Cargill Foods India Ltd., Gurgaon vs Assessee

Cargill Foods India Limited (Now merged in and known as 'Cargill India Private Limited') 14th Floor, Building 9-A, DLF Cyber City, Phase - III, Gurgaon, Haryana - 122002 PAN: AABCP0312N .... Appellant

Vs.

The Dy. Commissioner of Income, Circle 4, Pune .... Respondent

Appellant by : Shri M.P. Lohia Respondent by : Shri Sandeep Gang, CIT

Date of hearing : 16-03-2015 Date of pronouncement : 10-04-2015

ORDER

PER G. S. PANNU, AM:

The captioned appeal of the assessee for assessment year 2006-07 is

directed against an order of the Deputy Commissioner of Income Tax, Circle-

4, Pune (in short the AO), passed u/s 143 (3) r.w.s. 144C(13) of the Income-

tax Act, 1961 (in short "the Act"), dated 28.10.2010, which is in conformity with

the directions given by the Dispute Resolution Panel (in short DRP) dated

13.09.2010.

2. In this appeal, the assessee has raised the following Grounds of

Appeal:-

On the facts, in the circumstances of the case and in law, the Hon'ble DRP and consequentially the learned AO have:

International transaction pertaining to import of edible oil from the AE

1. General ground challenging the transfer pricing adjustment of Rs 29,70,31,153 2 ITA No.1460/PN/2010 Cargill Foods India Ltd.

Erred in making transfer pricing adjustment by rejecting the analysis undertaken by the Appellant to determine arm's length price for its international transaction pertaining to import of edible oil from the AE.

2. Rejection of Comparable Uncontrolled Price ('CUP') as the most appropriate method

Erred in making an adjustment to the international transaction of the Appellant, rejecting CUP as the most appropriate method considered by the Appellant to determine the arm's length price.

3. Non consideration of additional external CUP, internal CUP and other data

Erred by not considering the additional external CUP, internal CUP data and other data supporting that the Appellant's international transaction with its AE is at arm's length.

4. Inappropriately considering Transactional Net Margin Method ('TNMM') as the most appropriate method

Without prejudice to the grounds above, erred in inappropriately considering TNMM as the most appropriate method in spite of submitting various CUP data (Broker Notes, Price publications etc).

5. Inappropriate search process while applying of TNMM as the most appropriate method

Without prejudice to the grounds above, erred in carrying out search process for identifying comparable companies using TNMM as the most appropriate method, mainly with regards to the following:

5.1 Considering only 'Prowess' database for search analysis though there is another widely recognized public database i.e. 'Capitaline Plus';

5.2 Not sharing / providing of the detailed accept-reject analysis for the purpose of arriving at the comparable companies to the Appellant;

5.3 Considering non contemporaneous data;

5.4 Inappropriate application of turnover filter; and

5.5 Use of financial data for AY 2006-07 only.

Erred in considering the operating margins earned by comparable companies based on the financial data pertaining to the year ended 31 March 2006 only and rejecting the financial data of comparable companies for prior two years.

6. Selecting inappropriate companies as comparable to the Appellant Without prejudice to the grounds above, erred on facts and in circumstances of the case by selecting inappropriate companies as comparable to the Appellant.

3 ITA No.1460/PN/2010

Cargill Foods India Ltd.

7. Inappropriate adjustment using TNMM on the turnover of entire oil division of the Appellant

Without prejudice to the grounds above, erred on the facts and in circumstances of the case and in law by proposing inappropriate adjustment using TNMM on the turnover of entire oil division of the Appellant.

8. Not considered adjusted margin of the Appellant

Without prejudice to the grounds above, erred on the facts and in circumstances of the case and in law by rejecting the Appellant's plea to consider the adjusted margin of the Appellant.

9. Inappropriate calculation of the operating margins of companies selected as comparables by the learned TPO

Without prejudice to the grounds above, erred on facts and in circumstances of the case in inappropriately computing the operating margins of companies selected as comparables by the learned TPO.

10. Not considered set off of brought forward losses and unabsorbed depreciation for previous years

Without prejudice to the grounds above, erred on facts and in circumstances of the case and in law by passing order under section 143(3) read with section 144C(13) of the Act without considering brought forward losses and unabsorbed depreciation for previous years amounting to Rs.50,85,49,369, while determining the total income of the Appellant for AY 2006-07 at Rs 20,00,42,071.

