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TMI Blog2015 (10) TMI 1077X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is liable to be set aside. 2. On the facts and in the circumstances of the case & in law, the order of deleting the addition of Rs. 53,23,591/- on account of upward adjustment of Arm's Length Price of the Internation Transaction ignoring the facts that...... (a) The upward adjustment was made by the TPO based upon the date of Comparables. (b)The CIT(A) has simply accepted the contention of the assessee without discussing the relevant date based on M/s Datamatics Technologies Ltd. and Infotech Enterprises Ltd., for which he has directed to exclude the names of these companies to arrive at the mean of OP/TC Ratio. (c) The CIT(A) has not established that the above two companies in fact had the international transactions of more than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opted Cost Plus Method (CPM) as the most appropriate method for determining the arm's length price. The international transactions entered into by it are at arm's length. Due to availability of reliable data, the respondent assessee-company has made itself as the tested party, i.e., assessee's operating profit margin over the cost has been compared with the margin of other comparable companies in India engaged in similar function. The operating profits to total cost was adopted as the profit level indicate ("PLI"). In the transfer pricing study, the respondent assessee-company had chosen the following 12 comparables and their weighted average operating profit margin was worked out at 4.82% as below: Name of the company OP/TC Allsoft Corp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.79% Datamatics technologies Ltd. 30.93% Genesys Internation Corp. Ltd. 29.45% Infotech Enterprises Ltd. 26.65% Karvy Consultants Ltd. 8.03% MCS Ltd. 1.62% Max Healthscribe Ltd. 1.77% Ask Me Info Hub Ltd. (-)6.28% Average OP/TC 11.85% The TPO computed the Arm's length price as follows: "13. COMPUTATION OF THE ARM'S LENGTH PRICE (ALP): In the manner discussed above, the arithmetic mean of operating profit over the total cost margins of the comparables for the financial year 2001-02 works out to 11.85%. The arm's length price of the internation transactions entered into by the assessee with its AE is worked out as under: Total Cost of Provision of services by the assessee: Rs. 7,20,21,767/- (Adjusted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "I have carefully considered the facts and submissions filed by the appellant. After considering the facts, documentary evidences placed on records and arguments presented by the AR, I am satisfied that the two comparables used by the TPO i.e. 1) Datamatics Technologies Ltd.; and 2) Infotech Enterprises Limited have substantial related party transactions and therefore cannot be used for determination of arms's length price of the international transaction. Hon'ble ITAT has held in the case of Sony India (P.) Ltd. Vs. DCIT [2008] 114 ITD 448 (DELHI) that "an entity can be taken as uncontrolled if its related party transaction do not exceed 10 to 15 per cent of total revenue. Within the above limit, transactions cannot be held to be significa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ground that these companies had substantial related party transactions. The provisions of Section 92 provides that income arising from international transaction is to be computed having regard to ALP. Section 92F(ii) defines "arm's length price" to mean a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises, in uncontrolled conditions. To compute ALP the results of the international transaction are benchmarked against comparable uncontrolled transaction. The mandate of s. 92F(ii) is that ALP shall be computed considering price applied or proposed to be applied in transactions between non-AE's. 11. When selection of external comparables, one needs to ensure that such external ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s comparable. But in the present case, though the CIT(A) adopted the same parity of reasoning while deleting the two comparables chosen by TPO, he had not referred to any evidence on the record in support of the conclusion drawn that these comparables had related party transactions exceeding 15%, nor the Authorized Representative of the respondent assessee company could establish this fact conclusively before us. No relief can be granted based on mere reliance on the legal proposition without supporting evidence on record. Therefore, we are of the considered opinion that the interest of justice would be met, if the matter is restored to the file of the Assessing Officer for the verification of this issue, after affording reasonable opportun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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