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2015 (7) TMI 448 - ITAT AHMEDABAD

2015 (7) TMI 448 - ITAT AHMEDABAD - TMI - Adjustment in relation to the international transaction of sale of goods to Associated Enterprises - Not allowing range benefits - Disallowance of expenses due to non deduction of TDS - TDS on reimbursement - Held that:- The undisputed facts remain that the Transfer Pricing Officer as well as a DRP have rejected the transfer pricing study conducted by the assessee and comparables adopted for computing the armís length price. The TPO carried out his own s .....

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by the TPO are functionally different, entirely a different product, although it is named as valve. Although, it is true that the method adopted is TNMM, under this method the product is broadly compared. However, in the present case, the TPO has sought to compare the valves which is a consumer product with the industrial product of the tested party, which in our view, would not give a true picture of the profit. Under these facts, it would subserve the interest of justice if a TPO conduct a fre .....

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es. While doing so, the TPO would afford opportunity to the assessee for submitting fresh T.P. study comparables.

Disallowance of expenses due to non deduction of TDS - Accordingly, the Assessee claimed a deduction for the expenses as shown in the table referred in para 2.4 above in the financial year in which the taxes have been deducted and deposited in the Government Treasury, i.e., in the Assessment Year 2009-10. The Assessee inadvertently mentioned the Assessment Year as A.Y. 200 .....

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challan showing Assessment Year 2008-09. The Assessee requests that the AO be directed to allow the deduction claimed amounting to ₹ 45,99,634 being expenses pertaining to Assessment Year 2008-09, but on which, taxes have been deducted and paid for in the financial year relevant to the assessment year under consideration. Since the DRP has directed the AO to verify the claim of the assessee, we do not see any reason to interfere with the order of the DRP, the same is hereby upheld. Thus, g .....

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ial evidences before the AO to demonstrate that the impugned disallowance is in the nature of reimbursement. In case, the assessee fails to do so, the AO would will be free to make the disallowance. Thus, this additional ground raised by the assessee is allowed for statistical purposes. - In the result, the appeal of the assessee is partly allowed for statistical purposes. - I.T.A. No.828/Ahd/2014 - Dated:- 30-6-2015 - Shri Anil Chaturvedi And Shri Kul Bharat, JJ. For the Petitioner : Shri Dhane .....

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377; 4,63,25,722 are as under. All the below mentioned grounds are without prejudice to each other: 1. On the facts and in the circumstances of the case and in law, the Learned Assistant Commissioner of Income-tax, Circle-4, Baroda ('the Ld. AC-') under the directions of Honourable Dispute Resolution Panel ('Hon'ble DRP'), erred in making adjustment of ₹ 4,17,26,088/- in relation to the international transaction of sale of goods to Associated Enterprises ('AE'). .....

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accordance with law. 3. On the facts and in the circumstances of the case and in law, the Ld. AO under the directions of Hon'ble DRP erred in making disallowance of ₹ 45,99,634 under Section 40(a)(i)/(ia) of the Act without appreciating that tax has been deducted and paid during the previous year in question. It is prayed that the claim made by the appellant be allowed as per the first provisio to Section 40(a)(i)/(ia) of the Act. 4. On the facts and in the circumstances of the case a .....

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come-tax, Circle2 (1)(2) - Baroda, erred in not allowing an expense amounting to ₹ 13,65,460 under Section 40(a)(i) of the Income-tax Act, 1961 without appreciating that no tax was deductible as it was mere reimbursement of expenses. 3. Briefly stated facts are that in this case a reference u/s.92CA(1) of the Income Tax Act,1961 (hereinafter referred to as the Act ) was made to the Transfer Pricing Officer by the Dy.CIT, Circle-IV, Baroda. Accordingly, the notice u/s.92CA(2) of the Act was .....

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ected the contention of the assessee and further enhanced the adjustment to ₹ 4,27,26,088/-. Against this adjustment, the assessee is in present appeal before us. 4. Apropos to ground Nos.1 & 2, the ld.counsel for the assessee has reiterated the submissions as were made before the DRP in the form of Appendix-I, II, & III. 4.1. On the contrary, ld.CIT-DR supported the order of the DRP. 5. We have heard the rival contentions and perused the material available on record. We find that .....

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c., a Weatherford group company, which held 99.99% of the equity capital of the company. WDPS operates vide the following two divisions: Manufacturing Division - This division is engaged in manufacturing of Gas Lift Valves and Packers; and Weatherford Engineered Systems Support ("WESS India") division - WESS India division supports the maintenance & development of softwares developed by Weatherford group, which are used in various upstream oil & gas segments. * The Assessee had .....

