Pramod Kumar, Accountant Member - This is an appeal filed by the taxpayer against the assessment order dated 15th November 2012 passed by the Assessing Officer under section 143(3) r.w.s. 144 C of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), for the assessment year 2008-09.
2. The core issue that we are required to adjudicate in this appeal is whether or not the Assessing Officer was justified in making an arm's length price (ALP) adjustment of Rs. 26,07,70,513 under section 92C of the Act. To decide this core issue, we also have to deal with the question as to which method, on the facts and in the circumstances of this case, is the most appropriate method of determining the ALP, and certain applied aspects relating to ALP determination mechanism under such a method. For the records, however, we deem it appropriate to reproduce the grievances raised by the appellant, as set out in the memorandum of appeal, as follows:
"1. |
The learned Assistant Commissioner of Income Tax Circle-16(1), New Delhi ("the Assessing Officer" or the "AO") / Hon'ble Dispute Resolution Panel ("DRP") have erred in confirming the order passed u/s 92CA(3) of the Income-tax Act, 1961 ("Act") making an addition of Rs.26,07,70,513 to the total income of the appellant on account of adjustment in the arm's length price determined by the learned Transfer Pricing Officer ("TPO") and the arm's length price determined by the Appellant for the international transaction entered into by the appellant with its associated enterprises. |
2. |
The DRP has erred in concurring with findings of the AO/TPO and disregarding the economic analysis undertaken by the appellant for establishing the arm's length price of the international transactions without appropriate justification and mechanically relying on the order under section 92CA(3) of the Act passed by the TPO. |
3. |
The TPO/AO/DRP have erred in law and on facts of the case in rejecting Comparable Uncontrolled Price (CUP) Method as the Most Appropriate method (MOM) and subsequently applying Transactional Net Margin Method (TNMM) as the MOM over the CUP Method as adopted by the appellant for the purpose of benchmarking its international transactions with its associated enterprises. |
4. |
(a) The TPO/AO have further erred in law on facts of the case in applying, and DRP has erred in confirming, an export turnover filter of 25% while applying TNMM as the MOM, as against 50% proposed by the Assessee, without providing any cogent reasons for the same. |
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(b) Further the TPO/AO/DRP has erred in rejecting the one company ('RT Exports Ltd.') identified by the TPO in the show cause notice, without providing cogent reasons. |
5. |
The DRP has erred in law on the facts of the case in excluding entire 'Other Income' amounting to Rs.85,030,000 while computing the operating margin of the Assessee without appreciating that a significant portion of the 'Other Income' is intrinsically linked to the business operation of the Assessee and hence should be considered as part of the operating income. |
6. |
The TPO/AO/DRP have erred in law and on facts of the case in not allowing appropriate adjustments for difference in working capital employed by the Appellant vis-à-vis the comparable companies. |
7. |
The TPO/AO/DRP have erred in law and on facts of the case in not allowing appropriate adjustments for granting the adjustment for difference in the capacity utilization and excess depreciation of the Assessee vis-à-vis the comparable companies. |
8. |
The TPO/AO/DRP have erred in not computing the adjustment proportionate to the value of international transactions. |
9. |
The DRP/TPO/AO have erred in not providing the benefit of the arm's length range as provided under proviso to Section 92C for purpose of computing the arm's length price under Section 92F of the Act. |
10. |
That on facts and in laws, the AO erred in holding that the Appellant has furnished inaccurate particulars of income in respect of each item of disallowance/additions and in initiating penalty proceedings under section 274 read with section 271 of the Act." |
3. The relevant material facts are as follows. The assessee before us is an exporter of brown basmati rice and milled basmati rice to its associated enterprises. The assessee procures paddy, stores, processes/ mills, packs and exports various kinds of rice. During the relevant previous year, the assessee's exports of basmati rice and non-basmati rice to the AEs was Rs. 367,50,02,759 and Rs. 7,48,79,475 respectively. It is not in dispute that the orders placed by the AEs were priced on the basis of market trends, and that, during the relevant previous year, there were no fixed price contracts. In the course of the assessment proceedings, the determination of arm's length price of these transactions with the AEs was referred to the Transfer Pricing Officer. The TPO noted, as set out in his order dated 25th October 2011, that the transfer pricing approach adopted by the assessee was as follows:
'The assessee exports different varieties of rice, viz traditional basmati rice, evolved basmati rice, raw milled basmati rice, sella milled basmati rice, raw brown basmati rice, sona maoori rice and permal rice to countries in European Union, United States and Middle Eastern countries. The assessee has accepted CUP as the most appropriate method. The comparison has been done between the prices charged by the assessee and rates prevailing in the international market as reported in "Daily Export Port Data- April 2007 to March 2008" compiled by TIPS Software Services Pvt Ltd, Mumbai. On the basis of comparison, it has been established that both the prices are similar and, therefore, the transactions are at an arm's length.'
