Assessee Company was engaged in the business of manufacturing TMT bars for which it purchased mild steel (MS) ingots from its AE. During the course of transfer pricing assessment, the Transfer Pricing Officer noted that the AE was charging higher price from the assessee than prices charged by it from non-related parties. The Assessee submitted before the Transfer Pricing Officer that material purchased by it from the AE was of a higher quality as compared to sales made by AE to non-related parties. This argument of the Assessee was accepted by the AO for certain months. However, the AO disputed the purchases made only for the month of January 2014 and thereby made a downward adjustment. On appeal before the CIT(A), the CIT(A) accepted the submissions of the Assessee and thereby deleted the adjustment.

The Hon’ble Tribunal upheld the order of the CIT(A) on the following grounds viz. (i) the CIT(A) has categorically observed that there is qualitative difference between the MS ingots sold by the AE to the assessee as compared to those sold by AE to third parties; (ii) Assessee was able to produce substantial evidence to prove the difference in prices is due to the quality of products sold; (iii) no rationale in making adjustment only for the month of January 2014 when the contention of the Assessee was accepted for the rest of the months. (AY.2014-15)