2018 (3) TMI 1986 - AT - Income Tax

TP adjustment proposed with respect to the international transactions of export of Agricultural commodities Agri Based Commodities - TPO rejected the CUP method holding that when the data was produced before him it was seen that CUP data was actually the quotations from 3rd parties and not the price charged or paid for property transferred or services provided in a comparable uncontrolled transactions as per the intent of rule 10 B - HELD THAT - We agree with the views of the Transfer Pricing and Ld. dispute resolution panel that adequate and reliable data is a necessary ingredient of selecting any method for comparability analysis for determining arm‟s length price of an international transaction. However without examination of the evidences submitted by the assessee it is premature to state that information supplied by the assessee is not reliable, it lacks credibility or it is not enough for determination of arm‟s length price of the international transaction. We do not find any mention by the ld TPO or By LD DRP any reference of examination of these documents and then rejecting it with cogent reasons that they are not reliable, authentic or inadequate. With respect to the applicability of the quotations for CUP method, Hon‟ble Gujarat High Court in case of CIT versus Adani Wilmer Ltd. 2014 (4) TMI 563 - GUJARAT HIGH COURT interpreting rule 10 D In the present case the Ld. Transfer Pricing Officer has not examined the evidences submitted by the assessee. Therefore, in the interest of Justice , we set aside the issue of determination of arm‟s length price of the international transactions of export of agricultural commodities to the associated enterprise back to the file of the Ld. Transfer Pricing Officer with a direction to examine the details furnished by the assessee in the form of various quotations of agricultural commodity brokers as well as other entities with respect to their authenticity, adequacy and reliability. If The Ld. Transfer Pricing Officer finds those evidences as authentic, reliable and adequate information for the purpose of determination of arm‟s length price then he is directed to adopt the CUP method for comparability analysis. The assessee is also directed to support the evidences before the Ld. Transfer Pricing Officer and to show their reliability, authenticity, and adequacy for supporting the international transaction of export of commodities. In view of this ground No. 2.5 2.8 of the appeal of the assessee is set aside to the file of the Ld. TPO to decide the issue afresh in accordance with above direction. Accordingly, those grounds are allowed with above direction. Adjustment made to the international transactions entered into by the assessee with respect to its business support services segment - Comparable selection - HELD THAT - Companies functionally dissimilar with that of assessee need to be deselected.

Summary

Issues Involved:
1. Validity of the assessment order.
2. Arm's length principle in international transactions.
3. Disallowance under Section 14A of the Act.
4. Disallowance of expenses related to the increase in authorized share capital.
5. Initiation of penalty proceedings under Section 271(1)(c) of the Act.

Issue-wise Detailed Analysis:

1. Validity of the Assessment Order:
The assessee contended that the assessment order passed by the Deputy Commissioner of Income Tax, Circle 4(1), New Delhi, pursuant to the directions of the Dispute Resolution Panel (DRP), was vitiated as the DRP erred both on facts and in law in partially confirming the additions made by the Assessing Officer (AO). The Tribunal did not explicitly address this issue as it focused on the specific grounds related to transfer pricing adjustments.

2. Arm's Length Principle in International Transactions:
The primary contention was the rejection of the Comparable Uncontrolled Price (CUP) method by the Transfer Pricing Officer (TPO) and the adoption of the Transactional Net Margin Method (TNMM) for benchmarking export transactions. The assessee argued that the CUP method was appropriate as it relied on market quotations for agricultural commodities. The TPO rejected this method, citing the lack of actual transaction prices and product similarity. The Tribunal directed the TPO to re-examine the evidence provided by the assessee, including quotations from brokers and trade publications, for their authenticity and reliability. If found reliable, the CUP method should be adopted.

For the Business Support Services segment, the TPO had selected certain comparables which the assessee contested as functionally dissimilar. The Tribunal examined each contested comparable:
- Apitco Limited: Excluded due to its diverse service offerings and only 12% revenue from research studies.
- Best Mulyankan Consultants Pvt. Ltd.: Excluded due to its engagement in asset valuation, a highly technical service.
- Chokshi Laboratories Ltd.: Excluded due to its commercial testing and consultancy services without segmental data.
- ICRA Management Consulting Ltd.: Included as its business consulting and transaction advisory services were found similar to the assessee's services.
- Indus Technical and Financial Consultant Ltd.: Included as the services provided were similar to the assessee's.
- Wapcos Ltd.: Excluded due to its specialized consultancy services and government backing, making it functionally dissimilar.

3. Disallowance under Section 14A of the Act:
The Tribunal did not address this issue in detail as it focused on the transfer pricing adjustments.

4. Disallowance of Expenses Related to the Increase in Authorized Share Capital:
The Tribunal did not address this issue in detail as it focused on the transfer pricing adjustments.

5. Initiation of Penalty Proceedings under Section 271(1)(c) of the Act:
The Tribunal did not address this issue in detail as it focused on the transfer pricing adjustments.

Conclusion:
The Tribunal partly allowed the appeal for statistical purposes, directing the TPO to re-examine the evidence for the CUP method and to exclude certain comparables for the Business Support Services segment. The other grounds of appeal were dismissed as not pressed.