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otices, authorized representatives of WDPS attended the proceedings, furnished information and filed submissions from time-to-time; • The Ld. AO referred the case to the Ld. Addl. Commissioner of Income Tax (Transfer Pricing Officer-I), Ahmedabad; • The Additional Commissioner of Income Tax and Deputy Commissioner of Income Tax (Transfer Pricing Officer-II) ("Ld. TPO") issued a notices u/s 92CA(2) of the Act on September 21, 2011 and on December 8, 2011 respectively requiring .....

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ubmission on October 18, 2012 In response to the aforesaid notices, authorized representatives of the Assessee attended the proceedings, furnished information and filed submissions from time-to-time; * The TPO vide his letter dated December 14, 2012 for the said year i.e. AY 2009-10 issued a show cause notice reflecting a detailed search process and identifying new set of comparables with an average margin of 28.87% Operating Profit/Total Cost ("OP/TC") as compared to 19.31% OP/TC of W .....

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Accounts (Rs.) Arm s length Price determined by the Ld.TPO Amount (Rs.) Proposed disallowance/Adjustment by the Ld.TPO Amount (Rs.) 1 Sales made to Associated Enterprises ( AEs ) 34,26,77,543 37,29,43,899 3,02,66,356 *Relying on the Ld. TPO's order, the Ld. AO has passed the Draft Assessment Order as provided u/s 143(3) r. 92CA r.w.s. 144C(1) of the Act ("draft order") which was received by the Assessee on March 12, 2013 (Please refer Page Nos. 94.. to 96 of the Paper Book for the .....

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ow and the same are without prejudice to each other: * Objection 1 - Adjustment proposed to international transaction of Sale to AEs: On the facts and circumstances of the case, Ld, TPO/AO have erred in recomputing the arm's-length price of the international transaction relating to Sales to AEs at ₹ 37,29,43,899 instead of ₹ 34,26,77,543 as determined by WDPS, thereby computing a TP adjustment of ₹ 3,02,66,356. The Assessee objects the following approach of the Ld TPO/AO, i .....

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erred in rejecting the Transfer Pricing Documentation of WDPS without giving any cogent reason and without appreciating the search process as adopted by the Assessee. The Assessee objects the following approach of the Ld. TPO/AO, in this process. * The rejection of economic analysis by the Ld. TPO/AO. * The Ld. TPO/AO's action of not considering the impossibility of performance, in the light of non-availability of single year data of comparables for the purpose of TP Documentation and in re .....

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yed that the AO be directed to allow the deduction claimed based on the facts as submitted by the Assessee. For detailed submission on this objection kindly refer Appendix IV. We crave leave to add, alter and/or amend the aforesaid grounds of objection at or before the time of hearing. For Weatherford Drilling & Production Services (India) Private Limited Place : Ahmedabad Sd/- Date : April 9, 2013 Status of Assessee: Company Appendix II Weatherford Drilling & Production Services (India) .....

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s adopted by the Ld. TPO in the search process executed to identify comparables viz. Export filter of 25%, related party filter of 25% etc. and usage of single year data in the search process. Ground of objection No.1B; Choice of comparables The Assessee objects the comparables identified by the Ld. TPO/AO primarily the inclusion of Tyco Sanmar Limited ('Tyco Sanmar") and exclusion of United Drilling Tools limited ("UDTL") as comparables in the fresh search conducted by the Ld .....

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ing Transactional Net Margin Method ("TNMM") considering Operating Profit/ Sales ("OP/Sales") as Profit Level Indicator ("PIT). A structured benchmarking process was carried out by the Assessee which is reflected in the TP Study report, identifying 7 comparables having average OP/Sales of 8.85%, whereas OP/Sales of the tested party i.e. Manufacturing division of WDPS, was 16.15%; 2.3 The Ld. TPO, vide Show Cause notice dated December 14, 2012, rejected some of the filter .....

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ding the search process carried out by the Assessee; ii. The Ld. TPO/AO disregarded the usage of multiple year data in the TP Documentation of the Assessee without considering the impossibility of performance for usage of single year data; iii. The Ld. TPO/AO disregarded the PLI adopted by the Assessee in its TP Documentation without considering the characterisation of the Assessee, iv. Without prejudice to the above, the Ld, TPO/AO disregarded the Assessee's observations on the comparables .....

