Income Tax Appellate Tribunal - Ahmedabad
Sabic Innovative Plastics India ... vs Assessee on 8 May, 2013
ITA No. 142/Ahd / 2013
Assessment year: 2008-09
Page 1 of 15
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD D BENCH, AHMEDABAD
[Coram : Shri Pramod Kumar A.M. and Shri Kul Bharat J.M.]
ITA No. 142/Ahd / 2013
Assessment year: 2008-09
Sabic Innovative Plastic India Pvt Ltd ....................Appellant
Plastic Avenue, P O Jawaharnagar,
Distt: Vadodara. PIN Code 391 320
[PAN : AABCE7565N]
Vs.
Dy. Commissioner of Income Tax
Circle 4, Baroda ..............Respondent
Appearances:
Manoj Pardasani,
alongwith Vishal Gada, for the appellant
Alok Johri, for the respondent
Date of hearing : May 8, 2013
Date of pronouncement : June 28, 2013
O R D E R
Per Pramod Kumar:
1. By way of this appeal, the assessee appellant has called into question correctness of order dated 29 th November 2012, passed by the learned Commissioner (Appeals) in the matter of assessment under section 143(3) r.w.s. 92 CA and 144C(4) of the Income Tax A ct, 1961, for the assessment year 2008-09.
2. In ground no. 1, the assessee has raised the general grievance against assessed income of the assessee being confirmed at Rs 37,48,65,520 as against the returned income of Rs 25,13,90,585. Learned counsel submits that this ground of appeal, being general in nature, does not require any ITA No. 142/Ahd / 2013 Assessment year: 2008-09 Page 2 of 15 adjudication and is not pressed as such. In any case, specific grievances with respect to the additions leading to the assessed income have been raised separately. This ground of appeal is, accordingly, dismissed as not pressed. Coming to ground numbers 2 and 3, which are interconnected and which we will take up together, grievances raised are as follows:
(2) On f acts and in law, the ld. AO and the learned Additional Commissioner of Income Tax-1 (Ld. TPO") erred by violating the provisions of Rule 10B(1)(a) read with Rule 10A(a) and 10B(2) of the Rules in determining ALP by comparing operating profit margin of the appellant with that of GE Industrial India Private Limited ('GE') without appreciating that transactions of GE were not uncontrolled transaction.
(3) On f acts and in law, the ld. AO and ld. TPO erred b y violating the provisions of Rule 10B(1)(a) of the Rules in applying Internal Comparable Uncontrolled Price ('Internal CUP') Method f or determining arm's length price ('ALP') of the finished goods imported by the appellant from its associated enterprises ('AEs'), without quoting the uncontrolled prices f or comparable transactions, which is a prerequisite f or applying CUP Method.
3. To adjudicate on these grounds of appeal, only a few material facts will have to be taken note of. The assessee before us is jointly owned by Sabic Innovative Plastics GP BV (14%) and SABIC Innovative Plastics Holding Singapore Pte Ltd (86%), which is owned by SABIC Holding Europe BV. The ultimate owner of this company is another corporate entity by the name of Saudi Basic Industries Corporation. The assessee company has come into existence as a result of demerger of plastic division of GE India Industrial Pvt Ltd (GEII, in short). This division of the GEII was vested in the assessee company w.e.f 3 rd August 2007. It was a case of vertical demerger, i.e. an entire tier of business activity chain was given up altogether by the GEII. Therefore, all the significant parameters within which, and with the help of which, the business operated, such as vendors, customers, personnel, core activity and business structure etc, have remained the same as of plastic division in GEII. In effect, therefore, ITA No. 142/Ahd / 2013 Assessment year: 2008-09 Page 3 of 15 during the relevant previous year itself, from 1 st April 2007 to 3 rd August 2007, business of the assessee was carried out by GEII. The busin ess of the assessee is manufacturing of manufacturing and marketing of engineering thermoplastic granules. When the assessee's transfer pricing came up for examination before the Transfer Pricing Officer, he rejected the same by pointing out several flaws in the working of transfer pricing report. It was also noted that while the assessee has shown manuf acturing activity to the tune of Rs 139.89 crores, with a margin of 10.05%, the assessee has shown a trading turnover of Rs 220 crores on which a margin of 3.34% is shown. In the transfer pricing study filed by the assessee, the comparables taken were Anukaran Commercial Enterprises Limited, Mahalaxmi Dyes and Chemicals Limited, Northern Strips Limited, P H Trading Limited and Signet Overseas Limited. Non e of these entities were found to be functionally comparable. It was noted that Anukuran did not have any turnover for the relevant year. As for Mahalaxmi, the TPO noticed that it is dealing in dyes and intermediates, with virtually no selling and distribution expenses and with no imported or propriety materials being handled. As for P H Trading also, the TPPO was of the view that this concern