11. Applicability of +1-5% range

Erred in law in not applying the Proviso to section 92C of the Act and has failed to allow the Appellant the benefit of lower variation of 5 percent in determining the arm's length price.

12. Erroneous levy of penalty under section 271AA of the Act

Erred on the facts and in law in initiating the penalty proceedings under section 271AA of the Act without considering the fact that the Appellant has maintained and furnished all the documentation that were required for the purpose of assessing the value of international transaction entered into by the Appellant and the Appellant has complied with the transfer pricing provisions.

13. Erroneous levy of penalty under section 271(1)(c) of the Act

Without prejudice to the grounds above, if the transfer pricing adjustment is sustained then the learned AO has erred in proposing to levy penalty under section 271(1)(c) of the Act, without considering the fact that adjustment to transfer price is just on account of difference of opinion as to application of most appropriate method as determined by the Appellant vis-a-vis as determined by 4 ITA No.1460/PN/2010 Cargill Foods India Ltd.

the learned TPO and consequently resulted in an adjustment to income.

14. Erroneous levy of interest under section 234B and 234C of the Act

Without prejudice to the grounds above, erred on the facts and in law by proposing to levy interest under section 234B and section 234C of the Act, without considering the fact that the interest under these sections of the Act is proposed to be levied to the extent the addition on account of transfer pricing adjustment is made on account of difference of opinion regarding application of most appropriate method, etc and by no means the Appellant could have estimated such adjustments which has been proposed after the transfer pricing compliance dates, and consequential tax on such adjustment.

3. In this appeal, although the assessee has raised multiple Grounds of

Appeal but the solitary issue in dispute is on account of an addition of

Rs.29,70,31,153/- made to the returned income on account of determination of

the arm's length price of the international transactions entered into by the

assessee with its associated enterprises.

4. In brief, the relevant background of the dispute is as follows. The

appellant is a company incorporated under the provisions of the Companies

Act, 1956 and is inter-alia, engaged in the business of manufacture and

trading of edible oil and plastic films. The appellant is a 100% subsidiary of

Cargill Mauritius Limited from November, 2005 onwards. The assessee

procures various categories of oil for manufacturing purposes from domestic

as well as overseas market and such procurement is from associated

enterprises as also from third parties. The oil so procured by it is further

refined / processed for sale to ultimate customers predominantly in the

domestic market to third party customers in bulk, tin and other consumer

packagings. For the assessment year 2006-07, assessee filed a return of

income declaring a total loss of Rs.(-)9,69,89,082/- which was subject to a

scrutiny assessment. The Assessing Officer noted that the assessee had

entered into certain international transactions with its associated enterprises 5 ITA No.1460/PN/2010 Cargill Foods India Ltd.

on account of import of oil, availing of treasury services, incurrence of

Demurrage expenses and Credit Note for purchases made in the earlier year,

etc. On account of assessee having entered into certain international

transactions with its associated enterprises, Assessing Officer made a

reference to the Transfer Pricing Officer under section 92CA(1) of the Act in

order to determine the arm's length price of such international transactions.

Notably, the income arising from the international transactions was required to

be computed having regard to their arm's length price in view of section 92(1)

of the Act. The Transfer Pricing Officer, after allowing assessee an

opportunity of being heard, has passed an order under section 92CA(3) of the

Act dated 28.10.2009 determining the arm's length price of the international

transactions. As per the Transfer Pricing Officer, an adjustment of

Rs.29,70,31,153/- was required to be made to the stated value of the

international transactions relating to import / purchase of oil from associated

enterprises in order to bring it to the level of their arm's length price. At this

point, it is to be noted that in so far as the other international transactions with

the associated enterprises are concerned, the TPO has accepted the

assertions of assessee that the same are at an arm's length price. The only

issue on which the TPO differed with the assessee was with regard to the

international transactions of import / purchase of oil from its associated

enterprises, and this is the subject matter of dispute before us. On receipt of

the order of the TPO dated 28.10.2009, the Assessing Officer passed a draft

order under section 144C(1) of the Act, dated 24.12.2009 proposing an

addition of Rs.29,70,30,153/- to the returned income / loss on account of the

transfer pricing adjustment to the stated value of the international transactions.

