TMI Blog2013 (8) TMI 670X X X X Extracts X X X X X X X X Extracts X X X X ..... covered by section 92C(3) of the Act, the Assessing Officer may in appropriate cases consider it necessary or expedient to refer the case of the assessee to the TPO for determining the ALP but that does not mean that powers of the Assessing Officer to refer the case to the TPO is restricted to those cases which are covered by section 92C(3) of the Act. Had the legislature contemplated to refer the case of the assessee to the TPO only in the circumstances mentioned in section 92C(3) then the legislature would have to provide such conditions in place of words "necessary" or "expedient" in sub-section (1) of section 92CA. The requirements under both the sections are quite distinct as procedure to be followed in the sections is different. In the above sub-section 92CA(1) there is no reference to section 92C(3) - The CIT(A) has emphasized on the words "the said international transaction under section 92C". These words, only refers to the transaction in respect of which reference can be made to the TPO but the same does not, lead to the conclusion that the requirement of section 92C(3) can be read into section 92CA(1) of the Act – The view of this court is relying upon the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been entered into to be used for computation of Arm’s Length Price - It is stipulated under Rule 10B(4) r.w.s Rule 10D(4) that contemporaneous information and documents should be considered as far as possible for the purpose of comparing uncontrolled transaction with the international transaction. Therefore, the comparability of an uncontrolled and unrelated transaction with the international transaction has to be tested by using current year data. Only when the current year data does not give a true picture of the affairs and results of the comparables due to existence of some abnormal circumstances, the multi year data can be considered. Use of data by the TPO after the cut off date – Held that:- There is no infirmity in the action of the TPO in using contemporaneous data at the time of transfer pricing audit, though the same may not have been available to the assessee at the time of preparation of statutory transfer pricing study / documentation Benefit of proviso to section 92C(2) of the Income Tax Act – Held that:- The benefit of proviso to section 92C(2) is available only when the price of international transaction of the assessee is within the tolerance range of ±5% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng any reasons in the assessment order as provided u/s 92CA (1) based on which he has reached a conclusion that it was 'necessary or expedient' to refer the matter to the Ld. TPO for computation of the ALP. (3) On the facts and in the circumstances of the case, the Ld. A.O. based on the directions given by the Dispute Resolution Panel (DRP) erred in rejecting the economic analysis undertaken by the appellant which was in accordance with the provisions of the Act read with the Rules for establishing the arm's length price (ALP) of the international transactions. (4) On the facts and in the circumstances of the case, the Ld. A.O. based on the directions given by the Dispute Resolution Panel (DRP) erred in making an adjustment to the ALP by enhancing the income of the appellant by ₹ 8,49,29,839/- u/s 92CA(3). (5) On the facts and in the circumstances of the case, the Ld. A.O. based on the directions given by the Dispute Resolution Panel (DRP) erred in rejecting one comparable selected by the appellant namely M/s Punjab Communication Ltd (PCL) for computing PU in determination of the ALP in the analytical study incorporated in the document in F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant the benefit of upward variation of 5 percent in determining ALP. (13) On the facts and in the circumstances of the case, the Ld. A.O. based on the directions given by the Dispute Resolution Panel (DRP) has erred in not restricting the adjustment to the income of the appellant to the quantum of its international transactions. (14) On the facts and in the circumstances of the case, the Ld. A.O. based on the directions given by the Dispute Resolution Panel (DRP) has erred in ignoring the fact that the parent company of the appellant has been consistently suffering from operational losses. (15) On the facts and in the circumstances of the case, the Ld. A.O. based on the directions given by the Dispute Resolution Panel (DRP) has erred in making an addition of ₹ 4,35,673/-on protective basis on account of AIR reconciliation ignoring the fact that the same does not belong to the appellant. 3. Ground No. 1 is general in nature and no specific finding is required as it dependents upon the findings on the other grounds. 4. Ground No. 2 is regarding the validity of reference made by the Assessing Officer to the Transfer Pricing Officer. We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 92C(3) of the Act confers powers on the Assessing Officer to determine the ALP himself where the circumstances mentioned in clauses (a) to (d) of the sub-section exist. This is apparent from a bare reading of the provision. In such cases, the Assessing Officer is not bound to refer the case of the assessee to the TPO. On the other hand, the Assessing Officer may refer the case of the assessee to the TPO if he considers it necessary or expedient to do so. The expression necessary or expedient is quite distinct from and independent of the circumstances mentioned in section 92C(3). The Assessing Officer may consider it necessary or expedient to refer the case of the assessee to the TPO even without considering existence of circumstances mentioned in section 92C of the Act. The Assessing Officer has only to be satisfied that it is necessary or expedient to make a reference to the T.P.O. No other condition is prescribed in the provision. Now under what circumstances, Assessing Officer would consider it necessary or expedient would depend upon facts of each case. No doubt, even in cases covered by section 92C(3) of the Act, the Assessing Officer may in appropriate cases cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he is satisfied by going through the steps enlisted at section 92C(1) to (3) and concluding that the price declared by the assessee is not to be accepted or can he make such a reference at an anterior stage ? The above question was answered by their Lordships at the same page by observing as under: There is nothing