TMI Blog2016 (4) TMI 1354X X X X Extracts X X X X X X X X Extracts X X X X ..... y disregard the parties characterisation of the transaction and re-characterise the transaction in accordance with its substance. The second exception is when the form and substance of the transaction are the same but the arrangements made in relation to the transaction, when viewed in their totality, differ from those which would have been adopted by the independent enterprise behaving in a commercially rational manner. The second exception also mandates that the actual structure should practically impede the tax authorities from determining an appropriate transfer price. We find that the TPO/DRP has not brought on record any material to prove that either of the two exceptions were present in the case under consideration. Provisions of Chapter X were never aimed to make adjustment at any cost, but to decide fairly and equitably that the price quoted by an assessee with regard to an international transactions entered into with its AEs are at ALP. The burden is on the assessee to prove that transactions with its AEs are above board and it is paying/charging the same rate that is prevalent in the open market. The comparables selected by the assessee should not be ignored lightly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AE)i. e. F Hoffmann La Roche Ltd. (FHLR), filed its return of income on 29/09/2008, declaring total income of ₹ 2. 91 crores. 2. First Effective ground of appeal is about making addition of ₹ 2. 66 crores made under the provisions of Chapter X of the act on the basis of a markup of cost plus 21. 30%. During the assessment proceedings, the AO found that the assessee had entered into international transaction with its AE, that the amount involved in the transaction was of ₹ 26. 34 crores under the head provision of marketing and other support system. He made a reference under section 92CA(1) of the Act to the Transfer Pricing Officer(TPO) to determine the Arm s Length Price(ALP) with reference to the international transactions. The TPO found that the assessee had adopted the TNMM for determining the ALP, that the Profit Level Indicator (PLI) was the Operating Profit to Operating Cost (OP/TC), that six companies were identified as comparable in India data base, that the PLI of the assessee was 10. 14% as against the arithmetic mean of six comparables companies at 14. 62%. During the TP proceedings, the assessee was asked to update the PLI of the comparables for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dard deduction of 5%. After considering the submission of the assessee and the orders of the TPO, the DRP held that the determination of ALP by the assessee had been done on the basis of comparables selected by the assessee which were functionally different from the assessee company, that the action of the TPO in rejecting the TP study of the assessee was correct, that as per the provisions of rule10B (4)the multiple year data was to be used only when there was a direct influence of the previous year s figure on the profitability of the year under consideration, that in the case under appeal no such influence or correlation was found, that assessee was engaged in providing scientific and other information regarding Roche Pharma Products to medical fraternity hospitals and was providing marketing support services from sales of Roche Pharma Products in India, that the TPO had selected the comparables keeping in view those function of the assessee, that the arithmetical mean margin of those companies was 22. 24% against the assessee s margin of 10. 14%, that the exact match of the assessee for comparability are not easy to get, that TNMM was a residue method and it was more broad-b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicating authorities are supposed to give the basis or reasoning for arriving at a particular conclusion. Making a statement is not sufficient-it has to be supported by evidences or arguments. But, in the case under consideration the TPO/DRP has not given any reason for selecting the 19 new comparables nor it has been explained as to how same were functionally similar to the activities of the assessee. 5. 1. We would like to deal with each of the six comparables objected by the assessee. First of them is Choksi Laboratories Ltd. In the case of Nortel Networks India (P. )Ltd. (164TTJ21-AY. s. 2007-08 and 2008-09)the Tribunal had held that Choksi Laboratories was engaged in engineering activities. In the case of Yum!Restaurant(India) (P) Ltd. (48 Taxmann. com 384- AY. 2008-09), the Tribunal held that Choksi Laboratories was engaged in chemical testing services. Similarly in the matter of Ciena India Pvt. Ltd. (ITA/3324/DL/2013-AY. -2008-09)it was held that Choksi Laboratories was engaged in providing testing services for various products and was also offering services in the field of pollution-control. Here, we would like to mention that the AO, in his order, dated 24/09/2012, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avellers cheques and Citibank world money cards and Axis Bank Travel Currency prepaid cards. They are also subagents of Western Union money transfer. Coromandel travels: this division is having seven ITAT a approved branches at chimney, Mumbai (two ITAT a accreted branches), Bangalore, Delhi, Calcutta and Hyderabad, apart from handling ticketing for domestic and international travel, this division is also handling inbound and outbound tours. As per the page no. 540 of the PB, the company was engaged in hire purchase, leasing, bill discounting, money changing, travel agency. The last comparable, objected by the assessee is Senco Trance Ltd. On perusal of the director s report it is found that the assessee was engaged in the business of Container Freight Station (pg. 597of the PB), that the income from operations of the assessee comprised of handling charges, equipment, warehousing charges and agency and other charges. Under the head disclosure under segment reporting the assessee had stated that company is principally engaged in a single business segment viz. customs clearing and forwarding, container freight station and related activities (pg. 614 of the pb). In our opini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ables selected by the assessee should not be ignored lightly, unless and until it can be proved that the variables selected by it were functionally or otherwise different from the job done by it. The TPO is free to make search and refer to other comparables. But, this is not an unbridled power. He has to prove that comparables selected by him were engaged in the similar or almost similar activities of the assessee. In the case under consideration, the TPO had selected comparables which had no similarity at all with the activities of the assessee. We are unable to understand is how the results of companies dealing in foreign exchange/maintaining freight station or engaged in providing end-to-end engineering services can be compared with marketing and allied services. Accordingly, we hold that the selection made by the TPO is comparables was neither methodical not scientific. It is found that NCP margin as per the TP study of the assessee was 10. 14%, that NCP margin, after excluding the six comparables, is 12. 05%. Thus, it is within the permissible limit of +/-5%. Considering these facts, we decide the first effective ground of appeal(GOA-1to7) in favour of the assessee. 6. Next ..... X X X X Extracts X X X X X X X X Extracts X X X X
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