TMI Blog2012 (8) TMI 256X X X X Extracts X X X X X X X X Extracts X X X X ..... ion prepared under Rule 10D read with section 92D of the Act - matter remitted to the file of the Ld. Commissioner of Income Tax - assessee's cross objection stand allowed for statistical purposes. - IT Appeal No. 5215 (Delhi) of 2010 - - - Dated:- 10-2-2012 - R.P. TOLANI, SHAMIM YAHYA, JJ. N.K. Chand for the Appellant. Vijay Iyer and Manoneet Dalal for the Respondent. ORDER Shamim Yahya, Accountant Member This appeal by the Revenue and Cross Objection by the assessee emanate out of order of the Ld. Commissioner of Income Tax (Appeals) dated 29.9.2010 and pertain to assessment year 2004-05. 2. The issues raised in the Revenue's appeal read as under:- (1) The order of the Ld. Commissioner of Income Tax (Appeals) is erroneous and contrary to facts and law. (2) On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) has erred in deleting the addition of Rs. 50,27,784/- made by Assessing Officer u/s. 92CA of the Act on account of TPO adjustment. (2.1) That the Ld. Commissioner of Income Tax (Appeals) has ignored the fact recorded by the TPO and also fact that the calculation has been correctly don ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs under explanation 1 and explanation 7 to section 271(1)(c) of the Act against the Respondent, is bad in law. ( ix ) That the above cross objections are mutually exclusive and without prejudice to each other. ( x ) That the Respondent craves leave to add, alter, amend and / or modify any of the cross objections either before or during the course of the appellate proceedings." 4. M/s Marconi Telecommunication India Pvt. Ltd., the assessee is primarily engaged in the business of supply of telecommunications equipment and providing of telecommunication solutions to customers in India. Financial Year 2003-04 i.e. the year under the consideration, was the second year of operations of the assessee. 4.1 During the course of assessment proceedings, the Assessing Officer noticed the following international transactions entered into by the assessee during the FY 2003-04 as reported in Form 3CEB enclosed with the return of income. The brief analysis of the international transactions undertaken by the assessee company with its associated enterprises (AEs) during the FY 2003-04 and transfer pricing methodology adopted was as follows: S .No. Name of transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an adjustment of Rs. 50,27,784/- to the international transaction. 5. Upon assessee's appeal Ld. Commissioner of Income Tax (Appeals) noted the assessee's grievance and made out the following as issues for consideration:- "( i ) Whether the reference made by the Assessing Officer to the TPO mechanically is bad in law making the TPO's order void-ab-initio. ( ii ) Whether the mechanical acceptance of TPO's recommendation by the Assessing Officer makes the assessment order bad in law. ( iii ) Whether operating profit by sales is the correct PLI, as determined by the TPO. ( iv ) Whether due consideration should be given for heavy start up costs incurred by the assessee as against comparables and adjustments to account for the same. ( v ) Use of multiple year data vs. single year. ( vi ) Whether the assessee is entitled to benefit of +-5% range mentioned in Proviso 92C(2) of the Act, while computing the Arm's Length Price." 6. Ld. Commissioner of Income Tax (Appeals) decided the issues (i), (ii), (iii) (v) in favour of the Revenue. 6.1 As regards issue that due consideration should be given for heavy start up costs incurred by the assessee as against comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n submitted above and keeping in view the fact that it is the only the second year of operations of the assessee, 30 per cent of travelling and conveyance, legal and professional charges and communication expenses are being treated as extra ordinary expenses and accordingly I hold that it should be excluded while computed the operating margin of the assessee." 6.2 Ld. Commissioner of Income Tax (Appeals) computed the arm's length price of the international transactions as under:- "Determination of Arm's length price of the international transaction. Based on the above, the computation of the adjustment is given below:- Particulars Amount (in Rs.) Total sales (A) 13,56,34,497 Operating profit at arm's length (B) - 1,14,88,241 Operating profit of appellant (C) - 1,65,16,025 Transfer pricing adjustment (as proposed by the TPO) 50,27,784 Expenditure incurred on : Communication 23,59,540 Travelling and conveyance 1,10,31,167 Lega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 B(3) as also by judicial decisions. A perusal of the rule 10 B (3) as also upheld by judicial decisions (Para 8.5 of CIT (A) a personal of Rule 10(B) (3) would show that it opens with the phrase, an uncontrolled transaction shall be comparable . Further there are two clauses (i) (ii). The clause (i) deals with what are to be considered as comparables. The clause (ii) uses the phrase 'reasonable accurate adjustments' .. A, plain combined reading would suggest that uncontrolled transactions (or comparable selected) should be such that there exist no material difference. In other words if there are material difference existing between the comparables and tested party than it would be good if comparable are rejected. Further, if there are differences, then only 'reasonably accurate adjustments can be made to eliminate difference. It is submitted that the rule talks of comparable and dose not intend to give room for adjustments to the assessee or Tested Party. It is also submitted that at conceptual level the tested party is the one which has least complex functions and about which reliable data is available. It is not disputed that Assessee Company has chosen itself as tested p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le companies are Indian Companies working in India. On the other hand the assessee is subsidiary of multinational group and is normal course of business was required to make higher expenditure in these heads of travelling/communication etc. This, therefore, was supposed to be factored into the workings of the assessee operating in India. Further this cost is likely to be off-set by savings in other costs or better revenue through presence of big name (intangibles). Therefore, it is submitted that order of Ld. CIT(A) suffers from aforesaid infirmities and deserves to be set aside. The order of TPO deserves to be upheld." 10. Ld. counsel of the assessee on the other hand supported the order of the Ld. Commissioner of Income Tax (Appeals) on this issue. 11. We have carefully considered the submissions and perused the records. We find cogency in the submissions of the Ld. Departmental Representative. Ld. Commissioner of Income Tax (Appeals) has asked the assessee to file the details of expenditure incurred on account travelling and conveyance and professional and communication. In this regard, Ld. Commissioner of Income Tax (Appeals) thus failed to follow rules of natural justi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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