in section 92CA itself that requires the Assessing Officer to first form a considered opinion in the manner indicated in section 92C(3) before he can make a reference to the Transfer Pricing Officer. In our view, it is not possible to read such a requirement into section 92CA(1). However, it will suffice if the Assessing Officer forms a prima facie opinion that it is necessary and expedient to make such a reference. One possible reason for the absence of such a requirement of formation of a prior considered opinion by the Assessing Officer is that the Transfer Pricing Officer is expected to perform the same exercise as envisaged under section 92C(1) to (3) while determining the ALP under section 92CA(3). The latter part of section 92CA(3) unambiguously states that the Assessing Officer shall by order in writing, determine the arm's length price in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,305,188 9. Cost recharges to associated enterprises 6,118,687 10. Cost recharges from associated enterprises 676,626 Comparable uncontrolled Price ('CUP') Total 340,403,509 9. The assessee has claimed that its international transactions are at arm's length price as bench marked by using TNMM as most appropriate method and Profit Level Indicators (PLI) as OP/TC, on the basis of three companies taken as comparables namely Punjab Communication Ltd., Valiant Communication Ltd. and X L Telecom and Energy Ltd. In the transfer pricing report, the assessee reported its profit margin at 8% as against the arithmetic mean of comparables at -3%. The Transfer Pricing Officer asked the assessee to file updated PLI of comparables using the data of only assessment year 2008-09. The TPO rejected M/s Punjab Communication Ltd. as comparable because it was a loss making company and the loss for the year under consideration has been reported at 66.96% apart from the losses in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecom Companies, managing and maintenance their network to their customers and therefore the said company is in the business of providing services and not in manufacturing activity. The service portfolio of the said company is to design services, consultancy, installation implementation of service and to maintain in the area of Security, Storage, Network management and IT infrastructure etc. Thus, the Ld. AR of the assessee has submitted that M/s Gemini Communication is functionally different from the assessee and, therefore, cannot be considered as a comparable for the purpose of bench-marking the international transaction. He has further submitted that the said company has otherwise earned the profit of 28.07% which is super normal in comparison to the assessee's profit. Therefore, the said company cannot be included in the comparables due to the super normal profit. He has relied upon the decision of the Bangalore Benches in the case of Genisys Integrating Systems (India) Pvt. Ltd., reported in 15 ITR 475. He has also relied upon the decision of this Tribunal in case of Teve India Pvt. Ltd. v. DCIT reported in 57 DTR 212 and submitted that the Tribunal has taken a consisten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the data filed by the assessee at page no. 70 of paper book and back side where the details of financial results from the year 2001-02 to 2007-08 are given. The Ld. DR has submitted that the company has shown loss for last 4 years. Therefore, this company is persistent loss making company and cannot be considered as a comparable for the purpose of determining of ALP. In support of his contention he has relied upon the decision of this Tribunal dated 8.5.2013 in case of Advance Power Display Systems Ltd. v. ACIT in ITA No. 6732 6542/M/2011. 13. We have considered the rival submission as well as the relevant material on record. During the year under consideration the assessee has entered into various international transactions as mentioned in foregoing para No. 5 of this order. The assessee has bench marked its international transactions by using TNMM as most appropriate method and taking the Profit Level Indicator (PLI) as operating profit/total cost (OP/TC). The assessee selected three comparables and determination the arithmetic mean at -3% by using multiple year data as under: Sl.No. Name of Comparable Company PLI as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erely because of high profits margin cannot be a factor for exclusion from proposed comparables until and unless the extreme results of a case are as a result of exceptional conditions exist. An identical issue has been considered by the coordinate bench of this Tribunal in case of Willis Processing Services (I) Pvt. Ltd. v. DCIT (supra) and one of us Judicial Member is the party to the said decision. In the said case the Tribunal has decided the issue in para 34.4-34.8 as under: 34.4 We have considered the rival submissions and carefully perused the relevant material on record. The factors for determining inclusion or exclusion of any case in the list of comparables are specifically provided under Rule 103(2). Therefore, unless and until there are specific reasons and factors as provide under the Rule 10B, an entity cannot be excluded or eliminated from the list of comparables solely on the basis of high profit making unit or loss making unit because no such factor finds place either in Rule 10B(2) or 103 (3) of IT Rule. 34.5 Even as per OECD TP guidelines, the extreme results might consist of losses or unusually high profits itself cannot be a factor for potentia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the same. A general argument that, you have to exclude units which have high profit range, in case you exclude units which have made loss is a general submission which cannot be accepted. In other words, as a general principle, both loss making unit and high profit making unit cannot be eliminated from the corn parables unless, there are specific reasons for eliminating the same which is other than the general reason that a comparable has incurred loss or has made abnormal profits. Thus, this ground is dismissed. 