TMI Blog2016 (7) TMI 1364X X X X Extracts X X X X X X X X Extracts X X X X ..... r has to go back to the TPO for denovo adjudication in view of the fact that no proper opportunity was given by the TPO. Therefore, we direct the TPO to complete the denovo assessments keeping in view the decisions of the Jurisdictional High Court and various other Tribunals in rejecting various comparables selected by the TPO after providing adequate opportunity of being heard to the assessee. Upward adjustment on account of invoices raised on ONGC without appreciating that the same were pending acceptance/approval by ONGC - Held that:- We hold that the Assessing Officer should examine this matter afresh in the light of the submission that the said amount has already been taxed in the Assessment Year 2010-11. Therefore, we restore this issue to the file of the Assessing Officer for fresh adjudication. We make it clear that this amount should be taxed either in the Assessment Year 2010-11 or in the Assessment Year 2009-10 but not in both Assessment Years since it amounts to double taxation. The Assessing Officer shall consider and decide accordingly. Addition made on account of remission of liability - Held that:- We restore this issue to the file of the Assessing Officer who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the fact that as per AS 17- Segmental Reporting and Clause 2(f) of the Companies (Accounting Standards) Rules 2006, pertaining to Small and Medium Sized Company , in absence of any statutory requirements, the Appellant is not required to prepare segmental accounts as part of its annual accounts and proceeded to upheld TPO's stand that said segmental accounts ought to be part of Appellant's annual accounts. 4.3. The learned AO/ Hon'ble DRP erred, in law and in facts, by upholding the adoption of entity level approach to determine the ALP of international transactions undertaken by the Appellant with its associated enterprises and not appreciating the fact that under the TNMM method, comparison of net profit margin realized from international transactions or aggregate of international transactions is required and not comparison of operating margins of the enterprise as a whole. 4.4. The learned AO/ Hon'ble DRP erred, in law and in facts, by failing to make transfer pricing addition only to the international transactions of the appellant and ignored judicial precedents in this regard. 4.5. The learned AO/ Hon'ble DRP erred in law and on facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 3,70,55,707/-. The assessee has bench marked its international transaction under TNMM by using operating profit/operating cost as the Profit Level Indicator (PLI). The assessee identified a set of 25 comparable companies with arithmetic mean of 20.54%. The assessee arrived at its segment profitability in respect of IT enabled services at 27.54% and therefore contended that its international transactions are at arm s length. However, the TPO did not accept the contention of the assessee and he observed that segmental profitability for the year ended 31.3.2009 was not produced by the assessee. He also observed that copy of Annual Report for financial year 2008-09 submitted by the assessee was also does not contain any segmental reporting. Therefore, he rejected segmental PLI calculated by the assessee and adopted entity level PLI of the assessee and arrived at operating profit to operating cost at 60.81%. 3.1. The TPO was of the view that since assessee s business does consists of providing computer aided exploration and production coupled with software products and services to the oil and gas industry which is a high end knowledge oriented IT enabled services and since a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cross Domain 6. Datamatics Glob. 7. eClerx Services Ltd. 8. Excel Infoways Ltd. 9. Genpact India (Pvt. Company with unlimited liability) 5.1. The Ld. Counsel for the assessee further referring to page-128 to 130 of the Paper book submits that assessee by letter dated 4.1.2013 filed Transfer Pricing study including segmental profitability before the TPO. The Ld. Counsel for the assessee further submits that the assessee had raised its further objections vide statement dated 15.1.2013 wherein rebuttals were raised against the comparables selected by the TPO. However, at the time of filing the said letter, the assessee s authorized representative was informed that the TP order has been issued and hence the said submission cannot be taken on record. Therefore, the Ld. Counsel for the assessee submits that no opportunity of being heard was given to the assessee for furnishing the detailed analysis of the alleged comparable companies selected by the TPO and the reasons why the same should be rejected was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anel-Ill, Mumbai ('DRP'). The said appeal of the Appellant was disposed-of by the Hon'ble DRP vide its Directions dated 11 December 2013 passed under section 144C(5) of the Act, confirming the action of the TPO and AO and upheld the transfer pricing adjustment of ₹ 26,13,95,031. Being aggrieved by the order of the AO dated 31 December 2013 pursuant to the directions by the Hon'ble DRP passed under section 143(3) r.w.s. 144C(13) of the Act, the Appellant has filed an appeal with the ITA T. B. Appellant's contentions raised before the Hon'ble bench B.1.1 Rejection of audited segmental results and following an entity level approach and not restricting additions only to international transactions. 