9911796707
TMI Blog2015 (11) TMI 1563X X X X Extracts X X X X X X X X Extracts X X X X ..... lization adjustment and risk adjustment goes to prove that the objection raised by the tax payer having been mechanically disposed off without returning the specific findings as to how and under what circumstances, the data brought on record is not reliable or robust. TPO/DRP has neither declared the data brought on record by the taxpayer as unreliable nor they have injected fresh data to assess the capital utilization adjustment and risk adjustment as claimed by the taxpayer. A perusal of the discussion made by DRP regarding disallowance of utilization adjustment and risk adjustment in para 8.2.6 further goes to prove that merely academic reasons have been given to disallow the same. Case law relied upon by the DRP is not applicable to the facts and circumstances of the case when examined in the light of data brought on record by the taxpayer to decide the issue in controversy. So, findings of DRP/TPO on this issue are liable to be reversed. Consequently, Ground No.2 read with Ground No.1.6 are determined in favour of the appellant for statistical purposes and the file is ordered to be restored to the TPO to decide the matter afresh by passing speaking order after providing opport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 12.2006 wherein adjustment as per following details were made Total cost 465139145 OPITC of comparables 9.43% Operating profit 43853318 Operating Loss as per books 25467851 Difference 69321169 6. The cumulative adjustments med« in this case are tabulated below: S.N. Nature of international transaction ALP determined by assessee(INR) ALP determined by this office (INR) Adjustment u/s 92CA (lNR) 1. Provision of technical consultancy service 439671294 57640710 13,67,89,416 2. Receivable Nil 9,31,52,225 9,31,52,225 Total 22,99,41,641 The Assessing Officer will accordingly enhance the income of the assessee by ₹ 22,99,41, 641/-. This shall be treated as the cumulative adjustment u/s 92CA. No. adverse inference is drawn in respect of the other international transactions undertaken by the assessee during the F. Y.2003-04. The assessee was afforded reasonable opportunity of being heard, as mentioned on page 1 of this Order. The Assessing Officer may examine issue of initiation of penalty u/s 271(1)(c) of the Act in accordance with Explanation 7 of the same." 5. Consequently, notice u/s 142(1) dated 10.02.2014 was issued calling upon the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set of 7 new companies noted down whose average margin was 32.47% as against taxpayer (-6.77%). Hence, the A.O./TPO made an addition of ₹ 13,67,89,416/-. 9. TPO also found that the payments from AEs were not received a per the terms of service agreement and a such held that the taxpayer had provided benefit to its AEs by way of advancing interest free loans in the garb of delay of receipt of receivables. There was international transaction u/s 92B(1) read with Explanation (1)(c) and as such TPO used CUP method by taking a credit of credit period of 30 days and by applying loading rate of SBI+ 300 basis point determined and under the rate of 14.88% to be the Arms length level and interest needed to be charged for the deemed loan advanced and thus made adjustment of ₹ 9,31,52,225/-. 10. The taxpayer challenged the order of the A.O. before DRP by raising numerous objections duly detailed in para 4 of the impugned order passed by DRP. 11. The functional profile of the company is not an issue. 'The only dispute raised by the appellant is of exclusion of comparables adopted by the taxpayer / appellant in its transfer pricing and inclusion of comparables by the TPO / DRP w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he "TPO except two comparables; HSCC India Ltd. (selected by TPO) and Stewards Alcatel India Ltd. (selected by appellant). 16. In compliance to the decision made by Ld. DRP, the A.O. issued the final order. In accordance with the directions to revise arm's length transaction determined by A.O. at 15.34% and accordingly made TP addition amounting to ₹ 6,22,45,957/- on the basis of final set off of comparables adopted by him which are reproduced as under: S.N. Company name Working capital adjustment (OP/Total cost) % 1 Holtec Consulting Pvt. Ltd. 15.26 2 1L & FS Education & Technology Services Ltd. 12.69 3 I L & FS Transportation Networks Ltd 50.86 4 Rites Ltd. 31.88 5 Stup Consultants Pvt. Ltd. 18.77 6 TCE Consulting Engineers Ltd. 12.28 7 Wapcos Ltd 17.95 8 UB Engineering Ltd 1.07 9 L&T Sargent & Lundy Ltd. - 11.75 10 Tata Projects Ltd. 4.40 Mean 15.34 17. Ld. A.R. challenging the impugned order contended that DRP has adopted the comparables which were functionally altogether different as compared to the taxpayer EDS segment, which are discussed as under: Companies selected in the final order Appellant's contentions Remarks IL & FS Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the total cost. So keeping in view the fact that comparable company i.e. RITES Ltd. taken by TPO is functionally distinctive having been engaged in the area of engineering consultancy, traffic studies, export of locomotives and maintenance of the locomotives, construction and project management for railway track, electrification together with traffic and software consultancy assignments as against, the appellant company which is engaged in engineering design and drawing for various overseas AEs to support overseas offices on turnkey project execution basis. 21. The appellant also sought exclusion of Engineers India Ltd., a Government company form the list of comparables on the ground that profit motive is not relevant consideration in case of Government undertakings by relying on the judgements cited as M/s. Thyssen Krup Industries India Pvt. Ltd. in I.T.A. No. 6460/Mum/2012 New Delhi M/s. Avaya India Private Ltd. in I.T.A. No. 5150/Del/2010 (supra) and contended that the Government companies cannot be taken as comparables for TP by following the law laid down by Hon'ble Jurisdictional High Court in M/s. Avaya India Pvt. Ltd. and M/s. Thyussen Krupp Industries India Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arison, Transfer Pricing provisions do prescribe that the. "reasonable and accurate adjustments" be made only for the enhance comparability. But at the same time such data must be reliable and robust and there should be no scope for mechanical adjustments. The Panel has carefully considered the facts of the case and the submissions of the taxpayer. As per Rule 10B(2) and 10B(3) of Income Tax Rules, 1962, Indian transfer pricing provisions prescribe only for "reasonable accurate adjustment" and further adjustment to the margins of comparables can be made only if they enhance comparability. But at the same time the data for the same must be relevant reliable and. robust. Risk adjustment as a general rule cannot be allowed unless it is clearly shown that the comparables had actually undertaken such risk and how the same materially affected their margins. The revised OECD guidelines of.2010 has also stated. in para 3.54 as under:- "Ensuring the needed level of transparency of comparability adjustments may depend upon the availability of an explanation of any adjustments performed the reasons for the adjustments being considered appropriate how they were calcu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjustment as claimed by the taxpayer. A perusal of the discussion made by DRP regarding disallowance of utilization adjustment and risk adjustment in para 8.2.6 further goes to prove that merely academic reasons have been given to disallow the same. Case law relied upon by the DRP is not applicable to the facts and circumstances of the case when examined in the light of data brought on record by the taxpayer to decide the issue in controversy. So, findings of DRP/TPO on this issue are liable to be reversed. Consequently, Ground No.2 read with Ground No.1.6 are determined in favour of the appellant for statistical purposes and the file is ordered to be restored to the TPO to decide the matter afresh by passing speaking order after providing opportunity of being heard to the parties. 25. In view of what has been discussed above, appeal filed by the assessee is allowed for statistical purposes. 26. Order pronounced in the open court on 20.11.2015. Bare perusal of the findings retuned by TPO/DRP denying the benefit of capital utilization adjustment and risk adjustment goes to prove that the objections raised by the taxpayer have been mechanically disposed off without returning the ..... 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