Tianjin Tianshi Biological Development Company Ltd vs. DCIT (ITAT Delhi)

(i) The DRP held that the determination of ALP is of no relevance in deciding the issue of suppressed sale by the assessee and went on to estimate the value of suppressed sale on account of difference between the value of MRP declared to the custom authorities and MRP altered on the products sold to the Tianjin India. The legal fiction created by the Central Excise Act and the Customs Act provides a measure for levy of excise/custom duty which cannot be followed or imported to the Income Tax Act. In view of decision of Hon’ble Apex Court in the case of KTMS Mohd. 197 ITR 196 (SC) and Coca Cola Export Corporation 231 ITR 200 (SC) the meaning of MRP in Central Excise & Customs Act have been legislated with a different object to evaluate and calculate excise and custom duty which cannot be blindly imported for provisions of Income Tax Act. In ITC Ltd. vs CCE (2004) 7 SCC 591 it has been held that a legal fiction created for prescribing the measure for the purposes of levy of custom duty on the manufacturer and the deemed value of sales taking MRP as a benchmark cannot substitute the real value of the sales for the purpose of computing the taxable income under the provisions of the Act. The MRP may be the maximum price at which the retailer or a shop keeper ultimately sell the product to the consumers but the DR has not disputed the point that the assessee’s branch office in India and assessee’s 100% subsidiary company i.e. Tianjin India is not retailer or shop keeper who sell the product to the ultimate customer but they are second and third stage entity in the chain of multi level marketing of the Tianjin Group wherein the assessee through it branch office makes sales to its 100% owned subsidiary i.e. Tianjin India who further sells the product to the distributors/ franchisees/ shopkeepers and the price of this second and third level sales is always negotiable which cannot be equated with the MRP by any stretch of imagination.

(ii) In the case of Tianjin China i.e. headquarter or parent company, the TPO has held that no adverse inference is drawn in respect of international transaction undertaken by the assessee during the assessment year under consideration. The AO does not have any way out but to accept the value of the international transaction between the assessee and its Associated Enterprise in conformity with the value determined by the TPO for the post amendment section 92CA(iv) w.e.f. 1.6.2007. The TPO has held that the transfer pricing documentation which contains functional and economical analysis of the comparables of the assessee shows that no adverse inference may be drawn in respect of international transaction undertaken by the assessee with its branch office in India and from branch office to 100% owned subsidiary company Tianjin India. The TPO through order passed u/s 154 of the Act rectifying the DRP assessment order has held that the assessee paid Rs.31,10,33,139/- for the purchases made from its AE as against Rs. 35,29,83,970/- which is the ALP worked out in accordance with Rule 10B(1)(b) of the Act and the price paid by the assessee for purchases being lower than the ALP worked out therein, no adjustment on this account is being made. Thus, the AO/DRP is duty bound to pass an order in this regard in conformity with the value determined by the AO and the provisions of the Act do not allow this authority to take a different stand or view against the order of the TPO. The DRP has held that the determination of ALP by the TPO is of no relevance in deciding the issue of suppressed sale by the assessee. We also note that the sales shown by the assessee to Tianjin India has been accepted by the AO in the case of purchaser i.e. Tianjin India, hence, the sales made by the assessee cannot be disturbed by baseless estimation in the name of suppressed sales as wrongly alleged by the Revenue.