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2014 (5) TMI 107 - AT - Income TaxRejection of contemporaneous data and undertaking fresh comparable – Held that:-The relevant data was not available at the time of preparing TP documentation, the Tribunal uniformly is holding that comparable data available at the time of analysis by the TPO should also be used provided information available with either in the public domain or specifically obtained by the TPO was made available to Assessee for its objections, if any – the TPO has given enough opportunity to Assessee, there was no merit in the contentions raised - There is no necessity for re-preparing the TP documentation, which has already been furnished to the TPO at the time of filing return as exercise of verifying arm's length price is with the TPO and in the proceedings before the TPO enough opportunity was given to Assessee – Decided against Assessee. Segment wise data – Held that:- The Assessee has a valid ground - assessee's computation of profits on different units, two units being eligible units i.e. GIS and Engineering Division and one non-eligible unit of IT Division are available separately and the AO has neither raised any objection on the profit computation nor made any adjustments to the working given by Assessee – each activity has different factors in respect of source, identification of vendors, merchandise, designs quality control, handling, etc.- The FAR analysis in each of the activity will have distinct and separate considerations - the TPO as well as DRP have ignored the fundamental fact and have erred in not considering this aspect of the economic substance of the transactions – Decided in favour of Assessee. Determination of ALP at entity level – Restriction to transaction with AEs – Held that:- Assessee has suffered losses in software services where the AE transactions are less - Assessee also had very meagre AE transactions in Engineering Services and there are separate profits which were already arrived at and accepted by AO in the order itself - When profit margins of different units are available separately, it could not be understood as to why TPO and DRP should adopt total profit at 10.74%, which included non-AE transactions on which according to Assessee, profit margin was less - Relying upon Dy. CIT v Starlite [2010 (4) TMI 704 - ITAT, MUMBAI] - since segmented profits are available and profits are separately computed under the provisions of section 10A, it is not difficult to arrive at the correct profit margin on cost, on the basis of information available on record and making the addition accordingly – thus, the AO is directed to re-work out the addition – Decided in favour of Assessee. Selection of Comparables of various companies – Held that:- The foundation for comparability analysis is the need for a comparison between conditions made or imposed between AE and those which will be made between independent enterprises - As per the provisions, FAR analysis is must - As per Rule 10B if there are any differences between comparables, relevant transactions should be taken and differences to be adjusted to arrive at the ALP for the reason that after taking number of companies as comparables, the TPO should allow adjustments towards differences in depreciation, differences in risk perceptibility, of working capital adjustments, etc depending on the facts of the case - But selecting a company, which is not comparable at all or which affects comparison due to unusual features cannot be taken as a comparable company – thus, the AO is directed to exclude the companies as comparables as taken by the AO – Decided in favour of Assessee. Improper calculation of working capital adjustment by the TPO – Held that:- Assessee contended that trade practice of advances and subsequent adjustment of these advances against invoices raised, being captive service provider has a bearing on profit margin, therefore, working capital requirement should be taken care of by way of adjustments - Whether similar conditions exist for other comparables require examination and adjustment towards working capital – assessee furnished detailed annexure making working capital adjustment to justify 3.30% sought by Assessee as against 1.38% given the TPO - Relying upon M/s Bearing Point Business Consulting Pvt. Ltd. vs. DCIT [2014 (4) TMI 997 - ITAT BANGALORE] - working capital adjustment require verification by the TPO, thus, the matter is remitted back to the TPO for examination – Decided in favour of Assessee. Setting off of brought forward losses and unabsorbed depreciation before giving effect to deduction u/s 10A – Held that:- The decision in CIT v. Yokogawa India Ltd. 2011 (8) TMI 845 - Karnataka High Court] followed - deduction u/s 10A of the Act has to be computed prior to setting of losses of other industrial units - The AO is directed to rework out the computation of income – Decided in favour of Assessee.
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