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the Ld. TPO/AO Sr.No. Ld.TPO/AO s Actions Ld.TPO/AO s Contentions Assessee s Objection (i) The Ld.TPO/AO conducted a fresh search to identify comparables with inappropriate filters, disregarding the search process carried out by the Assessee Export filter adopted by rejecting companies having export sales <25% of total sales. Manufacturing division of WDPS has 100% export sales during the year under consideration. Accepting the companies having equaled to or more than 25% of export sales doe .....

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vel of turnover cannot be the sole reason for rejection of comparables having similar functional profile, especially while applying the TNMM. Accordingly, the functional profile of the comparables has to be taken into consideration while accepting/rejecting any company. The annual profitability of a company is impacted more by current market forces/fluctuations and short-term variations in variable costs rather than long-term trends in fixed costs. Accordingly, if an analysis of the repercussion .....

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e comparable transactions are to be uncontrolled for determining the arm s length price, has remained constant over the years. Considering the same, the Assessee has been following a conservative approach of adopting 10% RPT filter while carrying out the search process. There are judicial pronouncements suggesting application of 25% RPT filter and also suggesting application of 10% of RPT filter. A mere change of opinion, which is very subjective, cannot jeopardize the situation of the Assessee. .....

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gle year data by the Ld.TPO/AO. The Assessee also objects the action of Ld.TPO/AO of disregarding the impossibility of performance because of non availability of single year data i.e. FY 2008-09 for the purpose of TP Documentation. (Please refer Page Nos.260 to 267 of the Paper Book for the same) (iii) Disregarding the PLI considered by the Assessee PLI was taken as OP/TC The operations of the Manufacturing division of WDPS are characterized as a licensed manufacturer, who takes relevant risks a .....

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ok for the same) (iv) Disregarding Assessee s observations on the comparables Application of Import Filter - Two Sanmar The adoption of import filter is as important as the export filter to identify suitable comparables. It can be observed that the comparables identified by the TPO the intensity of imports in each of them is more than 35% subject to Tyco Sanmar, in which case the proportion is just 19.46%. This clearly reflects that, Tyco Sanmar does not observe similar pricing pressures on the .....

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bility of Tyco Sanmar is thus an outcome of sales of spares, and not the main products. Hence should not be considered as comparable. (Please refer Section 10 and refer Page Nos.283 to 283 of the Paper Book, for detailed discussion on this) Not considering UDTL as comparable in the fresh search conducted UDTL is engaged in supplying and manufacturing various kinds of oil drilling tools, equipments and accessories, which can be considered as comparable with the products manufactured by WDPS. If 2 .....

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tation requirement as enunciated in Section 920 of the Act read with Rule 1OD(4) of the Rules and had maintained the contemporaneous TP documentation for FY 2008-09. Further, the Assessee would like to mention that as per Rule IOD (4) supra, the data to be used for the purpose of uncontrolled comparable analysis should relate to the relevant FY and be available as on the specified date. If any one of these conditions is not satisfied, the relevant comparable ought not to be included in the compa .....

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ellery Pvt. Ltd, (2008) [ITA No. 6194] (Mum). c. Mentor Graphics (Noida) Pvt. Ltd. V Dy, Commissioner of Income-tax (2007) (109 ITD 101) d. Supd of Taxes, Dhubri and Others (1975) (CTR (S.C.) 172) e. South Eastern Coalfields Ltd. V. Joint Commissioner Of Income-tax (260) (TTR 1 -1TAT) f. Income Tax Officer vs. LIC (79 ITD 278) g. ACIT vs. Jindal Irrigation Systems Limited (56 ITD 164(Hyd)) h. Mafatlal Apparel Mfg. Co. Ltd. V. Deputy Commissioner Of Income Tax (61 TTJ 323) i. Hon'ble Delhi Tr .....

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the Ld. TPO is of the opinion that the information or data used in computation of the arm's length price is not reliable or correct, the Ld. TPO may proceed to determine arm's length price in relation to the international transactions in accordance with Section 92C(1) and 92C(2) on the basis of such material or information or document available with him. b. For the using the current year data (i.e. FY 2008-09), the Ld. TPO has relied on Rule 10B(4) of the Rules which provides that the da .....

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14 Taxmann 96) d. Skoda Auto India Pvt Ltd (2009)(TIOL-214-lTAT-)(Pune) e. Egain Communication Pvt Ltd 2008-TIOL-282-ITAT-Pune f. Sony India Ltd (114 ITD 448)(Del) g. Agnity India Technologies Pvt Ltd (2010)(lTA no 3856/Del/2010-In) h. ITO vs CRM Services India (P.) Ltd (2o11)(2011/ 14 taxmann.com 96) (Delhi) i. DCIT Vs Indo American Jewellery Ltd [2010](14 SOT 1)(Mumbai) j. M/s Philips. Software Centre Pvt Ltd. and Mentor graphics Pvt. Ltd k. NIIT Technology Vs, ACIT (ITA 1844) L Global Logic I .....

