9911796707
TMI Blog2016 (5) TMI 1321X X X X Extracts X X X X X X X X Extracts X X X X ..... al comparable companies at the time of assessment proceedings and proceeded with using non-contemporaneous data- Erred on the facts and in law by conducting an unjustified fresh search at the time of assessment proceedings for identification of comparable companies and also erred in relying on the information available the time of assessment for determining arm's length price but not available at the time of complying with the transfer pricing regulations. 3. Consideration of companies as comparable which were not available in public domain at the time of complying with the regulations- Erred on facts and in law by considering companies (namely Deki Electronics Limited and Tibrewala Electronics Limited, which were not available in public domain at the time of complying with the documentation requirements and added very recently in public databases) as comparable and thus defeating the intention and purpose of using contemporaneous data in arriving at arm's length comparability analysis. 5. Use of single year data- Erred in considering the operating margins erred by the companies identified as comparable based on the financial data pertaining to the financial year ended 31 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act, wherein the income was determined at Rs. 15,38,24,330/-. The Assessing Officer/TPO had made an addition of Rs. 10,98,07,842/- being the adjustment made on account of international transactions with associate enterprises pertaining to manufacturing activities. The Tribunal vide order dated 25.05.2012 has noted the contentions of assessee in respect of computation of arm's length price by applying TNMM method and selecting certain external comparables. The Tribunal vide para 7 onwards had first considered the issue of computation of operating profit margins at the first instance. The Tribunal in turn, relying on coordinate Bench decision had decided the issue of adjustment on account of extraordinary expenses which were likely to affect the price/profit in the open market and had directed the Assessing Officer/TPO to examine the claim of assessee in this regard. The second issue decided by the Tribunal was the working capital adjustment to be allowed to the assessee and since the issue was not examined by lower authorities, the matter was sent back to the Assessing Officer/TPO to examine the claim of assessee relating to working capital adjustment. The next issue befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the original return of income can be taken into account in determining the arm's length price. The learned Authorized Representative for the assessee referring to the provisions of Rule 10D(1) of the Rules, pointed out that the details of adjustment are enumerated therein and the same cannot be made on the basis of data which comes into public domain on later date. The learned Authorized Representative for the assessee in this regard placed reliance on the ratio laid down by Hon'ble Bombay High Court in Scindia Steam Navigation Co. Ltd. Vs. CIT (1954) 26 ITR 686 (Bom) and pointed out that though the principle of Hon'ble Bombay High Court is old, but the same applies. He stressed that where the TPO takes up assessment proceedings on an earlier date, then the data which is not available at that time would not be used but in case proceedings are taken up on a later date and the data which is available on a later date is utilized, then the person in whose case the proceedings are taken up on a later date would be at different stand. He referred to the sequence of events filed in the Paper Book and pointed out that the TP study report was prepared by the assessee on 14.11.2006, wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be dependent when the transfer pricing is made. He stressed that in such scenario, every assessee would be in default as far as transfer pricing provisions are concerned and would be deemed guilty of concealment of its income. He stressed that an interpretation that leads to absurd results or mischief is to be eschewed. The next proposition raised by the learned Authorized Representative for the assessee was against the use of single year's data. 6. The learned Departmental Representative for the Revenue in turn, referred to the provisions of section 92(1) of the Act, under which income is to be computed in view of transfer pricing provisions. He further referred to the provisions of section 92C(3) of the Act, where the Assessing Officer during the course of proceedings and on the basis of material, information or documents in his possession, is of the opinion that the conditions in clause (a) to (d) are not fulfilled and on that basis, the Assessing Officer is to compute the adjustment, if any, on account of arm's length price of international transactions. Before computing such an adjustment, the proviso to the said section provides an opportunity to the assessee to be allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment as per statutory regulations i.e. reference is made to section 92C of the Act and other Rules and Regulations. Referring to the arguments of learned Departmental Representative for the Revenue, wherein he stated that the TPO can take into account the data available in public domain, he pointed out that under the provisions of section 92CA(3) of the Act, clauses (a) and (b) are not applicable and as per clause (c), the correctness of the data has to be judged with reference to particular issue i.e. on the data of filing of return of income. The Assessing Officer could rely on material, information, documents available with him, but the same has to be read with respect to date of filing the return of income. In reply to the objections of learned Departmental Representative for the Revenue with reference to Rule 10D of the Rules, he says that the Rule 10D of the Rules does not only refer to documentation but has two limbs and the second limb is mandatory. In this regard, he referred to his written submissions. 