyses
internal comparable are preferable over external comparables.
22.    We note that assessee has entered into two types of transaction (i)
indent/ commission transaction where the assessee earned commission /
fixed service fee, (ii) trading / proper transaction wherein the assessee
purchased good and earned trading margin thereon. The above two
types of transaction has been entered into both with AEs and Non-AEs.
23.    We agree with the assessee's proposition that the nature of
indenting transaction is different from the trading transactions. The
trading transaction involves risks and finances, whereas in the indenting
transaction the assessee has not to incur any such financial obligation or
carry any significant risk. Moreover, we note that in respect of indenting
transaction with non-AE's, the average mean margin of profit of 2.26%
has been accepted by the TPO. We further find that the indent business of
the assessee was nothing but trade facilitation and is purely of indent
nature both in form and substance. No material has been brought on
record to regard the indent transaction as trading transactions.
24.      Assessee itself has agreed with the        proposition that an
appropriate comparison would be to compare the commission/ service
income earned by the assessee from AEs to that of the non-AEs. This
aspect of assessee's submission has not been rebutted by the Revenue.
However, the assessee has contended that the reason of difference
between them was attributable to volume of business handled in AE
segment and non AE segment and credit risk associated in non AE
segment.     Therefore, it has been argued that economic adjustment is
required to improve the comparability between commission earned in AE
segment vis-a-vis commission earned in Non-AE segment. It has further
been submitted that it is customary in commercial dealing of
broker/commission agent to offer discount on the basis of volume or value
of business generated; that similarly commission/brokerage charged from
low value / small customers is much higher on account of the premium
rate of commission charged from them. Hence the assessee has come to
the conclusion that discount of 50% was to be applied on Non-AE segment
commission percentage to arrive at the arm's length commission
percentage.
25.    However, we do not agree with the proposition that in the facts and
circumstances of the case volume impacts the rate of commission. For
each and every single transaction a separate contract is entered and the
commission rate / service fee is mentioned in this context. It is also not
the case of the assessee that volume of a single transaction varies in the
AE and Non-AE segment.
                                                            ITA No 6646/DEL/14
                                                                                 10


26.    We find that mere difference in turnover is not sufficient for
treating two entities or two transactions as not comparable or warrant
any adjustment. In this regard we refer to the follow case laws.
- In the case of M/s Symantec Software (Supra) in ara 15 following has
been laid down:-
      "In the case in hand, the assessee raised these objections only
      because some of the comparables are having high profit and also
      high difference in the turnover and not because of the high or low
      turnover has influenced the operating margin of the comparables.
      All the objections and contentions raised by the assessee in respect
      of this issue are general in nature and no specific fact has been
      brought on record to show that due to the difference in turnover
      the comparables become non-comparables. The assessee has not
      demonstrated as to how the difference in the turnover has
      influenced the result of the comparables. It is accepted economic
      principles and commercial practice that in highly competitive
      market condition, one can survive and sustain only by keeping low
      margin turnover. Thus, high turnover and low margin are
      necessity of the highly competitive market to survive.
      Similarly, low turnover does not necessarily mean high margin in
      competitive market condition. Therefore, unless and until it is
      brought to record that the turnover of such comparables has undue
      influence on the margins, it is not the general rule to exclude the
      same that too when the comparables are selected by the assessee
      itself."
-     Similarly in the case of M/s Bayer Material Sciences (P) Ltd.
      (Supra) in para 23 following proposition was laid down:-
      "Now the question is whether these cases, which are otherwise
      comparables, should be disregarded simply on the ground of
      smallness of turnover when compared with that of the assessee.
      Considering the fact that the assessee did not come out with any
      comparable case to justify its price at arm's length and further the
      TPO found out these cases having functionally identical activities
      duly confronted to the assessee, it is not possible to disregard such
      cases merely on the ground that the volume of turnover is lower in
      comparison to that handled by the assessee. One more important
      factor which cannot be lost sight of is that in the case of M/s Rathi
      Brothers Madras Ltd. indenting commission is 5% to 6% with
      turnover of ` 10.65 crores. The same rate of commission of 5%
      prevails in the case of M/s Huntsman International (P) Ltd. and
      M/s Ineos ABS (India) Ltd. with turnover of around ` 75 cores and
      around ` 80 cores respectively. It shows that the rate of
      commission in such business does not vary on the basis of
      turnover."
                                                                          ITA No 6646/DEL/14
                                                                                               11


