TMI Blog2017 (2) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) of the Act. Therefore, the decision of the Hon'ble Supreme Court in the case of the CIT vs. Nagpur Hotel Owners [2000 (12) TMI 99 - SUPREME Court ] is not strictly applicable to the facts of the case of the assessee as in the assessee’s case, the assessment order has not yet been passed and the assessee has filed the relevant information before the DRP. Therefore, we deem it fit and proper to remand the issue of the computation of deduction u/s 10A of the Act to the file of the AO with a direction to verify the claim in accordance with law after taking note of Form 56F and other documents filed by the assessee before the DRP. Ground treated allowed for statistical purposes. - ITA No.273/Hyd/2016 & SA No.26/Hyd/2016 - - - Dated:- 21-12-2016 - Smt. P. Madhavi Devi, Judicial Member AND Shri S.Rifaur Rahman, Accountant Member For The Assessee : Mr.Kanchan Kaushal, Mr. Ali Asgar Rampurwala and Mr. Abhiroop Bhargav For The Revenue : Shri K.P.C. Rao, CIT (DR) ORDER Per Smt. P. Madhavi Devi, J.M. This is assessee s appeal for the A.Y 2011-12. In this appeal, the assessee is aggrieved by the assessment order passed u/s 143(3) r.w.s. 144C(13) of the I.T. Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pvt. Ltd. in the final set of comparables since it is functionally comparable to the Appellant. 3. On the facts and circumstances of the case and in law, the Hon'ble DRP erred in not including Acropetal Technologies Ltd. and Accuspeed Engineering Ltd. in the set of comparable companies, despite considering them as functionally comparable to the Appellant's business of rendering engineering services. The Appellant prays that the aforesaid comparable companies ought to be included in the set of comparable companies since they are functionally comparable to the Appellant. 4. On the facts and circumstances of the case and in law, the Hon'ble DRP erred in confirming the action of the Learned AO/TPO in considering loss on account of foreign exchange differences as operating in nature while computing the operating margins of the Appellant. However, the Learned AO/TPO have considered foreign exchange difference as a nonoperating in nature while computing the margins of the comparable companies. The Appellant prays that the loss on account of foreign exchange differences ought to be considered as non-operating in nature. 5. On the facts and circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d No.3, brief facts of the case are that the assessee had entered into two international transactions with its AE, i.e. for (i) for provision of ITeS and; (ii) payment for technical support services. The assessee, in its TP study, adopted the TNMM as the most appropriate method and the profit level indicator i.e. PLI as operating profit/operating cost and arrived at the margin of 10.11% as against the margin of comparables taken by the assessee at 5.74%. The TPO observed that the taxpayer has used the capitaline data base for search of comparable companies for the I.T. enabled services. After applying certain filters, the assessee has shortlisted 8 companies as comparables, and the arithmetic mean/PLI of the comparables was computed at 5.74% as against its own PLI of 10.11% and that the assessee has treated its transaction to be at ALP. The TPO observed that as per the audited statement of accounts, the financials of the taxpayer are as under: Description Amount (in Rs.) Operating Revenue 31,81,69,320 Operating Cost 28,97,99,105 Operating Cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at even one comparable is sufficient for comparability analysis and since two of the companies selected by the assessee are found appropriate comparables by the TPO, the TPO, instead of carrying out a fresh search, should have determined the ALP based on these two comparables. Thus, observing, the DRP directed the AO to determine the ALP based on the margin of the above two comparables, i.e. 31.88% and 13.32% respectively, the mean of which works out to 22.6%. Against this finding of the DRP, the assessee is in appeal before us by raising the ground of appeal No.3. 9. The learned Counsel for the assessee submitted that both the assessee as well as the TPO have adopted TNMM as the most appropriate method which is an indirect method of arriving the ALP. He submitted that while computing the ALP under TNMM, a reasonable number of comparables are to be considered to ensure that the results are truly representative of the segment to which tested party belongs. In support of this contention, he placed reliance upon the following two decisions: i) Fortune Infotech Ltd vs. ACIT (ITA No.274/Ahd/2013, dated 3.2.2016) ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this comparable is also not free from doubt, would it really be appropriate to select this method as most appropriate method for determining arm s length price on the facts of this case, he quickly responded that there is no statutory bar on application of a particular method only because one comparable is available for benchmarking. He referred to judicial precedents in support of the proposition so advanced by him. That is not, however, the issue; it is not a question of statutory bar. The question is as to what is the most appropriate method on the facts of that case, and this question cannot be decided in vacuum or in an abstract or theoretical terms. It has to be considered in the light of the facts of that case, in the light of availability of necessary inputs for various alternative options and in the light of other relevant factors. If in one case the Tribunal has held that even one comparable is good enough for determining the arm s length price on the basis of one of the prescribed methods, and that method is most appropriate method in a given situation, it cannot be inferred that irrespective of the method employed and de-hors the peculiarities of a fact