B. Ramakotaiah, Accountant Member - This is an assessee's appeal against the order of Addl.CIT, Range-3, Visakhapatnam passed under section 143(3) read with section 144C(5) of the I.T. Act, 1961 consequent to the directions of Disputes Resolution panel (in short "DRP"), Bangalore.

1.1. The issue in this appeal is with reference to the transfer pricing adjustment of Rs.5,45,18,174/- made by the A.O. on the calculations provided by the DRP in respect of international transactions of purchase of raw materials of Rs.17.24 crores from Associated Enterprise (AE).

2. We have heard learned Counsel Mr. PVSS Prasad and I. Kama Sastry and the learned CIT D.R. Mr. KVN Charya. We have also perused the paper books placed on record along with the relevant case law.

3. Briefly stated, the assessee company registered under the Companies Act, 1956 and is 100% owned by M/s. KTC Korea. The company is primarily engaged in the activity of manufacture of Roasted Molybdenum Concentrate Oxide and trade of high carbon ferro-chrome. Assessee filed return of income for the assessment year 2007-2008 admitting loss of Rs.1,50,18,120/-. Since assessee had international transactions with AE for purchase of raw material, the matter was referred to the Transfer Pricing Officer (in short "TPO") by the A.O. in the course of scrutiny proceedings. In the course of T P Study by assessee for examination of purchases from AE KTC Korea, the assessee relied on Comparable Uncontrolled Price (in short "CUP") Method as the most appropriate method and justified the price paid on the basis of Internal CUP i.e., third party transactions from whom KTC Korea purchased and supplied to assessee with mark-up. Details transactions undertaken by M/s. KTC Korea and also the transaction of purchase by M/s. KTC Korea were provided to the TPO for justifying the internal CUP. In addition, assessee also justified the price paid with reference to the quotations from Asian Metal Market, which is like London Metal Exchange, for this raw material ore, as External CUP. The A.O. did not agree with the method adopted by the assessee and rejected the CUP method for the following reasons :

(a) The details of transactions with reference to geographies are not known from the results of the website. The details of the contracting parties are not known i.e., the information of buyers and sellers are not available for further verification and analysis.

(b) The terms of trade are not verifiable from the information given on the website. Whether the contracts are on CIF basis or FOB basis are not known.

(c) The tax payer has taken average of high and low prices on a particular day. The average price cannot be benchmarked against the price at which taxpayer imported the Molybdenum as the CUP method has to be applied on transaction to transaction basis.

(d) The quality and content of molybdenum compared between the price of the products available in the website and the product of the tax payer are significantly different. The level of impurities in the molybdenum imported is not comparable with the molybdenum traded in Asian Metal Exchange.

4. The TPO, thereafter, selected TNMM as method and after a search process of comparable companies under the head "Ferro Alloys", selected 10 companies which he considered as comparable companies. The average operating margins of the comparables were at 11.37% on Operating Profits (in short "OP") by sales and 14.67% OP by cost. As the assessee's OP margin was of (-)19.53%, the assessee was issued a detailed show cause notice why the OP on sales of 11.37% be applied to the purchase transactions undertaken with AE. After considering the objections of the assessee, the learned TPO decided the ALP, the cost of the purchase material at 9.85 crores. Since the assessee purchased the material at value of Rs.17.24 crores, excess amount of Rs.7.39 crores was determined as an adjustment under section 92CA of the Act.

5. The assessee raised detailed objections before the DRP, Bang