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2015 (7) TMI 241 - ITAT BANGALORE

2015 (7) TMI 241 - ITAT BANGALORE - TMI - Transfer pricing adjustment - Exclusion of M/s. Oil Field Instrumentation India Ltd., Celestial Labs, Ltd., and Agile Electric Technologies Pvt. Ltd. as comparables - Held that:- The learned CIT(A) has rejected the aforesaid three companies as comparables based on functional differences vis-a-vis the assessee also relying on the decision of the ITAT, Mumbai Bench in the case of Tevapharm India Pvt. Ltd. [2011 (12) TMI 284 - ITAT MUMBAI] for Assessment Ye .....

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rificatory amendment in which Section 92C(2A) was inserted by Finance Act, 2012. This new section mandates that if the arithmetical mean price falls beyond +/- 5% from the price charged in the international transactions, then the assessee does not have any option referred to in Section 92C(2) of the Act. Thus, as per the above amendment, it is clear that the +/- 5% variation is only to justify the price charged for international transactions and not for adjustment purposes. The aforesaid amendme .....

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Jason P. Boaz : This appeal by the Revenue and Cross Objections by the assessee are directed against the order of the Commissioner of Income Tax (Appeals)-IV, Bangalore dt.24.1.2012 for Assessment Year 2007-08. 2. The facts of the case, briefly, are as under :- 2.1 The assessee company, a subsidiary of FMC Agricultural Product International AG Switzerland, is engaged in the business of manufacture and processing of pesticides by importing the same from its Associated Enterprises ( AE ). In addit .....

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Bangalore made a reference to the Transfer Pricing Officer ( TPO ) to determine the arms length price ( ALP ) thereof, as per the provisions of section 92CA of the Act. In the year under consideration, the total operating revenues from R&D Services provided to its AE was ₹ 2,69,52,315 with operating costs at ₹ 2,22,63,590. The operating profit was ₹ 46,88,725 and the operating profit as a percentage of operating revenue was 21.06%. In its T.P. Study, the assessee adopted TN .....

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panies selected by the assessee, the TPO rejected 6 of these companies, retaining only two of them. In addition thereto, the TPO selected four more companies as comparables. The TPO s final list of comparable companies are as under :- S.No. Comparable Company OP/TC in % 1 Alphageo (India) Ltd. 38.21 2 Agile Electric Technologies Pvt. Ltd. 6.58 3 Vimta Labs 27.44 4 IDC (India) Ltd. 15.89 5 Oil Field Instrumentation (India) Ltd. 76.46 6 Celestial Labs Ltd. 58.35 Average 37.15 The TPO vide order un .....

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r Assessment Year 2007-08 dt.11.1.2011, the assessee preferred an appeal before the CIT (Appeals) - IV, Bangalore. The learned CIT(A) in his order held that out of the 6 comparable companies chosen by the TPO, three of them i.e. Oil Field Instrumentation India Ltd., Celestial Bio Labs, Ltd., and Agile Electric Technologies Pvt. Ltd. cannot be treated as comparable to the assessee as they are functionally different and accordingly directed the Assessing Officer to exclude the aforesaid companies .....

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of revenue, is opposed to law and the facts and circumstances of the case. 2. The learned CIT (Appeals) was not justified in allowing relief to the assessee and deleting the additions made by the Assessing Officer under Section 92CA of the I.T. Act, 1961, without appreciating the facts and circumstances under which the adjustment was made by the Assessing Officer based on the TPO s order. 3. The learned CIT (Appeals) has erred in holding that the TPO should exclude M/s. Oilfield Instrumentation .....

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ing that the assessee is eligible for a standard deduction of 5% from the Arm s Length Price under the proviso to section 92C(2) of the IT Act. 7. For these and such other grounds that may be urged at the time of hearing, it is humbly prayed that the order of the CIT (Appeals) be reversed in so far as the above mentioned issues are concerned and that of the Assessing Officer be restored. 8. The appellant craves leave to add, to alter, to amend or to delete any of the grounds that may be urged at .....

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se companies are functionally different and that the third company also has Related Party Transactions ( RPT ). 5.2 The relevant findings of the learned CIT(A) while excluding these three companies form the list of comparables is extracted hereunder from the impugned order of the learned CIT(A) :- 5.2.1 At para 2.7 (pages 14 & 15) in respect of M/s. Oilfield Instrumentation India Ltd., the learned CIT(A) held as under :- Having heard the contention of the appellant, and on perusal of the fin .....

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employed such as outer shell of mud logging units, sensors and other instruments clearly demonstrate the disparity between Oil Field s and assessee's operations. As discussed earlier the functional profile of assessee is in nature of providing - Contract Research and testing services, Oil field does not carry out any of these stipulated activities and accordingly oil field ought not to be considered a comparable. IN the case of the appellant also the contract research and development service .....

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is clear that the nature of the operation of the company is ambiguous which has even been acknowledged by the Transfer Pricing Officers by selecting the company as comparable to the software development services in some of the cases and also as comparable to the R&D services in other cases. The Hon'ble ITAT Mumbai in the case of M/s. Tevapharm Pvt. Ltd. (supra) held that according to the learned D R Celestial labs is also in the field of research in pharmaceutical products and should be .....

