TMI Blog2015 (5) TMI 932X X X X Extracts X X X X X X X X Extracts X X X X ..... the MAM for determining arm's length price is "Profit Split Method (PSM)", thus being the predecessor to the assessee is found to be correct. Relative contribution has to be determined, based on key value drivers - there is a general consensus on the principles of allocation of residual surplus - as per rule 10B(l)(d) of the IT Rules, a contribution or residual PSM would need to be supplemented by a comparable PSM - the TPO, should determine the ALP by adopting residual PSM as the MAM and by allocating residual profits based on the relative value of each enterprise's contribution In the absence of any submission whatsoever on the part of the Revenue despite more than adequate opportunities having been provided, we find on our independent study of the reasoning available on record brought out in the TPO’s order which has been upheld by the DRP that in the face of similarity of reasoning which already stands considered in the case of GOIPL, the issue needs to be restored back to the TPO with identical directions. Decided in favour of assesse for statistical purposes - I.T.A. No. 1201/Del/2015 & SA-169/Del/2015 - - - Dated:- 8-5-2015 - Smt. Diva Singh And Sh. N. K. Saini,JJ. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the said background the appeal again came up for hearing on 19.03.2015. On the said dated, the Ld. Standing Counsel for the Revenue within a few minutes of the start of the Court proceedings made a request for adjournment in a certain batch of appeals on behalf of the CIT DR, Mr. A.K.Singh (not then present in the Court). The request was made on the ground that he, as the Standing Counsel, did not have the authority to represent the Revenue in the two batches of interconnected 7/8 appeals each. However the oral request for adjournment was found to be factually incorrect as the two separate batch of appeals contrary to the submissions of the Ld. Standing Counsel were infact unconnected with each other. Accordingly after informing this fact to the Ld. Standing Counsel his oral request for adjournment on incorrect facts was declined and a pass over was instead given till CIT DR, Mr. A.K.Singh was present. The Ld. Standing Counsel informed that Mr.A.K.Singh would be available only on or after at 12.00 Noon. 2.1.1. While proceeding with the other appeals, since lack of authority was previously pleaded by the Standing Counsel in certain cases, the ld. Standing Counsel was required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of passing this order, no request has been made by the department seeking time to address the issues. It therefore becomes evident that instead of gainfully utilising the time granted in good faith to the Ld. Standing Counsel/CIT DR so that they can address the issues, the time so sought was not utilised for the stated purpose and the concerned Ld. Standing Counsel/CIT DR instead opted to, carrying on the transgression committed in the Court earlier and chose to leave the Revenue unrepresented thereby abdicating their onerous responsibilities. The faith of the Court in the genuineness of the requests on behalf of the Revenue for adjournments necessarily entailsed not only wasting of valuable time of the Court but also government resources and expenses. Yet he trust so reposed in the genuineness of the requests was found to be misplaced and abused. Hence in the facts of the case, on the completion of the Ld. AR s arguments, the adjournment request was rejected as the Court functioning cannot be allowed to be obstructed ad-infinitum by the whims fancies of persons who are reluctant to work where admittedly more than reasonable time had already been given to the Revenue who still c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Paper Book. Based on the aforesaid pages, it has been submitted that the point at issue is covered in assessee s favour. 4.2. Addressing the facts it has been submitted that the assessee formerly known as Equant Network Services India Pvt. Ltd. as has been taken note of by the AO in his order dated 11.03.2014 u/s 143(3)/144C was the successor entity of Global One India Private Limited (hereinafter referred to as GOIPL ) wherein the order of the Tribunal is available. 4.3. The assessee it was submitted had taken over the business operation of GOIPL post the GOIPL s Board decision of ceasing GOIPL operations in FY 2008-09. 4.4. The assessee it was submitted has all along claimed that it follows the same business model, undertakes the same operations, services the same Equant group clients and employs the same management personnel and employees as was done by GOIPL. 4.5. In the facts of GOIPL also it was submitted the assessee had applied the profits split method (hereinafter referred to as PSM ) which on similar reasoning was not approved of by the Transfer Pricing Officer (hereinafter referred to as 'TPO'). The TPO in the facts of the assessee s predecessors ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks India Private Limited Global One India Pvt. Ltd. ( GOIPL'), incorporated under the laws of India, was a 100% subsidiary of Equant BV. GOIPL was engaged in providing internet and related network services to the group's customers in India. The services offered by the GOIPL included internet direct connections, installation/configuration of routers etc., and support solutions developed around the basic network services. During financial year ('FY') 2008-09, due to change in Foreign Direct Investment ( FDI') norms in India, where in, FDI in any telecommunication company had to be restricted to 74% of the GOIPL's share capital, the business operations of