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TMI Blog2016 (7) TMI 671X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee are admitted under Rule 29 the Income-tax (Appellate Tribunal) Rules, 1963. However, these evidences furnished by the assessee first time before this bench of the Tribunal were not available to the authorities below. We, therefore, deem it appropriate to set aside the issue under consideration to the file of the TPO to be adjudicated afresh inaccordance with law, after providing due and reasonable opportunity of being heard to the assessee. We also direct the TPO to consider the additional evidences, furnished by the assessee while adjudicating the issues under consideration. - ITA No. 6192/Del./2015 - - - Dated:- 8-6-2016 - Sh. N. K. Saini, AM And Smt. Beena A. Pillai, JM For The Appellant : Sh. Deepak Chopra, Adv., Sh. Harpreet Singh, Adv., Sh. Rohan Khare, Adv. For The Respondent : Sh. Amrendra Kumar, C.I.T, DR ORDER PER N.K. SAINI, A.M. This is an appeal by the assessee against the order dated 26/10/2015 of the AO passed u/s 143(3) / 144C of the Income Tax Act, 1961 (hereinafter referred to as the Act ). Following grounds have been raised in this appeal :- 1. That on facts and in law, the impugned order/directions passed by the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Appellant. 10 Without prejudice, that on facts of the case and in law, the Ld. DRP/ TPO/AO have erred in using single year data for financial year ( FY ) 2010- 11 of alleged comparable companies without considering the fact that the same was not available to the Appellant at the time of complying with the transfer pricing documentation requirements and disregarding the Appellant's claim for use of multiple year data for computing the arm's length price. 11 Without prejudice, that on facts of the case and in law, the Ld. DRP/TPO/AO have failed to make suitable adjustments to account for differences in the capacity utilization ignoring the fact that the Appellant is in the initial years of operation and an adjustment for capacity utilization should have been allowed. 12 Without prejudice, that on facts of the case and in law, the Ld. DRP/TPO/AO have failed to make appropriate adjustments to account for differences in working capital employed by the Appellant vis-a-vis the comparable companies. 13. Without prejudice, that on facts of the case and in law, the Ld. DRP/TPO/AO have failed to make appropriate adjustments to account for varying risk profil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e s Cost Plus Method. The contention of the assessee before the TPO was that the TNMM should not be considered as the most appropriate method as the international transaction undertaken by the assessee, during the relevant assessement year with its Associated Enterprises (AE s) had been justified to be at arm s length price (ALP) under the CPM method. The assessee gave the justification in this regard by comparing the gross margin earned therein with the gross margin earned by the assessee on transactiosn undertaken with the Non-AE s. The assessee had earned a gross margin of 38.65% under AE segment service in comparison to the margin of 36.63% earned under the Non-AE segment. The TPO rejected the contention of the assessee by observing as under :- The objection of the assessee is considered but not acceptable. As a matter of fact, the assessee has acknowledged that no segmental profit and loss account was prepared w.r.t services provided to the AE s and no AE s. In such a scenario, the application of cost plus method is extremely difficult as the gross profit margin is required to be charged on the direct and indirect costs identified. For application of CPM, gross profit mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt on account of arm s length price as under :- Particulars Amount (INR) Operating Cost 7,11,10,000 Arm's Length Margin (%) 23.81% Arm's Length Margin Rs. 1,69,31,291 Arm's Length Price 8,80,41,291 Price charged by the assessee 7,41,29,000 5% of Price charged in international transaction 37,06,450 Difference between ALP and Price charged by assessee 1,39,12,291 Difference for which adjustment is required to be made 1,39,12,291 7. The AO accordingly passed the draft assessment order by proposing an adjustment of ₹ 1,39,12,291/-. Being aggrieved the assessee filed the objection to the proposed adjustment before the DRP who did not find any merit in the objections of the assessee by observing that the TPO had dealt with the assessee s contentions in respect of all the points raised by the assessee by giving elaborate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions dated 31 August, 2015. AO passed the final assessment order dated 26 October, 2015 in line with the directions of DRP. 7. That the Appellant had benchmarked its international transaction pertaining to rendering of software consulting and support services by using Cost Plus Method. The TPO however rejected the most appropriate method applied by the Appellant for benchmarking the subject transaction, by erroneously concluding that segmental data was not available with respect to the services provided by the Appellant to the AE non-AEs. In this regard, we respectfully submit that segmental data was duly available produced before the TPO (segmental details are produced at para 5 on page 3 of TPO s order). 8. We respectfully submit that during the proceedings before the TPO, the Appellant was asked to furnish segmental data. Accordingly, the Appellant filed segmental data before the TPO, and vide its submissions dated 8 January, 2015 (Page 24 of the paper book) and 10 December, 2014 ( Page 53 and 54 of the paperbook) had requested the TPO to consider the net operating margins of internal comparable (internal TNMM) to benchmark the subject transaction. 9. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of it being at arm s length or not, therefore, the Appellant s objections were dismissed by the DRP as untenable. 14. Being aggrieved by the final assessment order dated 26 October, 2015, the Appellant preferred the present appeal before this Hon ble Tribunal which has been registered as ITA no. 6192/Del/2015. 15. We wish to submit that once Profit Margin of AE Non-AE segments are available for the purpose of benchmarking the subject international transaction, internal comparables ought to have been preferred as it is now a settled position in law that internal comparables are preferred over external comparables. 9. The reliances is placed on the following case : a) Tecnimont ICB (P) Ltd. V. ACIT, ITA No. 4608 5085/Mum/2010, ITAT Mumbai (Third Member) b) Birlasoft India Ltd. V. DCIT, 44 SOT 664, ITAT Delhi c) Sony Ericsson Mobile Coomunications India Pvt. Ltd. Vs. CIT-III [(2015) 374 ITR 118] (Del HC) d) Diageo India Private Limited vs. DCIT Mumbai (ITA Nos. 7932/Mum/2011) e) Cable Wireless (India) Ltd. Vs. ADIT Mumbai (ITA No. 822/Mum/2013) f) Genisys Integrating System (India) Private Limited vs. DCIT Bangalore (ITA No 90 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional evidence. 4. That as per the general practice followed by Seven N Consulting Private Limited and in terms of AS-17, the company was not required to maintain separate segmental accounts in-as-much as the nature of services in respect of transactions undertaken with Seven N A/S, Denmark (related party) and the unrelated parties. However during the course of Transfer Pricing Assessment the Transfer Pricing Officer had rejected the Most Appropriate Method selected by Seven N Consulting Private Limited on the ground that the segmental data was not audited. Hence, on advice in the appeal before the Hon ble Tribunal the audited segmental results have now been obtained from an independent Chartered Accountant. 12. During the course of hearing the ld. Counsel for the assessee reiterated the contents of the aforesaid application move for admission of the additional evidences and further submitted that at the time of proceedings before the TPO audited segmental accounts were not available, therefore, the assessee was prevented by reasonable cause for producing the same before the TPO. It was further stated that the assessee furnished segmented data vide submission dated 08.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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