IN THE ITAT MUMBAI BENCH ‘C’
Pennzoil Quaker State India Ltd.
versus
Deputy Commissioner of Income-tax, Range 1(2)
IT Appeal No. 8885 (Mum.) of 2010
[Assessment year 2006-07]
August 3, 2012
ORDER
Rajendra Singh, Accountant Member
This appeal by the assessee is directed against the order of AO dated 30.9.2010 passed in pursuance of direction under section 144C issued by The Dispute Resolution Panel-II. The assessee in this appeal has raised several grounds which relate to the transfer pricing adjustment made by AO as per direction of DRP, principle of natural justice and levy of interest under section 234B. In addition, the assessee vide letter dated 29.3.2012 also filed additional ground before the Tribunal in which the TNMM method followed by AO for computing transfer pricing adjustment was challenged. Thereafter the assessee again filed a letter dated 7.5.2012 raising another additional ground regarding computation of transfer pricing adjustment by AO in relation to the total purchases instead of considering only purchases from associate enterprises.
2. At the time of hearing of the appeal before the Tribunal, the ld. AR for the assessee did not press any of the grounds raised in the memorandum of appeal. The additional ground raised vide letter dated 29.3.2012 was also not pressed. The ld. AR pressed only the ground raised in the letter dated 7.5.2012 regarding computation of adjustment with respect to total purchases and not limiting the same to the purchases from associate enterprises. We, therefore, dismiss the grounds/additional grounds raised by the assessee as not pressed except the ground relating to claim of computation of adjustment with respect to purchases from associate enterprises and not with respect to total purchases.
3. Before we proceed to deal with the ground relating to the computation of transfer pricing adjustment, it will be appropriate to give a brief background of the case. The assessee who was engaged in the business of processing, procurement and sale of lubricant oil, greases and coolants and other car products, had entered into several international transactions which included import of base oil of Rs.10,40,94,103/- and import of additives for Rs.5,40,03,872/- from associate enterprises. Since the assessee had made transactions with associate enterprises, the AO had referred the issue of computation of arms-length-price to the Transfer Pricing Officer (TPO) under section 92CA. The assessee had conducted a transfer pricing study and selected six comparables which had yielded average operating margin of 3.56% against margin of 7.54% declared by the assessee on the transactions with associate enterprises. Therefore, as per the assessee, no adjustment was required to be made. The TPO, however, conducted his own study of prowess database for identification of comparables and selected eight comparables which gave an average margin of 4.8%. Based on the order of TPO, the AO prepared a draft order for making the transfer pricing adjustment to which assessee filed before the Dispute Resolution Panel (DRP). The DRP after hearing the objections of the assessee, directed the TPO to include three more comparable for computing transfer pricing adjustment as mentioned below:-
(i) Balmer Lawrie & Co. Ltd.
(ii) Gulf Oil Corporation Ltd.
(iii) Valcoline Cummins
3.1 The AO, therefore, computed transfer pricing adjustment based on 11 variables including three suggested by DRP which gave an average profit margin of 4.22% as per details below :-
