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TMI Blog2020 (10) TMI 1353X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax (Appeals) - 55 ["the Ld. CIT(A)"] erred in not holding that the order of the Learned Transfer Pricing Officer ("Ld. TPO") u/s. 92CA(3) of the Income- tax Act , 1961 ( " the Act " ) and the consequent order of the Learned Assessing Officer ("Ld. AO") u/s. 143(3) of the Act is bad in law and void ab initio as it has been passed in gross violation of principle of natural justice and without complying with the mandatory conditions of Section 92CA(3) r .w.s. 92C(3) of the Act for the reason that Ld. TPO did not serve upon the Appellant any written show cause notice as required and mandated in terms of proviso to Section 92C (3) r.w.s. 92CA (3) of the Act. 2. The Ld. CIT (A) grossly erred in not entirely deleting the upward transfer pricing adjustment of Rs. 12,017,520/ - made by the Ld. AO in pursuance of the order passed by the Ld. TPO in respect of the impugned international transaction of provision of business facilitation service by the Appellant to its Associated Enterprises ("AEs"). In doing so, 2.1 The Ld. CIT (A) grossly erred in not considering the plea of the Appellant that the OP/OC margin of the 4 (four) comparable companies taken by Ld. TPO shall be calcul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omparable companies upheld by him are more than one. 2.7 The appellant order of the ld. CIT(A) suffers from the factual and legal errors and omissions. The appellant craves leave to add, alter, amend or delete all or any of the grounds or sub-grounds of appeal before or during the course of hearing." 2. Briefly stated, the assessee company which is engaged in the business of rendering project, engineering and polyolefins product related services etc., had as per its revised return of income for A.Y 2009-10 filed on 28.09.2009 reflected a total income at Rs.1,56,19,228/-. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. 3. As the assessee during the year in question had carried out international transactions with its associate enterprise (AEs), the A.O, therefore, made a reference under Sec. 92CA(1) of the Act to the Additional/Joint Commissioner of Income Tax, Transfer Pricing Office-1(7), Mumbai, (for short "TPO‟) for benchmarking the said transactions. After receiving the order passed by the TPO under Sec. 92CA(3) of the Act, dated 23.01.2013, wherein an upward adjustment of Rs. 1,20,17,520/- to the operating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact, the CIT(A) while concluding as hereinabove had followed the view taken by the DRP in the assessee's own case for A.Y. 2011-12. Further, the CIT(A) going by the directions of the DRP in the assessee's own case for A.Y. 2011-12 added 3 additional insurance broking companies as comparable to the assessee, viz.(i) Aditya Birla Insurance Brokers ltd.; (ii) Bajaj Capital Insurance Brokers Ltd.; and (iii) Spectrum Business Solutions Ltd. To sum up, the CIT(A) included 5 insurance broking companies in the finallist of the comparable companies for benchmarking the international transactions of the assessee. As such, the mean margin of the 9 comparables which found place in the finallist of the comparables pursuant to the directions of the CIT(A) worked out at 17.41%, as under : Sr. No. Company OP/OC Margin as per the erstwhile TPO 1. ICRA Online Limited 20.65% 2. Genins India TPA Ltd. 32.85% 3. IDC (India) Ltd. 10.93% 4. Galaxy Commercial Ltd 11.78% 5. India Infoline Insurance Brokers Ltd. 2.70% 6. Almondz Insurance Brokers Pvt. Ltd. 13.53% 7. Aditya Birla Insurance Brokers Ltd 49.65% 8. Bajaj Capital Insurance Brokers ltd 4.40% 9. Spectrum Busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulated based on the financial data reported in their audited financial statements, and not on the basis of the data reported in the prowess database. As observed by us hereinabove, the assessee had computed the OP/OC margin of its 4 comparable companies viz. (i) ICRA Online Ltd; (ii) Genins India TPA Ltd.; (iii) IDC (India) Ltd; and (iv) Galaxy Commercial Ltd. in its transfer pricing study report based on the financial data available in the prowess database, owing to non-availability of their audited financial statements in the public domain at the time of preparation of transfer pricing documentation. However, in the course of the assessment proceedings, the assessee after obtaining the audited financial statements of the aforementioned comparables had furnished the same with the TPO, vide its letter dated 21.12.2012. On a perusal of the aforesaid letter dated 21.12.2012, Page 129-134 of APB, we find, that the assessee had at Serial No. 7 of the said letter furnished the "annual report‟ of the aforementioned comparable companies along with the details of search process in a Compact Disc (CD). Before the CIT(A), it was submitted by the assessee that the OP/OC margin of the af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e plea advanced by the ld. A.R is that, in the event these companies are included then the correct margin as per the annual accounts must be considered. We accordingly, set aside these to the Ld. TPO for verification of the data provided in the annual accounts of these 2 companies and to calculate the gross margin by using the correct figures." In the backdrop of our aforesaid deliberations we herein restore the matter to the file of the TPO, with a direction, to calculate the OP/OC margin of the aforesaid 4 comparable companies on the basis of the financial data reported in their "annual reports‟ for the year under consideration. The Ground of Appeal No. 2.1 is allowed for statistical purposes. 