8. We have heard the rival contentions and perused the record. The issue arising before us is in relation to the transfer pricing adjustment made in the case of assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out that under Rule 10B(4) of the Rules, there is mandate to use only current year's data. In this regard, he further placed reliance on series of decision by different Benches of Tribunal. He further stated that the assessee while commenting on the filter of excluding companies, which have declining revenue or were making persistent losses, the assessee had argued that it had used multiple years data for his comparability study, which was denied to the assessee while computing arm's length price of comparables. He pointed out that there was no merit in the contention of assessee in this regard and though the Act ordinarily prohibits use of multiple years data for comparability, the multiple year data in the case of a comparable could be used only to understand its peculiar circumstances. He further referred to OECD revised guidelines in this regard, which distinguish between use of multiple years data for functional analysis and for statistical purposes i.e. for computing arithmetic mean i.e. para 3.75 to 3.79 of OECD revised guidelines. He stressed that the assessee has confused the use of multiple years data for functional analysis of comparables with the use of same for wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s against assessee's claim to compute PLI of the comparable cases on the basis of multiple year's data inclusive of preceding two years. On this aspect, the assessee contended that use of a single year data i.e. for F.Y. 2006 -07 for determining the PLI of the comparable cases is not justified and that it would be more appropriate to consider the financial data available of the comparable companies for a period of earlier two years i.e. 2004-05 and 2005-06 also. It is canvassed that at the time of conducting transfer pricing study by the assessee, the financial information of the comparable companies for the earlier two years was available and therefore, in terms of Rule 10B(4) of the Income Tax Rules, 1962 (in short 'the Rules') such data was permissible to be utilized. Similar objections have been reiterated even before us. In this connection, we find that for determination of ALP u/s 92C(2) of the Act, the manner is prescribed in Rule 10B of the Rules. In terms of Rule 10B(4) of the Rules, it is provided that the data to be used in analyzing the comparability of an uncontrolled transaction with an international transaction shall be the data relating to the financial year in whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to show that the data reveals certain facts which could possibly have an influence on determination of the transfer price. Quite clearly, the assessee has not demonstrated any qualitative peculiarities in the data which reveal facts that are potent to justify invoking of the proviso to Rule 10B(4) of the Rules in the present case. We therefore, find that in the present case, the TPO made no mistake in considering single year's data pertaining to F.Y. 2006 -07 to arrive at PLI of the comparable cases in order to determine the transfer price of the impugned international transactions of the assessee. Thus, on this aspect, the assessee has to fail. 12. Several Benches of Tribunal have also held that single year's data is to be used while computing the PLI of comparable companies. The contention of the assessee that by multiple years data of the comparable companies, the average PLI of set of comparables would be within +/-5% margins cannot be applied as the variation in PLI by itself does not justify invoking of the said proviso. The assessee has to establish that the data reveals certain facts which could have the influence on the determination of transfer price. Where we find t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation (2) sub-section (1) of section 139 of the Act. In other words, the data which is to be used by the assessee in relation to its international transaction vis-à-vis transfer pricing provisions should be such which is available by the due date of filing the return of income. First onus is upon the assessee to justify that the international transaction entered into by it with its associate enterprises is at arm's length price, in case it is compared with uncontrolled transactions i.e. transactions entered into by other concerns in similar circumstances. This documentation is to be compiled by the assessee by way of transfer pricing report in order to justify the arm's length price of its international transactions. 16. Under section 92C of the Act, it is provided that arm's length price in relation to international transaction shall be determined by following any of the methods prescribed therein which is the most appropriate method, having regard to the international transaction or class of transactions or class of associated persons or functioned performed by such persons or such other relevant entities as the Board may prescribe. Sub-section (2) ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essary or expedient, he may with previous approval of the Commissioner refer the computation of arm's length price in relation to the said international transaction under section 92C of the Act to the TPO. Under section 92CA(3) of the Act, the TPO is empowered to determine the arm's length price in relation to the international transaction in accordance with subsection (3) of section 92C of the Act. For doing so, the TPO is to serve notice upon the assessee requiring him to produce or cause to be produced, any evidence on which he may rely upon in support of computation made by him of the arm's length price in relation to international transaction. After hearing such evidence including any information or documents referred to in section 92C(3) of the Act and after considering such evidence as the TPO may require on specified date and also taking into account relevant material which he has gathered and confronted to assessee, the TPO has to pass an order in writing. Hence, under the provisions of the Act, the machinery to pass an order for determination of arm's length price of an international transaction entered into by any person is so provided. It is not only the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h was confronted to the assessee. The objection of assessee to the inclusion of above said concerns was that the data relating to the said concerns was not available at the time of complying with the documentation requirements and had come into public domain much later. We find no merit in the claim of the assessee that the data of companies which were not available in public domain at the time of complying with documentation requirements cannot be considered. The companies which are picked up by the TPO are functionally comparable to the assessee and the data which has been compiled by the TPO relates to assessment year 2006-07, and was confronted to the assessee and merely because the data came into public domain at a later date, the same cannot be ignored. The TPO has power to use any data which