2013 (8) TMI 186 - AT - Income Tax

Transfer pricing adjustment - Rejection of MacMillan India Ltd as comparable as the financials of Macmillan India Ltd were for the year ended 31st December 2005 whereas the Financials of the tested party are for 31st March 2006 - whether DRP/AO erred in upholding/making an addition under Chapter-X of the Income Tax Act, 1961 - DRP not granted the benefit for adjustment of the Arms Length Price by /- as per the proviso to section 92C(2) - Held that - Reiterating the annual closure of the companies it can in no way hamper the comparability of the results as long as the results are for a uniform period. In the case of selection of MacMillan India Ltd as comparable the Annual results of both the Companies are for a period of 12 months as such both the companies have gone through the normal annual business cycle. MacMillan India ltd. operates in 3 major segments. The operating Margin of MacMillan in the publishing segment for the 12 month period ending 31st Dec 2005 is 5.67%. If the TPO s logic is used for comparing results, then the results of no international Company can be used as a comparable, since all the international Companies close their accounts on dates other than 31st March each year & most international Companies use calendar year as their year end. Based on the above, financial data of MacMillan India Ltd. can be used as a comparable. On a perusal of the order of the DRP it has to be set aside as finding support from the judgement of Vodafone Essar Ltd. which has very categorically held that when a quasi Judicial Authority like the DRP deals with lis u/s 144C then it is obligatory on its part to ascribe cogent and germane reasons as reasons are the heart and soul of the matter and facilitate the appreciation of the order when the order is called in question either before a superior forum or an Appellate forum. It is an admitted position on record that in support of its comparables various assertions and facts have been made which has been not dealt with by the DRP. Accordingly, the DRP s order along with the impugned order is set aside and the issue is restored back to the file of the DRP with the direction to pass a speaking order in accordance with law - in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Validity of the orders passed by the AO/DRP/TPO.
2. Addition of Rs. 2,84,01,593/- under Chapter-X of the Income Tax Act, 1961.
3. Errors in computing the Profit Level Indicator (PLI) and rejection of comparables.
4. Non-grant of benefit for adjustment of the Arms Length Price (ALP).
5. Failure of the DRP to pass a speaking order.

Detailed Analysis:

1. Validity of the Orders:
The assessee contested that the orders passed by the AO, DRP, and TPO were "bad in law and void ab-initio." The Tribunal did not specifically address this issue in isolation but considered it within the context of the other issues raised.

2. Addition under Chapter-X:
The DRP/AO upheld an addition of Rs. 2,84,01,593/- based on the TPO's determination of the Arm's Length Price (ALP). The Tribunal found that the DRP's order lacked a detailed discussion and reasoning, leading to the setting aside of the impugned order for a more thorough review.

3. Errors in Computing PLI and Rejection of Comparables:
- Computing PLI: The TPO computed the PLI of the assessee at 17.02% instead of the 24.30% reported by the assessee. The Tribunal noted that the DRP did not adequately address the objections raised by the assessee regarding this computation.
- Rejection of Comparables: The assessee's suggested comparables, M/s HT Media Ltd. and M/s MacMillan India Ltd., were rejected by the TPO. The Tribunal found that the DRP's order did not provide sufficient reasoning for this rejection. The Tribunal emphasized the need for a detailed and reasoned order, citing the judgement in Vodafone Essar Ltd., which mandates that quasi-judicial authorities must provide cogent reasons for their decisions.

4. Non-grant of Benefit for Adjustment of ALP:
The AO/DRP did not grant the benefit for adjustment of the ALP by +/-5% as per the proviso to section 92C(2). The Tribunal did not specifically address this issue separately but included it in the broader context of the need for a detailed and reasoned order by the DRP.

5. Failure to Pass a Speaking Order:
The Tribunal highlighted that the DRP failed to pass a speaking order while adjudicating the objections raised by the assessee. The Tribunal emphasized that the absence of a detailed discussion on the issues involved does not meet the legal requirement for a fair and speaking conclusion. The Tribunal cited section 144C of the Income Tax Act, which outlines the procedures and obligations of the DRP, including the need for a detailed and reasoned order.

Conclusion:
The Tribunal set aside the impugned order and remanded the case back to the DRP with instructions to pass a speaking order in accordance with the law. The Tribunal underscored the importance of detailed reasoning in judicial orders, referencing the judgement in Vodafone Essar Ltd. The appeal was allowed for statistical purposes, and the order was pronounced in the open court on 17th May 2013.