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TMI Blog2015 (6) TMI 418X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of addition of transfer pricing adjustment by taking into consideration the international transactions only under this segment to the exclusion of transactions with Canada Office and non-AEs. - Decided in favour of assessee for statistical purposes. Depreciation on building let out to some third party - whether should be excluded from the total operating costs? - Held that:- The direction given by the DRP for verifying and excluding the excess amount of depreciation has not been adhered to by the TPO/AO, which position is contrary to law. As such, we set aside the impugned order on this score and remit the matter to the file of the AO/TPO for passing an order in conformity with the direction given by the DRP. We want to make it explicit that we have not undertaken the exercise of examining any aspect of the actual amount of the excess depreciation liable for exclusion. The DRP has also simply directed the TPO to verify this aspect, and, then, exclude the excess amount of depreciation in determining the ALP of the international transaction. As such, the Officer is not only entitled but also duty bound to verify the correctness of the claim lodged by the assessee before excl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first five transactions are of rendering software development services by the assessee to its associated enterprises (AEs). The assessee, apart from having head office in India has also a branch office in Canada providing software development services to its AE in the USA. The assessee also paid for certain consulting services rendered by its AE to its Canada branch. For the time being, we are not considering the international transaction of unsecured interest free loan for which an adjustment of ₹ 87,90,467 was recommended by the TPO. In so far as the above transactions of rendering software development services and receiving consulting services, to the exclusion of interest free loan are concerned, the assessee used certain comparables and showed that these transactions were at arm s length price. The assessee s total revenue from services rendered as per its Profit Loss Account, a copy of which is available on page 58 of the paper book, stands at ₹ 36,63,45,769/-. The assessee received a sum of ₹ 13.67 crore, as per page 485 of the paper book, from its associated enterprises (AEs). This shows that the remaining amount of ₹ 22.96 crore (Rs.36.63 crore m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The answer is obviously in negative because section 92B(1) categorically provides that: For the purposes of this section and sections 92, 92C, 92D and 92E, an international transaction means a transaction between two or more associated enterprises .. . A bare perusal of the definition of international transaction brings to light that for treating any transaction as an international transaction, it is sine qua non that there should be two or more separate AEs. When we consider the definition of International transaction given in section 92B along with the meaning of the AE given in section 92A, it clearly transpires that in order to describe a transaction as an international transaction , there must be two or more separate entities. 7. It is simple and plain that no person can transact with self in common parlance. As such, one cannot earn any profit or suffer loss from self. The same is true in the context of business as well. Neither any person can earn income nor suffer loss from self. It is called the principle of mutuality. When expanded commercially, the proposition which follows is that there can be no profit from trade with self. This has been fairly settled t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the branch office in Canada. Such cost base is directed to be considered as exclusive of transactions with the Canada branch. We, therefore, set aside the impugned order to this extent. 10. It is uncontroverted, as is also apparent from the TPO s order, that the transfer pricing adjustment has been made by considering the total costs incurred by the assessee in respect of both the controlled and uncontrolled transactions with the associated enterprises (AE) and non- AEs. An addition towards transfer pricing adjustment can be made by comparing the assessee s profit rate from the international transaction with that of comparable uncontrolled transactions. Under the TNMM, the process is simple in initially finding out the operating profit margin of the assessee and then the average adjusted operating profit margin of comparable cases. Such adjusted profit margin of the comparables constitutes benchmark margin, which is then compared with the operating profit margin from the assessee s international transactions with its AE. It is not permissible to make transfer pricing adjustment by applying the average operating profit margin of the comparables on the assessee s universal trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndate of section 144C(13), which is as under:- (13) Upon receipt of the directions issued under sub-section (5), the Assessing Officer shall, in conformity with the directions, complete, notwithstanding anything to the contrary contained in section 153 or section 153B, the assessment without providing any further opportunity of being heard to the assessee, within one month from the end of the month in which such direction is received. 14. A bare perusal of this provision indicates that upon receipt of the directions issued by the DRP under sub-section (5) of section 144C, the AO has to complete the assessment in conformity with the directions so given. In other words, the assessing authority is bound by the directions given by the DRP and these directions are mandatory and not directory in nature. Reverting to the facts, once the DRP directed the TPO to exclude the excess amount of depreciation, it was incumbent upon him to give effect to such direction notwithstanding his contrary view on the issue. 15. Here, we want to note that the Finance Act, 2012 has inserted sub-section (2A) to section 253 w.e.f. 1.7.2012 providing remedy to the Department against the direction gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e inclusion of this amount in the annual letting value of the property, but, later on, he switched over to section 28(iv) and, finally, included a sum of ₹ 11,58,822/- in the assessee s total income towards notional interest on interest free deposit. The assessee challenged the view taken by the AO in the draft order before the DRP, who, vide para 3.3 of its direction, directed the AO to delete this addition. It was held that neither the ALV of the property can be increased u/s 23 with the notional interest nor section 28(iv) can be applied. However, we find from the final assessment order passed by the AO that the addition of ₹ 11.58 lac has still been made. 17. Again, it is amply clear that the direction given by the DRP for deletion of this addition has not been taken into consideration by the AO while finalizing the assessment. We have noticed above that the direction given by the DRP is binding on the AO in terms of section 144C(13). Adopting the discussion made above, we hold that the addition of ₹ 11.58 lac is not warranted because of the direction given by the DRP for the deletion of the addition. This ground is allowed. 18. The last issue in this ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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