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arise the facts and the legal arguments to provide a macro insight on the issue along with the key arguments. a, WDPS operates vide two divisions Manufacturing division and the WESS India division b. Manufacturing division of WDPS during the FT 2008-09 observed a return on sales of 16.15% and based on the economic analysis in its TP documentation had identified 7 comparables with the mean of OP/Sales of 8.85%, to substantiate the arm's length nature of this international transaction. c. The .....

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ssee as per the requirement of statute. (Please refer Page Nos. 138 to 255 of the Paper Book for the same). The Ld. Ld. TPO/AO conducted a fresh search to identify comparables with inappropriate filters, disregarding the search process carried out by the Assessee. The following provides a quick insight on the approach. 10.2.1 In appropriate Search process adopted by the TPO L Export Filter of 25% : - Manufacturing division of WDPS being 100% export oriented unit, acceptance of companies having e .....

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to provide any concrete guidance on this threshold. Hence, a conservative approach of the assessee to consider 10% RPT filter, which is being consistently followed cannot be rejected, merely in view of some judicial pronouncements, which are very subjective, cannot jeopardize the situation of the Assessee. Hence 10% RPT filter may be preferred over the 25%, preferred by the Ld. TPO/AO (Please refer Page Nos. 281 to 281 of the Paper Book for the same). iii. Turnover Filter: The economies of scale .....

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arily be a consistent loss-maker; While the Ld, TPO/AO has completely disregarded the multiple year data followed by the Assessee in arriving at the operating profit mark-up on total cost of the comparables, the Ld. TPO /AO has still observed the track record of the comparable for over the period of 3 years for applying the said filter, which is incorrect. Hence, adoption of this filter is incorrect (Please refer Page Nos. 282 to 282 of the Paper Book for the same) v.Adoption of PLI: The Ld. TPO .....

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/AO has disregarded the impossibility of performance because of non availability of single year data i.e. FY 2008-09 for the purpose of TP Documentation and adopted a single year search. Further, erred in not appreciating the fact that the past two years clearly have an impact on the current year business pricing approach. The same analogy, the Ld. TPO/AO is accepting without any questions to identify the comparables having diminishing revenues/persistent losses, in the filter mentioned above (P .....

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wess Tyco Sanmar Limited 72.22% Mean 28.87% ii. The Ld. TPO/AO arrived at a final set of 4 companies by: * Rejecting all the comparables selected by the Assessee in the TP study on the ground that they are engaged in pumps industry, export filter, etc and hence functionally noncomparable; and * Added 4 new companies by carrying out word search of 'valves' without considering 'pumps' industry and the submissions made by the Assessee on benchmarking process and on comparables and o .....

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s important as the export filter to identify suitable comparables. In this process it is important to observe the intensity of the same on the tested party. From the financial statements of "WBPS, it can be observed that WDPS has imported raw material and components to the extent of 36% of total raw material consumption during AY 2009-10; b. Hence, it may be prudent to apply a filter of say at least 35% import filter to identify suitable comparables which would also observe similar business .....

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s the tested party and other comparables and hence should be rejected i.e. should not be considered as comparable to be a part of the TPO's fresh search set; d. Accordingly, we request the application of the import filter for the search on Prowess to reject the companies having imports less than 35% (considering the tested party situation) OR 25% considering the TPO's approach, to identify suitable comparables. Abnormal Margins a. Further, it can also be observed that, in the FY 2008-09 .....

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pany is from sale of spares and others. c. It is to be noted that in the valves industry the time period between sale of valves and commencement of sale of spares being approximately 4 to 5 years. The replacement market (spares) is characteristically more lucrative than the sale of valves and provides the necessary impetus to a company's bottom line growth. This future potential prompts companies to offer large discounts to customers to often secure an order for valves. d. The profitability .....

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electing the same as a comparable to substantiate the arm's length nature of international transaction of sales to AEs of Manufacturing division of WDPS. 10.3 Rejection of UBTL In view of the following points, it can be observed that the TPO has erred in not adopting IDTL as a comparable in his search process: i. While conducting a search on the Capitaline database the Ld. TPO, rejected UDTL on a premise that it had very low turnover of valves out of the total turnover, in spite of it having .....

