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2016 (4) TMI 1354 - AT - Income TaxTP adjustment - addition made under the provisions of Chapter X of the act on the basis of a markup of cost plus 21. 30% - comparable selection - characterisation of the transaction - HELD THAT:- Assessee-company, engaged in the business of providing marketing and other support services to its Associated Enterprise (AE) thus companies functionally dissimilar with that of assessee need to be deselected from final list. For determining ALP the TPO should identify the identical or almost identical services/ business/products. It is rightly said that a mango cannot be compared with an apple though both grow on trees and both are fruits. Provisions of section 92 were introduced in the Act, so that under-charging or over-charging by AE in intra-group transactions can be prevented that intra-group transfers can be valued. Restructuring of legitimate business transaction would be an arbitrary exercise. However, there are two exceptions to the rule. The first being where the economic substance of the transaction differs from its form. In such cases, the tax authorities may disregard the parties’ characterisation of the transaction and re-characterise the transaction in accordance with its substance. The second exception is when the form and substance of the transaction are the same but the arrangements made in relation to the transaction, when viewed in their totality, differ from those which would have been adopted by the independent enterprise behaving in a commercially rational manner. The second exception also mandates that the actual structure should practically impede the tax authorities from determining an appropriate transfer price. We find that the TPO/DRP has not brought on record any material to prove that either of the two exceptions were present in the case under consideration. Provisions of Chapter X were never aimed to make adjustment at any cost, but to decide fairly and equitably that the price quoted by an assessee with regard to an international transactions entered into with its AEs are at ALP. The burden is on the assessee to prove that transactions with its AEs are above board and it is paying/charging the same rate that is prevalent in the open market. The comparables selected by the assessee should not be ignored lightly, unless and until it can be proved that the variables selected by it were functionally or otherwise different from the job done by it. TPO is free to make search and refer to other comparables. But, this is not an unbridled power. He has to prove that comparables selected by him were engaged in the similar or almost similar activities of the assessee. In the case under consideration, the TPO had selected comparables which had no similarity at all with the activities of the assessee. We are unable to understand is how the results of companies dealing in foreign exchange/maintaining freight station or engaged in providing end-to-end engineering services can be compared with marketing and allied services. Selection made by the TPO is comparables was neither methodical not scientific. It is found that NCP margin as per the TP study of the assessee was 10. 14%, that NCP margin, after excluding the six comparables, is 12. 05%. Thus, it is within the permissible limit of +/-5%. Considering these facts, we decide the first effective ground of appeal(GOA-1to7) in favour of the assessee. Non-compliance of the direction of the DRP by the AO - as argued by the AR that the DRP had directed the AO to allow deduction of ₹ 1. 32 lakhs under section 80 G of the act against the interest income of ₹ 10. 02 lakhs, that the AO had not allowed the said deduction - HELD THAT:- We are of the opinion that the AO is bound to give effect to the order of the DRP. If he has not passed the order till date with regard to deduction under section 80 G of the Act, he should pass the order within a fortnight after receiving our order. Charging of interest u/s. 234 of the Act, are of consequential nature. Appeal filed by the assessee stands partly allowed.
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