The assessee raised objections before the Dispute Resolution Panel (DRP),

assailing the proposed adjustment and such objections have been disposed of

by the DRP vide its order dated 13.09.2010. In terms of the directions of the 6 ITA No.1460/PN/2010 Cargill Foods India Ltd.

DRP dated 13.09.2010, the Assessing Officer has thereafter, passed an order

u/s 143 (3) r.w.s. 144C(13) of the Act, dated 28.10.2010, wherein the total

income has been determined at Rs.20,00,42,071/-, having regard to the arm's

length price of the international transactions as determined by the TPO in his

order u/s 92CA(3) of the Act. As a consequence, the returned loss of Rs.(-)

9,69,89,082/- has resulted in an assessed income of Rs.20,00,42,071/-.

Aggrieved by such an addition, assessee is in appeal before us.

5. In order to appreciate the manner in which the TPO has differed with

the assessee on the aspect of determining the arm's length price of

international transactions, the following discussion is relevant. During the year

under consideration, assessee imported Soyabean oil and sun flower oil from

its associated enterprises amounting to Rs.71,58,54,415/-. In its Transfer

Pricing study, assessee adopted the Comparable Uncontrolled Price (CUP)

method as the most appropriate method in order to determine the arm's length

price in relation to the international transaction of import of Soyabean and

sunflower oils. The aforesaid approach of the assessee to adopt the CUP

method as the most appropriate method was not accepted by the TPO who

instead, adopted the Transactional Net Margin Method (TNMM) method and

applied it at the entity level sales in order to determine the arm's length price

of the international transactions of import of Soyabean and sunflower oils from

the associated enterprises. This aspect of the matter is the genesis of the

dispute between assessee and the Revenue before us.

6. It was explained that Soyabean and sunflower oils amounting to

Rs.71,58,54,414/- were imported from its associated enterprises out of the

total purchases of Rs.787.50 crores i.e. about 9.09% of the total purchases.

Justifying the adoption of the CUP method as the most appropriate method,

assessee pointed out that external uncontrolled comparable prices were 7 ITA No.1460/PN/2010 Cargill Foods India Ltd.

available in order to benchmark the price paid by the assessee for import of

Soyabean and sunflower oils from the associated enterprises. In support,

assessee referred to the Broker Price Notes issued by a reputed broker Murji

Meghan Services Pvt. Ltd., (MMSPL) which showed the prices prevailing in

the market on the respective dates when assessee transacted the import of

Soyabean and sunflower oils from its associated enterprises. Apart from the

aforesaid, in the course of the proceedings before the TPO, assessee also

obtained sample quotes from Sunvin group, the price publications of Oil World,

an independent publication, and justified before the TPO that the prices so

published were appropriate to benchmark the price paid by the assessee for

the transaction of import of oils from the associated enterprises. It is also seen

from the order of TPO that the assessee also submitted comparative analysis

of internal uncontrolled transactions with the third parties vis-à-vis the

transactions of import of oil from the associated enterprises.

7. The TPO, while analyzing the CUP method adopted by the assessee,

concluded that what has been relied by the assessee was only a Broker Price

Note and that the same could not take the character and characteristics of a

comparable uncontrolled transaction. In this context, the TPO referred to Rule

10B(1)(A)(i) of the Income Tax Rules, 1962 (in short 'Rules') to point out that it

is the "price charged or paid" for a comparable uncontrolled transaction which

can be adopted as a benchmark while applying the CUP method. According

to the TPO, any price quote or Broker Note does not qualify for consideration

in terms of Rule 10B(1)(A)(i) of the Rules. Furthermore, with regard to the

sample quotes obtained by the assessee from Sunvin group and the price

publications of Oil World, the TPO did not consider such evidences also as

external comparable uncontrolled transactions. As per the TPO, there were

differences between the terms and conditions of import of oil transacted by the

assessee from its associated enterprises and the details of imports as 8 ITA No.1460/PN/2010 Cargill Foods India Ltd.

appearing in the broker quotes. Thirdly, with regard to the comparative

analysis of internal uncontrolled transactions with third parties, the TPO

rejected the same by pointing out that the nomenclature of the oils was not the

same and therefore, the quality and specifications of the oil imported from

associated enterprises was different than the oil procured from third parties.