34/6 Similarly in the case of M/S B P India Services P Ltd,(supra) the coordinate Benches of this Tribunal has adjudicated this issue in para 1.2.6 as under: 12.6. Thus it is evident that the decisive factors for determining inclusion or exclusion of any case in/from the list of cam parables are the specific characteristics of services provided, assets employed, risks assumed, the contractual terms and conditions prevailing including the geographical location and size of the markets, costs of labour and capital in the markets etc. Nowhere, the higher or lower profit rate, as presumed by the ld. CIT(A). has been prescribed as the determinative factor to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It was pointed out by the assessee that a letter dt. 3.8.2011 had been filed with annexures showing the entire long list of companies thrown up in the search by the assessee from both the Capitaline and Prowess databases. 13. Examination of the copy of annexures filed in the paper book filed by the assessee reveals that the name of Gemini Communication is not included in both the list. The issue however is not whether it was thrown up by the assessee's study, but whether it is comparable in function and other variables of the assessee. On this issue the assessee has quoted from the annual report of the company which states that the company is engaged into networking services, security solutions, net work management, LAN/WAN, Network search storage. Gemini consultants are centered on infrastructure and management. Broadly, it can be sated that Gemini Communication is a company in the field of Telecom solutions similar to that of the assessee for the purpose of TNMM analysis. 18. It is clear from the findings of the DRP that M/s Gemini Communication was part of the TP study of the assessee but while selecting the comparables the assessee has not included the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: 10.2 Even otherwise when the comparability of the case has to be tested independently for each year, then without examination of the comparability, no case can be accepted as a comparable, solely on the basis that it has been accepted as comparable in the subsequent year. From the annual report of the company M/s BCC Fuba India Ltd., it is clear that this company is showing persisting loss from year after year and therefore, in view of the series of decisions of this Tribunal on the point that persisting loss making company cannot be considered as a good comparable for the purpose of determination of the ALP. 20. In view of the above discussion and fact and circumstances of the case we hold that the Punjab Communication Ltd. which is suffering persistence loss year after year for last four years cannot be considered as good comparable for the purpose of determination of ALP. 21. Ground No. 7 is regarding not considering M/s Icomm Tele Ltd. as comparable by the DRP. We have heard the Ld. AR as well as Ld. DR and considered the relevant material on record. The Ld. AR of the assessee has submitted that the assessee selected two alternative comparable namely I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and comparable. At the time of hearing the Ld. AR of the assessee has stated that the assessee does not press this ground and the same may be dismissed as not pressed. The Ld. DR has no objection if the ground No. 8 is dismissed as not pressed. Accordingly, ground no. 8 of the assessee's appeal is dismissed being not pressed. 25. Ground No. 9 is regarding adjustment for difference in working capital. We have heard the Ld. AR as well as the Ld. DR and considered the relevant material on record. The assessee has filed the details of working capital adjustment at page no. 150 of the paper book. We find that the Transfer Pricing Officer has not examined the details for the purpose of working capital adjustment if any to be made in respect of the comparables. The claim of the assessee was turned out by the TPO on the ground that in the telecommunication industry there is long gestation period and the flow of revenue on sale is generally slow and tardy. Since the issue has not been properly examined by the authorities below, therefore, we remit this issue to the record of the TPO to properly examine the claim of the assessee vis-a-vis the details filed by the assessee and then d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 92C(3) of the Income Tax Act, the Transfer Pricing Officer has jurisdiction/power to collect and consider all relevant material and information apart from the information, documents and data produced by the assessee as required u/s 92D(3) to determine the arm's length price in relation to the international transaction. In the case in hand the TPO asked the assessee to furnish single year/current data instead of multi year data which were furnished by the assessee. Therefore, the single year data taken into consideration for the purpose of determination the arm's length price were very much available in the public domain as well as with the assessee at the time of determination of ALP by the TPO. The Bangalore Benches of the Tribunal in case of 27/7 Customer Com Pvt. Ltd. has considered and decide an identical in para 8.5 as under: 8.5 Use of data by the TPO after the cut off date. As regards the data used by the TPO while determining the ALP, we find that it is to be as per the provisions of section 92D of the Act that every person who has entered into international transactions is required to maintain information and documentation thereof. Rule 1OB(4) pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we direct the AO/TPO to allow the benefit of the proviso if the prices of the international transaction of the assessee are within the tolerance range of 5% of the arithmetic mean of more than one comparable prices. 31. Ground No. 13 is regarding the adjustment on account of transfer pricing only to the quantum of the international transactions of the assessee. We have heard the Ld. AR as well as the Ld. DR and considered the relevant material on record. There is no quarrel on the point that the adjustment if any on account of transfer pricing shall be restricted only to the income from international transaction and not to the income of the assessee at entity level. Accordingly the AO/TPO is direct to restrict the adjustment only to the quantum of its international transaction. 32. In the ground No. 14 the assessee has raised the ground that the AE of the assessee has been consistently suffering from operational loss and therefore no adjustment can be made in respect of international transaction. We have heard the Ld. AR as well as the Ld. DR and considered the relevant material on record. Under the Transfer Pricing regulation/provisions the testing party is the assessee an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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