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is pertinent to note that UDTL manufactures and sells tools and equipments such as Down hole tools, Tubing retrievable GLV, Fast Make-up connectors, Wire line winches and components and spares for the above. All of the above products are used in Oil and Gas Industry during drilling process. The products manufactured by the Manufacturing division of WDPS are also used for similar purposes. iv. Once the above facts were brought to the notice of the Ld. TPO, he sighted the export filter and reject .....

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lter has reduced the ideal 100% or 80% or more export filter to 25% to identify comparables, which is incorrect. As the filter hence is not serving any purpose of identifying comparables facing similar export market pressures. Hence, it would be prudent not to apply the export filter rather than adopting an arbitrary 25%, with no basis. Further, in such situation, adoption of a comparable with 17% of export would not be inappropriate to bring in a good comparable. c) The Ld. TPO/AO has sighted t .....

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neous and incorrect. The Hence it can be observed that the Ld. TPO/AO erred in not selecting UDTL as a comparable. 10.4 Closing remarks As discussed above, and various annexure referred there in, the search filters adopted by the Ld. TPO/AO are inappropriate. However, without prejudice to the above, even if the search conducted by the Ld. TPO/AO is adopted after appropriately factoring the discussion on the comparables i.e. Tyco Sanmar is not considered as part of the set of comparables identifi .....

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, in view of the above observation. The Assessee craves leave to add and submit such further facts, statements, documents and papers as may be considered necessary either before or during the hearing of the objections. Appendix III Weatherford Drilling & Production Services (India) Private Limited Assessment Year 2009-10 Objection 2: Rejection of the Transfer Pricing Documentation 1.Ground of objection No.2: Rejection of the Transfer Pricing Documentation The Ld. TPO/ AO rejected the Transfe .....

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nalysis The Assessee objects the rejection of economic analysis by the Ld. TPO/AO. Ground of objection No.2B; Rejection of usage of multiple year data The Assessee objects TPO/AO's action of not considering the impossibility of performance, in the light of non-availability of single year data of comparables for the purpose of TP Documentation and in rejecting the usage of multiple year data by the Assessee. Ground of objection No.2C; limiting the search process only to 'Valves The Assess .....

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y report, identifying 7 comparables having average OP/Sales of 8.85%, whereas OP/Sales of the tested party i.e. Manufacturing division of WDPS was,l6.15%. The Assessee has also filed various submissions time to time to substantiate the arm's length nature of its international transactions and has produced the evidences upon which the Assessee has relied in support of the computation of ALP in relation to its international transactions. The Assessee filed a detailed submission, in response to .....

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egarded the impossibility of performance for the use of single year data of the comparables in the TP Documentation; iii. Carried out the word search in the electronic databases to select 'Valves , 'Industrial Valves', 'Other Valves' limiting the search only to Valves; 4 Do you wholly agree with the modifications in the facts by the Assessing Officer. If not, give reasons pointing the specific fact or facts with which you do not agree along with the reasons and documentary ev .....

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of performance for single year data & usage of multiple year data (Please refer Page Nos.260 to 2678 of the Paper Book for the same) iii. Carrying out word search in the electronic databases to select Vales , Industrial Valves , Other Valves (Please refer Page Nos.268 to 270 of the Paper Book for the same) 5. Legal arguments submitted to the Assessing Officer The Assessee would like to submit that it is in compliance with the documentation requirement as enunciated in Section 92D of the Act .....

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analysis. Further, proviso to Rule 106(4) states that data relating to a period not being more than two years prior to such FY may also be considered if such data reveals facts which could have an influence on the determination of transfer prices in relation to the transactions being compared. In the instant case, the relevant prior years are FY 2006-07 and FY 2007-08. 6. Case laws relied upon by the Assessee a. Hon'ble Mumbai Tribunal in case of Star India Pvt. Ltd. Vs. ACIT (ITA 3585/M/2O .....

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9 ITD 278), the Hon'ble Tribunal h. ACIT vs. Jindal Irrigation Systems Limited (56 ITD i64(Hyd)) i Mafarlal Apparel Mfg, Co. Ltd. V. Deputy Commissioner Of Income Tax (61 TTJ 323) 7. Legal arguments relied upon by the Assessing Officer a. For the purpose of usage of multiple year data by the Assessee, the Ld TPO has relied on the provisions of Section 92C(3)(c) read with Section 92CA which provides that if the Ld. TPO is of the opinion that the information or data used in computation of the .....