GOIPL were decided by the Board of Directors to be transited under the new FDI and regulatory regime and hence to be continued in newly incorporated entity compliant with required licenses and shareholding pattern. A new company, Equant Networks Services India Private Limited ('ENSIPL' or 'Assessee' or 'the Company') was incorporated in 2007 as a Foreign Investment Promotion Board approved Joint Venture Company between EGN B.V., Equant Pte, Limited and Emery Technologies Privat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he claim that it follows the same business model, undertakes the same operations, services the same Equant Group clients and employs the same management personnel and employees as was done by GOIPL. The claim has also been put forth that as a consequence, the employees of GOIPL were transferred and the network equipments of GOIPL were sold (following a valuation undertaken by a third party valuer) to ENSIPL during the year. The said claim put forth before the DRP, it is seen, has not been addressed by the said authority. The said claim it is seen has been made even before us on three different dates by the assessee which it is seen remains unrebutted by the Revenue. In the absence of any representation by the department, considering the pleadings of the assessee and the material available on record, we propose to examine the same. 5.5. In the said context it is seen that as per para 4.1 of the TPO s order, Equant Network Services, India (hereinafter referred to as ENSIPL ) subsequently named as M/s Orange Business Services India Networks Pvt. Ltd. (hereinafter referred to as OBSINPL i.e the assessee) is a company incorporated under the laws of India. It is a joint venture compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely, (a) that the international transactions should involve the transfer of unique intangibles and (b) there are multiple international transactions which are so interrelated or integrated that they cannot be evaluated separately. 5.8. In order to support its claim that the services rendered by the group entities are interrelated, it has been submitted that it is engaged in providing data services and related network services to customers in India; Globally, the Equant Group is a recognized leader in telecom services and provides global, integrated and customized communication infrastructure solutions that enable the key business processes of its customers; Customers contracts of the Group are for provision of integrated services on Equant Group's network which is spread across the globe; in many cases the customers of Equant Group have one decision maker, the head office, which is usually located in one country and Equant Group deals directly with one location to complete the sales contract and invoice the customer centrally for all services in all countries; generally, only one Equant Group entity records the revenues generated from the multinational customer; underlying c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the Co-ordinate Bench shows that identical reasoning and fact has been considered by the Co-ordinate Bench and the departmental stand taken has not been accepted. 5.9.2. For ready-reference, we extract the relevant finding:- The Transfer Pricing Officer, had after a detail enquiry in the earlier assessment years, accepted PSM as the MAM . This being so, in our view, rejection of this method on the ground that resjudicata does not apply to income tax proceedings is not correct. Recently, the Hon ble Supreme Court, in the case of CIT vs. Excel Industries Ltd. has held that the revenue cannot be allowed to Flip-flop on the issue. Consistency should be a rule rather than an exception . There are a number of other decisions on this issue. Suffice it to say that, the T.P.O., in this case, has not brought out any valid reasons to depart from the earlier view of his Predecessor. (emphasis provided) 5.10. It is also seen that the stand taken by the TPO in the facts of the present case to justify his action that TP proceedings shall be conducted based on the provisions of the Indian Transfer pricing regulations and the judicial guidance provided by the Indian judic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce met a desired target. Any performance payments that may become due to the Group entities have been foregone by the entities, as they are now participating in the RPSM and the previous agreement has been terminated. Such foregone performance payments (if any) represent an investment by the Group entities in the on-going network operations. (ii) Sales and Marketing Operations: The sales and marketing operations undertaken by each entity within the Group are measured by the staff costs of the personnel engaged in sales and marketing related activities. (ii) Field Operations: The field operations undertaken by each entity within the Group are measured by the staff costs of the personnel working in the relevant field operation functions. 5.11.1. A perusal of the GOIPL s order passed by the Co-ordinate Bench shows that similar submission was not accepted even in the facts of assessee s predecessor s case as a justification for PSM as the MAM by the TPO in the facts of that case also for the reason that according to the TPO in the facts of the present case as well as the GOIPL, the T.P. Study Report did not show any unique intangibles or value added services being provided by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... butions of multiple entities and are integrated and interrelated and they cannot be separately evaluated for the purpose of determining ALP of any one transaction, the PSMP is the MAM . 