does not deal in any imported or propriety material, and th at the products it is dealing in are phenol and citric acid. The TPO further noted that Signet Overseas was engaged in manufacturing of plastic goods and the activity of the assessee is materially dissimilar to that of the assessee. He then also extensively compared the products of the comparables taken , and concluded that "none of the comparables are found similar to the trading activity carried out by the assessee company and hence they are rejected as comparables". For the reason that the CIT(A) has not dealt with all these aspects and the issues regardin g correctness of comparables, we have to come straight to the ALP computation adopted by the Assessing Officer and the reasons of his doing so. The TPO proceeded to adopt the Internal CUP as the most appropriate method in this case, on the short ground that the business of the assessee was exactly the same ITA No. 142/Ahd / 2013 Assessment year: 2008-09 Page 4 of 15 as was carried out by GEII's plastic division, that there is no change in the business model, business situation or all significant areas of business operations , and, that, therefore, the results shown b y the GEII's plastic division are the best comparable with the assessee's business. It was also noted that the operating margin earned by the assessee during this period was 8.95%. There was no change whatsoever in the nature of business activity or profile of the assessee post this demerger, and, therefore, the ALP margin was adopted at 8.95%, and an addition of Rs 12,34,74,937 made to the total income of the assessee. Aggrieved, inter alia by the approach so adopted at the assessment stage, assessee carri ed the matter in appeal before the CIT(A) but without in any success. Learned CIT(A) upheld the stand of the Assessing Officer and observed as follows:
6.2. The appellant's submissions during the course of appellate proceedings are the same as filed before the TPO. Besides this, the appellant has also stated that for the purposes of internal CUP also, the uncontrolled transactions can only be considered. Since, the transactions of the predecessor company i.e. GE India Pvt. Ltd. were not uncontrolled transactions, but were transactions made with Associated Enterprises under controlled conditions hence, the margin of GE India Pvt. Ltd. cannot be considered as internal CUP. The appellant has also submitted that having regard to market conditions during the second half of financial year 2008-09, the average sale price was gradually reduced across all the key product groups due to sluggish economic trend on account of which the company had to reduce the sales price to sustain the volume, which would help In absorbing the fixed cost of the company. The appellant also submitted that vide Its submission dated 1Qh October, 2011, it submitted to the TPO that owing to the sluggish economic trend, the appellant suffered 6% decrease in the gross profit margin under the trading operations. As already stated, the TPO has stated that there is a fallacy in the analysis conducted by the appellant on account of the fact that while the product side had been compared over a period of 9 months, there is no remark on the raw material side. The TPO has further stated that it is a normal trend in the chemical industries that when the product prices relaxed, then there is a fall in raw material or input side. In a third party scenario, no trading concern would assume the risk of the manufacturer and let go its own margin for products, which are not even purchased by It. The price risk can be understandable only to the extent of Inventory lying with the assessee company, when the prices fall. Any subsequent risk would go the, manufacturer and not the trader.
...................
6.2.2 ............the appellant has now accepted that the reduction in purchase prices were more than the reduction in the sale prices of the products. Thus, the submission made by the appellant before the TPO regarding fall in operating ITA No. 142/Ahd / 2013 Assessment year: 2008-09 Page 5 of 15 margin has now been controverted by itself during the course of appellate proceedings. If both the sale prices and the purchase prices fall and fall in purchase prices being more than the sale prices, the operation margins of the appellant should have been better than that of GE India Pvt. Ltd. but it is not so.
The operating margin of the appellant is 3.34% as against the operating margin of 8.95% of the predecessor company earned in the same financial year. Since the appellant has now no explanation regarding such fall in operating margins, hence the TPO's action of considering the results of GE India Pvt. Ltd. for determination of ALP is held to be correct.
6.3. The only other objection of the appellant against the consideration of results of GE India Pvt. Ltd. is that the transactions of GE India Pvt. Ltd. were also not uncontrolled transactions and hence, the same cannot be considered as internal CUP.