For all the aforesaid reasons, the TPO rejected the CUP method adopted by

the assessee in order to benchmark assessee's international transactions of

import of Soyabean and sunflower oils from its associated enterprises.

8. On this aspect, the learned representative for assessee has vehemently

argued that the external uncontrolled comparable prices data utilized by the

assessee to benchmark its international transactions of import of oil from the

associated enterprises have been unjustly rejected by the TPO. According to

the learned representative, CUP method is the most direct and appropriate

method in order to benchmark the price paid for transaction of import of oils

from the associated enterprises. Explaining the nature of the Broker Notes, it

is pointed out that MMSPL is a brokerage firm which is dealing in edible oils

and other commodities. The said concern provides essential information and

recommendations to its customers by providing upto date information on

market movements, daily market reports and trend analysis. It is also pointed

out that the price quotes of MMSPL are in turn, based on the prices prevalent

in the commodity exchanges and other markets including Chicago Board of

Trade (CBOT). Therefore, it is sought to be pointed out that the price quotes

or the Broker Notes are prepared on the basis of the prevailing market prices

of the products and the actual transactions being undertaken during the

relevant period of time. Therefore, in this manner, it is sought to be pointed

out that the TPO has erred in rejecting the price Notes of the Broker as not

being a good external CUP data. Furthermore, the learned representative

also referred to the price publication of Oil World and sample quotes from 9 ITA No.1460/PN/2010 Cargill Foods India Ltd.

Sunvin group, which are independent parties and not related to MMSPL. The

learned representative explained that aforesaid material was obtained by the

assessee in the course of the transfer pricing proceedings and such data also

supported assessee's claim that the price Notes of MMSPL was a valid CUP

data. Secondly, the learned representative pointed out that TPO has erred in

observing that there was difference in the terms of trade referred in the Broker

Notes issued by MMSPL and the terms of trade agreed between the assessee

and the associated enterprises for import of oil. In this context, a reference

was invited to page 330 of the Paper Book which contains the terms of trade

between the assessee and associated enterprises for import of oil and also to

page 381 of the Paper Book which is an extract from the website from MMSPL

showing the terms of trade used by MMSPL. On this basis, it is sought to be

pointed out that the terms of trade are similar. In this context, a reference has

been made to the Federation of Oils, Seeds and Fats Association (FOSFA)

which provides standard form of contracts covering various products including

Soyabean and sunflower oils. By referring to page 423 of Paper Book which

contains the FOSFA's standard agreement, it is pointed out that Form 54

depicts the CIF terms for vegetable edible oil and the same has been referred

in the terms of trade of MMSPL as also assessee's terms of trade with its

associated enterprises for import of oils. Therefore, the stand of the assessee

is that both the objections raised by the TPO in order to reject the external

CUP data based on the price quotes of MMSPL is not justified.

9. At the time of hearing, the learned representative also justified the

comparative analysis of the internal uncontrolled transaction of purchase of

Soyabean and sunflower oil from third parties vis-à-vis the transaction of

import from associated enterprises. It is pointed out that the said comparative

analysis also shows that the price paid by the assessee for import of oils from

the associated enterprises was at an arm's length price. In this context, our 10 ITA No.1460/PN/2010 Cargill Foods India Ltd.

reference has been invited to page 395 of the Paper Book wherein, a

comparative chart of the purchase of Soyabean and sunflower oils from

associated enterprises and from third parties has been placed. As per the

said analysis, it is sought to be pointed out that the per unit price paid for

purchase of Soyabean and sunflower oils from third parties is higher than the

per unit price paid for purchase of Soyabean and sunflower oils from

associated enterprises. Therefore, in conclusion, the learned representative

submitted that in whatever way the CUP method is applied, the price paid by

the assessee for purchase of Soyabean and sunflower oils from associated

enterprises is at an arm's length price.

10. Another pertinent point made by the learned representative was that in

the subsequent assessment year of 2007-08, the TPO has accepted that

assessee's transaction of import of oils from the associated enterprises are at

an arm's length price, having regard to similar comparative analysis of internal

CUP as well as external CUP data done in this year. Therefore, on the

principle of consistency also it is sought to be pointed out that the action of the

TPO in rejecting the CUP method in order to benchmark the transaction of

import of oils from the associated enterprises, is not justified.

