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TMI Blog2014 (5) TMI 742X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act passed by the Ld. AO is void-ab-initio and infructuous and is liable to be quashed as the said order is in violation of section 144C(10), (13), (5) of the Act, in so far, as it is contradictory to and ignorant of the directions issued by the Hon'ble DRP. 3 Without prejudice to Ground 2, on the facts and in law, the order of the Ld. AO is erroneous to the extent of not incorporating the binding directions of the Hon'ble DRP while finalizing the order section 143(3) read with section 144C of the Act. 4 On facts and in law, the Ld. TPO, Ld. AO and the Hon'ble DRP erred in rejecting the Transfer Pricing ("TP") Documentation maintained by the Appellant u/s 920 of the Income Tax Act, I961 ("the Act"), read with Rule 100 of the Income Tax Rules, 1962 ("the Rules") and in carrying out a fresh search for comparable companies. 5 On the facts and in law, the Ld. TPO, the Ld. AO and the Hon'ble DRP erred in selecting certain companies as comparable, with a prejudiced intention of making an addition to the returned income of the Appellant, without appreciating that in cognizance of Rule 1OB(2), the functional, asset and risk profile of these alleged comparable comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions with its associated enterprises of the amount of more than Rs. 15 crores. Accordingly, after taking requisite sanction and in light of the provisions of section 92CA of the I.T. Act, the transactions entered into by the assessee with associated enterprises were referred to the Transfer Pricing Officer (TPO) for determining the arm's length price. The TPO after considering the material on record found that the assessee has benchmarked its international transactions by using TMM as the most appropriate method in the Transfer Pricing Report. The OP/OC of the assessee is shown as Cost + 14%. Five comparables have been selected by the assessee and their average margin for three years shown at 13.58%. The economic analysis and documentation relating to the international transactions reported were duly examined and commented upon. The TPO found the Study conducted by the tax payers to be defective in terms of section 92CA(3)(c) read with section 92CA and not reliable. As the arm's length price (ALP) has not been determined correctly, he issued show cause notice dated 28.12.2012, more so when the defects in Transfer Pricing Study were not based on Rule 10B of the IT Rules, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the international transactions related to the provisions of marketing support services stood computed by taking the OP/TC at 25.50% resulted into an adjustment dated 1,13,51,925/- as the price charged by the assessee varied by more than 5% from the value of international transactions. 3. The AO having regard to the TPO's Order u/s 92CA(3) of the Act made addition of Rs. 1,13,51,925/- in his draft order passed u/s. 144C of the Act and sought objections from the assessee on the variation so proposed in the draft assessment order. 3.1 The assessee filed objections to the draft assessment order on 12.4.2013 in Form No. 35A against the draft order dated 13.3.2013 requiring the Disputes Resolution Panel (DRP) to issue directions u/s. 144C (5) of the Act for the guidance of AO for enabling him to complete assessment order. The Panel after carefully considering the objections of the assessee came to the conclusion that in the year under consideration though some of the defects as stated in the order of the TPO may be curable, but by keeping the totality comparable issue in mind, it affirmed that there were flaws in the search process carried out by the assessee. Whereas on the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company. The Assessing Officer, however, did not incorporate the aforesaid directions of the DRP in his order. Even though the mandate of Section 144C(10) of the Act is that every direction issued by the DRP is binding on the AO. The AO thus has violated the provisions of section 144C(5) & (13) and has impact in reduction of addition by an amount of Rs. 17,58,067/-. 4.2 In support of ground no. 5 in appeal, the assessee's counsel contends that there has been a practice in making addition to the returned income without appreciating the cognizance of Rule 10B(2) of the IT Rules, 1962 particularly when the functional, asset and risk profile of these alleged comparable companies are dissimilar to that of the appellant. I. Aptico Limited The first comparable of Aptico Ltd. is functional dissimilar to the appellant as they were engaged in a diverse range of activities/ operations and services rendered by them cannot be compared with those of the services rendered by the assessee. Even the segmental profitability details of Aptico Limited not provided in Annual Report. There is also no similarity in the off shore operations between the two. The Appellate Tribunal, Delhi in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jected the comparables adopted by the assessee without giving reasonable basis of RPT adopted at 47.62% in the case of Kotak Mahindra Capital Company Ltd. and at 34.47%. VIII. M/s India Infoline Marketing Services Limited besides other companies are also contained in chart and those excluded wrongfully the appellant's computation. In addition to the assessee's claim in ground no. 6 the assessee supported its claim of risk adjustment taken in ground no. 7 in appeal by raising the key arguments with reference to the risk adjustment and citing the judicial precedents that were not considered by the authorities below in the right perspective. It has therefore, been contended that the order of the AO resulting into the addition of Rs. 1,13,51,925/- needs to be held as void abnitio and infructuous and if the alternate the comparables adopted by the TPO of their Study and confirmed by the TPO need to be excluded from the adjustment and those offered by the assessee alone need to be included so that the Assessing Authority computes the income afresh accordingly. 4.3 On the other hand, Ld. Departmental Representative contends that the order passed u/s. 143(3) read with Section 144C of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and excluding comparable that of the assessee on the ground that they had functional similarities or dissimilarities. In a case like this, the assessing authority is the best judge of the situation and has to arrive at its conclusion without any bias and on rational basis. In the appellate proceedings before this Tribunal the scope of power in a case like this is only to correct the errors committed by the AO so as to make assessment of correct income of the assessee and collect the legitimate tax due thereon by conforming to the principles of natural justice. The Appellate Tribunal shall by itself not embark enquiry afresh into the facts and comment upon the similarities or dissimilarities of the comparables on the basis of new pleas which in fact is under the domain of the assessing authority. It is also claimed by the assessee and has fairly being admitted by the Revenue that the assessee did not have reasonable and effective opportunity of explaining its case before the authorities below. We, therefore, on the peculiar facts consider it proper to set aside the addition and remit the matter back to the Assessing Authority so that the adjustments, if any, is made afresh in accord ..... X X X X Extracts X X X X X X X X Extracts X X X X
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