4. As for the nature of comparables relied upon in the transfer pricing study, it was stated by the assessee that "for industry data, we looked for the information from publicly available data on the similar transactions entered into by the unrelated parties in India ", that " (w)e obtained and relied on the 'Daily Export Port Data - April 2007-March 2008' (hereinafter referred to as 'database') compiled by Tips Software Services Pvt Ltd Mumbai with respect to export of Basmati Rice from India to EU, ME, and North America/ US and export of other varieties of rice, viz. Sona Masoori and Permal Rice to North America/ US, ME" and that "the database provides quantum, price, date, quantity and the type of rice exported by parties in India to parties in EU, ME and North America". The exports were categorised on the basis of different products and different markets and in the light of manner and format in which data was available. While applying the CUP method, transactions with regard to the organic rice were eliminated as pricing of organic rice commands a premium vis-à-vis non organic rice. The transactions in units other than MTs and quantities less than 10 MTs were also eliminated. The average price was adopted on quarterly basis since monthly average could result in distortions due to fewer comparables and extraneous factors.
5. This approach, however, did not find favour with the Transfer Pricing Officer. He observed that the working of arm's length price, which was done by adopting the quarterly average prices and adjusting the same for tolerance band of ± 5%, is based on certain filters, and that "while applying CUP, it is essential that the comparability between controlled and uncontrolled transactions should not be only judged from the point of view of product comparability, but should also take into consideration the effect on price of other broader business functions". It was also noted that "where differences exist between controlled and uncontrolled transactions or between the enterprises undertaking these transactions, it may be difficult to determine reasonable accurate adjustments to eliminate the effect on price". The Transfer Pricing Officer was further of the view that the assessee has relied upon the data furnished by Tips Software Services Pvt Ltd but the said company "is a private company and the quotes (given by Tips Software) are not covered within the provisions of Rule 10D(3)". The TPO was further of the view that "the criteria adopted for arriving at the CUP price by the assessee, in its TP report, shows that the filters have been applied to arrive at CUP", that "as per the provision in the income tax statute and several decisions of higher appellate bodies, it is inferred that under CUP method, stringent comparability is required" and that "transactions cannot be compared if there are geographical differences, differences in quality of products". The TPO also noted that there are various adjustments made to the CUP data on account of factors like adopting quarterly analysis, eliminating transactions with extraordinary high prices etc. It was in this backdrop that the TPO required the assessee to show cause as to why the CUP data not being reliable, the TPO should not reject the CUP as most appropriate method on the facts of this case. The TPO then proceeded to refer to TNMM for being applied to this case and the comparable date for that purpose.
6. It was contended by the assessee that the CUP, being a direct and traditional method, is preferable over an indirect method like the TNMM. Reliance was placed, in support of this proposition, on judicial precedents in the cases of Asstt. CIT v. MSS India (P.) Ltd. [2009] 32 SOT 132 (Pune), Serdia Pharmaceuticals (India) (P.) Ltd. v. Asstt. CIT [2011] 44 SOT 391/9 taxmann.com 13 (Mum.), Clear Plus India (P.) Ltd. v. Dy. CIT [2011] 10 taxmann.com 249 (Delhi), and Coastal Energy (P.) Ltd.. v. Asstt. CIT [2011] 46 SOT 286/12 taxmann.com 355 (Chennai) (URO).
