TPO can’t ignore certificates issued by third-party vendors of AE confirming price charged from assessee: ITAT

Case Details: Kimberly-Clark Lever (P.) Ltd. v. ACIT - [2022] 142 taxmann.com 329 (Pune-Trib.)

Judiciary and Counsel Details

• • Inturi Rama Rao, Accountant Member & Partha Sarathi Chaudhury, Judicial Member
  • Percy Pardiwalla for the Appellant.
  • J.P. Chandraker for the Respondent.

Facts of the Case

Assessee-company was engaged in the business of manufacturing infant care and feminine hygiene care products. The AE of the assessee had entered into an agreement with third-party vendors for the supply of raw materials for all group entities including the assessee at an agreed price.

It was claimed that the transaction of import of raw materials from its third parties was at arm’s length price by demonstrating that the rate charged by the assessee was lower than the market price by providing the certificate from third-party vendors.

However, TPO rejected the TP study submitted by assessee on the ground that certificates issued by third-party vendors could not be considered as evidence as said third-party vendors were to be treated as deemed AE of the assessee. Accordingly, TPO made a transfer pricing adjustment. The matter reached before the Pune Tribunal.

ITAT Held

The Tribunal held that by virtue of the provisions of section 92B(2), the third-party vendors do not become AEs or deemed AEs of the assessee under section 92A. Neither the assessee nor any of the group entities participate in the capital or management of the third-party vendors from whom raw material had been purchased during the year under consideration.

Further, the certificates issued by third-party vendors confirmed that a discount of 10 percent to 20 percent had been given to assessee on raw materials supplied during year. Further, it was also confirmed that the average price charged to the assessee by third-party vendors was lower than the average price at which raw material is available in the open market.

Accordingly, TPO could not ignore these certificates by holding that same were issued by deemed AE of assessee. Thus, matter required remission to Assessing Officer/TPO to examine benchmarking analysis furnished by assessee.

List of Cases Reviewed

• • Kimberly Clark Lever (P.) Ltd. v. ACIT [2021] 126 taxmann.com 238 (Pune – Trib)
  • Kimberly Clark (P.) Ltd. v. Dy. CIT [2022] 140 taxmann.com 262 (Pune -Trib) (para 13) followed.

List of Cases Referred to

• • Maruti Suzuki India Ltd. v. CIT [2015] 64 taxmann.com 150/[2016] 237 Taxman 256/381 ITR 117 (Delhi) (para 9)
  • CIT v. B.C. Srinivasa Setty [1981] 5 Taxman 1/128 ITR 294 (SC) (para 9), PNB Finance Ltd. v. CIT [2008] 175 Taxman 242/307 ITR 75 (SC) (para 9)
  • Sony Ericsson Mobile Communication India (P.) Ltd. v. CIT [2015] 55 taxmann.com 240/231 Taxman 113/374 ITR 118 (Delhi) (para 10)
  • Valvoline Cummins (P.) Ltd. v. Dy. CIT [2017] 84 taxmann.com 191 (Delhi) (para 11)
  • Kimberly Clark Lever (P.) Ltd. v. ACIT [2021] 126 taxmann.com 238 (Pune – Trib) (para 11)
  • Kimberly Clark (P.) Ltd. v. Dy. CIT [2022] 140 taxmann.com 262 (Pune -Trib) (para 11)
  • Kirloskar Toyota Textile Machinery (P.) Ltd. v. Dy. CIT [IT Appeal No. 485 (Bang.) of 2015] (para 23)
  • Addl. CIT v. 3M India Ltd. [2011] 11 taxmann.com 329/46 SOT 44 (URO) (Bang.) (para 23)
  • CIT v. Hindustan Unilever Ltd., [2016] 72 taxmann.com 325/[2017] 394 ITR 73 (Bom.) (para 24)
  • CIT v. Ratilal Becharlal & Sons, [2016] 65 taxmann.com 155/237 Taxman 71 (Bom.) (para 24).