Solex Chemicals Private Limited Vs DCIT (ITAT Kolkata)
When AE Is Only a Pass-Through, CUP Beats TNMM: No TP Adjustment Where Credit Notes Eliminate the Entire Mark-up
The Kolkata Bench of the ITAT has deleted a transfer-pricing adjustment of ₹79,79,861 on purchases of raw materials routed through an Associated Enterprise. The Tribunal found that the AE was merely a pass-through entity, the actual supplier was an unrelated Chinese company, the products and quantities on both sides were identical, and the entire provisional mark-up appearing in the AE’s invoices was neutralised through credit notes. Therefore, the assessee’s international transaction was effectively carried out at the same price charged by the independent supplier, making the Comparable Uncontrolled Price method more appropriate than the TNMM adopted by the TPO.
Solex Chemicals Pvt. Ltd. was an MSME and a wholly owned subsidiary of Endura S.P.A., Italy. It manufactured active ingredients used in household insecticides for preventing vector-borne diseases such as malaria & chikungunya. Since its incorporation in 2008, its turnover had generally remained below ₹25 crore, except during the relevant assessment year.
The assessee required two specialised raw materials—Prallethrolone and Chrysanthemic Acid Chloride D+Trans. These materials were supplied by a Chinese manufacturer which enjoyed an exclusive position in relation to the products. Since the assessee placed relatively small orders, the Chinese supplier was reluctant to directly supply the materials or extend the credit terms available to the Italian parent company.