              27.    Hence when the indent/ commission transaction with the AE is to
              be benchmarked, the same should be done with indent / commission
              transaction with Non-AE. Hence there is a no need to dwell further on
              the comparison between indenting transaction and trading transaction.
              28.    On the basis of above discussion and precedents we reject the
              assessee's contention that discount of 50% is required in commission
              percentage in the Non-AE segment to make it comparable with
              commission percentage in the AE segment.
              29.    Now we come to argument of the assessee that there is no change
              in the operating model or the business activity of the assessee company,
              hence, rule of consistency should be followed and hence no adjustment is
              warranted. In this regard we are of the opinion the res judicata is not
              applicable to taxation cases. Moreover, as held by Apex Court in
              Distributors (Baroda) P Ltd. vs. Union of India & Ors. 155 ITR 120 that
              to perpetuate an error is no heroism. To rectify is the compulsion of the
              judicial conscience.
              30.   In light of the discussions and precedents cited above, we are of the
              opinion that commission percentage in AE segment should be compared
              with commission percentage in Non-AE segment.            Accordingly, the
              commission percentage @ 2.26% in Non-AE segment should be taken as
              the arm's length rate at which assessee should have earned its
              commission income in the AE segment."
      7. From the above we note that in assessee's own case the tribunal has passed the
     order as above. Hence, in our considered opinion, the same proposition has to be
     followed. Accordingly, we hold that commission percentage in AE Segment should
     be compared with the commission percentage in non-AE segment. Accordingly, the
     commission percentage @ 2.30% in non-AE Segment to be taken as the arm's
     length price on which the assessee should have earned its commission income in
     the AE Segment."


9.     We further observe that in the similar manner the Tribunal in the order dated

14.07.2014 for AY 2009-10 following the order of the Tribunal for AYs 2007-08 and

2008-09 has deleted similar addition with the following observations and conclusions:-

       5.     We have heard the rival submissions and perused the relevant
       material on record. It is noticed that the TPO relied on the view taken by him
       for preceding years in proposing the transfer pricing adjustment. The ld. AR
       also candidly admitted that the order for the current year is replica of the
       earlier years order passed except for the change in figures. The position
       which, therefore, admittedly emerges is that the facts and circumstances of
       the instant year are mutatis mutandis similar to those of the preceding two
                                                                    ITA No 6646/DEL/14
                                                                                         12


years. The appeal of the assessee for the AY 2007-08, in which transfer
pricing adjustment was made under similar circumstances, came up for
consideration before the Tribunal in ITA No.5095/Del/2011. Vide order
dated 31.01.13, the Tribunal has held that the `Indenting transactions' are
different from `Trading transactions' in terms of functional differences, risks
undertaken and assets employed, and hence both cannot be considered as
uniform. The Tribunal held that the commission earned by the assessee from
its AEs under the `Indenting segment' was required to be benchmarked on
the basis of commission earned by the assessee from non-AEs under
`Indenting segment'. The assessee's contention before the Tribunal that
discount of 50% should be given from commission earned from non-AEs to
make it comparable with the commission earned from AEs, was rejected. It
was finally held that the commission percentage from AE transactions should
be compared with the commission percentage from non-AE transactions.
That is how, it was directed that such commission percentage at 2.26% from
non-AE transactions should be taken as arm's length rate at which the
assessee should have earned commission from AE transactions. Similar view
was taken by the Tribunal in its order for the AY 2008-09 in which the
commission percentage @ 2.23% from non-AE transactions was held to be
arm's length rate of commission to be applied in respect of transactions with
AEs. As the facts and circumstances of the instant year are admittedly
similar to those of two preceding years, respectfully following the
precedents, we hold that the action of the TPO/AO in determining the ALP in
respect of indenting business by applying profit percentage earned by the
assessee from non-AE transactions under the `Trading business segment'
cannot be upheld. It goes without saying that both the trading as well as
commission businesses are functionally different from each other, apart from
having varying risks and capital employed. We hold that the commission
percentage from AE transactions should be benchmarked on the basis of
commission rate from non-AE transactions under the `Indenting business'
and the addition on account of transfer pricing adjustment, if any, should be
made in consonance with the view taken by the tribunal in the immediately
two preceding years.
6.     The ld. AR tried in vain to impress upon us that the view taken by the
tribunal in the preceding two years should not be followed and the
application of TNMM as employed by the assessee should be accepted
leading to no addition on account of TP adjustment. To buttress his
contention for the application of TNMM, he placed on record a copy of the
order passed by the Delhi bench of the tribunal in Marubeni India P. Ltd.
VS. DCIT (ITA no. 5397/Del/2912). This contention was countered by the ld.
DR by stating that the TPO has applied internal RPM as the assessee's
TNMM was faulted with due to the reasons given in the order. We are not
convinced with the contention of the ld. AR urging us to observe departure
from earlier view taken by the tribunal for the obvious reason that when the
Tribunal in identical facts has taken a particular view in assessee's own
cases for the immediately two preceding assessment years, we cannot tinker
                                                                          ITA No 6646/DEL/14



