TMI Blog2016 (4) TMI 1177X X X X Extracts X X X X X X X X Extracts X X X X ..... how any variability distortions which are having effect on determination of transfer pricing of the international transaction. We are of the view that the comparables which are available in public domain even after the conduction of the studies by assessee can be taken as comparables and considered for benchmarking. The assessee filed complete multiple year data in the case of Alphageo (India) Ltd. in its paper book, which is referred by Ld. Counsel for the assessee in his arguments. In view of the above discussion, we are of the view that the authorities below were not justified in including Alphageo (India) Ltd. as comparable for benchmarking for determining ALP u/s. 92C(1) and 92C(2) of the Act. For rest of the comparables for benchmarking as selected by revenue has not been disputed by assessee except claim made that working capital adjustment should be given. The assessee’s contention regarding adjustment for the differences in working capital level of the assessee and comparable companies selected by revenue, we find that the required data in relation to these companies are not available in the orders of the lower authorities or the details filed by the assessee befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome - Held that:- AO has not made any disallowance u/s. 40(a)(ia) of the Act and not allowing set off of brought forward losses/unabsorbed depreciation as is apparent from the assessment order and CIT(A) has also given finding of fact qua that. Since the issues are not arising out of the orders of the lower authorities, we dismiss these issues of assessee’s appeal. - ITA No. 1083/Mum/2015 - - - Dated:- 22-4-2016 - SHRI MAHAVIR SINGH, JM AND SHRI ASHWANI TANEJA, AM For The Appellant : Shri Ajit Kumar Jain For The Respondent : Shri Akhilendra P. Yadav ORDER PER MAHAVIR SINGH, JM: This appeal by assessee is directed against the order of CIT(A)-58, Mumbai in Appeal No. CIT(A)-58/Arr.36/14-15 vide order dated 02.12.2014. Assessment was framed by DCIT-1(3), Mumbai u/s. 143(3) r.w.s. 144(C)(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) for AY 2008-09 vide his order dated 24.01.2012. 2. The first issue in this appeal of assessee is against the order of CIT(A) confirming the action of AO in making adjustment of Arms Length Price (ALP) determined by the assessee in respect to International Transaction in connection with Research Tech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.2008-TPSR Appendix-G Assessee s margin Comparables margin (3 years average) 16.96% TPSR Pg.24 Updated comparables margin for FY 2007-08 19.83% Vide TPSR Annexure F The assessee selected nine comparables and according to assessee, whose functional profiles are similar to that of the assessee. The assessee has provided TP Study Report and the nature of business of its comparables. The TPO accepted the comparables numbering 4 out of total 9 and balance 5 he rejected as under: S. No. Comparables Nature of Business Remarks of the undersigned 1. Alphageo India Ltd. The company is engaged in conducting seismic surveys and other services for the oil exploration companies. It is also in the business of providing testing/certification services on a contractual basis. Accepted as Comparable 2. Choksi Laboratories Ltd. The company is a commercial testing house engaged in the business of testing products. The company provides various types of analy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal research and trials and undertaking data management for new drug development for its group entities Rejected as Comparable segments A/c 4. The assessee before TPO furnished reply dated 30.06.2011 stating that it has selected its comparable in a scientific manner. The assessee took another ground that in case comparables at Sl. Nos. 3, 4 and 5 (given in above chart) were to be rejected then comparables given at Sl. No. 1 should also be rejected for the reason that it does not undertake any work in laboratories but undertakes field controls, service, designs and planning for oil industry. The assessee before the TPO submitted a fresh list of comparables, TPO out of which, rejected Origin Discovery Technologies Ltd. for the reasons that it has consistently been incurring losses from FYs 2005-06 to 2007-08 and accordingly, it is not considered as comparable company. The TPO after rejecting the comparables and considering the comparables given by assessee originally at Sl. No. 1 i.e. Alphageo (India) Ltd. finally choose set of nine comparable companies as under: Sl. No. Name of the Company OP/OC (unadj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rections. Similarly in case of Alphageo, research is being conducted which includes 3D, Seismic data acquisition in processing and carrying out analysis and advising/certification services on contractual basis. The function of this company are thus in the area of research activity and hence comparable. Accordingly, contention of the appellant is not acceptable. v) the appellant stated that the AO has rejected Pfizer Ltd. on the basis of segmental accounts which is not justified. In this regard it is mentioned that as stated by the assessing officer in the order, this company was excluded also on the ground that its annual account was for the period 30.11.2007 and thus only 7 months (April 2007 to November 2007) data was available was overlapping which is not comparable to the full financial year data of the appellant. The companies having different financial year/accounting year data (i.e. other than