10. We shall now advert to the claim of the ld. A.R that while for the CIT(A) had observed that insurance broking companies were comparable to the business facilitation service segment of the assessee, and had included 3 additional insurance broking companies as valid comparables for benchmarking its international transactions, but had erred in not directing inclusion of similarly placed 4 insurance broking companies (out of 19 comparable companies) that were selected by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td; and (iv) India Infoline Marketing Service ltd., on the same premises and reasoning ought to have been included by him in the finallist of comparables. 11. We have deliberated at length on the aforesaid issue in the backdrop of the contentions advanced by the representatives for both the parties, and have also perused the orders of the lower authorities. Admittedly, the CIT(A) had observed that insurance broking companies were a valid comparable to the business facilitation service segment of the assessee. Based on its aforesaid observations, the CIT(A) had directed the TPO to include the aforementioned 5 insurance broking companies (which were also held to be comparable by the DRP in A.Y. 2011-12), as comparables for benchmarking the international transactions of the assessee for the year under consideration. In our considered view, now when the aforementioned 5 insurance broking companies viz. (i) Almondz Insurance Brokers Pvt. ltd.; (ii) India Infoline Brokers Ltd; (iii) Aditya Birla Capital Insurance Ltd; (iv) Bajaj Capital Insurance Ltd. and (v) Spectrum Business Solutions Ltd. have been accepted by the CIT(A) as valid comparables for benchmarking the international transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le companies taken by Ld. TPO shall be calculated based on the financial data reported in their audited financial statements and not based on the data reported in the prowess database and thereby grossly erred in upholding the arithmetic mean of the OP/OC margin of the said 3 comparable companies calculated by the Ld. TPO at 17.42 percent instead of 14.88 percent. 2.2 The Ld. CIT(A) grossly erred in upholding the action of the Ld. TPO of rejecting following 8 (Eight ) out of 14 (Fourteen) comparable companies selected by the Appellant:- a. Datamatics Financial Services Limited b. PL Worldways Limited c. Jindal Intellicom Private Limited d. M C S Limited e. Edelweise Insurance Brokers Limited f. Karvy Insurance Broking Limited g. Pipal Research Analytics & Information Services India Private Limited h. Sparsh BPO Services Limited 2.3 The Ld. CIT (A) grossly erred in upholding the action of the Ld. TPO of not carrying out following comparability adjustments for material differences between the Appellant vis-à-vis companies selected as comparable, though the Act read with Rule 1013(1)(e)(iii) and 1013(3) of the Income Tax Rules ("the Rules") provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee for the immediately preceding year i.e A.Y. 2009-10 in ITA No. 4724/Mum/2016. Accordingly, in the backdrop of the aforesaid facts, our order passed while disposing off the appeal of the assessee for A.Y. 2009-10 in ITA 4724/Mum/2016 shall apply mutatis mutandis for the purpose of disposing off the present appeal. For the sake of clarity, the A.O/TPO are directed to calculate the OP/OC margin of the three comparable companies which were selected by the assessee in its TP study report, viz. (i) ICRA Online Ltd; (ii) Genins India TPA Ltd; and (iii) IDC (India) Ltd., on the basis of the financial data reported in their audited financial statements, and not on the basis of the data reported in the prowess database. Also, the A.O/TPO are directed to include the 2 insurance broking companies, viz. (i) Edelweiss Insurance Brokers Ltd.; and (ii) Karvy Insurance Brokers ltd., that were selected by the assessee in its set of 14 comparable companies before the TPO, as valid comparable companies for benchmarking the international transactions of the assessee for the year under consideration. 17. Resultantly, the aforesaid appeals of the assessee i.e ITA No. 4724/Mum/2016 for A.Y. 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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