TMI Blog2018 (3) TMI 1986X X X X Extracts X X X X X X X X Extracts X X X X ..... examination of these documents and then rejecting it with cogent reasons that they are not reliable, authentic or inadequate. With respect to the applicability of the quotations for CUP method, Hon‟ble Gujarat High Court in case of CIT versus Adani Wilmer Ltd. [ 2014 (4) TMI 563 - GUJARAT HIGH COURT ] interpreting rule 10 D In the present case the Ld. Transfer Pricing Officer has not examined the evidences submitted by the assessee. Therefore, in the interest of Justice , we set aside the issue of determination of arm‟s length price of the international transactions of export of agricultural commodities to the associated enterprise back to the file of the Ld. Transfer Pricing Officer with a direction to examine the details furnished by the assessee in the form of various quotations of agricultural commodity brokers as well as other entities with respect to their authenticity, adequacy and reliability. If The Ld. Transfer Pricing Officer finds those evidences as authentic, reliable and adequate information for the purpose of determination of arm‟s length price then he is directed to adopt the CUP method for comparability analysis. The assessee is also directed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred in agreeing with the Learned Transfer Pricing Officer 's ( Ld. TPO 's) action of: Common Transfer Pricing Objections - All segments 2.1. not appreciating that the Appellant had prepared the detailed contemporaneous Transfer Pricing documentation bona fide and in compliance with the Act and income Tax Rules 1962 ( the Rules ); 2.2. rejecting the Appellant's claim regarding Working Capital adjustment; 2.3. disregarding the claim of the Appellant for the +/- 5% range as allowed in the proviso to section 92C(2) of the Act; 2.4. disregarding judicial pronouncements in India in undertaking the transfer pricing ( TP ) adjustment; Transfer Pricing Objections - Export Transactions 2.5. rejecting the Comparable uncontrolled price method ( CUP ), which was selected by the Appellant as the most appropriate method to benchmark its export transactions, and instead selecting Transactional Net Margin Method ( TNMM ) for benchmarking export transactions; 2.6. while applying TNMM for benchmarking export transactions, arbitrarily selecting certain quantitative criteria which are inapp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain international transactions, a reference was made to the Ld. Transfer Pricing Officer [The ld TPO] to determine the arm's length price [ ALP] under section 92CA of the act. The Ld. Transfer Pricing Officer vide his order dated 31/10/2011 made under section 92CA (3) proposed an adjustment of Rs. 274100236/ because of adjustment of export transactions and because of business support services. Consequent to that, draft assessment order was passed by the Ld. AO where the income of the assessee was determined at 3, 67, 81, 035 against the returned los of assessee of Rs. 3,66,00,879/ . 4. The assessee aggrieved with the proposed variation by the assessing officer preferred objection before the Ld. Dispute resolution panel. The Ld. DRP issued directions under section 144C (5) on 21/9/2000 varied the adjustment proposed to the international transactions of Rs. 274100236/ restricted to Rs. 5 161 8113/ . 5. Consequent to that the Ld. AO passed an assessment order under section 143 (3) section 144 C of the act on 25/10/2012 wherein total income of the assessee was determined at Rs. 16053430/ against the loss declared by the assessee of Rs. 3, 66, 00, 879/ . Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etermined at 10.38 percentage. Consequently the adjustment of Rs. 2 6, 95, 63, 89 3/ was proposed by the Ld. Transfer Pricing Office . On objections, before the Ld. dispute resolution panel, it upheld rejection of applicability of CUP method as examined by the Ld. Transfer Pricing Officer in detail and the Ld. DRP was of the opinion that for comparability under that method robust and direct comparison is required which does not exist on a transaction to transaction basis. Therefore the rejection of CUP method was upheld. The Ld. Dispute Resolution Panel further considered the objection of the assessee that TP adjustment should be applied only on the transactions with associated enterprise and not all the transactions. The Ld. Dispute Resolution Panel directed the Ld. Transfer Pricing Officer to verify whether the quantum of adjustment includes over uncontrolled transaction and if so the quantum of adjustment is to be restricted to the international transactions only. Consequent to that adjustment of Rs. 27,41, 00, 236/ was reduced to Rs. 5, 16, 18, 113/ 10. The Ld. authorized representative objected to the selection of transaction net margin method is the most appropriate me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 09. He submitted comparative detailed of third parties rates various contract for all commodities exported by the appellant to its associated enterprise. He referred to the other objection of the Ld. Transfer Pricing Officer of that quotations cannot be considered for applicability of CUP method. He submitted that law does not make a distinction between the actual prizes applied in uncontrolled transactions or prizes proposed to be applied in uncontrolled transaction. According to him the quotation represents a price which is proposed to be applied in a transaction between Unrelated enterprise and hence the same shall qualify the definition of arms length price in accordance with section 92F of the act. He referred to the provisions of rule 10 D (3) of the income tax rules and submitted that price publications including stock exchange in commodity market quotations can be relied up on . He further submitted that with the insertion of rule 10 AB hypothetical prices of transactions are also taken into account as well. For this proposition he relied on the decision of the coordinate bench in case of Toll Global Forwarding versus DCIT 51 Taxmann.com 342 (2014) (Delhi). With respect t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CUP method in case of export of agricultural commodities by the assessee to its associated transaction in absence of any reliable data. He further submitted that Ld. assessing officer/Transfer Pricing Officer /Ld. Dispute Resolution Panel has therefore no other alternative but to adopt transactional net margin method as the most appropriate method. In the result he submitted that the adjustment proposed by the Ld. Transfer Pricing Officer pursuant to directions of the Ld. dispute resolution panel may be upheld. 