6.4. From the discussions made so far, it becomes apparent that the present case is one of those cases in which it is really difficult to find exact comparables. As already mentioned, the comparables selected by the appellant cannot be accepted for determining the ALP. Similarly, the appellant has filed several objections against the selection of CIBA India Ltd. and EI Dupont India Pvt. Ltd. as comparable by the TPO. On considering the entire facts together, it is seen that GE India pvt. Ltd. is the best comparable for determining the ALP in this case. The ITAT, Mumbai Bench in its decision in the case of Bayer Material Science Pvt. Ltd. 18 taxman.com 60 (Mum) has discussed a situation, where no comparables are available and whatever comparable are available have got very high percentage of controlled transactions. The Bench has stated as follows in this regard :-
"It is possible that the nature of international transaction between two associated enterprises may be such which, in normal course, is unusual between independent enterprises. In such a case there will be hardly any comparable uncontrolled case for the purposes of benchmarking of such transaction. The question will arise as to whether in such a situation, the transfer pricing provisions will fail and cease to be applicable and as such the TPO will be compelled to accept the manoeuvred price declared by the assessee. The further question will be as to whether any cognizance can be taken of such controlled transactions for benchmarking. We have observed above that a majority of assesses do not intend to play foul with the Revenue by unnecessarily attempting to reduce the tax liability. In such circumstances the declared income from such international transactions will itself represent the arm's length price. Thus, where it is an admitted position between the tax payer and the tax collector that there is no comparable uncontrolled transaction due to the nature of transaction being such that it is ordinarily between associated enterprises, in such a case, a transaction between two associated enterprises at arm's length price, though technically called 'controlled transaction', would partake of the character of `uncontrolled transaction' for the purposes of determining the ALP in a later international transaction between two AEs. In such a situation, no fetters can be placed on the powers of the TPO to consider such comparable ITA No. 142/Ahd / 2013 Assessment year: 2008-09 Page 6 of 15 controlled transaction - having adorned the garb of uncontrolled transaction - for the purposes of benchmarking. If the contention of the ld. A.R. is accepted that controlled transaction should be altogether shunted out for the purpose of transfer pricing provision, even in rare circumstances as are presently prevailing, then the very rationale and purpose of sections 92 to 92F, being the determination of ALP, which is otherwise achieved from the controlled transaction, will be defeated. It is in such exceptional circumstances that the principle of purposive interpretation will come into play to set free the hands of the TPO tied with determining ALP only on the basis of uncontrolled transactions [para 19].
The purpose behind these provisions is to prevent the avoidance of tax in the international transactions by ascertaining the arm's length price. These provisions are basically for the assistance of the Revenue as is evident from sec. 92(3) which mandates that the provisions of this section shall not apply in a case where the computation of income under sub- section (1) or the determination of allowance for any expense or interest under that sub-section or determination of any cost or expense allocated or apportioned has the effect of reducing the income chargeable to tax computed on the basis of entries made in the books of account in respect of the previous year in which the international transaction was entered into. The effect of section 92(3) is that if the determination of income from international transaction at arm's length price results into a lower income than what has been declared by the assessee as per the entries in the books of account, then no cognizance should be taken of such determination of ALP, which shall be ignored and the income shall be computed on the basis of entries made. On the other hand, if the income determined at arm's length price is higher than that emanating from entries in the books of account, then such income at arm's length price, being higher than that from the entries in the books of account, shall be included in the total income of the assessee. It is, therefore, manifest that the higher of income determined at arm's length price or as emerging from the entries made in the books of account, is taken into consideration for computing the total income of an assessee. This sub-section (3) of section 92 when seen in juxtaposition to the Chapter X in which the relevant sections have been resided titled as `Provisions relating to avoidance of tax', makes it apparent that the purpose behind such provisions is to uncover the arrangement made by the associated enterprises in not reflecting the true profit from the international transactions. If we accept the contention raised by the ld. A.R. that the controlled transactions should be completely ignored in such a situation when there are no uncontrolled transactions at all, it would amount to defeating the object of these provisions. When the very purpose of these provisions is to determine arm's length price and there is admittedly no record of any uncontrolled transaction, in our considered opinion, it is perfectly in order to consider a controlled transaction genuinely entered in an uncontrolled manner between some other associated enterprises, for the purposes of benchmarking of such a transaction [Para-20]".ITA No. 142/Ahd / 2013