11. In the course of hearing, the learned Departmental Representative

appearing for the Revenue has primarily relied upon the stand of TPO, which

has been noted by us in the earlier part of this order. Pertinently, the learned

Departmental Representative submitted that the broker quotes being relied

upon by the assessee cannot be considered as a CUP data so as to justify

application of CUP method in the present case. According to the learned

Departmental Representative, the benchmark adopted by the assessee was

only a quotation and does not represent any actual transaction. Furthermore,

the relevant details such as, the price on FOB basis, the relevant terms and 11 ITA No.1460/PN/2010 Cargill Foods India Ltd.

conditions of assessee's contract for import of oil vis-à-vis broker notes are not

verifiable, therefore, the benchmarking so done by the assessee following the

CUP method, was not acceptable. It has also been submitted that the Broker

Notes are meant for private circulation and cannot be said to be an information

available in public domain which can be used for the purpose of the transfer

pricing assessment. According to the Ld.CIT-DR, in the case of ACIT Vs.

MSS India (P) Ltd reported in 123 TTJ 657 (Pune), the Tribunal found it fit to

consider the prices quoted on London Metal Exchange as a valid CUP data,

which is an information in public domain but the same could not be said of

prices quoted in a Broker Note. The Ld.CIT-DR also submitted that the

comparative analysis of the internal uncontrolled transaction of purchase of

Soyabean and Sunflower oil from third parties vis-à-vis the import from

associated enterprises asserted by the assessee is also not reliable as the

similarity in the products procured is not clear.

12. We have carefully considered the rival submissions. Section 92(1) of

the Act provides that any income arising from international transactions, as

defined in section 92B of the Act, shall be computed having regard to its arm's

length price. Furthermore, section 92C(1) of the Act provides that arm's length

price in relation to international transactions shall be determined by any of the

methods prescribed therein, being the most appropriate method. It is further

prescribed that the most appropriate method is required to be established

having regard to the nature of transaction or class of transaction or class of

associated persons or functions performed by such persons or such other

relevant factors as the CBDT may prescribe. Once having adopted and

chosen the most appropriate method referred to in sub-section(1) of section

92C of the Act, then, the same is to be applied for determining the arm's

length price of the international transactions. The methods prescribed in sub-

section (1) of section 92C of the Act, are:-

12 ITA No.1460/PN/2010

Cargill Foods India Ltd.

(a) Comparable Uncontrolled Price method (CUP);

(b) Resale Price Method (RPM);

(c) Cost Plus Method (CPM);

(d) Profit Building Method (PBM);

(e) Transactional Net Margin Method (TNMM); and

(f) Such other method as may be prescribed by the Board.

13. Rule 10B of the Rules enumerates the mechanism, in terms of which

the arm's length price in relation to international transactions is to be

determined by applying the most appropriate method out of the methods

prescribed in section 92C(1) of the Act. Sub-rule (1) of Rule 10B contain

clauses (a) to (e) which provides the operational mechanics of the various

methods enumerated in sub-section (1) of section 92C of the Act. Sub-rule (2)

of Rule 10B prescribes that the comparability of international transactions with

uncontrolled transactions shall be judged with reference to the factors

prescribed therein. Similarly, sub-rule (3) prescribes that uncontrolled

transactions shall be comparable to international transactions if none of the

differences if any, between the transaction being compared or between the

enterprises entering into such transactions, are likely to materially affect the

price or the cost charged or if reasonably accurate adjustments can be made

to eliminate the material effect of such differences. To complete, we may also

refer to sub-rule (4) of Rule 10B which seeks to provide that in analyzing the

comparability of uncontrolled transactions with international transactions, the

data relating to the financial year in which the international transaction has

been entered into, shall be used. Rule 10C of the Rules prescribes that the

most appropriate method to be adopted for the purposes of determining the

arm's length price of the international transactions shall be the method which

is best suited to the facts and circumstances of each particular transaction and

which provides the most reliable measure of an arm's length price in relation to 13 ITA No.1460/PN/2010 Cargill Foods India Ltd.

the international transactions. Sub-rule (2) of Rule 10C of the Rules lays down

certain factors in selecting the most appropriate method as specified in sub-

rule (1) thereof.

