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2016 (4) TMI 356 - ITAT DELHI

2016 (4) TMI 356 - ITAT DELHI - TMI - Transfer pricing adjustment - exclusion of Mold-Tek Technologies Ltd as comparable by the CIT(A) - Held that:- The company grew with a compounded annual growth rate (CAGR) of 147% for 3 years which is evident from the chart given in the impugned order of the Ld.CIT(A) and on the basis of the said chart, CIT(A) has rightly rejected Mold-Tek as comparable company due to the consistently abnormal profits earned by the company. The CIT(A) by deciding this issue .....

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CIAL MEMBER For The Appellant : Sh. Atia Ahmad, Sr. DR For The Respondent : Sh. Vishal Kalra, Adv ORDER PER SUCHITRA KAMBLE, JM This appeal is filed by the Revenue and the Cross-Objection is filed by the assessee against the order dated 5/2/2013 passed by the CIT (A) s XX, New Delhi. 2. The grounds of appeal of the revenue are as under:- 1. On the facts and in the circumstances of the case and in law the Ld. CIT (A) has erred in deleting the adjustment of ₹ 1,21,84,936/- made by the A.O on .....

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io of the apex court in National Thermal Power Corporation 229 ITR Page 383 has raised the same for adjudication for the advancement of substantial cause of justice. a. The order of the assessment is bad in law as the mandatory conditions to invoke the jurisdiction u/s92CA of the Act did not exist, or having not been complied with and consequently the orders of the Assessing Officer is bad in law for want of requisite jurisdiction. b. The Assessing Officer erred in not providing the copy of the .....

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of the principles of natural justice and on this count also the order requires to be cancelled. 3. The Ld. CIT (A), TPO and the Assessing Officer erred in rejecting the comparables selected by the respondent without giving any cogent reasons. 4. The Ld. CIT (A), TPO and the Assessing Officer erred in not applying employee cost filters for a labor intensive industry wherein the respondent operates. 5. Without prejudice, the Ld. CIT (A), TPO and the Assessing Officer failed to understand the spiri .....

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ered by the respondent, the question of making any TP adjustment in the respondent case does not arise. 6. The Ld. CIT(A), TPO and the Assessing Officer have erred in denying the respondent the right to cross-examine the companies whose data called for u/s133(6) was used for the computation of ALP margin. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) while disposing the appeal u/s 250 of the Income-tax Act 1961( the Act ) has erred in: 7. Using financial informatio .....

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panies; 10. Approving use of information gathered by the TPO by exercising power u/s 133(6) of the Act without appreciating that the information is not available in public domain, which is contrary to the principles of natural justice; 11. Rejecting certain functionally comparable companies accepted by the assessee and accepting certain non-comparable companies selected by the TPO without giving any logical reasons; 12. Accepting certain companies engaged in performing Knowledge Process Outsourc .....

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f above adjustments for such difference; 15. Accepting the incorrect computation of the operating margins of some of the comparable companies by the TPO; and 16. Rejecting the plea that the assessee is a software technology park of India ( STPI ) unit which is entitled to tax holiday and consequently there is no motivation for shifting profits through transfer pricing mechanism. 17. The respondent craves leave to add, alter, delete, modify any of the grounds which are urged above. 18. For the ab .....

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ation of Arm s Length Price ( ALP ). The TPO determined the ALP of the international transaction at ₹ 19,55,47,963/- thereby proposed an addition of ₹ 1,21,84,936/- to the total income of the Applicant, without giving benefit of adjustment of +-5% as per provisions of Section 92C(2) of the Income-tax Act, 1961 ( the Act ), as were prevailing prior to October 1, 2009. Consequently, following the recommendation of the TPO, A.O made additions to the total income of the Applicant. The as .....

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r / Transfer Pricing Officer erred in not providing relief of 5% standard deduction as per section 92C(2) of the Income-tax Act, 1961, as prevailing prior to October 1, 2009. It is submitted that the said ground/issue is squarely covered in favour of the assessee by the decision of this Hon ble Tribunal for the assessment year 2006-07. The relevant observations of ITAT, are inter alia as under: 5 per cent standard deduction has been denied on the ground that proviso to Section 92C (2) of the Act .....

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ant shall be allowed the benefit of 5 % standard deduction while determining the ALP of the international transactions. It is further submitted that the aforesaid additional grounds of appeal is purely legal in nature and does not involve any fresh investigation into facts, and the Applicant by way of this application, craves leave of this Hon ble Bench to raise the aforesaid additional grounds. Reliance is placed on the decisions of the Hon ble Supreme Court in the case of National Thermal Powe .....

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2(b), 2(c), 3 to 15, 17 & 18 of assessee s cross-objection and contesting only Ground No. 2(a) read with 16. Hence, Ground No. 1, 2(b), 2(c), 3 to 15, 17 & 18 are dismissed. 6. The Ld. DR submitted that after merger and de-merger of the assessee company there was an abnormal profit and therefore, the comparable related to Mold-Tek Technologies Ltd. should have been added as comparable because core business was similar to that of the assessee company. 7. While giving rejoinder, the AR su .....

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in-houses software development etc. As a result of this, this company was treated as functionally not similar. Further, the appellant has placed reliance on the decision of the I.T.A.T in the case of Adobe Systems India Pvt. Ltd. (ITA NO. 5043) which has underlined the significant principle that if high loss making companies are not accepted, the high profit making companies should also not be accepted as comparables. 8. The Ld. AR presented a table indicating the revenue growth rate of the Com .....

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as a comparable company due to the consistently abnormal profits earned by the Company. Further the assessee stated that company was involved in merger and acquisition activities during the year under consideration. 9. The CIT(A) after considering the submission of the assessee, the order of the TPO and the annual report of the company, came to the conclusion that there was merit in the claim of the assessee that the company had mergers and acquisition activities during the year. He also pointed .....

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ITD 83 wherein the same company which was excluded by the CIT(A) in the present case, has been excluded by the Tribunal on the following reasoning: Para 81. In so far as the case of Mold-Tek Technologies Ltd. is concerned, it is observed from the annual report of the said company for the Financial Year 2007-08 placed at page 139 to 151 of the paper book that the said company was pioneer in structural engineering KPO services and its entire business comprised of providing only structural enginee .....

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the clients to cut down design and development costs of civil, mechanical and plant design by 30-40% and delivered technologically superior outputs to match and exceed expectations. It is claimed to have in-house software development team, quality control training and troubleshooting facilities. M/s Mold-Tek is also rendering web design and development services with experience in turning them into an effective graphic design representation and creating dynamic and graphic rich web applications .....

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a unique year for Mold-Tek Technologies Ltd. as the scheme of arrangement involving amalgamation between Tekmen Tool Pvt. Ltd. and Mold-Tek Technologies Ltd. and demerger between Mold-Tek Technologies Ltd. simultaneously was sanctioned by the Hon ble AP High Court by 15th July, 2008 with the appointed date for amalgamation and de-merger being 1st October, 2007 and 1st April, 2007 respectively. It is also pertinent to note that while working out the operating margin of the said company, provisio .....

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of TATA Consultancy in respect of the ground of assessee in Cross-Objection related to invocation of jurisdiction u/s 92CA, the said judgment by the ITAT Mumbai in Para 26 has given a finding that it was the statutory duty of the Assessing Officer to decide independently, whether the determination of Arm s Length Price of the assessee should be accepted or whether or not after applying the provisions of Section 92CA the Transfer Pricing Adjustment should be made. This is a statutory safeguard f .....

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