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TMI Blog2015 (10) TMI 942X X X X Extracts X X X X X X X X Extracts X X X X ..... zed Representative for the assessee has furnished on record an order giving appeal effect to the order of CIT(A) by Assessing Officer, vide order dated 28.02.2013, in which the margin of set of comparable companies was adopted at 15.75% as against the PLI of the assessee at 10.52% and the same has been found to be at arm's length i.e. +/- 5% range prescribed under the proviso to section 92C(2) of the Act. It may be clarified here that initially, the TPO had adopted the PLI of the assessee at 10.33%, but while computing adjustment on account of international transaction, the PLI was taken at 10.52% which is to be adopted in the hands of the assessee. In view thereof, we dismiss the grounds of appeal raised by the Revenue. In view of the concession of the learned Authorized Representative for the assessee that after giving effect to the order of CIT(A), no further adjustment is to be made in the hands of the assessee on account of an international transactions. Consequently, we dismiss the appeal filed by the assessee being academic. In view thereof, both the appeals of the assessee and the Revenue are dismissed. - ITA No.599/PN/2013, ITA No.813/PN/2013 - - - Dated:- 15-7-20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee and the comparable companies when the Transfer Pricing Officer / Assessing Officer had correctly made such adjustment as per Rule 10B(1)(e)(iii) of the Income-tax Rules, 1692. 3. The learned Commissioner of Income-tax (Appeals) grossly erred in failing to appreciate that as per the above Rule adjustment to eliminate the differences has to be made in the case of comparables. 4. The learned Commissioner of Income-tax (Appeals) grossly erred in giving direction to the Transfer Pricing Officer / Assessing Officer not to make adjustment on uncommon asset on the basis of hypothetical submission made by the assessee. 5. For these and such other grounds as may be urged at the time of hearing, the order of the learned Commissioner of Income-tax (Appeals) may be vacated and that of the Assessing Officer be restored. 6. The appellant craves leave to add, alter or amend any or all the grounds of appeal. 5. Both, the assessee and Revenue have raised common grounds of appeal in relation to various aspects of the Transfer Pricing adjustment carried out by the TPO and adopted by the Assessing Officer, part of which has been upheld by the CIT(A) and partly allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, assessee was asked to make the adjustment in the case of the comparables so as to get a clear picture of the effect of the adjustment on their profitability. The assessee furnished the details of the list of comparables selected by the assessee along with the PLI s before and after the depreciation adjustment, which is tabulated at page 5 of the order of the TPO. The TPO thereafter vide para 13 and 14 show-caused the assessee with regard to the accelerated depreciation method adopted by it, which reads as under :- 13. Further the Profit Level Indicator to be adopted, OP/TC. Since, the assessee is following accelerated depreciation method, the comparable s margins after the said adjustment is taken for comparison which is in conformity with Rule 10B(3) of the Income Tax Rules, 1961. 14. The adjustments to its PLI made by the assessee on account of depreciation is not found to be in conformity with Rule 10B(3) of the Income Tax Rules. Depreciation is a cost incurred in generation of revenue and accordingly, net margin has to be computed only after allowing depreciation. Since transfer pricing provisions are part of Indian Income Tax Act, 1961 the computation of net marg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO but in the first instance we are referring to the adjustment made on account of accelerated depreciation, which was not allowed by the TPO observing as under :- 10. It is seen from the table that the mean PLI of the comparables is standing at 16.61%, as against the PLI of the assessee which is at 10.52%. Thus, there is a difference of 6.09% between the profit level of the assessee and the mean PLI of the comparables and the same is due to the pricing of the services provided to the A.E.. The corresponding adjustment of the difference of 6.09% amounting to ₹ 81,47,709/- is to be made to the profitability of the assessee, so that its international transactions Amount of adjustment = 6.09% of cost relating to providing services to AE; = 6.09 X 13,37,88,338/100 = ₹ 81,47,709/- 11. Keeping in view the fact of the case, the submission of the assessee and deliberations as above, adjustment of the amount of ₹ 81,47,709/- is made to the international transaction relating to providing business support services to the A.E.. 8. Before the CIT(A), the plea of the assessee was that the action of the TPO in making the selected depreciation adjustm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther pleaded that where the functions of assessee and the companies selected as comparables were similar, such adjustment could not be made. Where adjustment on account of accelerated depreciation is not to be made in the hands of the tested parties, then the TPO proceeded to make such adjustment in the hands of the comparables by issuing show-cause notice, copy of which is placed in the Paper Book. It was further pointed out by the Ld. Authorized Representative for the assessee that the margin of the comparables was reduced in the final show-cause notice but thereafter list of comparables were show-caused to the assessee, which is at page 12 of the show-cause notice, wherein the mean of the margin was 17.83% but the TPO in the final analysis removed. Sterling as not being comparable and thereafter adjustment was made on account of assets not owned by the assessee. It was the plea of the Ld. Authorized Representative for the assessee that if no such adjustment was made then the margin shown by the assessee in respect of its international transactions with its AE was within +/- 5% margins. Reliance in this regard was placed on the decision of the Delhi Bench of the Tribunal in EXL S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment, if any, is to be made in the hands of the comparable companies in order to bring its margins at par with the tested party. The TPO drew final list of comparable companies whose mean PLI worked to 17.83% as against PLI of the assessee shown at 10.33%. In view thereof, adjustment of ₹ 1,00,34,125/- was proposed by the TPO to the international transactions transacted by the assessee with its associate enterprises. Since the assessee was following differential rate of depreciation, the PLI of the comparable companies were adjusted to bring both the assessee and the comparable companies at par. An other adjustment proposed by the TPO was on account of certain items, which were not appearing in the said list of the assessee, on which depreciation was claimed by it. However, in the final analysis, the TPO removed those items in the comparables chart and the PLIs were computed to work out the differences which were there at the time of making the depreciation adjustment. As per the revised working, the PLI of the comparables worked out to 16.61% as against the PLI of the assessee at 10.52% and consequently, adjustment of the difference amounting to ₹ 81,47,709/- was made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that no adjustment is to be made in the hands of the comparable companies on account of assets not owned by the assessee. The learned Authorized Representative for the assessee has furnished on record an order giving appeal effect to the order of CIT(A) by Assessing Officer, vide order dated 28.02.2013, in which the margin of set of comparable companies was adopted at 15.75% as against the PLI of the assessee at 10.52% and the same has been found to be at arm's length i.e. +/- 5% range prescribed under the proviso to section 92C(2) of the Act. 17. It may be clarified here that initially, the TPO had adopted the PLI of the assessee at 10.33%, but while computing adjustment on account of international transaction, the PLI was taken at 10.52% which is to be adopted in the hands of the assessee. In view thereof, we dismiss the grounds of appeal raised by the Revenue. 18. In view of the concession of the learned Authorized Representative for the assessee that after giving effect to the order of CIT(A), no further adjustment is to be made in the hands of the assessee on account of an international transactions. 19. Consequently, we dismiss the appeal filed by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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