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TMI Blog2014 (5) TMI 475X X X X Extracts X X X X X X X X Extracts X X X X ..... hority unless it is specifically and explicitly shown otherwise - Scrutiny in this regard can be undertaken by the appellate authorities only when the assessee adduces some evidence to indicate that there was a failure on the part of the authority to adhere to the prescribed procedure - No material worth the name has been brought on record by the assessee to demonstrate that the AO failed to form a prima facie view at the time of making a reference to the TPO – Decided against Assessee. Rule of consistency – Determination of ALP – Held that:- The mere fact that no Transfer Pricing Adjustment was made in the preceding year would simply mean that the profit shown by the assessee from its international transactions is equal to or more than the benchmarked profit - If the assessee has shown profit at Arm’s Length Price in one year, which has been accepted as such, it does not necessarily mean that the assessee’s profit from international transaction in the succeeding year is also better than that of the comparables - It is axiomatic that if profit from the assessee’s international transactions in succeeding year is equal to or better than that of comparables after considering the cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year - the Tribunal in a preceding year of the same assessee has held this case to be not comparable on the strength of filter of percentage of employees cost to total cost and the assessee passes the test of this filter for the instant year as well – the exclusion of the company in the list of comparable is directed – Decided in favour of Assessee. - ITA No. 722/Del/2014 - - - Dated:- 28-4-2014 - Sh. R. S. Syal, AM And Sh. Rajpal Yadav, JM,JJ. For the Petitioner : Shri C. S. Aggarwal Ravi Pratap Mall For the Respondent : Shri Peeyush Jain Yogesh Kumar Verma ORDER Per R. S. Syal, AM: This appeal by the assessee is directed against the order passed by the Assessing Officer u/s 143(3) read with section 144C of the Income-tax Act, 1961 (hereinafter also called `the Act ) on 20.1.2014 in relation to the assessment year 2009-10. I. LACK OF JURISDICTION 2.1. The first issue espoused up by the ld. AR raised through ground No. 3 is against the non-discharging of the statutory onus cast upon the Assessing Officer in terms of clauses (a) to (d) of sec. 92C(3) of the Act. The ld. Senior Counsel for the assessee submitted that a specific objection in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ec. (1) of sec. 92CA of the Act mandates that where an assessee has entered into an international transaction in any previous year, and the AO considers it necessary or expedient so to do, he may, with the previous approval of the Commissioner, refer the computation of the arm's length price in relation to the said international transaction under sec. 92C to the TPO. Here it is relevant to take note of Instruction No. 3 of 2003 dated 28.5.2003 issued in the context of section 92CA, which provides that wherever the aggregate value of international transactions of an assessee in a year exceeds Rs. 5 crore, the case should be picked up for scrutiny and reference u/s 92CA be made to the TPO. The assessee in Sony India (supra) challenged the vires of the Instruction No. 3 of 2003 by claiming that the words necessary and expedient in section 92CA(1) require formation of opinion by the A.O before making a reference to the TPO. Rejecting this contention, the Hon ble High Court held that : `There is nothing in s. 92CA itself that requires the AO to first form a considered opinion in the manner indicated in s. 92C(3) before he can make a reference to the TPO. In our view, it is not pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this regard. Firstly, the reference by the A.O to the TPO u/s 92CA(1) can be made only with the previous approval of Commissioner. Secondly, the TPO gives sufficient opportunity to the assessee to show cause as to how its international transactions are at ALP. Thirdly, the assessee is free to challenge the draft order passed by the A.O, giving effect to the TPO s finding, before the Dispute Resolution Panel. The DRP is required to give due opportunity of hearing to the assessee before giving decision on the objections raised against the draft order including the transfer pricing adjustment. It is only thereafter that the final assessment order is passed. Thus, it is evident that assessee gets two opportunities to put forth its point of view before the finalization of the assessment order, viz., firstly before the TPO and then the DRP. The resultant assessment order passed after these twin opportunities is again subject to appeal before the tribunal. In view of the aforenoted safeguards provided by the legislature shielding the interest of the assessee, we are of the considered opinion that there is no need to device and introduce one more protection in terms of the recording of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omething is brought on record to demonstrate that the AO did form an opinion as to the fulfillment of the conditions as stipulated in sections 92C/92CA. We are unable to countenance this contention for the obvious reason that when there is a procedure prescribed for doing a particular thing and that thing is done by the concerned authority, then the presumption is that the requisite prescribed procedure was properly followed. This presumption would fail if the assessee brings on record some cogent material to indicate that the authority failed to follow the prescribed procedure. A bald statement about not fulfilling the requisite formalities by the concerned authority, unbacked by any evidence, cannot be accepted. If such a contention is accepted, then it would open floodgates of disputes thereby causing unnecessary delay in the disposal of appeals inasmuch as the assessee would be challenging each and every step taken by the AO demanding proof of having complied with the requisite requirements. Obviously, such a position cannot be accepted. The nutshell is that the prescribed