1) As mentioned above, the TPO rejected the audited segmental accounts (STPI revenues) duly were forming part of the TP documentation (as Annexure 5 therein) of the Appellant submitted during the course of the transfer pricing assessment proceedings before the TPO. 2. In view of the facts and under the circumstances of the case and in law, it is humbly submitted that the learned TPO erred in not appreciating the fact that as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Courts as under: Sr.No. Alleged comparables Reason for rejection Case laws 1 Accentia Technologies Limited High turnover and extraordinary activity during the year under review. Saunay Jewels Pvt. Ltd. reported in [2010]42 SOT 4 (Jurisdicational ITAT) Indo American Jewellery Limited reported in [2010] 131 TTJ 163 (Jurisdictional ITAT) LG Soft India Private Limited (ITA No.1121/Ban/2011) (Bangalore ITAT) Hon ble Jurisdictional Tribunal in the case of Vodafore India Services P. Ltd. (formerly 3Global Services P. Ltd) reported in [2014] 30 ITR(Tribunal) 218 The comparable company is engaged in Medical Transcription and software sales(KPO) which cannot be compared to the assessee being an ITeS service provider. Hence rejected on the basis that the said comparable is functi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Aditya Birla Minacs Worldwide Ltd (Formerly known as Transworks) 23.75% 3 Coral Hub Ltd. (formerly known as Vishal Information Technologies Ltd.) Ought to be excluded on functionally different 4 Cosmic Global Ltd 48.20% 5 Crossdomain Solutions Pvt. Ltd. 29.40% 6 Datamatics Global Services Ltd. 17.46% 7 Eclerx services Ltd. Ought to be excluded on high turnover 8 Excel Infoways Ltd. Ought to be excluded on functionally different and abnormally profits of 290.11% Average 29.70% Applicant s (OP/OC) ratio (considering segmental accounts) 27.54% Transfer Pricing adjustment NIL (since it falls within +/- 5% tolerance band) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 80,01,270/- which worked out to 27.54% ,on its operating cost of ₹ 2,90,54,437/- applying Operating profit/Operating cost ('OP/OC') as the Profit Level Indicator ('PU'). The assessee identified a set of 25 comparable companies with arithmetic mean of 20.54 percent and accordingly the international transactions entered into between the assessee and its AE were considered to meet the arm s length test. The said segmentals were submitted before the lower authorities. 9. The learned TPO at para 5.1. of his order contended that the audited annual report of the assessee did not contain any segmental reporting and rejected the audited segmental (i.e. STPI unit) filed during the course of the transfer pricing assessment proceedings. However failed to appreciate the assessee had already filed segmental accounts as part of its TP documentation. The adjustment, if any ought to have been restricted to the international transactions under review. The international transactions under review were undertaken only for a period of 3 months during the year under consideration i.e. from April 01, 2008 till June 30, 2008. The assessee contended that these transactions were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med that TP order was issued and therefore further submissions were not taken on record. What we noticed from the TPO s order was that the order was passed on 16.1.2013. The time gap between the issue of show cause notice and passing of assessment order was hardly 26 days which is not even a month and the TPO has provided only one opportunity for filing the required information in these 26 days which in our opinion there is lack of proper opportunity and sufficient time provided to the assessee for furnishing requisite details, principles of natural justice were not adhered in completing the transfer pricing adjustment. Even on merits, we find that when the assessee has furnished segmental reports, the Transfer Pricing Officer should not have adopted the entity level reports for bench marking the international transaction. We are also at loss to understand how the Transfer Pricing adjustment can be made at ₹ 26.13 crores when the assessee earned revenue of ₹ 3.71 crores from the international transactions during the Assessment Year under consideration from its AEs. 12. The Jurisdictional High Court in the case of CIT Vs Sumit Diamond (India) Pvt. Ltd. in Income Tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax Appeal No.1814 of 2013) decided on 5th October, 2015 and CIT v/s Thyssen Krupp Industries India Pvt Ltd (Income Tax Appeal No.2201 of 2013) decided on 2nd December, 2015), has taken a view that the ALP adjustment arrived at is only to be restricted to the international transaction entered into by the Respondent and could not apply to transactions entered into with non-A.E. This is for the reason that in terms of Chapter-X of the Act the mandate is to redetermine the consideration only with regard to International transaction with A. E. 13. In the case of CIT Vs M/s. Tara Jewels Exports Pvt. Ltd in Income Tax Appeal No. 1814 of 2013 dated 5.10.2015, the Jurisdictional High Court held as under: 5. On appeal, the Tribunal by the impugned order recorded the fact that the only grievance of the respondent-assessee before it was the application of the margin of 4.79% computed by the TPO under the TMM across all it s sales and not restricted only to the international transactions entered into by it with it s AE. The Tribunal by the impugned order held that the entire exercise of determining the ALP is done in accordance with Chapter X of the Act and in particular to S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various other Tribunals in rejecting various comparables selected by the TPO after providing adequate opportunity of being heard to the assessee. 15. Coming to the domestic issues the assessee is challenging the order of the DRP in sustaining the upward adjustment of ₹ 82,84,696/- on account of invoices raised on ONGC without appreciating that the same were pending acceptance/approval by ONGC. 15.1. It is the contention of the assessee that assessee had received the acceptance/approval by ONGC in the subsequent year i.e. Assessment Year 2010-11 and assessee recognized the said amount as its revenue and has been offered to tax accordingly. Therefore, it was the submission that since this amount is already offered to tax in the Assessment Year 2010-11, the same should not be taxed in the Assessment Year 2009-10. Therefore, the Ld. Counsel for the assessee submits that the matter may be restored to the Assessing Officer for fresh adjudication. 15.2. The Ld. Departmental Representative has no serious objection in setting aside the same to the Assessing Officer. 15.3. On hearing both the parties, we hold that the Assessing Officer should examine this matter afresh in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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