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2015 (11) TMI 1683 - AT - Income TaxTPA - selection of comparable - Can the DR argue for the exclusion of some companies which were treated by the AO/TPO as comparable ? - Held that - The answer to this question can be given in negative alone. It is understandable that when CIT(A) has decided some point in favour of the assessee and against the Revenue the AO is fully empowered to assail the correctness of such a decision in an appeal before the tribunal. Similarly when an assessment order is passed u/s 143(3) read with section 144C of the Act the AO can be aggrieved against the direction given by the DRP. In such cases of grudge the AO can approach the tribunal for an appropriate relief wherever and to the extent the law permits. The underlying idea behind these situations is that the AO is dissatisfied with reversal of his view either by the CIT(A) or the DRP as the case may be which he wants to be restored. But the AO in our considered opinion can under no circumstance be aggrieved with his own view taken in the assessment order independent of any external influence of the DRP etc. It goes without saying that in all the appeals filed by the assessee against the final order passed by the AO u/s 143(3) read with section 144C of the Act the respondent is always the AO. In other words the DR represents the AO in an appeal before the tribunal. Taking up an issue for argument by the DR before the tribunal means taking up the issue by the AO through the DR. If we allow the DR to argue that the decision taken by the AO/TPO was wrong and certain companies included by the TPO himself should be deleted it would mean that the AO is challenging the correctness of his own decision through the DR before the tribunal which is illogical. Department right to file appeal against the independent free decision of the AO/TPO - Held that - AO was without any remedy to challenge the unconvincing adverse direction given by the DRP given effect to in his own order in respect of any objections filed before this cut-off date of 1.7.2012. Now with this amendment the Revenue has been given a liberty to file appeal before the tribunal if the CIT objects to any direction issued by the Dispute Resolution Panel that has been given effect to by the AO. The point to be underscored is that such power of filing appeal is restricted only to the cases where objection is to the direction of the DRP and not to the voluntary action of the AO himself. In other words if the AO/TPO has chosen a company as comparable which has been directed to the excluded by the DRP then an appeal can be filed against the assessment order on such exclusion. The power to file appeal does not extend to the selection of a company as comparable by the AO/TPO himself which has remained intact even after the direction given by the DRP. No hesitation in holding that albeit the tribunal has the power to voluntarily direct the AO/TPO to reconsider the correctness of the companies included by him in the list of comparables but in no case can the DR argue as a matter of right against such inclusion. Set aside the impugned order and restore the matter to the file of AO/TPO for recalculating the ALP of the international transaction of Rendering of services afresh in conformity with our above discussion
Issues involved:
1. Inclusion of three companies (Apitco Limited, Global Procurement Consultants Limited, and TSR Darashaw Limited) in the final set of comparables for Transfer Pricing purposes. 2. Functional comparability of the selected companies. 3. The right of the Department Representative (DR) to argue for the exclusion of certain companies included by the Transfer Pricing Officer (TPO). Detailed Analysis: 1. Inclusion of Three Companies in the Final Set of Comparables: i. Apitco Limited: The assessee argued against the functional comparability of Apitco Limited, stating that it provided high-end diversified activities. The TPO included Apitco Limited in the comparables list, considering its OP/OC at 40.09%. The Tribunal analyzed Apitco Limited's Annual Report and found that its operations included Micro Enterprises Development, Skill Development, Entrepreneurship Development, Tourism & Research Studies, Project-related Services, Infrastructure Planning & Development, Environment Management, Energy-related Services, Cluster Development, and Asset Reconstruction & Management Services. The Tribunal noted that there was only a slight resemblance between Apitco's 'Market and social research' functions and the services provided by the assessee. The Tribunal concluded that the functional similarity of Apitco Limited was lacking on an entity level with the assessee company and ordered its exclusion from the final set of comparables. ii. Global Procurement Consultants Limited: The TPO included this company despite the assessee's objection that it was engaged in providing consultancy services and reviewing procurement processes for various projects funded by the World Bank. The Tribunal reviewed the Annual Report of Global Procurement Consultants Limited and noted its services, including Independent Procurement Review, Procurement audits, and full-time advice on procurement and contract-related aspects. The Tribunal found that the services provided by Global Procurement Consultants Ltd. were significantly different from those rendered by the assessee, which were confined to assisting its AE in identifying customers and facilitating sales of antivirus products. The Tribunal ordered the exclusion of this company from the list of comparables. iii. TSR Darashaw Limited: The assessee objected to the inclusion of TSR Darashaw Limited, arguing that its business segments included Registrar and Transfer Agent activity, Records management activity, and Payroll and trust fund activity. The TPO treated it as comparable on an entity level. The Tribunal compared the activities undertaken by TSR Darashaw Limited with the services rendered by the assessee and found a significant functional disparity. The Tribunal noted that considering this company on an entity level rendered the comparison meaningless and ordered its exclusion from the final set of comparables. 2. Functional Comparability of the Selected Companies: The Tribunal emphasized the importance of functional comparability even under the Transactional Net Margin Method (TNMM), citing the judgment of the Hon'ble jurisdictional High Court in Rampgreen Sales Pvt. Ltd. vs. CIT (2015) 377 ITR 533 (Del). The Tribunal reiterated that comparables must be selected based on similarity, regardless of the method adopted. 3. The Right of the Department Representative (DR) to Argue for the Exclusion of Certain Companies: The Tribunal examined whether the DR could argue for the exclusion of companies included by the TPO. The Tribunal concluded that the DR, representing the AO, could not argue against the AO's own decision. The Tribunal noted that the Department had no right to file an appeal or cross-objection against the voluntary decision of the AO/TPO that was not subject to any adverse direction by the Dispute Resolution Panel (DRP). The Tribunal clarified that while it had the power to suo motu examine the correctness of the AO/TPO's actions, the DR could not argue against the inclusion of companies decided by the AO/TPO. Final Decision: The Tribunal set aside the impugned order and remanded the matter to the AO/TPO for recalculating the Arm's Length Price (ALP) of the international transaction of 'Rendering of services' afresh, in conformity with the Tribunal's discussion. The assessee was to be afforded a reasonable opportunity of hearing. The appeal was allowed for statistical purposes.
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