7. The TPO was, however, of the view that in terms of the OECD Guidelines, an uncontrolled transaction is comparable to a controlled transaction, for the purpose of CUP method and where products are not exactly the same, only if either none of the differences between the transactions being compared or between the enterprise undertaking those transactions could materially affect the price, or, if where differences do affect the price, reasonably accurate adjustments could be made to eliminate the effect of such differences. He also referred to rule 10C(2)(e) of the Income Tax Rules, 1962, in selecting the most appropriate method, the extent to which reliable and accurate adjustments can be made for differences is an important factor in selecting the most appropriate method. While the TPO did note that "the product data compiled in the TIPS database is taken from custom data relating to rice, but also specifies the variety and brand of basmati/ non-basmati-rice" , the TPO was of the view that 'brand' of rice was an important factor which cannot be quantified for adjustment. He observed that. "the adjustments carried out by the assessee to the price of the uncontrolled transaction cannot quantify the price which 'Tilda' brand would command in the markets in EU countries, USA, Middle East compared to any other brand in TIPS data". The TPO was of the view that , " the characteristics of the property being such that even economic adjustment, like the value of the brand, cannot bring on parity the controlled and uncontrolled transaction, then such uncontrolled transactions would not be comparable by application of CUP method". While rejecting the application of CUP method on the facts of this case, the TPO concluded as follows:
"As the characteristics of these goods vary specially because of the brand name associated with each of various varieties of rice, in such a situation, economic adjustments cannot bring on parity between the controlled and uncontrolled transactions, such uncontrolled transaction applied by the assessee is not comparable by using the CUP method, and, hence, rejected."
8. The TPO then proceeded to determine the arm's length price on the basis of the Transactional Net Margin Method (TNMM) on the entity level, but, for the reasons we will set out in a short while, it is not really relevant to take note of the facts so far as this aspect of the matter is concerned. Suffice to note that based on TPO's ALP determination under the TNMM and on the basis of comparables of some entities engaged in similar activity, an adjustment of Rs. 26,07,70,513 was finally made by the Assessing Officer. The assessee did take up, inter alia, grievance against rejection of CUP method before the Dispute Resolution Panel, but without any success. The DRP rejected this grievance, and, while doing so, observed as follows:
"We have considered the contentions of the assessee. As mentioned above, the data relied by the assessee has been obtained from database maintained by a private company. The assessee has not been able to rebut the argument of the TPO that Rule 10D(3) does not allow the use of private databases. Further, in a commodity like Basmati rice, it is very difficult to find the exact comparables which can meet the stringent standards required for application of CUP method. The price of rice varies depending on the area where it is grown, the variety, the aroma and size of the rice grains. The same variety grown in Dehradun would fetch a different price as compared to that grown in Punjab or Haryana. The price also fluctuates from time to time almost on weekly basis. Therefore, this Panel is in agreement with the opinion of the AO that CUP is not the most appropriate method to be used in this kind of business. Accordingly, these grounds of objections are rejected."
9. The assessee is aggrieved, inter alia, of rejection of the CUP method on the facts of this case, and is in appeal before us.
10. 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.
11. We have noted that the information inputs given by the Tips Software, on the facts of this case, are inputs with regard to the information publicly available with the customs department at the different ports. These inputs are not the independent 'quotes', as referred to by the TPO, but only compilation of the data available in public domain. In our considered view, the Transfer Pricing Officer was clearly in error in rejecting these inputs on the ground that such information is not covered by Rule 10D(3) for the simple reason that Rule 10D(3) is only illustrative in nature and it merely describes the information, required to be maintained by the assessee under section 92D, "shall be supported by authentic documents, which may include the following (i.e. documents specified therein)". The logic employed by the Transfer Pricing Officer is that since databases compiled by private entities is not included in rule 10 D(3), such databases cannot be relied upon by the assessee. This logic is clearly fallacious inasmuch as an item not being included in illustrative list of required documents does not take outside the ambit of 'acceptable document' for the required purposes. In any event, all that Tips Software does is to collect the data, compile the same in easy to refer format and make it available to the end-user of such data online (www.tipsexim.com) or on electronic media, but this data, nonetheless, is public data maintained by the customs department at various ports. It was also open to the Transfer Pricing Officer to, if he had any doubts, call for further information from this database supplier and examine authenticity of the data so furnished. Yet, instead of doing so, he summarily rejected the data as unreliable on a technical ground which, as we have seen above, is not tenable in law.
12. We have also seen that the information so furnished by the database used by the assessee is fairly comprehensive information, including description and prices as per invoices presented to customs - a fact noted by the TPO himself, which can be cross-checked and verified, in case of doubts. The TPO has, at page 11 of the transfer pricing order, himself stated that "the product data compiled in the TIPS database is taken from customs data relating to rice, but also specifies the variety and brand of basmati/ non basmati-rice". In these circumstances, the vague doubts expressed by the TPO on the relevance of this database are clearly unfounded. His action is incorrect in law as indeed inappropriate to the facts of this case. Therefore, in our considered view, the Transfer Pricing Officer was clearly in error in rejecting the information inputs received from the Tips Software and the database made available by the said entity. The DRP laid so much of emphasis on the observation that the assessee has "not been able to rebut the argument of the TPO that Rule 10D(3) does not allow the use of private databases" but did not note of the glaringly illustrative, rather than exhaustive, character of the documents listed in the said rule. As a quasi-judicial authority, and while pursing the goal of justice, one cannot remain at the mercy of the wisdom of representatives of the parties appearing before such an authority; it is bounden duty of every quasi-judicial authority to appreciate the scope of the legal provisions and apply them in letter and in spirit. We uphold the grievance of the assessee to the extent the authorities below have indeed erred in summarily rejecting assessee's reliance on the database, with respect to information publicly available with customs department at various ports, compiled by a private entity.