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ction shall be data relating to the financial year in which the international transaction has been entered into. c. Accordingly, the Ld.TPO/AO has disregarded the usage of multiple year data by the Assessee. 8. Case laws relied upon by Assessing Officer. a. CIT vs. Brltlslt: Plants India Ltd.(788 IR 44) b. Aztee Graphiccs Software & Technology Services Ltd. (2007) [294 ITR (AT) 32] c. Mentor Graphics Pvt. Ltd. (2007) (109 ITD 101) d. Honeywell Limited (2009) (2009-TIOL 7104-ITAT Pune) e. Cus .....

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lting India Pvt. Ltd., (1082 & 1084/Hyd/2010). n. ACIT vs. Birlasoft Ltd. (47 SOT 437) o. Exxon Mobil Company India (P)Ltd. vs. DCIT (46 SOT 294) p. Symenate Software Solutions Pvt. Ltd. (46 sot 48) 9. Any additional new case laws which the Assessee may like to rely upon None. 10. Factual and legal arguments against the addition proposed by the Assessing Officer. Over and above what has been mentioned in para 4 and the submissions made to the Ld. TPO/AO during the course of assessment, below .....

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with the impugned international transaction and held that the Assessee s international transaction is not at arm s length. (Please refer Page Nos.257 to 259 of the paper book for the same) Additionally the Assessee would like to furnish the following: The Ld.TPO has passed the adjustment without providing any cogent reasons as per section 92C(3). This particular section specifies a list of 4 criteria based on which the documentation provided by the Assessee can be rejected and thereafter the Ld .....

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the assessee in accordance with the provisions contained in sub-section (1) of section 92D and the rules made in this behalf; or (c) the information or data used in computation of the arm s length price is not reliable or correct; or (d) the assessee has failed to furnish, within the specified time, any information or document which he was required to furnish by a notice issued under sub-section (3) of section 92D; the Assessing Officer may proceed to determine the arm s length price in relatio .....

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not brought any of the points in his order viz. . Any show cause to prove that the prices at which international transaction is undertaken is not at arm s length. . Non-maintenance of any information or document relating to the international transaction as prescribed u/s. 92D(1) . Information used to compute the arm s length price is not correct; or . Failure on part of the Assessee to furnish any information required under section 92D(3). to show that the Assessee s transfer pricing document ne .....

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lity shifts to the revenue to determine ALP in accordance with law. In view of all of the above, we would humbly submit that ejection of economic analysis carried out by the Assessee is incorrect. 10.2. Ground of objection No.2B- Rejection of usage of multiple year data. i. The Ld. TPO/AO has erred in rejecting the use of multiple year data used by the Assessee for the benchmarking exercise in the TP documentation. The Assessee has to submit the following in this regard: 10.2.1 Principle of impo .....

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the time of TP Documentation clearly falls within the frame of impossibility of performance on the part of the Assessee. Hence, the Ld. TPO/AO has erred in considering single year data for the companies. 10.2.2. Maintenance of Contemporaneous TP documentation. i. We refer to the TP Study submitted vide our submission dated December 22, 2011. For the reasons summarised hereunder, the Assessee submits that the comparable data relied upon by the TP documentation is contemporaneous, existed by the .....

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e prior year data would necessarily always reveal such facts. Hence, prior year data should be used wherever available and not as an exception. Further such use is essential when the data of the relevant F.Y. is not available on a contemporaneous basis. iii. Further, as per the OECD Guidelines, vide paragraphs 3.76 & 3.77 it has been provided that the use of prior year data, in addition to the information of the current year, is reflective of the economic conditions and business cycles. (Ple .....

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ps and valves are segments of the same mechanical tools industry (flow control industry); . Fortunes of pumps and valves are closely interlinked to each other and many companies manufacture both pumps and valves, it was prudent to identify comparables, which were engaged in manufacture of both pumps and valves; . Pumps and valves are intrinsically connected to each other as they are used together in a wide spectrum of industries, the benchmarking analysis carried out by the Assessee considered c .....

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ve, we would humbly submit that limiting the search process to Valves is incorrect. 10.4. Conclusion and prayer. In view of the above, the Assessee accordingly prays that the Ld. A.O. be directed to accept the Transfer pricing documentation maintained by the Assessee and consider the international transaction of Sales to AEs by the WDPS s manufacturing division to be arm s length, from an Indian TP regulation perspective; The Assessee craves leave to add and submit such further facts, statements .....

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y those features which are relevant and must be identified in the comparables too so that proper comparison may be made of tested party with the uncontrolled comparables and the market price or arm's length price of international transactions may be determined. However, in the light of arguments of the assessee in respect to filters given in the table above, this Panel directs as follows. • The TPO has applied export filter rejecting companies having export sales <25% of total sales. .....

