TMI Blog2015 (10) TMI 2819X X X X Extracts X X X X X X X X Extracts X X X X ..... ntification of the assessee's claim for risk adjustment has only been placed before us and was not before the authorities below, we deem it appropriate to remand this issue back to the file of the TPO with a direction that the TPO examine the assessee's claim for risk adjustment and allow the same if the facts of the case on hand so warrant such adjustment. Needless to add, the assessee shall be afforded sufficient opportunity of being heard and to make its submissions in this regard which shall be considered by the TPO before he takes a decision in the matter. It is ordered accordingly. Comparable selection - IDL (India) Ltd - It is seen that the facts submitted by the assessee in this regard emerge from the records. This company was included in the list of comparables chosen by the assessee in its T.P. Study. We find that the TPO has indeed mentioned in the T.P. order that this company is functionally comparable and acceptable . That being so, it is not clear as to why this company was not selected and included in the final set of comparables and why this company did not figure in the search process conducted by the TPO. In this view of the matter, we consider it ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether the TPO has adopted the segmental details or the entity level details. In fact, the DRP has directed that it is to be ascertained whether segmental margins were adopted or entity level margins. In this factual matrix as discussed above, we are of the view that it would be appropriate to remand the issue back to the file of the Assessing Officer / TPO to examine the comparability of this company with the assessee, in the light of our observations above and if this company is found comparable, to adopt the margins as per the segmental details. Maruti Insurance Agency Logistics Ltd. - As seen from the orders of the Insurance Regulatory Development Authority ( IRDA ) that this company is a group entity belonging to the Maruti Suzuki Ltd. group and is acting as its corporate agent. In that order of the IRDA, it has been held that no insurer is supposed to be granted license to act as corporate agent on the basis of reputation and strength of the applicant firm and a finding has been rendered that the corporate agent; namely this company has violated the statutory provisions. We find that the documents filed before us were evidently not placed before the TPO and DRP and theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee shall be afforded sufficient opportunity of being heard and to make its submissions in this regard which shall be considered by the TPO before he takes a decision in the matter. Benefit of + / - 5% as set out under the proviso to Section 92C(2) - The new section 92C(2A), mandates that if the AM price falls beyond + / - 5% from the price charged in international transactions, then the assessee does not have any option referred to in Section 92C(2) of the Act. Thus, as per the above amendment, it is clear that the + / - 5% variation is allowed to justify the price charged in the international transactions and not for adjustment purposes. The aforesaid amendment has settled the issue and accordingly, the 5% benefit is not allowable in the assessee's case. In view of the retrospective amendment by way of insertion of Section 92C(2A) w.r.e.f. 1.4.2012 brought about therein by Finance Act, 2012, this Ground of the assessee's appeal is not maintainable and is accordingly dismissed. - I.T. (T.P) A. No.145/Bang/2015, I.T. (T.P) A. No.226/Bang/2015 - - - Dated:- 28-10-2015 - SHRI VIJAYPAL RAO, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER For The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 which included the proposed T.P. Adjustment of ₹ 1,89,05,122. 2.4 Aggrieved by the draft assessment order for Assessment Year 2010-11 dt.28.2.2014, the assessee filed its objections thereto before the DRP, which disposed off the matter by issuing its directions under Section 144C(5) of the Act vide order dt.28.11.2014, allowing the assessee partial relief. Consequent thereto, the Assessing Officer passed the final order of assessment under Section 143(3) rws 144C of the Act vide order dt.30.12.2014, wherein the assessee's income was determined at ₹ 2,68,55,668; which included T.P. Adjustment of ₹ 1,53,85,072 to the returned income. 3. Aggrieved by the order of assessment for Assessment Year 2010-11 dt.30.12.2014, both the assessee and revenue have preferred appeals before the Tribunal raising the following grounds :- 3.1 The Grounds raised in the assessee's appeal are as under :- 1. That the order of the learned Deputy Commissioner of Income Tax, Circle- 5(1)(2), Bangalore ( Assessing Officer or the learned AO ) to the extent prejudicial to the Appellant, is bad in law, contrary to the facts and circumstances of the case and is liable to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Panel erred in upholding the fresh set of comparables adopted by the TPO in relation to the provision of global support services by the Appellant to its AEs which did not satisfy the test of comparability. 7.3. That the learned AO/learned Panel erred in rejecting the additional comparability analysis undertaken by the Appellant at the time of the assessment proceedings and thereby arbitrarily rejected the comparable companies similar to the Appellant, as identified by the Appellant itself. 8. That the learned AO/ learned Panel erred in not providing an adjustment for the differences in the working capital position of Parametric India vis- -vis that of the comparable companies, for the purposes of determination of the arm s length price. 