13. As regards learned DRP's additional observation that, "Further, in a commodity like Basmati rice, it is very difficult to find the exact comparables which can meet the stringent standards required for application of CUP method", we are unable to see any merits in this approach either. Undoubtedly, product comparability should be closely examined in applying the CUP Method as a price may be materially influenced by differences between the goods in the controlled and uncontrolled transactions, but product comparability does not require the comparables to be exactly the same. The product categorization has been done on the basis of reasonable generic description, and the product being generic in nature, such categorization in reasonable and sufficient. Generic goods, even under different brand names, do not cease to be comparable with each other- unless the impact of brand or other intangibles is so substantial that it distorts the comparison altogether. In any event, even if there are minor variations in prices of generic goods, such factors are adequately taken care of by average in the case of large size of comparables, as is the situation before us. As noted in the UN Transfer Pricing Manual for Developing Countries, with which we are in considered agreement, "the CUP Method is appropriate especially in cases where an independent enterprise buys or sells products that are identical or very similar to those sold in the controlled transaction ….". It would, therefore, indeed seem that for the purpose of applying CUP method would be, a reasonable classification, which could justifiably define the prices, would suffice. We have also noted that the assessee has done categorization of basmati rice, as evident from pages 352 and 253 of the transfer pricing study filed before us, in three broad geographical categories and seven sub-categories, and of non-basmati rice in four broad geographical categories and six sub-categories. Let us also not forget that the classification is done on the basis of geographical markets and normally the products sold in a geographical market, due to sheer competitive forces, are broadly similar. It is also useful to refer to certain observations made in UN Transfer Pricing Manual, with which we are in considered agreement, to the effect that "External comparables may be difficult to find in practice unless the transactions involve a fairly common and homogeneous product or service. However, the advantages of the CUP Method are great enough to warrant a significant effort to apply the method as not to be influenced by minor variations in the fine points about product quality". Viewed thus, even if there be some minor variations in the quality even under the elaborate categorization of rice varieties, such variations, which do-not materially affect the prices of uncontrolled transactions due to large size of comparables and the same geographical consumption market being covered by the comparables, can be ignored.
14. As for rejection of CUP method on the ground that prices of uncontrolled transactions often fluctuate on weekly and even daily basis. The TPO himself has noted in his order, the assessee did not have any contractual arrangement and these were market driven prices on which the exports to AEs took place. It is also important to bear in mind the fact that the assessee has taken average of a quarter so as to ensure that day-to-day variations in prices do not distort the comparability. Neither there is any specific objection to this averaging, nor has the TPO suggested any better alternative to this approach. In our humble understanding, this method does provide for a reasonable, even if not perfect, solution to the distortion which may creep in case comparison of prices is done on day-to-day basis, and due to limited comparables being available for the same. Transfer Pricing is not a perfect science but we still have to choose a less imperfect alternative from the various alternatives available.
15. Coming to the inherent edge that direct methods have over indirect methods of determining the arm's length principle, which justifies selection of CUP method as the most appropriate method, we may refer to the following observations made by a coordinate bench in the case of Serdia Pharmaceuticals (P.) Ltd. (supra):
'60. The thrust of learned counsel's arguments is that since transfer pricing legislation does not provide for any order of preference in selection of the most appropriate method, no such order of preference—direct or implied, can be exercised by us either.