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of 20 companies was selected. Since the set size was not very small, this criterion was finally adopted by the TPO. Though reducing the percentage of export leads to increase in number of comparable companies but this Panel however holds the view that beyond a limit if the percentage of export is reduced even though the number of companies to be considered would increase but the purpose would be defeated. Identified companies would not be comparables. This Panel finds that reducing the percentag .....

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are -sales of spares is more than 48% of revenue, it has super normal profit 71.44 percent and that it has RPT of 29.10 percent on total cost incurred by Tyco Sanmar. This Panel holds that sales of spares and super normal profit are not valid objections raised by the assessee. Sale of spare has not been segregated in any comparable as well as in the case of assessee. Further, what constitutes high percentage of sale of spares for this purpose is not established. Super normal profit with due res .....

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ee while requesting to include it as comparable are not valid reasons. The export percentage of this company is only 17%. Import percentage filter has not been applied by the TPO and therefore, it cannot be used as criterion to include this company. It has already been clarified by the TPO that import percentage filter has not been intended to be included. Therefore no direction is given to the TPO to include it in the set of comparables. 3. Objection 2; Rejection of the Transfer Pricing Documen .....

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Transfer pricing document by Ld. TPO/AO on the basis of following: Ground of objection No.2A; Rejection of economic analysis The Assessee objects the rejection of economic analysis by the Ld. TPO/AO. Ground of objection No.2B; Rejection of usage of multiple year data The Assessee objects TPO/AO's action of not considering the impossibility of performance, in the light of non-availability of single year data of comparables for the purpose of TP Documentation and in rejecting the usage of mul .....

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sh search and applied certain additional quantitative filters on the data. The TPO has erred in rejecting the Transfer Pricing Document prepared by assessee by applying the provisions of Sec. 92C(3)( c) read with Sec. 92CA thus being of the opinion that the data used in computation of the arms length price is not reliable or correct. Directions of this Panel i) In this connection, we have referred to the TP Order passed by the TPO for AY 2009-10. We find except export percentage filter all other .....

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comparison should be contemporaneous. Other filters applied by the assessee were the based on study of condition existing in this case. Filter Related party transactions more than 25 percent was used by the TPO to reject those companies which has transaction more than 25 percent as the TPO considered this limit as reasonable for identifying uncontrolled comparable companies. TPO has considered that more than this limit will vitiate the comparison as the basic fundamental principle of Transfer Pr .....

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ii) The purpose of making fresh search by the TPO after rejection of TP study of the assessee is to refine the search as more companies data is uploaded between the period assessee carried out the search and the TPO carries out the search during TP proceedings. If data was not available when the assessee carried on the study is not a bar for the TPO to carry out search later. Further, the TPO has carried out search to identify better comparables and this is what is required in transfer pricing .....

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les are available on using 'valves' as key word for search of comparables then there is no need to enlarge the search criterion even in TNMM. Therefore, this Panel does not consider it necessary to include pump also as key word for search. 3.2 therefore the ground of objection along with its parts is rejected and no direction to the AO/TPO is given by this Panel. 5.2. We have given our thoughtful consideration to the rival contentions, facts of the present case and material available on .....

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while conducting the transfer pricing study, the AO compared the assessee with industries which were engaged in the manufacturing of valves. During the course of hearing, it was pointed out by the ld.counsel for the assessee that the valves that are sought to be compared by the TPO are functionally different, entirely a different product, although it is named as valve. Although, it is true that the method adopted is TNMM, under this method the product is broadly compared. However, in the presen .....

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e authorities below and restore these issues before the TPO for conducting a fresh transfer price study for the purpose of finding out the nature of product, its market, geographical location, etc. as given under OECD guidelines regarding the comparability of the comparables. While doing so, the TPO would afford opportunity to the assessee for submitting fresh T.P. study comparables. However, it is made clear that the TPO would restrict his study to the financial year under consideration unless .....

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DRP on this issue. We find that before the DRP the following submissions made in the form of Appendix-IV, which is reproduced hereunder:- Appendix IV Weatherford Drilling & Production Services (India) Pvt. Ltd. Assessment Year 2009-10. Objection 3 - Disallowance under Section 40(a)(i) & 40(a)(ia) of the Act. 1. Ground of Objection 1.1 On the facts and circumstances of the case, and in law, the AO has erred in law, the A.O. has erred in proposing to disallow the deduction claimed of ͅ .....