9. That the learned AO/ learned TPO, despite the directions of the learned Panel, erred in limiting the risk adjustment to 1% without any reasons and not providing the risk adjustment based on the actual differences in the risk profile between the Appellant and the comparable companies for the purpose of determining the arm s length price for the international transactions entered into by the Appellant. 10. The learned Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Operating Revenue (OR) 29,22,74,797 2. Operating Cost (OC) 28,88,32,520 3. Operating Profit (OP) 34,40,277 OP/OC 1.19% The assessee had also produced the segmental details for various business segments before the TPO. 4.3 The assessee conducted its T.P. Study for its international transactions by adopting TNMM as the Most Appropriate Method ( MAM ). Based on the comparability anlaysis conducted by the assessee and on the set of comparable companies selected by the assessee in its T.P. Study, it concluded that the international transactions of the assessee were at arm s length. 4.4 The TPO examined and analysed the T.P. Report submitted by the assessee and rejected the same for the various reasons enumerated in the TPO order under Section 92CA of the Act. In the course of T.P. proceedings, the TPO required the assessee to benchmark each of its three segments separately and furnish revised segmental details with break up of cost for each segment, wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.25 0.14 1.11 12.61 11.20 3. HDO Technologies Ltd. 16.76 3.26 13.50 24.15 19.45 4. Maruti Insurance Agency Logistics Ltd. 25.01 10.31 14.70 70.14 41.22 5. Goldyne Peoplepower Ltd. 5.41 1.38 4.03 34.24 25.51 Average 30.42 21.45 The TPO computed the ALP of this segment as under :- Operating Cost ₹ 1,39,18,740 Arm s Length Mean Margin 39.42 % Arm s Length Price (130.42% of Operating Cost) ₹ 1,81,52,821 Price Received ₹ 1,26,96,558 Shortfall being adju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the DRP to be erroneous. We find that the DRP has given elaborate reasons for directing the exclusion of each of the companies. In the absence of any material evidence to controvert the findings of the DRP, the contentions of Revenue in this ground remain unsubstantiated and therefore we are unable to concur with the same. In this view of the matter, we dismiss Ground No.1. 7. Ground No.2 : Risk Adjustment. 7.1 In this Ground, Revenue contends that risk adjustment is not required in this case as the assessee face risks like political risk, foreign exchange risk and also market risks. It was also contended that the DRP was wrong in directing that risk adjustment may be granted @ 1% without indicating the method by which the same is to be computed. The learned Departmental Representative submitted that this claim for risk adjustment cannot be allowed since no such claim was made in the assessee's T.P. Study or before the TPO nor was any quantification of the claim made before any authority for examination which ought to have been done. 7.2 Per contra, the learned Authorised Representative for the assessee supported the decision of the DRP. It was submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorities below, we deem it appropriate to remand this issue back to the file of the TPO with a direction that the TPO examine the assessee's claim for risk adjustment and allow the same if the facts of the case on hand so warrant such adjustment. Needless to add, the assessee shall be afforded sufficient opportunity of being heard and to make its submissions in this regard which shall be considered by the TPO before he takes a decision in the matter. It is ordered accordingly. Consequently, Ground No.2 raised by Revenue is dismissed. 8. Ground No.3 is general in nature and therefore no adjudication is called for thereon. 9. In the result, Revenue s appeal for Assessment Year 2010-11 is dismissed. Assessee's appeal in IT(TP)A No.26/Bang/2015. 10. The Grounds at S.Nos.1 2 are general in nature and not being urged before us are rendered infructuous and accordingly dismissed. 11. Grounds 3 to 5 11.1 Ground No.3 is related to the rejection of the T.P. Study conducted by the assessee. Ground No.4 is in respect of the application of multiple year data and Ground No.5 is in respect of the use of contemporaneous data. 11.2 During the cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the TPO, but the TPO had disregarded the same. It is submitted that the assessee s submissions in this regard were considered by the DRP but not found to be acceptable. It was further submitted that while reviewing the search process conducted by the TPO, the assessee identified this company as a comparable, as it passes all the filters adopted by the assessee in the T.P. Study and also the filters adopted by the TPO and as such should be included as a comparable company. 13.2.2 We have heard both the learned Authorised Representative for the assessee and the learned Departmental Representative for Revenue and perused and carefully considered the material on record. We find that this company was not a comparable selected by the assessee in its T.P. Study, but has been suggested as a comparable by the assessee during T.P. proceedings before the TPO. Evidently, this company has not been selected out of a search process and as such could be a case of cherry picking . It is also seen that the assessee, in its letter dt.24.1.2014, addressed to the TPO, had not made any submissions regarding inclusion of this company as an additional comparable as claimed by the learned Authorised Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground No. 7.1 regarding the T.P. Study conducted by the TPO. Ground No.7.2 regarding the comparables selected by the TPO and Ground No.7.3 - regarding the comparability analysis conducted by the assessee. 