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TMI Blog2012 (8) TMI 256X X X X Extracts X X X X X X X X Extracts X X X X ..... any had not claimed any adjustment on account of specified expense in the Transfer Pricing Study or documentation prepared under Rule 10D read with section 92D of the Act - matter remitted to the file of the Ld. Commissioner of Income Tax - assessee's cross objection stand allowed for statistical purposes. X X X X Extracts X X X X X X X X Extracts X X X X ..... anation 1 and explanation 7 to section 271(1)(c) of the Act against the Respondent, is bad in law. (ix) That the above cross objections are mutually exclusive and without prejudice to each other. (x) That the Respondent craves leave to add, alter, amend and / or modify any of the cross objections either before or during the course of the appellate proceedings." 4. M/s Marconi Telecommunication India Pvt. Ltd., the assessee is primarily engaged in the business of supply of telecommunications equipment and providing of telecommunication solutions to customers in India. Financial Year 2003-04 i.e. the year under the consideration, was the second year of operations of the assessee. 4.1 During the course of assessment proceedings, the Assessing Officer noticed the following international transactions entered into by the assessee during the FY 2003-04 as reported in Form 3CEB enclosed with the return of income. The brief analysis of the international transactions undertaken by the assessee company with its associated enterprises (AEs) during the FY 2003-04 and transfer pricing methodology adopted was as follows: S .No. Name of transactions Value of transactions (in rupees) Me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee's grievance and made out the following as issues for consideration:- "(i) Whether the reference made by the Assessing Officer to the TPO mechanically is bad in law making the TPO's order void-ab-initio. (ii) Whether the mechanical acceptance of TPO's recommendation by the Assessing Officer makes the assessment order bad in law. (iii) Whether operating profit by sales is the correct PLI, as determined by the TPO. (iv) Whether due consideration should be given for heavy start up costs incurred by the assessee as against comparables and adjustments to account for the same. (v) Use of multiple year data vs. single year. (vi) Whether the assessee is entitled to benefit of +-5% range mentioned in Proviso 92C(2) of the Act, while computing the Arm's Length Price." 6. Ld. Commissioner of Income Tax (Appeals) decided the issues (i), (ii), (iii) & (v) in favour of the Revenue. 6.1 As regards issue that due consideration should be given for heavy start up costs incurred by the assessee as against comparables and adjustments to account for the same, Ld. Commissioner of Income Tax (Appeals) found that three major expenses i.e. travelling and conveyance, legal and professional ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... munication expenses are being treated as extra ordinary expenses and accordingly I hold that it should be excluded while computed the operating margin of the assessee." 6.2 Ld. Commissioner of Income Tax (Appeals) computed the arm's length price of the international transactions as under:- "Determination of Arm's length price of the international transaction. Based on the above, the computation of the adjustment is given below:- Particulars Amount (in Rs.) Total sales (A) 13,56,34,497 Operating profit at arm's length (B) - 1,14,88,241 Operating profit of appellant (C) - 1,65,16,025 Transfer pricing adjustment (as proposed by the TPO) 50,27,784 Expenditure incurred on : Communication 23,59,540 Travelling and conveyance 1,10,31,167 Legal and professional 28,36,159 Total = 1,62,26,866 30 percent adjustment (as discussed above (D) 48,68,060 Revised operating profit of appellant (E) = (C) - (D) - 1,16,47,965 Difference between arm's length margin and actual margin (F) = (D) - (B) 1,59,723 Value of international transaction 8,58,93,802 Arm's length value of international transaction 8,57,34,079 + 5% of Arms's length price 9,00,20,783 Since the transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence existing between the comparables and tested party than it would be good if comparable are rejected. Further, if there are differences, then only 'reasonably accurate adjustments can be made to eliminate difference. It is submitted that the rule talks of comparable and dose not intend to give room for adjustments to the assessee or Tested Party. It is also submitted that at conceptual level the tested party is the one which has least complex functions and about which reliable data is available. It is not disputed that Assessee Company has chosen itself as tested party in TP Study/ documentation. There is no dispute with the assessee. The above stand is supported by following decisions of ITAT. 1. Haworth (India) Pvt. Ltd, 2011-TII-64-ITAT-DEL-TP Para 83-86 of ITAT order - ITA No. 5341/D/2010 A.Y. 2006-07 (Page-59) Page 5 of head notes para 3. 2. Global Vendtage 37-SOL-I Para 14 - Para 5.4.4 of CIT (A) is quoted 2010-TIOL-24-ITA Part of Para 148 Wherein it was hold no adjustment to be made to tested party. 3. Geodis Overseas 2010-TII-35-Del-TP Para 16-18 of ITAT order 45-SOT-375 It has also submitted that assessee company had not claimed any adjustment on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the submissions of the Ld. Departmental Representative. Ld. Commissioner of Income Tax (Appeals) has asked the assessee to file the details of expenditure incurred on account travelling and conveyance and professional and communication. In this regard, Ld. Commissioner of Income Tax (Appeals) thus failed to follow rules of natural justice, as there was apparent violation of Rule 46A in as much as no opportunity was provided to the TPO in this regard. We further agree with the ld. counsel of the assessee that the order of the Ld. Commissioner of Income Tax (Appeals) is non-speaking order as it does not give reasons for making adjustment to the operating results of tested party i.e. assessee. It is also not clear how she arrived at the conclusion that 30% of expenses were extraordinary and required adjustment. It is also noted that assessee company had not claimed any adjustment on account of specified expense in the Transfer Pricing Study or documentation prepared under Rule 10D read with section 92D of the Act. In these circumstances, in the background of the aforesaid discussion, in our considered opinion, the matter needs to be remitted to the file of the Ld. Commissioner of Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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