procedure is to be presumed as having been rightly complied with by the concerned authority unless it is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n filters are applied for choosing comparables, which form the bedrock for the setting of the benchmark. The profit margin or even the comparables sometimes undergo change from one year to another. Simply because the Arm s Length Price declared by the assessee was accepted in a preceding year does not put an embargo on the powers of the authority to determine the ALP of the international transactions for the subsequent year. There are several factors which are taken into consideration for determining the ALP of an international transaction. It is also quite possible that a particular case incomparable in one year may become comparable in the subsequent year and vice versa. The ld. DR submitted that some of the assessee s own chosen comparables for the preceding year are not there in the list of comparables for the instant year. This contention has not been controverted on behalf of the assessee. Further a case though functionally comparable may find exclusion from the list of comparables for a year because of certain specific filter in one year, such as the `Related Party Transactions breaching the reasonable percentage, but it may again find its place in the list of comparables f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at ALP. The TPO accepted the application of TNMM as the most appropriate method without disturbing the PLI of OP/OC. However, the use of multiple years data was restricted to only the current year s data. All the five comparables reported by the assessee in its TP study were held to be incomparable. The TPO conducted his own search and came up with certain new comparables as tabulated on page 14 of his order. The assessee also selected certain new comparable cases and offered to the TPO for consideration. After considering the entire material, the TPO shortlisted five comparable cases with their OP/TC as under: Sl. No. Name of the Company OP/TC(%) 1. Aditya Birla Minacs Worldwide Ltd. 13.91% 2. Crossdomain 25.63% 3. Cosmic Global 48.12% 4. Cepha Imaging 20.08% 5. Coral Hub 36.93% Average 28.93% 4.3. Thereafter, he proceeded to compute the ALP and proposed transfer pricing adjustment of Rs. 14,33 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.E, we fail to appreciate as to how such foreign exchange gain fluctuation can be considered as an item of non-operating revenue. What is true for foreign exchange gain from the transactions of the revenue nature being considered as part of operating revenue is equally true for the foreign exchange loss being considered as part of operating costs from the transactions of the revenue nature. 4.7. The Special Bench of the Tribunal in ACIT Vs Prakash I. Shah (2008) 115 ITD 167 (Bom)(SB) has held that the gain due to fluctuation in the foreign exchange rate emanating from export is its integral part and cannot be differentiated from the export proceeds simply on the ground that the foreign currency rate has increased subsequent to sale but prior to realization. It went on to add that when goods are exported and the invoice is raised in the currency of the country from where the goods are sold and subsequently when the amount is realized in that foreign currency and then converted into Indian rupees, the entire amount is relatable to the exports made. In fact it is only the translation of invoice value from the foreign currency to the Indian rupees. It held that the exchange rate ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parables, which is quite different from that of the assessee. It was submitted that this company was involved in an altogether different business model of outsourcing activities; owning significant intangibles with minimum employees cost ratio as compared to that of the assessee. He stated that this case has been held by the revenue authorities themselves to be incomparable for the immediately preceding year, that is, A.Y. 2008-09. It was pointed out that this case was included by the TPO in the list of comparables while determining the ALP for the assessment year 2007-08. Inviting our attention towards the order passed by the Tribunal in assessee s own case for the assessment year 2007-08, the ld. AR contended that this case has been held to be incomparable. It was, therefore, prayed that this case be excluded from the list of comparables for the instant year. Per contra, the ld. DR relied on the impugned order on this issue. 5.2. After considering the rival submissions and perusing the relevant material on record, we find that the contention of the ld. AR that the case of VITL be excluded because it was done for the A.Y. 2008-09, is not tenable. It is relevant to note that thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xclusion of VITL from the list of comparables on the basis of the filter of employees cost to total cost. One option in such circumstances is to refer the matter for the constitution of special bench on this issue and the second is to follow the view taken in assessee s own case. Without making an indepth analysis, prima facie we feel that the view taken by the tribunal in assessee s own case is equally convincing vis- -vis the contrary view taken by the Hyderabad Bench. Since the rule of consistency enjoins to follow the view taken in the preceding year when there is no change in facts or law, we are persuaded to follow the view canvassed by the Tribunal in assessee s own case, more so, when the ld. DR failed to show that the facts and circumstances of the instant year are not similar to those of the A.Y. 2007-08. However, we want to make it clear that our decision to follow the view taken by the tribunal in assessee s own case is founded on the principle of stare decisis without independent evaluation of the rival views. The issue, as to which of the two views is more convincing de hors any specific background as is there before us in which the tribunal has taken one view in asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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