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in the tax audit report for the assessment year 2008-09.Relevant extracts of the tax audit report as submitted before the AO are also attached herewith(please refer page Nos.384 to 386 of the paper book for the same.) 2.2 Details of the amounts so disallowed in the assessment year 2008-09 are given hereunder:- Sr.No. Particulars/ nature of expense Amounts voluntarily disallowed (Rs.) Tax deductible but not deducted (Rs.) 1. Management fees 40,04,126 4,22,736 2. Legal & professional fees. 5,9 .....

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s/nature of expense. Amounts claimed Tax deducted Date of payment Challan Nos. Challan amounts (Rs.)(including Other payments for Financial Year 2008- 09 (relevant to A.Y. 2009- 10). Assessment Year in Which expenses are allowable and taken as such 1. Management Fees. 40,04,126 1,11,906 September 5, 2008. 80532 7,17,895 2009-10 1,97,402 -d0- 80532 7,17,895 2009-10 1,13,428 December 4, 2008 80158 3,80,410 2009- 10 Sub-total. 4,22,736 2. Legal and Professional Fees 5,95,508 67,471 March 3, 2009. 8 .....

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e assessee also submitted all corroborating evidences in the form of copies of invoices, and copies of all relevant challans evidencing payment of taxes made in respect of the above referred amounts. Copies of submissions dated February 26, and March 1, 2003 as submitted before the AO are also attached along with all the relevant invoices and challans are attached herewith. (Please refer Page Nos.324 to 383 of the paper book for the same). 3. Facts, if any, modified by the Assessing Officer. The .....

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icer? If not, give reasons pointing the specific fact or facts with which you do not agree along with the reasons and documentary evidence, if any. The assessee does not agree wit the above referred modifications in the facts by the A.O. The assessee submits that the taxes deducted on the amounts have been deducted and deposited on the dates mentioned in the table atr para 2.4 above. The payments have been made within the financial year ended March 31, 2009, as relevant to Assessment year 2009-1 .....

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7; 45,99,634/- under Section 40(a)(i) and 40(a)(ia) of the Act, being management fees and legal and professional fees as no taxes were deducted thereon. These amounts were also reported in the tax audit report for the assessment year 2008-09.Relevant extracts of the tax audit report as submitted before the A.O. are also attached herewith. (Please refer page Nos.384 to 386 of the paper book for the same). 10.2. Details of the amounts so disallowed in the assessment year 2008-09 are given hereunde .....

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e table below. 10.4. Details of the taxes paid in the subsequent years on the amounts so disallowed and dates of payment of the same are given hereunder: Sr.No. Particulars/nature of expense. Amounts claimed Tax deducted Date of payment Challan Nos. Challan amounts (Rs.)(including Other payments for Financial Year 2008- 09 (relevant to A.Y. 2009- 10). AssessmentYear in Which expenses are allowable and taken as such 1. Management Fees. 40,04,126 1,11,906 September 5, 2008. 80532 7,17,895 2009-10 .....

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The assessee also submitted all corroborating evidences in the form of copies of invoices, and copies of all relevant challans evidencing payment of taxes made in respect of the above referred amounts. Copies of submissions dated February 26, and March 1, 2013 as submitted before the AO are also attached along with all the relevant invoices and challans are attached herewith (Please refer page Nos.324 to 383 of the paper book for the same). 10.7. On perusal of the details above, it would be obse .....

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usion and prayer. The assessee prays that the A.O. be directed to allow the deduction claimed amounting to ₹ 45,99,634/- being expenses pertaining to Assessment Year 2008-09, but on which, taxes have been deducted and paid for in the financial year relevant to the assessment year under consideration. The Assessee craves leave to add, alter and/or amend the aforesaid Grounds of Objection at or before the time of hearing. 6.2. However, the DRP has given direction as under:- 4. Objection 3 - .....

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Sections 40(a)(i) and 40(a)(ia) of the Act, being management fees and legal and professional fees as no taxes were deducted thereon. These amounts were also reported in the tax audit report for the assessment year 2008-09. Details of the amounts so disallowed in the assessment year 2008-09 are given hereunder: Sr.No. Particulars/nature of expense Amounts voluntarily disallowed (Rs.) Tax deductible but not deducted(Rs.) 1) Management fees 40,04,126 4,22,736 2) Legal and professional fees 5,95,50 .....

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ication of challans furnished by the Assessee, all the challans were for Assessment Years 2009-10 and 2010-11. Further, the AO also observed that all the TDS payments made by the Assessee during the period under consideration pertains to Assessment Year 2009-10 as per TDS challans produced by the Assessee and that the Assessee has not produced any TDS challan showing Assessment Year 2008-09. The Assessee requests that the AO be directed to allow the deduction claimed amounting to ₹ 45,99,6 .....

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