situation, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and circumstances of each particular international transaction and which provides the most reliable measure of an arm's length price in relation to the international transaction . (2) In selecting the most appropriate method as specified in sub-rule (1), the following factors shall be taken into account, namely:- (a) the nature and class of the international transaction; (b) the class or classes of associated enterprises entering into the transaction and the functions performed by them taking into account assets employed or to be employed and risks assumed by such enterprises; (c) the availability, coverage and reliability of data necessary for application of the method; (d) the degree of comparability existing between the international transaction and the uncontrolled transaction and between the enterprises entering into such transactions; (e) the extent to which reliable and accurate adjustments can be made to account for differences, if any, between the international transaction and the comparable uncontrolled transaction or between the enterprises entering into such transactions; (f) the nature, extent and reliability of assu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the ALP on the facts of this case. We are of the considered view that the internal TNMM, on the basis of which the assessee had done its benchmarking, was indeed not the most appropriate method on the facts of this case. For this short reason alone, and without addressing ourselves to the merits of the line of reasoning adopted by the authorities below, we approve the conclusions arrived at by the TPO and the DRP and decline to interfere in the matter. A lot of arguments have been addressed on whether the services rendered to the non AE can be compared with the services rendered to the AE, but, given our above conclusions, that aspect of the matter is wholly academic . 12. We find that this decision has been followed by the Coordinate Bench of this Tribunal at Chennai in the case of M/s. GE Healthcare Bio-Sciences Ltd vs. DDIT (Cited Supra). Therefore, respectfully following the above decisions, we hold that the DRP is not correct in holding that the TPO can compute the ALP by considering only the two companies which have been selected by the assessee and accepted by the TPO for computing the ALP. Further, the TPO u/s 92CA of the Act has conducted his own search for compar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion Coal Co. Ltd (70 ITR 45 (Cal.) vi) NTPC vs.CIT (229 ITR 383 (S.C) vii) Ashok Vardhan Birla vs. CWT (208 ITR 958 (Bom.) viii) Controller of Estate Duty vs. R. Brahadeeswaram (163 ITR 680 (Mad.) ix) Inaroo Ltd. Vs. CIT (204 ITR 312 (Bom.) x) CIT vs. Govindram Bros. P. Ltd (141 ITR 626 (Bom.) 17. The learned DR, on the other hand, objected to the admission of the additional grounds of appeal. According to him, the assessee itself has taken this company as comparable and therefore, is now precluded from objecting to its comparability before the Tribunal for the first time. 18. Having regard to the rival contentions and the material on record, we find that in all the decisions (cited Supra), relied upon by the assessee, it has been held that the Tribunal has powers to entertain and admit an additional ground of appeal subject to the limits, if any, prescribed by the statutory provisions. Undisputedly, the assessee has taken this company as comparable in its own TP study a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but such other considerations also weigh such as discharge of social obligations etc. and hence they cannot be considered as comparable to the private companies. Relevant portion of the order is reproduced hereunder: 5. Re question (b) :- (a) The grievance of the respondent assessee before the Tribunal was that M/s. Engineers India Ltd. has been erroneously introduced as a comparable by the TPO for determining the ALP of the respondent assessee's International Transactions. The impugned order of the Tribunal records the fact that the Engineering India Ltd. is a Government Company and its annual report indicates that a substantial part of its revenue in execution of turnkey projects arose out of executing projects of public sector undertakings. In the circumstances, the impugned order of the Tribunal holds that the Engineers India Ltd. could not be considered to be comparable for the reason that contracts between Public Sector undertakings are not driven by profit motive alone but other consideration also weigh in such as discharge of social obligations etc. Thus, it is not comparable. Moreover, from the annual report, it is clear that the revenue earned in executing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court in the case of CIT vs. Nagpur Hotel Owners reported in (2001) 247 ITR 0201 wherein it was held that non furnishing of audit report along with the return of income is fatal to the claim u/s 11 of the Act.. 24. Having regard to the rival contentions and the material on record, we find that the assessee is required to file form No.56F along with the return of income to enable the AO to examine the allowability of and also to compute the deduction u/s 10A of the Act. The Hon'ble Supreme Court in the case of CIT vs. Nagpur Hotel Owners (cited Supra) was considering the case of an assessee claiming exemption u/s 11 of the Act and the Hon'ble Supreme Court has held that furnishing of return subsequent to the assessment is not to be considered. We find that the assessment in the case of the assessee before us was still open as the assessee has filed its objections before the DRP against the draft assessment order and the final assessment order is passed only pursuant to the directions of the DRP u/s 144C(13) of the Act. Therefore, the decision of the Hon'ble Supreme Court in the case of the CIT vs. Nagpur Hotel Owners is not strictly applicable to the facts o ..... 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