5.12.2.The Co-ordinate Bench also held that use of unique intangibles is not a must for adopting PSM . Considering the facts of the present case it was held that in any event, we have considered the facts of this case and we have, elsewhere in this order, given a finding that the assessee does possess unique intangibles in the field of data transfer and communications, and comparing the operations with a simple E Mail and as a plug in operator is not factually correct. If the assessee is held to be a simple Email operator, then it is to be explained as to why reputed global enterprises would pay them for data transmission, when E Mail is free. The assessee does offer unique services as compared to an ordinary Email service and it is these unique services which are its intangibles. 5.13. Thus, it is seen that the above finding also deals with the objections of the TPO in the present proceedings that the assessee's business does not have any integration with the other group entities. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent case which is identical to the TPO s reasoning in GOIPL s case wherein on considering the terms and agreements the conclusion drawn by the TPO that no independent entity would have agreed to such terms nor would it have agreed to be tied down by the financial performance of another entity/entities over which/whom it has little or no control have also been considered by the Co-ordinate Bench and disagreed with. 5.15.1. These issues have been considered by the Co-ordinate Bench in para 20.1 20.2 in the following manner:- 20.1. We also hold that the factum of the assessee having a loss is no ground to reject PSM as the MAM . The decision as to what is the MAM does not depend on the factor as to whether an assessee has a loss or has a profit. On the objection of the T.P.O. rejecting the allocation done by the Administrator, we find that the arrangement with the AE under the agreement demonstrates that the administrator does not have absolute discretionary power to determine inter group payment. The agreement provides that disputes, if not reasonably resolved, can be referred for arbitration. Thus, the conclusion drawn by the T.P.O. is erroneous. In our view, this cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here each make valuable unique contributions. The TPO has not specifically dealt with this objection of the assessee. We find much force in this contention of the assessee and agree with the same. We are supported by OECD Guidelines, on this issue. At para 2.59 of the OECD Guidelines it is stated as follows: A transactional net margin method is unlikely to be reliable if each party to a transaction makes valuable, unique contributions, see paragraph 2.4. In such a case, a transactional profit split method will generally be the most appropriate method,( see paragraph 2.109). In such a case, a transactional profit split method will generally be the Most Appropriate Method. 5.17. A reading of the order in GOIPL s case further shows that the view so take was only after considering the judicial precedent laid down by the Special Bench in the case of Aztech Software and Technology Services Ltd. vs ACIT 107 ITD in para 17.3; and the OECD in Transfer Pricing Guidelines for multinational enterprises and tax administration; and United Nations practical Manual on Transfer Pricing for developing countries; US Transfer Pricing by Harlow N.Higinbotamo; Practical Guide to US Transfer Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable external market data. The functional analysis is an analysis of the functions performed (taking into account assets used and risks assumed) by each enterprise. The external market criteria may include, for example, profit split percentages or returns observed among independent enterprises with comparable functions. 17.4. The OECD transfer pricing guideline for multinational enterprises and tax administration in Chapter 2 on transfer pricing methods, at page 93, para C.1 states as follows: C.1 In general 2.108 The transactional profit split method seeks to eliminate the effect on profits of special conditions made or imposed in a controlled transaction (or in controlled transactions that are appropriate to aggregate under the principles of paragraphs 3.9-3.12) by determining the division of profits that independent enterprises would have expected to realize from engaging in the transaction or transactions. The transactional profit split method first identifies the profits to be split for the associated enterprises from the controlled transactions in which the associated enterprises are engaged (the combined profits ). References to profits should be taken as app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be performed, perhaps as part of a residual profit split or as a method of splitting profits in its own right, by taking into account the discounted cash flow to the parties to the controlled transactions over the anticipated life of the business. One of the situation in which this may be an effective method could be where a start-up is involved, cash flow projections were carried out as part of assessing the viability of the project, and capital investment and sales could be estimated with a reasonable degree of certainty. However, the reliability of such an approach will depend on the use of an appropriate discount rate, which should be based on market benchmarks. In this regard, it should be noted that industry wide risk premiums used to calculate the discount do not distinguish between particular companies let alone segments of business, and estimates of the relative timing of receipts can be problematic. Such an approach, therefore, would require considerable caution and should be supplemented where possible by information derived from other methods. 