ending 31st March) are to be rejected because if a tested party ends its accounting year by March then taking companies whose accounting year ends in March only can be comparable. This view has been upheld by Hon ble ITAT Pune bench in the case of Honeywell Automation India Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce and not material difference would not be requiring adjustments. Further any adjustment which is required to be made would be in terms and in accordance with Rule 10B(1)(e)(iii) and not otherwise. Appellant has not made out any case as to how so called differences are materially affecting the amount of net profit margin in the open market. Further the appellant but for making a technical submission in this regard has not actually given any submission/working of the adjustments as it sought for working capital, which only means that the appellant is only interested in the raising technical issue and not serious on facts in this regard. Accordingly and in view of the decision of the Hon ble Mumbai tribunal in the case of Symentec Software Solutions Pvt. Ltd. for Asst. Year 2006-07 in ITA No.7894/MUM/2010, the contentions of the appellant regarding the comparability adjustment is not found to be acceptable. vii) the appellant also objected to the rejection of contemporary documentation and use of multiple year data. In respect of the submission in respect of use of financial information pertaining to the year in question which was not available and assessee s contention that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n/analysis, Assessee's conclusion is based on the Rule 10D(4) of I.T Rules, 1962. Rule 10D(4) only puts an obligation on the assessee that the information and documents which an assessee is required to maintain should, as far as possible, be contemporaneous and should exist latest by the specified date referred to in clause (iv) of section 92F; But this is not indicative or suggestive of the fact that the data to be used for the analysis/benchmarking of international transaction should necessarily exist at the time of undertaking the transaction/analysis conducted by the assessee for its benchmarking and that even if the data for the relevant period is available at the time of conducting analysis by the department, the same cannot be used. Use of data for the purposes of analysis governed by Rule 10B(4) of the I. T. Rules, 1962 and when a specific Rule is given in respect of data to be used for the purposes of comparability of an uncontrolled transaction with an international transaction, then to draw an indirect inference based on the Rule 10D(4) which only encumbers, maintenance of type of information/documents by the assessee, in respect of an international transaction wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears prior to the financial year 2007-08 have any influence on the determination of transfer prices in relation to the transactions being compared. The appellant has also based its arguments on the Para 5.9 of the OECD Guidelines. For the sake of clarity the relevant portion relied upon by the appellant is reproduced as under: Para 5.9 of the OECD guidelines: Tax administrations also should limit requests for documents that became available only after the transaction in question occurred to those that are reasonably likely to contain relevant information as determined under principles governing the use of multiple year data in Chapter 1 or information about the facts that existed at the time the transfer pricing was determined. In considering whether documentation is adequate, a tax administration should have regard to the extent to which that information reasonably could have been available to the taxpayer at the time transfer pricing was established. The OECD guidelines at Para 5.9 are in respect of the kind of data which should be asked by Tax Administrator. From the guidelines, it can be seen that it is clearly mentioned there that the relevant document that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt would clearly fall under the clauses (a) and (c) of the section 92C(3) of the Act. Therefore under such facts and circumstances of the case rejection of the benchmarking done by the appellant and the redetermination of the case rejection of the benchmarking done by the appellant and the redetermination of the ALP by the TPO is justified in terms of section 92C(3) of the Act. Contention of the appellant is therefore not acceptable. ix. With regards to the appellant s contention that burden of proof rested with the revenue, it is mentioned that in the case of Aztec Software and Technology Services Limited 107 ITD 141, Hon ble ITAT Bangalore (Special Bench) (which has been upheld by Hon ble Karnataka High Court) held that the burden to establish that international transaction was carried at Arm s Length s Price is on taxpayer. He is also to furnish comparable transactions, apply appropriate method for determination of ALP and justify the same by producing relevant material and documents before the revenue authorities. Further in a recent judgment in the case of CIT Vs. Shatrunjay Diamonds (2003) 261 ITR 258 (Bom) it was held that the intricacies of the transactions are requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quisition and processing. He then took us to P L Account of Alphageo (India) ltd. which is given at page 210 of assessee s paper book, wherein survey expenditure for the year is ₹ 35,51,51,974/- which is a major component of expenditure out of total expenditure of ₹ 61,34,81,150/-. It is to be noted that the depreciation