14.2 In respect of the Grounds at S.No. 7.1 and 7.3 , it is seen from the records before us, that the TPO rejected the documentation prepared by the assessee for the reasons mentioned in the TP order under Section 92CA of the Act. The assessee in its TP Study had worked out matters at the entry level, including the Global Support Services Segment also under the distribution segment. The TPO in his order has recorded detailed reasons for considering the Global Support Services as a separate segment. Further, for the subsequent years, admittedly, the assessee itself has classified Global Support Services as a separate segment. In support of Market Support Services also, the assessee had analysed the transactions by selecting companies engaged in trading activities and for this reason also the TPO had rejected the assessee's TP Study. Further, another reason for the TPO to reject the assessee's TP Study was the fact that the assessee adopted multiple y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s professional services. 16.3.1 We have heard the rival contentions and examined the issue and the material brought on record; including the Annual Report of the company. We find that from mentions in the Annual Report that this company carried on its business activities in the area of financing, share trading, professional services, textile trading, information technology and investments. It is also seen that the volume of revenue from share trading is substantial when compared to its other activities, including professional services. It is also seen that the company operates in several segments and segmental details have been furnished in the Annual Report. 16.3.2 From the TPO s order, it is not clear as to whether the TPO has examined this aspect of the company operating in several segments out of which professional services is only a small portion. It is also not clear as to whether the TPO has adopted the segmental details or the entity level details. In fact, the DRP has directed that it is to be ascertained whether segmental margins were adopted or entity level margins. In this factual matrix as discussed above, we are of the view that it would be appropriate to remand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in the light of our observations (supra). Needless to add that the assessee shall be afforded adequate opportunity of being heard and to file details / submissions in this regard which shall be considered by the TPO before deciding the issue of comparability of this company to the assessee it is ordered accordingly. Inclusion of comparables sought for by the assessee. 18.1 Before us, it was submitted that the following two companies may also be considered for inclusion in the list of comparables to the assessee :- (i) ICRA Management Consulting Services Ltd. ( ICRA ) (ii) Pagaria Energy Ltd. It was submitted that the assessee has proposed these two companies for being considered as comparables before the DRP and that the DRP had not specifically adjudicated on these two comparables. It was the contention of the assessee that ICRA was involved in the business of software consultancy services and is functionally similar to the assessee. It was also contended that Pagaria Energy Ltd. is also involved in the provision of software and consultancy services. 18.2 We have heard both parties and perused and carefully considered the material on record. Evidently thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this case as the assessee face risks like political risk, foreign exchange risk and also market risks. It was also contended that the DRP was wrong in directing that risk adjustment may be granted @ 1% without indicating the method by which the same is to be computed. The learned Departmental Representative submitted that this claim for risk adjustment cannot be allowed since no such claim was made in the assessee's T.P. Study or before the TPO nor was only quantification of the claim made before any authority for examination which ought to have been done. 20.3.1 We have heard the rival contentions in the matter and perused and carefully considered the material on record; including the judicial pronouncements referred to by the DRP. We find that the DRP has directed that risk adjustment may be granted to the assessee by placing reliance, inter alia, on the decisions of the co-ordinate bench in the following cases wherein it was held in principle, that risk adjustment was to be allowed to the assessee, if after examination it is found that the facts of the case being audited warrants such an adjustment. (i) Bearing Point Business Consulting Pvt. Ltd. in ITA No.1124/Bang/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 002 by introduction of a clarificatory amendment in which Section 92C(2A) of the Act was inserted, which as per the Finance Act, 2012 reads as under :- Section 92C (2A) : Where the first proviso to sub-section (2) as it stood before its amendment by the Finance (No. 2) Act, 2009 (33 of 2009), is applicable in respect of an international transaction for an assessment year and the variation between the arithmetical mean referred to in the said proviso and the price at which such transaction has actually been undertaken exceeds five per cent of the arithmetical mean, then, the assessee shall not be entitled to exercise the option as referred to in the said proviso. 21.2 The new section 92C(2A), mandates that if the AM price falls beyond + / - 5% from the price charged in international transactions, then the assessee does not have any option referred to in Section 92C(2) of the Act. Thus, as per the above amendment, it is clear that the + / - 5% variation is allowed to justify the price charged in the international transactions and not for adjustment purposes. The aforesaid amendment has settled the issue and accordingly, the 5% benefit is not allowable in the assessee's cas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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