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ere has been no attempt made to identify and eliminate and make adjustment of the profit margins so that the difference in functional comparability can be eliminated. By not resorting to such a process of making adjustment the TPO has rendered this company as not qualifying for comparability. We therefore accept the plea of the assessee in this regard. The facts of the case are similar to the decision of the Hon'ble ITAT Mumbai and therefore the Assessing Officer is directed to exclude the a .....

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s a transaction between enterprise other than Associate Enterprise . Hence, the controlled transactions cannot be considered for the comparability analysis. The Hon'ble ITAT, Bangalore in the case of Philips Software Centre Pvt. Ltd. Vs. ACIT (26 SOT 226) held that in view of Rule 10A(a), a company having related party transactions cannot be considered as comparable company. This view also finds support from the decision of Hon'ble ITAT Delhi in the case of Mentor Graphics (Noida) Pvt. L .....

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ave;-vis sales and not profit since profit of enterprise is influenced by large number of other factors according to the provisions of the Income Tax Act and Income Tax Rules, there is no requirement of minimum number of comparables. Even one comparable is sufficient to determine arm s length price of international transactions under the Transactions Net Margin Method. This view has been upheld by the Hon'ble ITAT, Delhi in the case of Haworth (India) Pvt. Ltd. (2011-TII-64-ITAT-Del-TP). Onc .....

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argins of which are not influenced by the related party transactions. However, in the present case, even after excluding the comparables which have related party transactions, more than one comparable are available to determine the arm s length price. Therefore, it is not appropriate to retain the above company as comparable. Further, the above company was excluded as comparable form the R&D services in the case of M/s. Tevapharm Pvt. Ltd. (supra) holding that we have seen the relevant docum .....

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arable. 5.2.4 The learned CIT(A) has rejected the aforesaid three companies from the list of comparables based on functional differences vis-a-vis the assessee also relying on the decision of the ITAT, Mumbai Bench in the case of Tevapharm India Pvt. Ltd. in ITA No.6623/Mum/2011 for Assessment Year 2007-08 wherein these three companies were rejected as comparables in respect of an R&D Service Provider. Before us, no material evidence has been brought on record by revenue to justify the inclu .....

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ted as comparables for an R&D Service Provider. 5.2.6 In this view of the matter, following the findings in the decision of the Tribunal Benches in the cases of Tevapharm India Pvt. Ltd. (supra), Apotex Research Pvt. Ltd. (supra) and Millipore India Pvt. Ltd. (supra), we hold that these three companies viz. Oil Field Instrumentation India Ltd., Celestial Bio Labs, Ltd., and Agile Electric Technologies Pvt. Ltd. are functionally different from the assessee in the case on hand and therefore ca .....

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Pvt. Ltd. in ITA No.227/Bang/2010 reported in 21 ITR (Trib) 514 has held that a company having RPT in excess of 15% of turnover should be excluded from being a comparable. In the case on hand from the details on record, it is reported that this company has RPT of about 62.38% on turnover and therefore following the decision of the co-ordinate bench in the case of 24/7 Customer.Com Pvt. Ltd. (supra), we hold that the learned CIT(A) was correct in rejecting M/s. Agile Electric Technologies Pvt. Lt .....

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ed by Finance Act, 2012. This new section mandates that if the arithmetical mean price falls beyond +/- 5% from the price charged in the international transactions, then the assessee does not have any option referred to in Section 92C(2) of the Act. Thus, as per the above amendment, it is clear that the +/- 5% variation is only to justify the price charged for international transactions and not for adjustment purposes. The aforesaid amendment brought about by Finance Act, 2012 has settled the is .....

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ned order of the CIT (Appeals) - IV, Bangalore for Assessment Year 2007-08 dt.24.1.2012 was admittedly served on the petitioner on 24.1.2012. Revenue filed its appeal before this Tribunal on 28.3.2012 and the information pertaining to the filing of Revenue s appeal was intimated to the petitioner on 5.12.2014. In these circumstances, the petitioner ought to have filed the C.O. on or before 30 days from the receipt of notice i.e. on or before 4.1.2015, but the same was filed on 17.3.2015; thereby .....

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ova, a MNC based out of Denmark. On receipt of the notice for hearing on 24.2.2015, the petitioner appointed the present authorised representatives and in fresh consultations with them filed the C.Os belatedly by 72 days. It is submitted that the said delay in filing the C.O. was neither deliberate nor intentional, but was due to a bona fide and reasonable cause and prayed that the said delay of 72 days in filing the C.O. be condoned. 8.3 We have heard the rival contentions of the learned Author .....

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nal, but was due to bona fide reasons and reasonable cause, and that in these circumstances this is a fit case for condonation of the delay of 72 day. We accordingly condone the delay of 72 days in filing the C.O. by the petitioner and admit the C.O. for adjudication. 9.0 The Grounds raised in C.Os filed by the assessee are as under :- 1. The order of the learned CIT (Appeals) - IV, Bangalore to the extent prejudicial to the respondent is bad in law. 2. The learned CIT (Appeals) - IV, Bangalore .....

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e grounds. 3. The learned CIT (Appeals) - IV, Bangalore has erred in confirming the action of the Assessing Officer and Transfer Pricing Officer in : a. performing fresh transfer pricing analysis; and b. performing the transfer pricing analysis without making proper adjustment for enterprise level, transactional level differences and risk differentials between the Respondent and the comparable companies. PRAYER 4. On an overall consideration of the facts of the case, and the law applicable, the .....

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