12. We have carefully considered the rival contentions as well as the order of the Ld. Transfer Pricing Officer and the directions of Ld. Dispute Resolution Panel. The assessee has entered into international transaction of export of agricultural commodities of Rs. 40,32,01,267/- applying the CUP method submitted that it is at arm's length. Assessee supported its method selection of CUP by quotation of agri brokers as well as some associations and boards. However the Ld. Transfer Pricing Officer rejected the CUP method holding that when the data was produced before him it was seen that CUP data was actually the quotations from 3rd parties and not the price charged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect to each of the transaction, the assessee has produced relevant information about the prevailing prices. In some of the cases, it is supported by the evidences from 2 different entities and in some of the cases it is supported by single quotation of the brokers. However, we agree with the views of the Ld. Transfer Pricing and Ld. dispute resolution panel that adequate and reliable data is a necessary ingredient of selecting any method for comparability analysis for determining arm's length price of an international transaction. However without examination of the evidences submitted by the assessee it is premature to state that information supplied by the assessee is not reliable, it lacks credibility or it is not enough for determination of arm's length price of the international transaction. We do not find any mention by the ld TPO or By LD DRP any reference of examination of these documents and then rejecting it with cogent reasons that they are not reliable, authentic or inadequate. With respect to the applicability of the quotations for CUP method, Hon'ble Gujarat High Court in case of CIT versus Adani Wilmer Ltd 363 ITR 338 (Gujarat) (2014) interpreting rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee in the form of various quotations of agricultural commodity brokers as well as other entities with respect to their authenticity, adequacy and reliability. If The Ld. Transfer Pricing Officer finds those evidences as authentic, reliable and adequate information for the purpose of determination of arm's length price then he is directed to adopt the CUP method for comparability analysis. The assessee is also directed to support the evidences before the Ld. Transfer Pricing Officer and to show their reliability, authenticity, and adequacy for supporting the international transaction of export of commodities. In view of this ground No. 2.5 2.8 of the appeal of the assessee is set aside to the file of the Ld. TPO to decide the issue afresh in accordance with above direction. Accordingly, those grounds are allowed with above direction. 14. Now we come to ground No. 2.9 2.11 of the appeal of the assessee, which is related to the transfer pricing adjustment made to the international transactions entered into by the assessee with respect to its business support services segment. The assessee has entered into international transactions for provision of services a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies seems to be comparable to the functions performed by the appellant. Ld. authorised representative also submitted that the revenue from research studies in case of the comparable company constitute only about 12% of total revenue of the company. It was further submitted that in some of the other cases this comparable company has been excluded for the above reason. He therefore submitted that this company selected by the Ld. Transfer Pricing Officer is not functionally similar to the assessee. 18. The Ld. departmental representative relied upon the order of the ld Transfer Pricing Officer and referred to page No. 33 of the order of the Ld. Transfer Pricing Officer where in it has been held that above comparable company meets all the quantitative criteria set forth by the learner Transfer Pricing Officer for the selection of the comparable and further the assessee has also not considered the verticals by carrying out its search process and therefore now it cannot contest the exclusion for the same. 19. We have carefully considered the rival contention and orders of the learner Transfer Pricing Officer where in at page No. 32/33 the above comparable company has been con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nclusion of the above company. 21. We have carefully considered the rival contentions and look at the annual accounts of the above company submitted its page No. 707 730 of the paper book. On looking an index of the paper book we found that balance sheet submitted by the assessee is for the financial year ending on 31st of March 2009 which is relevant not for the assessment year 2008 09 but for assessment year 2009 10. However looking at the functions of the above company it is apparent that this company is engaged in the valuation of various assets which is highly technical involving huge expertise, which is not comparable with the functions performed with the assessee company. In view of the striking dissimilarities in the functionality of the company we direct the Ld. Transfer Pricing Officer to exclude the above comparable company. 22. With respect to the Chokshi laboratories Ltd the assessee has submitted that it is a company which is engaged in commercial testing of various product including chemicals. It also offers consultancy services in the field of pollution-control are an allied activity. It was further stated that it does not have segmental information ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any is engaged in provision of technical consultancy services hence it is functionally not comparable. The Ld. departmental representative vehemently is supported the order of the Transfer Pricing Officer and submitted that this company is involved in environmental services technology management financial services administrative services and energy services. The nature of services are similar to that of the assessee and therefore is comparable company which is meeting all the qualitative criteria set forth by the Ld. Transfer Pricing Officer cannot be excluded. 27. We have carefully considered the rival contention as well as per used the orders of the Ld. Transfer Pricing Officer for inclusion of the above company. Before us the Ld. authorised representative could not show us that how the services provided by this comparable company are different when the functions performed by the assessee. Therefore, the argument of representative with respect to the exclusion of this comparable is rejected. 28. The next comparables contested by the authorised representative is Wapcos Ltd. The Ld. authorised representative submitted that segment of this company is engaged in high and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lopment Engineering Designs, Drawings and Tendering Process Project Management and Construction Supervision Operation and Maintenance Agriculture (including crop improvement, research stations, supply of tractors and farm equipment) Information Technology or Telecom insfrastructure (IT Parks/Centres, Microwave Links, V-SAT Terminals, optical fibre networks) Civil construction (including housing, hospitals etc.) Fisheries (including pisiculture, cold storage) Irrigation (including micro/drip irrigation, canals etc.) Power Generation (thermal, hydro) Power transmission and distribution, including rural electrification Industrial projects (sugar, cement, food processing, textile, automotive etc.) Renewable energy (including solar, wind, bio-gas) Roads and highways Water and sanitation (including desalination, water treatment and purification, storage and distribution) Services such as software development. Looking at the above business profile of this comparable company, it is apparent that its consultancy services segment is very specialized and diverse compar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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