14. The aforesaid discussion shows that the entire objective of carrying out

comparability analysis of an international transaction with uncontrolled

transactions is to determine the arm's length price of such international

transaction because in terms of section 92(1) of the Act, income arising from

international transactions is to be computed having regard to the arm's length

price. The most appropriate method to be adopted for the purpose of

comparability analysis is the one that is best suited to the facts and

circumstances of each particular transaction and which provides the most

reliable measure of the arm's length price in relation to the tested international

transaction. Though section 92C(1) of the Act prescribes five different

methods, but the selected method should provide the most reliable measure of

an arm's length price in relation to the international transactions.

15. In the present case, the international transactions in question relate to

transaction of import of oils by the assessee from its associated enterprises.

Notably, assessee procures oil from associated enterprises as well as from

third parties, which is further refined / processed to make it ready for sale to

ultimate customers predominantly in the Indian market. The relative

usefulness of the various methods prescribed in section 92C(1) of the Act can

be a matter of elaborate discussion. So however, for the present, it would

suffice to observe that in a case where a comparable uncontrolled transaction

is possible to identify and locate, it would be the most reliable measure of an

arm's length price in relation to the tested international transaction.

Consequently, in such a situation, the CUP method would be a preferable

method. We are saying so for the reason that in the present case, plea of the 14 ITA No.1460/PN/2010 Cargill Foods India Ltd.

assessee has been that the tested transaction of import of oil from associated

enterprises has also been undertaken with third parties. In other words,

assessee has purchased Soyabean and sunflower oils from its associated

enterprises as well as from third parties. Apart therefrom, it is also a peculiar

fact in the present case that the product being transacted is a commodity

which is recognized for trading in Commodities Exchanges. For instance, the

Chicago Board of Trade (CBOT), which is an internationally recognized and

accepted commodity exchange based in Chicago in USA facilitates trading in

commodities, inter-alia, vegetable oils also. Therefore, the quotations

appearing on such exchanges would reflect the prices at which the

commodities are being traded in the market place. The price publication of Oil

World, which was also pressed into service by the assessee, would be

reflective of the prices prevailing in the market at a particular point of time.

Undoubtedly, the rate quotations of CBOT and Oil World can be said to be a

data published by independent organizations, which reflect the prevailing

market rates. These prices have been adopted by the assessee as

comparable uncontrolled transaction prices and the tested transactions have

been benchmarked vis-à-vis such prices.

16. The stand of the TPO in rejecting the aforesaid data as being mere

quotations and not actual transactions, in our view, is not justified. The

approach of the TPO in our view, is based on a myopic understanding of the

phraseology of Rule 10B(1)(a)(i) of the Rules, which reads as under:-

"(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 transactions and the comparable uncontrolled transactions or between the enterprises entering into such 15 ITA No.1460/PN/2010 Cargill Foods India Ltd.

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 transactions; ..........."

17. As per the TPO, in the CUP method "the price charged or paid" for an

uncontrolled transaction is to be identified. The emphasis of the TPO is that a

broker quote, though based on the prices prevailing in the market, is not a

price charged or paid because it does not reflect an actual transaction. In this

context, it would be appropriate to refer to Rule 10D of the Rules which

enumerates the information and documents which have to be kept and

maintained by an assessee entering into an international transaction in

support of the Transfer Pricing study carried out. In particular, we may refer to

sub-rule (3) of Rule 10D of the Rules, the relevant portion of which reads as

under:-

"(3) The information specified in sub-rule (1) shall be supported by authentic documents, which may include the following:

(a) official publications, reports, studies and data bases from the Government of the country of residence of the associated enterprise, or of any other country;

(b) reports of market research studies carried out and technical publications brought out by institutions of national or international repute;

(c) price publications including stock exchange and commodity market quotations;

(d) published accounts and financial statements relating to the business affairs of the associated enterprises;

(e) agreements and contracts entered into with associated enterprises or with unrelated enterprises in respect of transactions similar to the international transactions;

(f) letters and other correspondence documenting any terms negotiated between the assessee and the associated enterprise;

(g) documents normally issued in connection with various transactions under the accounting practices followed.

18. Ostensibly, the rules pertaining to the transfer pricing assessment refer

to information, being price publications including stock exchange and 16 ITA No.1460/PN/2010 Cargill Foods India Ltd.

commodity market quotations. It is a common knowledge that for the products

which are listed on the stock and commodity exchanges, the transactions of

buying and selling are carried out by parties based on the prices

prevailing/quoted on the respective stock or commodity exchanges.