61. This issue is no longer res integra. In the case of Asstt. CIT v. MSS India (P.) Ltd. (2009) 32 SOT 132 (Pune), a Co-ordinate Bench of this Tribunal, speaking through one of us (i.e. the AM), had, inter alia, observed that "While there is no particular order or priority of methods which the assessee must follow, and no method can invariably be considered to be more reliable than others, on a conceptual note, transactional profit methods (i.e., TNMM and profit split method) are treated as methods of last resort which are pressed into service only when the standard methods, which are also termed as 'traditional methods' (i.e., CUP method, resale price method and cost plus method) cannot be reasonably applied". It was noted by the Coordinate Bench that the OECD Guidelines also recognize this approach, and the Bench expressed its considered agreement with this approach. We are in considered agreement with the views so expressed by the Co-ordinate Bench. In our considered view, the traditional transaction methods have an inherent edge over the traditional profit methods in most of the situations, and, therefore, wherever both the methods can be applied in an equally reliable manner, traditional transaction methods are to be preferred over traditional profit methods.
62. We are alive to the fact that in the 2010 version of OECD Guidelines, OECD has done away with hierarchical approach in selecting the method for determination of ALP. The OECD has abandoned its earlier position that transactional profit methods may be used "to approximate arm's length conditions when traditional transactional methods cannot be reliably applied alone, or exceptionally cannot be applied at all". In sharp contrast to the said observation, 2010 OECD Guidelines, in para 2.4, recognize that "there are situations when transactional profit methods are found to be more suitable (vis-a-vis traditional transactional methods)" such as, in a situation, "where each of the party makes a unique contribution in relation to controlled transaction, or where the parties engage in highly integrated activities". This change in OECD approach is quite in line with Indian transfer pricing legislation which requires selection of most appropriate method rather than the method being picked up in the order of priority. To this extent, the approach of OECD and Indian transfer pricing legislation is now quite in harmony with each other.
63. It will, however, be stretching the things too far to suggest that in the 2010 version of OECD Guidelines, all the methods of determining the ALP have been placed at par with each other. The change in the OECD Guidelines, as we see it, is in respect of the order in which suitability of the methods is to be considered and in recognition of the fact that there can be situations in which transactional profit methods can have an edge over traditional transactional methods. However, wherever transactional profit methods as also traditional transactional methods can be applied in equally reliable manner, the OECD Guidelines still consider the traditional transactional methods to be preferable, as is evident from following observations in para 2.3 of the OECD Guidelines 2010 :
"2.3 Traditional transaction methods are regarded as the most direct means of establishing whether conditions in the commercial and financial relations between AEs are at arm's length. This is because any difference in the price of a controlled transaction from the price of a comparable uncontrolled transaction can normally be traced directly to the commercial and financial relations made or imposed between the AEs, and the arm's length conditions can be established by directly substituting the price in comparable uncontrolled transaction for the price of the controlled transaction. As a result, where, taking into account the criteria established in para 2.2, a traditional transaction method and a tradition profit method can be applied in a equally reliable manner, the traditional transaction method is to be preferred over traditional profit method. Moreover, where, taking into account the criteria established in para 2.2, the CUP method and another transfer pricing method can be applied in an equally reliable manner, the CUP method is to be preferred… "
64. In other words, therefore, even as there may not be any order of preference in which methods of determining the ALP must be considered, the traditional transaction methods, and particularly CUP, have an edge in the sense that all things being equal, CUP and traditional transaction methods are preferred over the transaction profit method. We are broadly in agreement with these views. Whether we proceed on the basis that there is an order of preference in which transfer pricing methods are to be applied, or whether we proceed without any such priority order, the fact remains that as long as CUP method can be reasonably applied in determining the ALP of an international transaction in a particular fact situation, and unless another method is proven to be more reliable a method vis-a-vis the fact situation of that particular case, the CUP method is to be preferred. The reason is simple. When AEs enter into a transaction at such conditions in commercial and financial terms, which are different from commercial and financial terms imposed in comparable transaction between independent enterprises, the differences in these two sets of conditions in financial and commercial terms are attributed to inter-relationship between the AEs, and it is this impact of inter-relationship between the AEs that is sought to be neutralized by the transfer pricing regulations. As long as CUP method can be reliably applied on the facts of a case, it does offer most direct method of neutralizing the impact of interrelationship between AEs on the price at which the transactions have been entered into by such AEs.'
16. In view of the above discussions, and bearing in mind entirety of the case, we are of the considered view that the ALP determination under CUP Method on the basis of 'Daily Export Port Data - April 2007- March 2008', by adopting quarterly averages, was wrongly rejected by the TPO and the DRP.
17. However, having held that the CUP method is indeed the most appropriate method on the facts of this case, and that the compilation of daily exports port data does constitute a reasonable source of inputs, we have to point out some apparent errors, which came to the light during the course of hearing before us, in the application of this method.