expenses are at ₹ 13,85,43,810/-. He took us to the Schedule 15 to the P L Account which is given at page 217 of assessee s paper book which includes expenses of survey and drilling charges which is a major component out of total survey expenses at ₹ 26,49,32,587/-. In view of these facts, Ld. counsel for the assessee took us to the functions of the assessee company which is given in Transfer Pricing Study for the FY 2007-08 relevant to Asst. Year 2008-09 at page 32 of assessee s paper book. The function analysis is given as under: 4.2 Overview 4.2.1 SBPL and SCPAG have entered into an arrangement, whereby SBPL has been engaged to perform R T activities like undertaking certain sample preparation and chemical synthesis activity on behalf of SCPAG who will in turn supply SBPL with the necessary formulae, information and expertis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rking capital adjustment to the comparables selected by revenue can be allowed while computing margins. We find that the AO has rejected or removed three companies viz., Dolphin Medical Services Ltd., Medinova Diagnostic Service and N. G. Industries as comparables rejected by TPO and confirmed by CIT(A). The assessee s only plea was that in case these three companies are removed/rejected as comparables in that case the functional aspect of Alphageo (India) Ltd. should also be rejected/removed as comparables can be considered because the assessee from the very beginning before the TPO and before CIT(A) has taken this plea that there is functional difference between the assessee and Alphageo (India) Ltd. We find that the assessee s activity in R T includes undertaking certain samples preparation and chemical analysis activities for the agro chemical business. It supplies to its AEs the necessary formula, information and expertise to enable it to provide R T activities. Whereas on the other hand, Alphageo (India) Ltd. is in the business of exploration and production of oil. We are of the view that these two companies i.e. the assessee and Alphageo (India) Ltd. are functionally not com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts items of P L Account like expenses, sale price of product, provision for bad debts etc. and in turn it affects the profit before interest and tax. Accordingly, we are of the view that to take into account the difference in the net working capital requirements between the assessee and comparables selected by revenue, appropriate adjustments should be made on account of debtors and creditors. And adjustment to working capital cycle of assessee should be made vis- -vis the sale and total cost of each of the comparable companies. Let the assessee produce the data and TPO should analyse the same. Ld. Counsel for the assessee has given the computation of margin as taken by revenue of comparables after exclusion of Alphageo (India) Ltd. as under:- Sl. No. Name of the Companies Margin as TPO Margin post working capital adjustment 1 Alphageo (India) ltd. Nil Nil 2. Chokshi Laboratories Ltd. 29.95% 16.17% 3. GVK Biosciences Pvt. Ltd. 20.84 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. ii) ₹ 3,83,52,200/- (Rupees three crore eighty three lakh fifty two thousand two hundred only) towards the Buildings iii ) ₹ 75,00,000/- (Rupees seventy five lakh only) towards the Plant Machinery. According to AO, the assessee has shown the sale consideration of this block of assets at ₹ 4,58,52,200/- after reducing the cost of acquisition at ₹ 23.31 lacs. The dispute is regarding the amount deposited by assessee with the SIPCOT, Tamilnadu being the differential amount which was not accounted for. The assessee considered the sale consideration at ₹ 4,58,52,200/-. The AO show caused to the assessee as to why the differential amount of ₹ 1,86,47,800/- be not treated as income of the assessee accrued during the year on relinquishment of rights, titles and interest in the said property. The assessee explained that this amount was deposited with SIPCOT, Govt. of Tamil Nadu for leasehold land at Gummidipoondi, Tamilnadu which was sold by the assessee to Sanmar Speciality Chemicals Ltd. Hence, there was a nullifying effect and this was not considered in the consideration. According to AO, the same is income under the head short te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 6. Based on the facts and circumstances of the case Ld. CIT(A) erred in not allowing set off of brought forward losses/unabsorbed depreciation while computing the taxable income. 15. We have heard rival submissions and gone through facts and circumstances of the case. We find that the AO has not made any such disallowance in the assessment order and CIT(A) has also recorded the finding as under: 7.3. I have considered the facts of the case, submission of the appellant as against the findings/observations of the AO in his order u/s. 143(3) r.w.s. 144C(1) of the I. T. Act. The contentions and submissions of the appellant are being discussed and decided here in under: i) There is no discussion made by the AO on these two issues and hence the same does not arise from the assessment order. Accordingly, same cannot be considered in the appellate proceedings. These grounds of appeal are therefore dismissed. In view of the fact that the AO has not made any disallowance u/s. 40(a)(ia) of the Act and not allowing set off of brought forward losses/unabsorbed depreciation as is apparent from the assessment order and CIT(A) has also given finding of fact qua that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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