Therefore, such published data available from stock or commodity exchanges

is available to set prices in the uncontrolled and controlled transactions both.

At this stage, we may also refer to the judgment of Hon'ble High Court of

Gujarat in Tax Appeal No.240 of 2014 in the case of CIT Vs. Adani Wilmar

Limited, dated 07.04.2014 which was relied upon by the assessee before us.

In the case before the Hon'ble High Court of Gujarat, the TPO adopted CUP

method to benchmark an international transaction. The assessee presented

two sets of prices claiming them to be comparable to his transactions with the

associated enterprises. One set of prices relied upon by the assessee was

supplied by the Malaysian Palm Oil Board and the second set of prices was

the quotations published by Oil World, an independent organization. The TPO

took into account the rates mentioned by Malaysian Palm Oil Board and dis-

regarded the rates published by Oil World. According to the TPO, the

Malaysia Palm Oil Board was a statutory body of Malaysia whereas the

quotations published by Oil World did not have any statutory authority. The

aforesaid objection of the TPO was negated by the CIT(A) as well as the

Tribunal, and such stand of the TPO also did not find favour with the Hon'ble

High Court of Gujarat. Following discussion in the order of the Hon'ble High

Court of Gujarat is relevant in this regard:-

"7. In terms of clause (c) of sub-section (3) of Rule 10D of the Rules, these price publications as long as the same were authentic and reliable, would be relevant materials. In this background, mere base of the organisation would be of no consequence. Further, though the price quotations of the MPOB would be entitled to its due and full weightage and respect, would not necessarily mean that the other quotations would lose their significance, unless, of course, it is pointed out that such quotations lack basis. In this context, we may recall that the only objections with the TPO to take into consideration the rate quotations of the Oil World were, that were not based in Malaysia and that it was an 17 ITA No.1460/PN/2010 Cargill Foods India Ltd.

independent organisation, which had nothing to do with the old price prevailing in Malaysia. When the CIT (Appeals) as well as the Tribunal have accepted the reliability and authenticity of the organisation and its publication of rate-list, such objection of the TPO must be overruled. Learned advocate Mr.Bhatt for the Revenue, however, strenuously attempted to persuade us that the Oil World is a forecasting agency and further that such rates were not based on actual transactions. Quite apart from the observations of the CIT (Appeals) and Tribunal being to the contrary, these were not the objections of the TPO. We would, therefore, focus on the grounds on which the TPO "desired to reject such price quotations."

19. It is evident that the Hon'ble High Court of Gujarat held that the price

publications are also relevant material for the purposes of carrying out the

comparability analysis in the course of application of CUP method; so

however, such price publications ought to be authentic and reliable. It is also

noteworthy that the Hon'ble High Court of Gujarat was considering an

objection of the Transfer Pricing Officer, which is similar to that being raised

before us, which is to the effect that the price publication of Oil World only

reflect quotations and not actual transactions. The said argument did not find

favour with the Hon'ble High Court of Gujarat and it noted that the reliability

and authenticity of the material stood established. Infact, the decision of the

Pune Bench of the Tribunal in the case of ACIT Vs. MSS India (P) Ltd. (supra)

relied upon by the Ld.CIT-DR does not help the Revenue on this aspect, and

in any case the said decision is not an authority for the proposition that price

contained in the Broker Note, based on a commodity exchange, is not a valid

CUP data. Based on the aforesaid judgment of the Hon'ble High Court of

Gujarat, in our view, the rejection by the TPO of the price publication of Oil

World and the prices quoted by MMSPL, which are based on the rates quoted

on CBOT, Chicago, is not justified.