18. The first thing we have noticed is that the assessee has determined arm's length price of its transactions with the AEs by comparing average export price by the assessee to its AEs with the average uncontrolled export price. This approach is patently incorrect inasmuch as while under rule 10B (1)(a)(i), it is indeed open to compute ALP on the basis of price charged in a comparable controlled transaction or 'a number of such transactions', but the arm's length price so computed is, under rule 10B(1)(a)(iii), taken as arm's length price in respect of property transferred in the international transaction. The expression 'the international transaction' referred to in rule 10B(1)(a)(iii) is used in singular and does not permit taking into account, unlike rule 10B(1)(a)(i), 'a number of such transactions'. While averaging is thus permissible for the uncontrolled transactions, each international transaction is to be taken on standalone basis. In our humble understanding, it is not open to the assessee to compare the average price in his transactions with AEs with average price in uncontrolled transactions. Dealing with a somewhat similar issue, though in the context of cost plus method of ascertaining the arm's length price, a coordinate bench of this Tribunal, in the case of Asstt. CIT v. Tara Ultimo (P.) Ltd. [2011] 47 SOT 401/13 taxmann.com 184 (Mum.), has explained this principle as follows:
"………..The way this rule works, the benchmark gross profit is to be applied on each transaction with the AEs, while, for computing the benchmark, one could take into account a series of same or similar transactions. In other words, while setting the benchmark, one can take into account several transactions with unrelated enterprise on what can be termed as 'global basis', essentially in respect of same or similar property or services though, the benchmark so arrived at cannot be applied on the global basis i.e. the average of gross profit earned from same or similar transactions with AEs. The application of CPM has to be on transaction basis rather than on global basis, and this fundamental scheme of CPM is also evident from the plain wordings of r. 10B as well. Any other view of the matter will result in incongruities. For example, if our average mark up to unrelated enterprises is 20 per cent, and we charge a mark up of 2 per cent in one transaction with AE and 38 per cent in another transaction with the AE, both these transactions, by applying the mark up on global basis, will meet the test of ALP whereas in the first case, the mark up charged is certainly not a mark-up resulting in an ALP. In this particular case, for example, the normal mark up in transactions with has been computed at 16.31 per cent, and the average of mark up on sales to AEs having been taken at 17.08 per cent, entire sales to AEs has been taken at ALP, but, the mark up in the many cases is clearly less than benchmark. To give one example, at p. 221 of the paper-book, margin of 14.15 per cent (4 invoices), 13.95 per cent, 13.81 per cent, 14 per cent (4 invoices), 14.14 per cent (2 invoices), and 14.16 per cent is given by assessee's own computation, and, on the same page, on one invoice, the assessee has shown a margin as high as 27 per cent. The CPM, therefore, has not been correctly applied. In any case, one of the most important input, i.e. diamond, has been imported at a price for which no ALP documentation is available and the price of imports have been taken into account in computation of costs as well. The costs of inputs have not been verified either. No efforts are made to show that the terms of sale to the AEs and all other relevant factors are materially similar vis-a-vis the transactions with independent enterprises. The CPM is applied by comparing gross profit on sales, whereas the method requires comparison of mark up on costs on transactions with AEs vis-a-vis mark up on costs on transactions with non-AEs. In view of these discussions, the CIT(A) was in error in upholding assessee's computation of ALP by CPM."
19. The second thing that we has been noticed is that the assessee has excluded exceptionally high prices. In our considered view, the CUP method does not allow exclusion of high priced sale instances, unless such high prices could be explained by differences of product or commercial terms. In any event, exclusion of extreme cases, such as in quartile ranges, is normally not permissible under the scheme of determination of ALP under the CUP method. However, we do not wish to give any findings, as assessee has not been given effective opportunity of hearing on this issue, in this respect beyond stating that we are remitting the matter to the file of the Assessing Officer for fresh determination of arm's length price under the CUP method, and while so determining the ALP, the observations made above, as also in preceding paragraphs, shall be duly considered. During the course of our hearing, this proposition was put to the learned representatives, and learned representatives fairly agreed to accept these directions. In effect, thus, the CUP method is upheld in principle but the determination of ALP, under the CUP method, is restored to the file of the Assessing Officer in the light of our observations above.
20. As we have approved the application of CUP method in principle, on the facts of this case, we see no need to deal with the issues relating application of TNMM method and the comparables selected for the said purpose. All those issues are academic in the present context.
21. In the result, the appeal is allowed for statistical purposes in the terms indicated above.