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TMI Blog2011 (7) TMI 636X X X X Extracts X X X X X X X X Extracts X X X X ..... see cannot be included as a comparable is accepted still the OP/TC works out to 11.5% as found by the CIT(A) is against 9.32% disclosed by the assessee. Still he has deleted the entire adjustment made by the A.O./TPO which is not correct. As the T.P. issue was in the initial stages in this year and therefore a liberal approach should be taken. Considering the totality of the facts of the case the matter should go back to the file of the A.O. for fresh adjudication with a direction to give sufficient opportunity to the assessee to file fresh comparables of the financial year 2002-03 and make out its case properly - in favour of revenue for statistical purposes. X X X X Extracts X X X X X X X X Extracts X X X X ..... t proceedings, the assessee justified the inclusion of the loss making companies in the set of comparables by stating that in any industry there would be a mix of profitable and non-profitable ventures. Although every company would try to maximize its profit it is always not possible that all companies would always earn profit. Further, the assessee should be able to assess the arm's length nature of the transaction undertaken at the point of undertaking the same or at such further point when it is able to take commercial actions to align the transaction with the arm's length standard. For this the maximum time limit would be up to the end of the financial year and beyond this point it will not be realistically possible to take any remedial steps. 7. However, the A.O. was not convinced with the explanations given by the assessee. After meeting the objections submitted by the assessee he concluded that a sum of Rs. 1,41,06,903/- has to be added to the returned income of the assessee company by way of adjustments to international transactions of the assessee. While doing so, he did not accept the plea of downward adjustment by holding that the assessee was engaged in captive busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent for risk, the assessee submitted that it has not opted against a downward adjustment for risk, but has retained the option to make adjustments to reflect the same, if and when warranted. The AO should have recognized that the risks assumed by the uncontrolled comparable companies are significantly high vis-à-vis captive service providers, like the assessee. This would further prove that the margins earned by the comparables need to be driven down to adjust for comparability. 8.3 Para 5.9 and 5.10 of the OECD guidelines were brought to the notice of the Ld. CIT(A). It was submitted that the approach of using multiple year data is consistent with the Indian Regulations and OECD Guidelines. Proviso to Rule 10B(4) allowed data relating to a period not being more than 2 years prior to the financial year in which international transactions were entered into, also to be considered. Accordingly, for determining the ALP of the international transactions, the assessee used the financial data of functionally comparable companies having financial years ending 31st March, 2001 & 31st March, 2002. It was also submitted that none of the conditions laid down in section 92C(3) apply to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - made on account of adjustments to the ALP of the assessee's international transactions by holding as under :- "The written submissions made on behalf of the appellant, the order of the T.P.O. and the order of the A.O. have been carefully perused and I am of the view that the adjustments made by the T.P.O. which have been incorporated by the A.O. in determining the income of the appellant is erroneous. From the order of the T.P.O., it is seen that there may be fair amount of rationality in excluding the data pertaining to Star Estate Management Ltd. and that of Van Information Ltd. but, even if these two comparables are removed, the mean would then come to 4.15% as against the appellant's OP/TC of 9.32%, and therefore, by excluding the aforesaid concerns, no case can be made out for upward adjustment of the arms length price. Coming to the second issue, wherein the T.P.O. has excluded all the loss making concerns, I am in agreement with the arguments placed before me by the Ld. Counsel that such an action is against commercial principles and expectations and against the principles of commercial accounting and such exclusion would give a distorted picture of the results. Further, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Adobe Systems India (P.) Ltd. v. Addl. CIT [2011] 44 SOT 49 (Delhi) (URO) 3. Teva India Ltd. v. Dy. CIT [2011] 44 SOT 105 (Mum.)(URO) 4. SAP Labs India (P.) Ltd. (IT Appeal No. 5263 (Delhi) of 2010 dated may 6 2010 5. Sony India (P.) Ltd. v. Dy. CIT [2008] 118 TTJ 865/114 ITD 448 (Delhi) 12.1 Referring to the decision of the Delhi Bench of the Tribunal in the case of Sony India (P.) Ltd. (supra) he submitted that companies having related party transactions in excess of 10 to 15% of total sales cannot be considered as uncontrolled comparable and hence required to be excluded. Referring to the decision of Delhi Bench of the Tribunal in the case of Mentor Graphics (Noida) (P.) Ltd. v. Dy. CIT [2007] 18 SOT 76, 109 ITD 101 (Delhi), he drew the attention of the bench to page 112 and submitted that the Tribunal has held that tax administration and parties can work different Arm's Length price i.e. a range by the application of different methods. He, however, has no objection if the matter is set aside to the file of A.O. for fresh adjudication. 13. We have considered the rival arguments made by both the sides, perused the orders of the A.O. and ld. CIT(A) and the paper book filed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Hinduja TMT Ltd. which makes abnormal profit of 105.34% and whose turnover is 100.80 croresas against 6.01 crores in the case of the assessee cannot be included as a comparable is accepted still the OP/TC works out to 11.5% as found by the CIT(A) is against 9.32% disclosed by the assessee. Still he has deleted the entire adjustment made by the A.O./TPO which is, in our opinion, is not correct. 13.3 We find the assessee before the TPO had contended that had the data for financial year 2002-03 been available, it could have arranged its affairs accordingly. We find the Special Bench in the case of Quark Systems (P.) Ltd. (supra) at para 39 of the order has been held as under:- "We have, however, also noted that the very basis of selection of comparables and application of filters leaves lot to the desired. As we have noted earlier as well, the transfer pricing was in the initial stages in this year and we are inclined to take a rather liberal approach by giving assessee an opportunity to make out its case properly and place all the relevant facts before the tax authorities so that proper ALP can be determined in accordance with the law. The proceedings before the tax authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X
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