TMI Blog2011 (8) TMI 329X X X X Extracts X X X X X X X X Extracts X X X X ..... - Dated:- 12-8-2011 - J. SUDHAKAR REDDY, V. DURGA RAO, JJ. Jitendra Yadav for the Appellant. Kanchan Kaushal and Raju Waharia for the Respondent. ORDER J. Sudhakar Reddy, Accountant Member. The appeal preferred by revenue in ITA No. 1960/Mum./2007, for assessment year 2003-04, is directed against the impugned order dated 22-12-2006. The appeal in ITA No. 1425/Mum./2009, for assessment year 2004-05 is directed against order dated 26-9-2008, passed by the Commissioner (Appeals)-V, Mumbai. Since the issues arising in these appeals are common, for the sake of convenience, these were heard together and are being disposed off by way of this consolidated order for the sake of convenience. 2. Brief facts of the case, as brought out in Para-1 of the order passed by the Commissioner (Appeals) for assessment year 2003-04, is extracted below for ready reference:- 1. Background. Schlafhorst Marketing Company Ltd. (merged with Saurer India Pvt. Ltd. with effect from 1-1-2004) ('SMCL' or 'the appellant') was incorporated in 1993, for providing sales and support services, for highly sophisticated textile machinery manufactured by W. Schlafhorst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment made with respect to the technical services segment. 4. The assessee adopted transactional net margin method and compared the margin derived by it from international transactions with the margin derived by from the transaction entered into with third parties. The Transfer Pricing Officer (for short TPO ), rejected the same on the ground that the services rendered to associate enterprises and services rendered to third parties are not identical and rejected the transfer pricing study and analysis undertaken by the assessee. He took the third party comparable cases identified by the assessee and evaluated the same to determine the comparability. For assessment year 2003-04, the TPO, in his order dated 14-3-2006, issued under section 92CA(3) of the Act, vide Para-4, held that only the case of L T Sergeant Lundy Ltd. appears to be closely comparable to the assessee as the income to these parties is on account of engineering services fees. He took the operating profit of this concern, which is 52 per cent and suggested a total adjustment of ₹ 40,00,000. The TPO, in this year, rejected M/s. Vimta Labs, as not a comparable case on the ground that this company is engaged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opting L T as an external benchmark comparable in contrast with other companies. For the assessment year 2004-05, the Commissioner (Appeals) noted the contradiction in the external comparables adopted by the Assessing Officer as compared to the decisions of TPO in the earlier year. He agreed with the findings of his predecessor and rejected the ground of raised by the assessee. Aggrieved, the Revenue is in appeal before the Tribunal raising sole common ground in both the years under assessment:- On the facts and in the circumstances of the case and as per law, the learned CIT(A) erred in ignoring observation made by the TPO that the internal transactional net method is not comparable as the services rendered by the assessee to the A.E. and third parties are different in nature and there is a large variation in the margin earned from the services rendered to the A.E. (34.43 per cent and the third parties (5.53 per cent) and has further erred in observing that the Internal Transactional Net Margin Method adopted by the assessee is justified. 8. Learned Departmental Representative, Mr. Jitendra Yadav, submits that (a) there is a difference in nature of service inasmuch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances; (vi) that the assessee deputes the very same personnel for performance of services either through the A.E. or directly to the third party; and (vii) the percentage of internal margins earned by the assessee, for services provided through A.E. and for services provided directly to the third parties are not on facts denied by the Assessing Officer. Learned Counsel relied on Pages-9 and 10 of the order passed by the Commissioner (Appeals). 10. Learned Departmental Representative, in reply, submits that the assessee should not be allowed to take advantage of a wrong finding given by the Assessing Officer in any particular assessment year. He submits that the Tribunal is the final fact finding authority and it has to determine as to what is correct, instead of being swayed away by the fact that different TPOs have taken different views. He prayed that the correct position should be upheld. 11. Both the parties relied on different case laws. 12. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and on perusal of the papers on record, as well as the case laws cited before us, we hold as follows:- 13. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is more suitable when there is no high degree of comparability between the transactions. 16. Looking at the issue from another angle, we find that the TPO failed to bring out appropriate external comparables for bench-marking the transactions. It appears that the basis of selection of a comparable depended upon the quantum of adjustment that it would permit rather than other factors. As per the Assessing Officer, it seems the stand is the higher the margin the greater the comparability. This approach has to be necessarily quashed. What has been accepted as a comparable functionally, in year one and is also to be an acceptable comparable, in the second year. L T cannot be accepted as a comparable in the first year as it has an operating margin of 52 per cent and rejected as a comparable in the second year, as it has a negative margin of (-)11.97 per cent. Similar is the case with M/s. Vimta Labs. If the average of two years' margin in case of L T as well as in the case of M/s. Vimta Labs, are taken, then the margin disclosed by the assessee in related party transactions would be at Arm's Length. 17. In view of the forgoing discussions, we uphold the findings of the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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