20. In so far as the price quotes of MMSPL are concerned, assessee

pointed out before the lower authorities that it is a brokerage firm dealing

primarily in edible vegetable oils. It was pointed out that MMSPL has a team 18 ITA No.1460/PN/2010 Cargill Foods India Ltd.

of expert professional brokers with experience of more than 50 years in the oil

industry and its clients include Fortune 500 companies, banks as well as local

and internationally listed companies. It was also asserted that the prices

provided by MMSPL are used as benchmark to determine commodity prices

by major suppliers in the industry. One of the fundamental points raised by

the assessee was that the price Notes issued by MMSPL were based on the

prices prevalent in the commodity exchanges, including, Chicago Board of

Trade (CBOT), which is an internationally recognized and accepted

commodity exchange based in Chicago, USA. At the time of hearing, the

learned representative for assessee had also referred to a confirmation letter

issued by MMSPL, a copy of which is placed at 358 of the Paper Book. On

the basis of this confirmation letter, which is stated to be on the records of the

lower authorities, it is contended that MMSPL has confirmed that the prices

quoted were derived / based on CBOT and Bursa Malaysia Derivative

Exchange (BMD). All the aforesaid assertions of the assessee have not been

controverted by the TPO or the DRP in any manner. Therefore, there is no

material to doubt the authenticity and reliability of the data sought to be relied

upon by the assessee in order to benchmark its transaction of import of oils

from associated enterprises. Apart therefrom, in the course of the transfer

pricing proceedings, assessee, inter-alia, referred to and produced the price

publications of Oil World and sample quotations from Sunvin group to justify its

claim that the prices mentioned in the price notes of MMSPL are reliable and

was a valid CUP data. Sunvin group is a commodity broker and assessee

obtained sample quotes from it during the course of proceedings before the

TPO. Another set of evidence produced was the price publications from Oil

World, which is an independent agency providing reliable information on

market prices. Pertinently, the same publication was a subject matter of

challenge before the Hon'ble High Court of Gujarat in the case of Adani 19 ITA No.1460/PN/2010 Cargill Foods India Ltd.

Wilmar Limited (supra). The reliability and authenticity of the price publication

of Oil World was upheld and found to be a relevant material while testing the

international transactions of the assessee in the course of application of CUP

method. In the face of the aforesaid, we are unable to acquiesce ourselves to

the objections of the TPO in rejecting the external CUP data sought to be used

by the assessee in order to benchmark its transaction of import of oils from its

associated enterprises. We hold so.

21. At this point, we may also notice another uncontroverted aspect of the

dispute before us. The learned representative had asserted that similar

comparative analysis of external CUP as well as internal CUP relating to

assessee's transaction of import of oils from its associated enterprises has

been accepted by the TPO in the next assessment year i.e. 2007-08. Though,

we are conscious that the principles of res judicata are not applicable to the

Income Tax proceedings so however, if qualitatively same situation permeates

through more than one assessment year, then the rule of consistency cannot

be ignored. In other words, uniformity in treatment and consistency over a

period of time is required if the facts and circumstances are similar. On this

aspect also, we are unable to acquiesce to the objection raised by the TPO in

order to negate the adoption of CUP method by the assessee to benchmark its

international transactions of import of oils from its associated enterprises.

22. Before parting, we may also observe that the comparative analysis

carried out by the assessee of internal uncontrolled transactions with third

parties vis-à-vis the transaction of import of oil from associated enterprises

also shows that per unit price paid for purchase of oil from third parties is

higher as compared to the per unit price paid for purchase of oils from

associated enterprises. This aspect of the matter, in our view, is

uncontroverted as is clear from the discussion in the order of the Transfer 20 ITA No.1460/PN/2010 Cargill Foods India Ltd.

Pricing Officer. There is no cogent and credible material brought out by the

Revenue to differentiate the material procured from associated enterprises

and the third parties. Therefore, on this basis also, we find no reason for the

income tax authorities to have rejected the plea of the assessee that the

stated values of the purchase of Soyabean and sunflower oils from the

associated enterprises are at their arm's length price. Thus, we hereby direct

the Assessing Officer to accept the stated value of the international

transactions of import of oils from associated enterprises to be at an arm's

length price. Thus, the addition of Rs.29,70,31,153/- is directed to be deleted.

23. Although, assessee has also raised other grounds, the same are

rendered academic in view of our aforesaid discussion.

24. In the result, the appeal of the assessee is allowed, as above.

Order pronounced on 10 th April, 2015.

Sd/- Sd/- (SUSHMA CHOWLA) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER

Pune, Dated: 10 th April, 2015. GCVSR

Copy of the order is forwarded to: - 1) The Assessee; 2) The Department; 3) The CIT/DIT (International Taxation), Pune 4) The DR "A" Bench, I.T.A.T., Pune; 5) Guard File.

By Order //True Copy//

Assistant Registrar I.T.A.T., Pune