Assessment year: 2008-09 Page 7 of 15 6.4.1. In the present case also, the nature of transaction between the appellant and its AEs is such that it is unusual between independent enterprises. Moreover, the results declared by GE India Pvt. Ltd. have been accepted by the TPO as submitted by the appellant itself in its submissions reproduced above. Such acceptance makes the transactions of GE India Pvt. Ltd. partake the character of uncontrolled transactions for the purposes of determining the ALP in later international transactions between two AEs. As stated by ITAT in the decision of Bayers Material Science Pvt. Ltd. (supra) in such a situation, no fetters can be placed on the powers of the TPO to consider such comparable controlled transaction having adorned the garb of uncontrolled transactions- for the purposes of benchmarking. The ITAT has also held that if the contention of the assessee is accepted, that controlled transaction should be altogether shunted out for the purpose of transfer pricing provision even in rare circumstances as are presently prevailing, then the very rational and purpose of section 92 to 92F will be defeated. It is in such exceptional circumstances that principal of purposive interpretation will come into play to set free the hands of the TPO tied with determining ALP only on the basis of uncontrolled transactions. In the present case, the appellant has not been able to file an explanation regarding fall in margins in comparison to the margins of the predecessor company. As already discussed, the explanations filed during the course of assessment proceedings have been controverted by the appellant itself during the appellate proceedings. Hence, it is held that the TPO has rightly considered the operating margin of predecessor company for benchmarking the operating profits of the appellant in this case.
4. The assessee is not satisfied and is in appeal before us.
5. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case in the light of the applicable legal position.
6. A plain reading of the orders of the authorities below shows that the method upheld by the CIT(A), for the purposes of ascertaining ALP, is Internal CUP, but then the application of this method is clearly incorrect inasmuch as any application of any CUP (Comparable Uncontrolled Price) method involves dealing with prices of a product not the profit margin earned thereon. Rule 10 B(1)(a) of the Income Tax Rules, lays down that the arm's length price in relation to an international transaction shall be determined by any of the prescribed methods, being the most appropriate method, and defines CUP method as follows:
ITA No. 142/Ahd / 2013Assessment year: 2008-09 Page 8 of 15
(a) comparable uncontrolled price method, by which,--
(i) the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, is identified;
(ii) such price is adjusted to account for differences, if any, between the international transaction and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the price in the open market;
(iii) the adjusted price arrived at under sub-clause (ii) is taken to be an arm's length price in respect of the property transferred or services provided in the international transaction;
7. As for the connotations of the expressions 'Internal CUP' and 'External CUP', while the former deals with a situation in whic h prices at which similar transaction is entered into with an independent enterprises, latter refers to the situation in which two unconnected independent enterprise deal with each other. In other words, even in the case of 'internal CUP', the arm's lengt h price to be adopted is the price, subject to admissible adjustments, at which the similar transactions are carried out between the assessee and an independent enterprise. Internal CUP has nothing to do with the margins earned by the same enterprises from other transactions, as is the case before us. Learned CIT(A)'s reliance on the decision of a coordinate bench of this Tribunal, in the case of Bayer Material Science Pvt Ltd Vs Additional Commissioner of Income Tax (134 ITD 582), is also of no longer sustainable in law. The authorities below have proceeded on the basis that in the case of GEII's plastic division there were substantial intra AE transactions as evident from learned CIT(A)'s observations to the effect that, "the appellant has also stated that for the purposes of internal CUP also, the uncontrolled transactions can only be considered. Since, the transactions of the predecessor company i.e. GE India Pvt. Ltd. were not uncontrolled transactions, but were transactions made with Associated Enter prises ITA No. 142/Ahd / 2013 Assessment year: 2008-09 Page 9 of 15 under controlled conditions .........". Yet these controlled transactions were treated as good comparables. Bayer Material Science was also a case in which transactions between associated enterprises were used as comparables for benchmarking, and this action was upheld by the Tribunal. It was in this process that in the case of Bayer Material Science (supra), a coordinate bench of this Tribunal had inter alia observed as follows:
19. It is possible that the nature of international transaction between two associated enterprises may be such which, in normal course, is unusual between independent enterprises. In such a case there will be hardly any comparable uncontrolled case for the purposes of benchmarking of such transaction. The question will arise as to whether in such a situation, the transfer pricing provisions will fail and cease to be applicable and as such the TPO will be compelled to accept the manoeuvred price declared by the assessee. The further question will be as to whether any cognizance can be taken of such controlled transactions for benchmarking. We have observed above that a majority of assesses do not intend to play foul with the Revenue by unnecessarily attempting to reduce the tax liability. In such circumstances the declared incom e from such international transactions will itself represent the arm's length price. Thus, where it is an admitted position between the tax payer and the tax collector that there is no comparable uncontrolled transaction due to the nature of transaction being such that it is ordinarily between associated enterprises, in such a case, a transaction between two associated enterprises at arm's length price, though technically called 'controlled transaction', would partake of the character of 'uncontrolled transaction' for the purposes of determining the ALP in a later international transaction between two AEs. In such a situation, no fetters can be placed on the powers of the TPO to consider such comparable controlled transaction - having adorned the garb of uncontrolled transaction -for the purposes of benchmarking. If the contention of the ld. A.R. is accepted that controlled transaction should be altogether shunted out for the purpose of transfer pricing provision, even in rare circumstances as are presently prevailing, then the very rationale and purpose of sections 92 to 92F, being the determination of ALP, which is otherwise achieved from the controlled transaction, will be defeated . It is in such exceptional circumstances that the principle of purposive interpretation will come into play to set free the hands of the TPO tied with determining ALP only on the basis of uncontrolled transactions.
20. We have noticed above that the purpose behind these provisions is to prevent the avoidance of tax in the international transactions by ascertaining the arm's length price. These provisions are basically for the assistance of the Revenue as is evident from sec. 92(3) which mandates that the provisions of ITA No. 142/Ahd / 2013 Assessment year: 2008-09 Page 10 of 15 this section shall not apply in a case where the computation o f income under subsection (1) or the determination of allowance for any expense or interest under that sub-section or determination of any cost or expense allocated or apportioned has the effect of reducing the income chargeable to tax computed on the basis of entries made in the books of account in respect of the previous year in which the international transaction was entered into. The effect of section 92(3) is that if the determination of income from international transaction at arm's length price results into a lower income than what has been declared by the assessee as per the entries in the books of account, then no cognizance should be taken of such determination of ALP, which shall be ignored and the income shall be computed on the basis of entries made. On the other hand, if the income determined at arm's length price is higher than that emanating from entries in the books of account, then such income at arm's length price, being higher than that from the entries in the books of account, shall be included in the total income of the assessee. It is, therefore, manifest that the higher of income determined at arm's length price or as emerging from the entries made in the books of account, is taken into consideration for computing the total income of an assessee. This sub-section (3) of section 92 when seen in juxtaposition to the Chapter X in which the relevant sections have been resided titled as 'Provisions relating to avoidance of tax', makes it apparent that the purpose behind such provisions is to uncover the arrangement made by the associated enterprises in not reflecting the true profit from the international transactions. If we accept the contention raised by the ld. A.R. that the controlled transactions should be completely ignored in such a situation when there are no uncontrolled transactions at all, it would amount to defeating the object of these provisions. When the very purpose of these provisions is to determine arm's length price and there is admittedly no record of any uncontrolled transaction, in our considered opinion, it is perfectly in order to consider a controlled transaction genuinely entered in an uncontrolled manner between some other associated enterprises, for the purposes of benchmarking of such a transaction.
