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Tata Motors European Technical Centre Plc. Versus Deputy Commissioner of Income-tax (IT) 4 (1) (2) , Mumbai

2016 (2) TMI 261 - ITAT MUMBAI

Use of Foreign Comparables - TPA - Held that:- Foreign comparables (i.e. UK comparables) can be taken into account for carrying out FAR analysis and benchmarking of the assessee’s international transactions with its Associated Enterprise’s for determining those Arm's Length Price. It is also accordingly held that the selection of Indian comparables by the Transfer Pricing Officer is not accepted. In view of the fact that the Transfer Pricing Officer has not examined the comparability of the UK c .....

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matter of the transfer pricing adjustment of provision of services to the file of the Assessing Officer/Transfer Pricing Officer. It is accordingly ordered. - Decided partly in favour of assessee for statistical purposes. - ITA No. 907/MUM/2015 - Dated:- 18-12-2015 - SHRI JASON P. BOAZ ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER For The Appellant : Shri Rajan Vora/Nikhil Tiwari For The Respondent : Shri N.K.Chand ORDER PER JASON P. BOAZ, A.M: This appeal by the assessee is directed .....

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idiary of Tata Motors Ltd., India ( TML ). In the year under consideration the Assessing Officer ( AO') made a reference u/s.92CA(1) of the Act to the Transfer Pricing Officer ( TPO ) for determination of all the transactions reported in Form3CEB. The assessee is engaged in providing automobile design engineering services to its sole customer Tata Motors Ltd. TML and TMETC-UK had entered into a design and engineering service agreement, for rendering services on a continuous basis to Tata Mot .....

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3. Dytecna Limited 5.42% 4. Ray Mallock Limited 4.21% 5. Ricardo PLC 8.77% Arithmetic Mean 4.53% Working out the three years weighted average of the comparables at 4.53%, the assessee was of the view that since its margin at 6.5% was greater, its international transactions were at arms length. 2.3 The TPO rejected the assessee s TP study as he was of the view that since the PE is an Indian establishment of a foreign company only Indian companies are to be adopted as comparables. After carrying o .....

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f 6.65%, the TPO in his order u/s. 92CA(3) of the Act dated 3/1/2014 proceeded to work out the TP adjustment at ₹ 2,89,12,090/- to the arms length of the assessee s international transactions. The Assessing Officer then completed the draft order of assessment under section 144C(1) r.w.s. 143(3) of the Act vide order dated 24/2/2014, wherein the income of the assessee was determined at ₹ 6,44,58,579/- as against the returned income of ₹ 3,69,92,093/- declared in the return of in .....

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n rejecting foreign comparables for bench marking analysis and in selecting Indian companies as comparable. The DRP rejected the use of foreign comparables following the similar decisions of the earlier DRP s for assessment years 2008-09 and 2009-10; on grounds of geographical disparity; since the said foreign companies were not having transactions with India; and different financial years of the foreign comparable companies. The DRP accepted the assessee s alternate arguments for directing the .....

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090/- under normal provisions of the Act. In doing so, the Assessing Officer/Transfer Pricing Officer verified and then accepted the working of the operating profit margin of the assessee and thereby neither proposed nor made any adjustment to the Arm's Length Price of the international transactions of the assessee, treating the same to be at arms length. 3.0 The assessee, being aggrieved with the final order of assessment for assessment year 2010-11 dated 30/12/2014 has preferred this appea .....

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s, considering the facts of the case of the appellant. C) The learned AO has erred in law and on facts in disregarding that in AY 2007- 08, department has accepted and considered UK companies as comparables for the purpose of benchmarking of international transactions and hence the learned Assessing Officer should have followed the same as there is no change in the facts of the case. 2. The learned AO has erred in law and on facts in holding that Appellant's 'Permanent Establishment' .....

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nctionally non-comparable. B) The learned AO has erred in law and on facts in cherry picking companies with high margin instead of following detailed, systematic and methodical search process. 5. Without prejudice to the ground that Indian companies cannot be considered for benchmarking international transactions, the Hon'ble DRP should have directed fresh comparability analysis to select Indian comparables which are functionally comparable to appellant, as comparables chosen by the learned .....

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these grounds, the assessee assails the orders of the authorities below in selecting Indian companies as comparables instead of foreign companies as comparables for benchmarking international transactions for provisioning of services. It is contended that the authorities below ought to have accepted the selection of foreign companies as comparables for benchmarking of international transactions considering the facts of the case on hand. 4.2.1 The Ld. Representative for the assessee submitted tha .....

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les for benchmarking analysis has been decided in favour of the assessee by the order of the Co-ordinate Bench of this Tribunal in the assessee s own case for assessment years 2008-09 and 2009-10 in ITA No.7630/Mum/2012 and 1698/Mum/2014 dated 22/12/2014, wherein the Bench has accepted the contention of the assessee that foreign comparables can be used for benchmarking analysis. 4.2.2 The Ld. Representative for the assessee submits that while there is no addition(i.e. T.P adjustment) made in the .....

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transactions of provisioning of services is to be held in favour of the assessee following the decision of the Co-ordinate Bench of this Tribunal in the assessee s own case for assessment years 2008-09 and 2009-10. 4.3 Per contract, the Ld. Departmental Representative was heard and he emphatically supported the orders of the authorities below. 4.4.1 We have heard the rival submissions and perused and carefully considered the material on record, including the judicial precedent cited. We find th .....

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nch marked by carrying out functional analysis of its controlled transactions for which reliable data for its comparability is available in the country where it is located, then such comparables has to be taken into account for carrying out the comparability analysis for the purpose of Transfer Pricing and bench marking the Arm's Length Price. The TMETC for the purpose of rendering services in India is incurring all its cost in UK like direct costs, employee costs, legal and professional fee .....

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d that Indian comparables can be used to bench mark the TMETC transaction and the price with Tata Motors. For this reason, the finding of the TPO as well as DRP that PE is an Indian enterprise, working in India and therefore, its margin is to be bench marked with Indian comparables is not accepted. The PE in India is a service PE, having no establishment in India, nor incurring any costs, deployed any assets, therefore, cannot be held that it is an independent Indian enterprise. Nothing has been .....

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the foreign comparables i.e. UK comparables can be taken into account for carrying out FAR analysis and bench marking the Arm's Length margin of the assessee's transactions with its AE and the selection of the Indian comparables by the TPO is not accepted. Since the TPO has not carried out any comparability analysis or FAR analysis in respect of UK comparables chosen by the assessee, therefore, he is directed to carry out such analysis and benchmark the assessee's margin. If such co .....

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his Tribunal for assessment year 2008-09 and 2009-10 (supra), we also hold that the facts and circumstances of the case in the year under consideration being similar to those of the earlier assessment years, 2008-09 and 2009-10, foreign comparables (i.e. UK comparables) can be taken into account for carrying out FAR analysis and benchmarking of the assessee s international transactions with its Associated Enterprise s for determining those Arm's Length Price. It is also accordingly held that .....

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