Sabic India is a subsidiary of the Sabic group and provided marketing services to other companies in the group. For purposes of pricing the controlled transactions, the TNMM had been chosen with a cost based PLI as well as a Berry ratio.
Following an audit for FY 2015 and 2016, the tax authorities (the TPO) rejected the method and issued an assessment based on an “other method”.
A complaint was filed Sabic India and the assessment was later overturned by the Income Tax Appellate Tribunal.
An appeal was then filed by the tax authorities with the High Court.
Judgment
The High Court upheld the judgment of the Tribunal and found in favour of Sabic India.
Excerpts
“Undeniably, Rule 10AB of the Rules does permit determination of the ALP by simulating the price that would have been charged in similar uncontrolled transactions under similar circumstances having regard to all relevant facts. However, the recourse to this method would be available only if none of the other methods are considered as the most appropriate method. However, as noted above, the TPO had provided no reasons for rejecting TNMM, which had been used in earlier years. The TPO had also not discussed the applicability of any other methods.”
“The assessee had selected a set of four comparable transactions and used the TNMM with OP/VAE (Operating Profit / Value Added Expenses) as well as Berry ratio (gross profit / value added expenses) as PLI’s. The computation of the assessee’s PLI is significantly higher than the mean PLI of the comparable entities. In addition, the assessee had also furnished benchmarking studies of other entities engaged in trading by deleting the value of stocks and working capital to corroborate that the international transactions were at ALP.
In view of the above, no substantial question of law arises in the present appeal.
The appeal is, accordingly, dismissed. The pending application is also disposed of.”