8. However, the same learned Member, as a Third Member in the case of Technimont ICB Pvt Ltd Vs Additional Commissioner of Income Tax (138 ITD 23 TM), and agreeing with one of us (i.e. the Accountant Member) in a situation of divergence of opinion between the members constituting the division bench, discarded the above school of thought. Learned Departmental Representative, however, urges us to follow the view taken by the Bayer Material Science (supra) and ignore the Third Member decision in the case of Technimont ICB (supra). In a written note filed before us, it is submitted that "In this regard, it is important to note that in the Third Member decision in Technimont ICB India (P) Ltd. case, curiously no discussion is made on ITA No. 142/Ahd / 2013 Assessment year: 2008-09 Page 11 of 15 the earlier judgments delivered in the cases of NGC Network and Bayer Material Science. This assumes significance in this case because the Hon'ble member who wrote the Third Member judgment in Technimont case had earlier written the judgment in the case of Bayer Material Sciences also. The Hon'ble Member categorically wrote that no cognizance of the judgments cited by the representatives (including Bayer Material Sciences and NGC) are being made by him in the case (Technimont), which is an inherent contradiction in the stands taken by the Hon'ble Member in these cases. In such a scenario, the case should have been referred to the Special Bench instead of deciding the same issue in two different ways that too without distinguishing the earlier judgment....... Consequently, the extreme view taken in the Technimont judgment is incorrect, impractical and against the spirit of several judgments delivered by different Benches of Tribunals on this issue". We are not swayed by these submissions, and see no legally sustainable merits in the same. As far as the question of binding nature of these judgments is concerned, there does not seem to be much dispute on the proposition that a Third Member decision overrides the decision of a division bench and has a greater binding force. It has the same precedence value as that of a special bench. Elaborating this principle, a special bench of this Tribunal, in the case of DCIT Vs Oman International Bank SAOG (100 ITD SB 285), that a Third Member decision is defacto a decision of larger bench, and , in coming to this conclusion, the Special Bench was guided by Hon'ble Delhi High Court's judgment in the case of P C Puri vs CIT (584) wherein Their Lordships observed that "There is no difference, really speaking, between a Full Bench of three Judges sitting together and this method of referring to the third Judge in the case of a difference of opinion between the two Judges. Whether the first method is adopted or the second, "opinion of the majority" will be decisive. In this case, there is a formal reference to a third Judge to ascertain his opinion. He is the deciding voice. He turns the scales. The third Judge is the Full Bench. Not alone. But along with the ITA No. 142/Ahd / 2013 Assessment year: 2008-09 Page 12 of 15 two others, who first heard the case. Whether the three Judges sit at the same time or at different times - two at one time and the third hearing the matter later on a difference of opinion - does not make much difference.". Viewed thus, a Third Member may not really be bound by the decisions of division benches and the Third Member decision may be seen as overruling not only the dissenting views but also unanimous decisions of the division benches. Learned Third Member, in his majority view in the case of Technimont (supra), had stated as follows:
14. What is an 'uncontrolled transaction' has been clearly defined under Rule 10A(a) to mean 'a transaction between enterprises other than associated enterprises whether resident or non-resident'. A plain reading of the meaning given to the expression 'uncontrolled transaction' leaves no room for any doubt that it is a transaction between two non-associated enterprises. If the transaction is between two associated enterprises, it goes out of the ambit of 'uncontrolled transaction' under Rule 10A. When section 92C is read along with Rules 10B(e), and 10A, it becomes abundantly c lear that in computing ALP under the transactional net margin method, a comparison of the assessee's net profit margin from international transactions with its AEs has necessarily to be made with that of the net profit margin realized by the same enterprise or an unrelated enterprise from a comparable but definitely uncontrolled transaction i.e., a transaction between non-associated enterprises. There is no statutory sanction for roping in a comparable controlled transaction for the purposes of benchmarking. When it has been clearly mandated in all the relevant methods for determining ALP that the comparison has to be made by the enterprise's international transaction with comparable uncontrolled transaction, by no sheer logic a comparable controlled transac tion can be employed for the purposes of making comparison. There is no warrant for diluting the prescription given by the statute or rules when such prescription itself serves the ends of justice properly and is infallible. If the view of the Revenue that a controlled transaction should not be shunted out for the purposes of benchmarking, is accepted, then all the relevant provisions contained in Chapter X in this regard, will become otiose. If such a contention of making comparison with a comparable controlled transaction is taken to its logical conclusion, then there will never arise any need to take up any case for transfer pricing scrutiny. The reason is obvious. ALP is determined for application in respect of transactions between two AEs so that the pr ofit likely to arise from such transactions is not under-reported vis-a-vis from similar transactions with third parties. If the comparison is made again with net profit margin realized from transactions between two AEs, instead of third parties, it may demonstrate the same cooked results in both the situations, thereby leaving no scope for any adjustment. In this eventuality, the very object of such provisions will be frustrated. Thus it follows that the ALP can be ITA No. 142/Ahd / 2013 Assessment year: 2008-09 Page 13 of 15 determined only by making comparison with a comparable uncontrolled transaction and not a comparable controlled transaction.
9. Learned Third Member thus virtually overruled his own view in a division bench. As he did so, he was not oblivious of the division bench order that he was departing from, as evident from his following closing remarks:
18. Before parting with this matter, I consider it my duty to record that the ld. AR relied on certain decisions including UCB India (P.) Ltd. v..