comes into his possession and Section has not provided any fetters to the collections of data on a particular date or otherwise and use of such data; in the absence of which, there could not be curtailment of powers to be exercised by the TPO for determining arm's length price of international transaction. Merely because, the financial results of a concern which were functionally sim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue authorities who are to determine the same in accordance with statutory regulations. The Tribunal further while concluding the issue had considered the burden of proof on the taxpayer and the Revenue authorities and had observed as under:- "132. A dispassionate study of provisions of various countries on Burden of Proof, would show, the following fundamental features: (i) That the burden to establish that international transaction is carried at ALP, is on the taxpayer who is to disclose all the relevant information and documents relating to prices charged and profit earned with related and unrelated customer. (ii) If the Assessing Officer has determined an ALP, other than the price declared by the assessee, Assessing Officer has to prove that the price determined by him is reliable and reasonable and confirms the statutory requirement unless the case is covered by situation No. (iii) below. (iii) In case of failure on the part of the taxpayer to comply with the statutory provisions, the tax authorities would have to determine the ALP. In such a situation, burden of proof on tax authorities is much reduced." 21. Thereafter, the conclusion of the Tribunal was tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities are satisfied and records a finding that ALP submitted by the assessee is fair and reasonable. Merely by finding faults with the transfer price determined by the revenue authorities (AO/TPO), addition on account of "adjustments" cannot be deleted. This is because the mandate of section 92(1) is that in every case of international transaction, income has to be determined having regard to ALP. Therefore, unless ALP furnished by the taxpayer is specifically accepted, the appellate authorities on the basis of material available on record has to determine ALP itself. Subject to statutory provisions, Appellate authorities can direct lower revenue authorities to carry this exercise in accordance with law. The matter cannot be left hanging in between. ALP of international transaction has to be determined in every case." 22. The above said proposition has been laid down by the Special Bench of Bangalore Tribunal while interpreting the transfer pricing provisions and the principle laid down by the Special Bench of Tribunal is applicable to the issue before us. The learned Authorized Representative for the assessee before us has placed reliance on the ratio laid down by Hon'ble B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e extent of Rs. 13,87,520/- was made which was 0.12% of the total sales. He further pointed out that similar claim of write off was being made from year to year. The learned Authorized Representative for the assessee pointed out that in assessment year 2005-06, the CIT(A) himself had allowed the claim of assessee and no appeal has been filed by the Revenue. The learned Authorized Representative for the assessee stressed that the claim was against actual write off. The learned Authorized Representative for the assessee further pointed out that the directions of DRP were prior to the order passed by CIT(A) relating to assessment year 2005-06. Another contention raised by the assessee was in respect of factual aspect and write off amount on account of Excise duty which as per the assessee was checked by the Excise department and the learned Authorized Representative for the assessee referred to the additional evidence filed on 29.02.2012 in this regard. 25. The learned Departmental Representative for the Revenue on the other hand, placed reliance on the orders of Assessing Officer/DRP in this regard. 26. We have heard the rival contentions and perused the record. The issue raised vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10B of the Act after the amendment to section w.e.f. 01.04.2001. The persons invoking the said provisions are entitled to a deduction under the Act, as compared to the pre-amended provisions of the section, under which the income comprising under the said section was exempt from the total income. The issue arising before us is whether while computing deduction under section 10B of the Act, in cases where the assessee has unabsorbed losses or depreciation, brought forward from earlier years, then whether the said unabsorbed business losses/depreciation are to be adjusted from the gross total income before allowing the deduction under section 10B of the Act or the said losses or the deduction under section 10B of the Act is to be allowed in the hands of the assessee without considering the brought forward unabsorbed losses/depreciation, which can be set off against the other income of assessee. Both the authorities below had denied the claim to the assessee, in view of the ratio laid down by the Hon'ble Supreme Court in Himasingka Seide Ltd. Vs. CIT (supra). The perusal of the judgment of Hon'ble Karnataka High Court in the said case reflects that the years under appeal related to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Departmental Representative for the Revenue on the other hand, placed reliance on the ratio laid down by the Hon'ble Supreme Court in Synco Industries Ltd. Vs. AO, (2008) 299 ITR 444 (SC), wherein the issue was whether while computing the quantum of deduction under section 80I(6) of the Act, the Assessing Officer has to treat the profits derived from an industrial undertaking as only source of income in order to arrive at deduction under Chapter VI-A. The Hon'ble Supreme Court held that the gross total income under section 80B(5) of the Act, which is also referred to in section 80I(1) of the Act, was required to be computed in manner provided under the Act, which presupposes that gross total income shall be arrived at after adjusting losses of other division against profits derived from an industrial undertaking. The issue before the Hon'ble Supreme Court is at variance with the issue before us and the said ratio is not applicable to the facts of the present case. The issue in the present appeal is squarely covered by the ratio laid down by the Hon'ble Bombay High Court in CIT Vs. Black & Veatch Consulting Pvt. Ltd. (supra), wherein deduction under section 10A of the Act was t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