17.6. The United Nations Practical Manual on Transfer Pricing for Developing Countries Chapter VI Transfer Pricing Met ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p 1 of the residual analysis, a basic return for the manufacturing function is determined for Company A and Company B. Specially a benchmarking analysis is performed to search for comparable independent manufactures which do not own valuable intangible property. The residual profit, which is the combined profits of company A and company B after deducting the basis (arm s length ) return for the manufacturing function, is then divided between Company A and Company B. This allocation is based on relative R D expense which are assumed to be a reliable key to measure the relative value of each company s intangible property. Subsequently, the net profits of Company A and Company B are calculated in order to work back to a transfer price. 17.8. In Practical Guide to U.S. Transfer Pricing by Robert T Cole, Chapter 10, PSM authored by arlow N.Higinbotham, pg nos.10-52, it is stated as follows: Thus, to summarize, RPSM provides a test of arm s length transfer pricing between value- added stages of an integrated enterprise that is consistent with the separate enterprise standard under conditions of resource mobility and competitive capital and product markets. By valuing functiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base; (ii) The net profit margin realized by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base; (iii) The net profit margin referred to in sub clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market; (iv) The net profit margin realized by the enterprise and referred to in sub clause (i) is established to be the same as the net profit margin referred to in sub clause (iii); (v) The net profit margin thus established is then taken into account to arrive at an arm s length price in relation to the international transaction. The TNMM requires establishing comparability at a broad functional level ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be applied in a manner consistent with the manner in which the resale price or cost plus method is applied. This means in particular that the net profit indicator of the tax payer from the controlled transaction ( or transactions that are appropriate to aggregate under the principles of paragraphs 3.9-3.12) should ideally be established by reference to the net profit indicator that the same tax payer earns in comparable uncontrolled transactions, i.e. by reference to internal comparables (see paragraphs 3.27-3.35). A functional analysis of the controlled and uncontrolled transactions is required to determine whether the transactions are comparable and what adjustments may be necessary to obtain reliable results. Further, the other requirements for comparability, and in particular those of paragraphs 2.69-2.75, must be applied. 2.59. A transactional net margin method is unlikely to be reliable if each party to a transaction makes valuable, unique contributions, see paragraph 2.4. In such a case, a transactional profit split method will generally be the most appropriate method, see paragraph 2.109. However, a one-sided method (traditional transaction method or transactional net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n be in existence and fewer adjustments will be required to account for differences in functions and risks between the controlled and uncontrolled transactions. In addition, the tested party should not own valuable intangible property. This, by the way, is also the reason why it is recommended to select the least complex entity for the application of the cost plus method or resale price method. 18.3. The Transfer Pricing , in the case at hand, has applied the TNMM method. While doing so, at para 3.7, he considered the objection of the assessee to the use of TNMM as the MAM. He observed as follows: that the assessee s business does not has any integration with the other group entities has already brought in sufficient details in the earlier part of this order. The assessee runs its business independently in India. For the deployment of their party entities for the proliferation of its network services, there is nothing on record to show that the assessee is getting any help or leverage from the other group entities. The assessee is negotiating with the Indian regularators all by itself. The assessee is operating in India as a standalone entity for setting up the operation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allocating residual profits based on the relative value of each enterprise s contribution, as suggested by various commentaries considered. In para 20.13, the Co-ordinate Bench makes reference to the Amendment in Rule 10AB by the IT (Sixth Amendment) Rules 2012 w.e.f 01.04.2012 under the sub-head other method of determination of ALP . 