Asstt. CIT [2009] 121 ITD 131 , Bayer Material Science (P.) Ltd. v. Addl. CIT [2012] 134 ITD 582 and Dy. CIT v. BP India Services (P.) Ltd. [2011] 133 ITD 255 (Mum) in which it has been held that controlled transactions cannot be considered for determining ALP in other transactions. Per contra , the ld. DR has relied on a solitary decision rendered by the Mumbai bench of the tribunal in NGC Network (India) (P.) Ltd. (supra) to buttress his contention that a controlled transaction can also be considered for benchmarking. I do not propose to embark upon these cases separately for discussion, I clarify that my decision in the foregoing paras is founded on the interpretation of the relevant bare provisions of the Act and Rules, without taking any assistance from decisions cited by the rival parties on the point, which differ in their conclusion as stated by the ld. Representatives before me.
10. Learned Departmental Representative's submission that a judicial officer cannot deviate from his own stand does not seem to be correct. What may be material is the hierarchical position of the forum at which the judicial officer is placed and not the judicial officer himself. A Third Member decision, as we have noted above in the light of Hon'ble Delhi High Court's judgment in the case of P C Puri (supra), is a de facto full bench decision and a view does seem possible that it is not, therefore, bound by division bench decisions- including, of course, the orders the Third Member himself may have authored on behalf of the division benches. In any case, no one is infallible and there cannot be any heroism in perpetuating an error either. Banjamin N Cardozo, one of the most distinguished US Chief Justices, in his classic book 'The Nature of Judicial Process' (Yale University Press; first published in Dec 1921; online version at http://www.constitution.org/cmt/cardozo/jud_proc.htm ) beautifully puts it as "I own that it is a good deal of a mystery to me how ITA No. 142/Ahd / 2013 Assessment year: 2008-09 Page 14 of 15 judges, of all persons in the world, should put their faith in dicta. A brief experience on the bench was enough to reveal to me all sorts of cracks and crevices and loopholes in my own opinions when picked up a few months after delivery, and reread with due contrition. The per - suasion that one's own infallibility is a myth leads by easy stages and with somewhat greater satisfaction to a refusal to ascribe infallibility to others." The hyper technical issues raised by the learned Departmental Representative are thus devoid of any legally sustainable me rits. The issue stands covered against the revenue by a Third Member decision which prevails over a division bench decision. Learned counsel submits that even if Bayer decision (supra) is to be implemented on merits, the assessee's case will not be covered. That aspect of the matter is, however, academic now. The course of action adopted by the authorities below, in adopting the net margin @ 8.95%, on the basis of results shown by the GEII's plastic division, is unsustainable in law, and we vacate the same. However, we have noted that the learned CIT(A) has declined to deal with all other issues on the short ground that the decision to apply, what he erroneously terms as, 'Internal CUP' method for ascertaining arm's length price is correct and does not call for any interference. This stand, in the light of the discussions above, is clearly incorrect and unsustainable in law. In this view of the matter, as also bearing in mind entirety of the case, we deem it fit and proper to remit the matter to the file of the CIT(A) for fresh adjudication on merits in the light of above observations, in accordance with the law and by way of a speaking order. There cannot be any good reasons for us to deal with all other issues on merits when learned CIT(A) did not have an occasion to deal with the same at all. Learned CIT(A) has decided the matter on the short legal ground, which we find to be unsustainable in law, and, therefore, we send the matter back to the CIT(A) for proper adjudication. With these observations, matter stands restored to the file of the CIT(A) and all other grounds of appeal stand dismissed as infructuous.
ITA No. 142/Ahd / 2013Assessment year: 2008-09 Page 15 of 15
11. In the result, while the stand of the authorities below in making th e impugned ALP additions of Rs 12,34,74,937 is vacated in principle, the appeal is allowed for statistical purposes in the terms indicated above. Pronounced in the open court today on 28 th day of June, 2013.
Sd/xx Sd/xx
(Kul Bharat ) (Pramod Kumar)
Judicial Member Accountant Member
Ahmedabad: 28 th day of June 2013.
Copy forwarded to :
1. The appellant
2. The respondent
3. Commissioner , Ahmedabad
4. CIT(A) , Ahmedabad
5. Departmental Representative, bench, Ahmedabad
6. Guard File
True Copy
By Order etc.
Assistant Registrar