TMI Blog2012 (6) TMI 572X X X X Extracts X X X X X X X X Extracts X X X X ..... activities separately - if the activity of product development would be compared with the software development services offered by the assessee which are both functionally different grave injustice would be done - TPO cannot adopt or pick and choose different methodology or different filters for analyzing the transfer pricing adjustment for the same or similar type of activities - remand the issue to the file of the AO/TPO to reconsider the ALP adjustment in the light of these observations. If any information is sought to be used against the assessee, the same has to be furnished to the assessee and thereafter, taking into consideration the assessee's objections, if any, only then can the TPO proceed to take a decision. If the assessee seeks an opportunity to cross examine the party, the assessee shall be provided such an opportunity. standard deduction of plus or minus 5% to be given to the assessee, while making the transfer pricing adjustment - in favour of assessee for statistical purpose. - IT APPEAL NO. 1252 (BANG.) OF 2010 - - - Dated:- 30-3-2012 - SMT. P. MADHAVI DEVI, JASON P BOAZ, JJ. Vijayaraghavan for the Appellant. Etwa Munda for the Respondent. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailable data bases and arrived at certain other comparables. He also obtained the information from certain other comparables u/s 133(6) of the IT Act. The TPO rejected some of the comparable companies considered by the assessee and adopted some other companies whose data was collected u/s 136(6) of the IT Act. The assessee was given an opportunity to submit its objections, if any, on the comparables selected by the TPO. The assessee submitted its objections to the selection of a few companies, while it remained silent on certain other companies. After taking the said objections into consideration, and after providing an adjustment towards working capital of 2.05% and 1.99% for software services and ITES respectively, the TPO determined the arm's length adjustment at 18.63% and 22.01% on operating cost of software services and ITES respectively and furnished the report to the AO. The assessing authority forwarded the transfer pricing report and the draft assessment order to the assessee calling for its objections, if any. The assessee filed its objections before the DRP. The DRP however, confirmed the order of the assessing authority and aggrieved by the adjustments made by the AO i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s whose statements u/s 133(6) of the IT Act have been used against the assessee by the TPO. As regards this direction, the learned DR expressed difficulty in implementation of this direction stating that by calling the Directors of the companies whose statements were called for u/s 133(6) of the IT Act, the transfer pricing adjustment would never be completed as the risk of non-compliance was more. He submitted that the Directors of the companies who are in no way concerned with the ALP adjustment of the assessee's transaction cannot be asked to be present and be subjected to cross examination in each and every case as it would consume lot of time and their absence from the business would adversely affect their business activities. He thus, submitted that if the assessee's objections relating to the information obtained by the TPO were clarified by calling for further information u/s 133(6) of the IT Act, the purpose would be served. He further submitted that some of the comparables taken by the TPO were never objected to by the assessee before the TPO but is objecting to before the Tribunal for the first time which is not acceptable. 6.1 Having heard both the parties and havin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re development while the same filter was used for adopting the comparables for IT enabled services. The TPO has not given any reasons for such deviation. In view of the same, we deem it fit and proper to remand the issue to the file of the AO/TPO to reconsider the ALP adjustment in the light of these observations. However, we would like to make it clear that the assessee also cannot be permitted to take different stand regarding some of the comparables before the revenue authorities and before us. It is seen from the record that the TPO has accepted certain comparables taken by the assessee in its TP study and has also considered certain other comparables to which the assessee did not file any objection, but the assessee is objecting to adopting those companies as comparables now before us. The assessee cannot be permitted to change its stand as per its convenience. Thus, the AO is directed to restrict the reconsideration of the TP adjustments only to those comparables which have not been accepted by the assessee and has raised the objections before the TPO. Further, as regards the other issues raised by the assessee on the transfer pricing adjustment, we find that all of these g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conducted enquiries from certain companies by exercising powers conferred on him u/s 133(6) of the Act and these notices and the replies have been provided to the assessee. He submitted that the TPO has issued notices to 154 companies, but why these companies were selected is not clear. He submitted that the information had been provided to the assessee in the form of CD but it is not clear as to whether all the responses have been incorporated in the CD given to the assessee. He submitted that the entire process lacks transparency and fairness because six companies which have been finally taken by the TPO do not find place in the initial list of companies generated by the learned TPO. He submitted that the TPO selected Megasoft Ltd., as comparable and as seen from the details provided to the assessee alongwith the initial show cause notice, he rejected companies which fail in RPT and employee cost filters but M/s Megasoft Ltd., which fails RPT filter and employee cost filter was also considered and the TPO has issued a notice u/s 133(6) of the IT Act to M/s Megasoft Ltd., which clearly shows the arbitrary approach of the TPO. He submitted that the assessee has raised this issue b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther point advanced by the learned counsel for the assessee is that the information obtained by the TPO by issuing notices u/s 133(6) is not available in public domain at the time of study by the assessee. He submitted that Rule-10D prescribes the documents to be kept and maintained u/s 92D and sub-rule (4) thereof deals with the process and the method to be adopted in making the comparability analysis. He submitted that as per this sub-rule, the information and documents should as far as possible be contemporaneous and should exist latest by the specified date referred to in clause (iv) of sec. 92F. According to him, the dictionary meaning of contemporaneous is 'existing or occurring at the same time, of the same historical or geographical period'. 