5.20.1.The aforesaid paras are extracted herein for ready-reference:- 20.6. Coming to the allocation of residuary profits, in our view, though the Rules do suggest that benchmarking should be done with external uncontrolled transactions, we find that this is an impossibility in this case, as it is not possible to get a comparable. On a perusal of the various commentaries, we are of the view that such allocation can be done, based on how much each independent enterprise might have contributed. Relative contribution has to be determined, based on key value drivers. Bench marking at this stage is not practicable as comparables having similar, multiple, interrelated and integrated transactions, would be difficult to find. Thus, in our view, in such a situation, a harmonious interpretation of the provisions is required to make the rule workable, so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possible approach is to split the combined profits based on the division of profits that actually results from comparable uncontrolled transactions. Examples of possible sources of information on uncontrolled transactions that might usefully assist the determination of criteria to split the profits, depending on the facts and circumstances of the case, include joint venture arrangements between independent parties under which profits are shared, such as development projects in the oil and gas industry; pharmaceutical collaborations, co-marketing or co-promotion agreements; arrangements between independent music record labels and music artists; uncontrolled arrangements in the financial services sector; etc. C.3.4.3 Allocation keys 2.134 In practice, the division of the combined profits under a transactional profit split method is generally achieved using one or more allocation keys. Depending on the facts and circumstances of the case, the allocation key can be a figure (e.g. a 30%-70% split based on evidence of a similar split achieved between independent parties in comparable transactions), or a variable (e.g. relative value of participant's marketing expenditure or oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative value. Guidance on intangible property is found at Chapter VI of these Guidelines. See also the examples in the Annex to Chapter VI Examples to illustrate the Transfer Pricing Guidelines on intangible property and highly uncertain valuation . Cost-based allocation keys 2.138 An allocation key based on expenses may be appropriate where it is possible to identify a strong correlation between relative expenses incurred and relative value added. For example, marketing expenses may be an appropriate key for distributors-marketers if advertising generates material marketing intangibles, e.g. in consumer goods where the value of marketing intangibles is affected by advertising. Research and development expenses may be suitable for manufacturers if they relate to the development of significant trade intangibles such as patents. However, if, for instance, each party contributes different valuable intangibles, then it is not appropriate to use a cost-based allocation key unless cost is a reliable measure of the relative value of those intangibles. Remuneration is frequently used in situations where people functions are the primary factor in generating the combined profits. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the taxpayers' cost accounting or financial accounting. 2.142 For instance, where an asset-based allocation key is used, it may be based on data extracted from the balance sheets of the parties to the transaction. It will often be the case that not all the assets of the taxpayers relate to the transaction at hand and that accordingly some analytical work is needed for the taxpayer to draw a transactional balance sheet that will be used for the application of the transactional profit split method. Similarly, where cost-based allocation keys are used that are based on data extracted from the taxpayers' profit and loss accounts, it may be necessary to draw transactional accounts that identify those expenses that are related to the controlled transaction at hand and those that should be excluded from the determination of the allocation key. The type of expenditure that is taken into account (e.g. salaries, depreciation, etc.) as well as the criteria used to determine whether a given expense is related to the transaction at hand or is rather related to other transactions of the taxpayer (e.g. to other lines of products not subject to this profit split determination) should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . profit remaining after step 1) between the associated enterprises based on the facts and circumstances. If the residual profit is attributable to intangible property then the allocation of this profit should be based on the relative value of each enterprise s contributions of intangible property. 20.9. In the UN Transfer Pricing Manual, Chapter VI, at para ` 6.3.17.4, it is stated as follows. The PSM involves the determination of the factors that bring about the combined profit, setting a relative weight to each factor and calculating the allocation of profits between the associated enterprises. The contribution analysis is difficult to apply, because external market data that reflect how independent enterprises would allocate the profits in similar circumstances is usually not available. The first step of the residual analysis often involves the use of the TNMM to calculate a return and is not, in itself, more complicated than the typical application of TNMM. The second step is, however, an additional step and often raises difficult additional issues relating to the valuation of intangibles. 20.10. In the text for transfer pricing regulations of US Treasury, it is give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the transactions in question, are first assigned routine/ basic returns for the routine functions performed by them; and thereafter, the residual profits are split amongst the AEs, however, in a manner that whether or not an assessee adopts a contribution PSM or a residual PSM, the profits, would need to be split amongst the various AEs, who are parties to the transactions in question, on the basis of reliable external market data, which indicates how unrelated parties would have split such profits in similar circumstances. 