                                                                                               13


      with the same. We, therefore, hold that the commission percentage on the
      basis of FOB value of goods from transactions with non-AEs be computed
      and taken as arm's length rate of commission for the purposes of the
      transactions with AEs under the `Indenting business' segment. In this regard,
      the ld. AR submitted that the percentage of commission from AE transactions
      for the instant year stood at 1.83% as against 2.86% from non-AEs. We find
      that the rates of commission now sought to be placed before us, are not
      emanating from the orders of the authorities below. Under such
      circumstances, we set aside the impugned order and remit the matter to the
      file of the AO/TPO with a direction to find out the rate of commission income
      on FOB value of the transactions with non-AEs under the `Indenting
      business' segment and then apply the same rate to the FOB value of goods in
      AE transactions under the `Indenting business' segment, as was directed in
      the earlier years. Needless to say, the assessee will be allowed a reasonable
      opportunity of being heard in such proceedings.

10.   In view of above submission of both the sides and order of the Tribunal for

preceding AYs 2007-08, 2008-09 and 2009-10, we observe that in the similar set of

facts and circumstances, it was held that the commission percentage, on the basis of

FOB value of the goods, from the transactions with non-AE, are at arm 's length under

the "indenting business" segment. The Tribunal also observed that the percentage of

commission earned from AE transaction is higher than the commission earned from the

non AE transactions in the indenting business segment, therefore, no further addition in

this regard is required. In the present case, Ld. DR has supported the action of the

AO/DRP/TPO wherein impugned addition was directed to be made and the AO made

impugned addition by passing order in pursuant to direction of DRP. However, Ld. DR

has fairly accepted that the figures shown by the assessee at Paper Book Page 461

which was also filed before the authorities below are undisputed and correct. We further

note that as per said figures, commission earned from non AE transaction comes to

1.71% and commission earned from AE transactions comes to 1.83% of the FOB value

of the goods. In view of above, it is vivid that the assessee earned higher percentage of
                                                                          ITA No 6646/DEL/14
                                                                                               14


commission income from AE transactions in comparison to non AE transaction on

"indenting business" segment. It is said legal proposition that when internal comparable

is available then the same should be considered as suitable and appropriate comparable

for assessing the arm's length price of the International transaction undertaken with AE

on a particular segment.

11.    In the instant case, the commission earned from non AE transaction is an

appropriate a suitable internal comparable for the purpose of comparing the

international transactions affected by the assessee with Associate Enterprise pertaining

to similar segment during the financial period under consideration. In view of above,

respectfully following the view taken by the Tribunal for AY 2008-09 (Supra), we

inclined to hold that the issue is squarely covered in favour of the assessee and the

impugned addition made by the AO in pursuant to direction of the DRP by passing the

impugned order u/s 142(3) r.w.s. 144C of the Act is not sustainable and the AO/DRP is

directed to delete the same. Accordingly, the Ground Nos. 1 to 7 of the assessee are

allowed.

12.    Ground No. 8 & 9 are consequential and in view of above our conclusion on the

main issues these grounds becomes academic and infructuous and we dismiss the same

without any further deliberation.

13.    In the result, appeal of the assessee is allowed.

       (Order pronounced in the open Court on 05.06.2015)

               Sd/-                                          Sd/-
         (R.S. SYAL)                              (CHANDRAMOHAN GARG)
      ACCOUNTANT MEMBER                            JUDICIAL MEMBE
Dated: 5 th June, 2015.
Aks/-
                                            ITA No 6646/DEL/14
                                                                 15




Copy forwarded to
1.    Appellant
2.    Respondent
3.    CIT
4.    CIT(A)
5.    DR
                    Asst. Registrar, ITAT, New Delhi

 
 
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