10.2 As per Rule 10D, the information and documents prescribed there in must be kept and maintained by the assessee latest by the prescribed date i.e. for AY: 2006-07 by 31st October, 2006 and accordingly the assessee has kept and maintained the information and documents. The TPO is collecting, collating and compiling data two/three years after the date of the assessee's documentation, ignoring the fact that in choosing the most appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under an obligation to verify the information and documents kept and maintained by the assessee and wherever he feels that some more information is necessary for making the TP adjustment, he may also make his own search and use the relevant years data available in the public domain. Thus, in view of this power of TPO, the TPO has made the search of the databases and has issued notices to the relevant parties u/s 133(6) of the Act to gather information which is not available in the public domain. After considering replies to the said notices, the TPO has rejected many companies and has selected only the relevant comparables and all the information which is sought to be used by the TPO for making the TP adjustments has been supplied to the assessee and the assessee was given ample opportunity of making its objections. He submitted that the TPO after considering the assessee's objections only has made the TP adjustments and therefore, there is no violation of principles of natural justice nor there is any lack of transparency or fairness. Thus, according to him, the TPO has been reasonable in following the procedure laid down by the Act and there is no infirmity in the order of the TP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 139. Explanation-2 to sec.139 defines 'due date' in a case of a company to be '30th day of September of the assessment year'. The assessee before us is a company and therefore, as on '30th day of September' of the relevant assessment year, the assessee is supposed to maintain information and documents. After going through the above provisions of law, it is clear that the Act has not provided for any cut off date upto which only the information available in public domain has to be taken into consideration by the TPO, while making the TP adjustments and arriving at arm's length price. The assessee as well as the revenue are both bound by the Act and the Rules there under and therefore, as provided under the Act and Rules they are supposed to be taking into consideration, the contemporaneous data relevant to the previous year in which the transaction has taken place. The assessee had strenuously argued that the provision of sec.92D and Rule-10D is defeated if, the TPO takes the data which is available in the public domain after the specified date and the ALP would be fluid and there would be no certainty for the same. We are unable to agree with the arguments of the learned counsel fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ections and also with regard to certain other companies, it had sought opportunity to cross examine them, but the said opportunity was not given. 13. We have already held that if any information is sought to be used against the assessee, the same has to be furnished to the assessee and thereafter, taking into consideration the assessee's objections, if any, only then can the TPO proceed to take a decision. If the assessee seeks an opportunity to cross examine the party, the assessee shall be provided such an opportunity. It is only during a cross examination that the assessee can rebut the stand of that particular company. The assessee has also brought out various defects in the additional comparables selected by the TPO and has brought out the glaring differences between the functions of those comparables as compared to assessee and also as to how the entire revenue of the assessee has been taken into consideration inspite of there being income from unrelated party transactions also. All these objections have been given in detail in the written submissions. We find that the TPO has not considered these objections, while determining the ALP. Further, the learned counsel for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easoning given by us for the above software development service segment, we direct the TPO to consider the assessee's objections and compute the ALP, after giving the assessee an opportunity of hearing after observing our directions given above." 7.1 Further, as regards the direction of the Tribunal to the TPO to give an opportunity to the assessee to cross examine the parties whose statements are to be used against the assessee, if the assessee so desires, we wish to clarify the said direction to the effect that the TPO shall call for the clarification from the parties (whose statements were called for u/s 133(6) of the IT Act and were used against the assessee) on the objections raised by the assessee on such statements and the opportunity of cross examining shall be the last resort, only if the appropriate clarification is not given by these parties. Thus, the grounds relating to transfer pricing adjustments are remitted back to the file of the AO/TPO for reconsideration in the light of our observations in the above paragraphs. 8. As regards the standard deduction of plus or minus 5% to be given to the assessee, while making the transfer pricing adjustment, we find that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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