2. In other words, as per rule 10B(l)(d) of the IT Rules, a contribution or residual PSM would need to be supplemented by a comparable PSM. 3. The terminologies, namely contribution PSM , residual PSM and comparable PSM , have not been used in the IT Act or Rules, however, they can be found in the TP guidelines of OECD [paragraphs 2.108 to 2.1491 and UN [paragraphs 6.3.13.1 to 6.3.181, by referring to the similarity of the manner of application of the said methods, as contained in the OECD and UN TP guidelines; and also in the IT Rules. 4. Having said that, PSM prescribed by the IT Rules of India is quite unique, as compared to both OECD and UN TP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be rendered; and thus existence of joint venture arrangements between third parties is not conceivable, the application of comparable PSM would be an impossibility. 9. The OECD further acknowledges that where comparable uncontrolled transactions of sufficient reliability are lacking to support the division of the combined profits, consideration should be given to internal data, which may provide a reliable means of establishing or testing the arm's length nature of the division of profits, meaning that resort to either contribution or residual PSM may be made, without the same having to pass through the compulsory rigors of comparable PSM [paragraph 2.141 of the OECD TP guidelines]. 10. Further, many of the global TP specialists have commented on the lack of reliable third party data, which often renders comparable PSM impossible to apply for splitting profits amongst related parties, except for in the limited cases of joint venture arrangements and determination of royalty, where again, the split of profits between the licensor and the licensee can be discernible on the face of accounts. Extracts from a few of the said articles/ books are reproduced below for ease o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the contribution and residual PSMs to mandatorily pass through the sanity of comparable PSM, being a mandate given under the Indian TP regulations, in the form of rule10OB(I)(d) of the IT Rules. Thus, such compulsory mandate would render the entire mechanism PSM unworkable in India, even in the most deserving of cases. 12. It is a golden and accepted rule of jurisprudence that an interpretation, which makes a statute or rule unworkable or impossible to be complied with, should be avoided; and recourse need to have to the interpretation, which would make the statute or rule workable and also subserve the purpose for which it has been enacted. In this connection, reference is invited to the ruling of the Hon'ble Supreme Court in the case of Superintendent of Taxes vs. Onkarmal Nathumal Trust [AIR 1975 SC 2065], where it has been held that The law in its most positive and peremptory injunctions, is understood to disclaim, as it does in its general aphorisms, all intention of compelling performance of that which is impossible ... where the law creates a duty or charge, and the party is disabled to perform it, without any default in him, and has no remedy over, there the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the IT Rules of mandatory adoption of comparable PSM in all cases of PSM actually renders the entire scheme or mechanism of PSM virtually redundant, otiose and impossible to comply with, even in the most deserving of cases, namely where there can be no doubt that the AEs, who are parties to the transactions in question, contribute and exploit non routine or unique intangibles, or the transactions are so inter related that they cannot be evaluated separately for the purpose of determining the ALP thereof, however where reliable external data to gauge third party behavior is impossible to be obtained, then the requirement for adoption of comparable PSM should be dispensed with, and the assessee should be given an option to adopt a residual or contribution PSM, when such sub-methods of PSM are otherwise accepted globally, both under the OECD and UN TP guidelines, and also in rule 10B(1)(d) itself. 17. It is submitted that applying such an interpretation would not tantamount to altering the overall mechanism of PSM under the Indian TP regulations, but would merely supplement life and force into rule 10B(1)(d) of the IT Rules, in order to make the mechanism of PSM actually workable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f this rule is to determine the arm s length price , whenever the methods suggested result in practical difficulties by adopting generally accepted methods which are not specifically listed. It is a procedural provision aimed at arriving at the ALP . Thus, in our, it is retroactive. ALP , ideally, should be the same, in the previous years, as in the subsequent years when the facts and circumstances are the same, irrespective of the method adopted for arriving at the same. One cannot be heard saying that the ALP arrived by one method cannot be acceptable for the earlier year as that method was not notified by the CBDT. In our view, Arms Length Price should be the same, with minor variations. When a new method is allowed, with the objective of enabling determination of the proper ALP, in our comprehension, such a provision operates retroactively, and can be used to determine the ALP in the earlier assessment years also. When the aim and object of introducing a Rule allowing the assessee to adopt any other method for determining the ALP, by introducing S.10AB, is to remove unintended practical difficulties and only to enable proper determination of the ALP, the Rule, in our vie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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