Brief of the case:
The ITAT Ahmedabad in the case of Gemstone Glass Pvt. Ltd vs. JCIT held that when an associated enterprise is taken as comparable then CUP method cannot be adopted for determining Arm Length Price irrespective of the fact that the associated enterprise taken as comparable is resident or non-resident.
Facts of the case:
- The assessee was engaged in the business of manufacturing glass mosaic products and selling the same to its AEs. During the course of the proceedings before the TPO for the assessment year 2007-08, it was noted that the assessee has used transactional net margin method to determine the arm’s length price.
- It was also noted that the companies selected by the assessee as comparables, for the purposes of TNMM, were manufacturing glass bottles, kitchen glass wares, insulated glass, laminated glass etc. These products are completely different from the glass mosaic products manufactured by the assessee. Due to incomparability of products, TNMM method adopted by the assessee was rejected.
- TPO made an effort to work out ALP by internal cost plus price method, but had to drop that method for want of data on the cost analysis of the product sold to AEs and non-AEs.
- Finally, TPO adopted the CUP method (Comparable Uncontrolled Price) by taking goods sold by the assessee company to its AEs (resident group companies) as base for arriving ALP for goods sold to AEs in Europe. Accordingly, TPO recommended a transfer price addition of Rs. 5,09,77,309/-
- Aggrieved by the said proposed adjustment, assessee approached the Dispute Resolution Panel (DRP). The DRP rejected the grievances of the assessee by observing that “the TP method adopted by the assessee was not more appropriate than adopted by the TPO” and that but for the adjustment for geographical differences, “CUP is more appropriate method and cannot be faulted with”. Accordingly, the ALP adjustment of Rs 5,09,77,309 was upheld.
- Aggrieved by the order passed by AO in pursuance of directions by DRP, assessee is in appeal before ITAT Ahmedabad.
Contention of the Assessee:
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