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TMI Blog2017 (2) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... draft assessment order and the final assessment order is passed only pursuant to the directions of the DRP u/s 144C(13) of the Act. Therefore, the decision of the Hon'ble Supreme Court in the case of the CIT vs. Nagpur Hotel Owners [2000 (12) TMI 99 - SUPREME Court ] is not strictly applicable to the facts of the case of the assessee as in the assessee’s case, the assessment order has not yet been passed and the assessee has filed the relevant information before the DRP. Therefore, we deem it fit and proper to remand the issue of the computation of deduction u/s 10A of the Act to the file of the AO with a direction to verify the claim in accordance with law after taking note of Form 56F and other documents filed by the assessee before the DRP. Ground treated allowed for statistical purposes. X X X X Extracts X X X X X X X X Extracts X X X X ..... oft Tech Pvt. Ltd. in the final set of comparables since it is functionally comparable to the Appellant. 3. On the facts and circumstances of the case and in law, the Hon'ble DRP erred in not including Acropetal Technologies Ltd. and Accuspeed Engineering Ltd. in the set of comparable companies, despite considering them as functionally comparable to the Appellant's business of rendering engineering services. The Appellant prays that the aforesaid comparable companies ought to be included in the set of comparable companies since they are functionally comparable to the Appellant. 4. On the facts and circumstances of the case and in law, the Hon'ble DRP erred in confirming the action of the Learned AO/TPO in considering loss on account of foreign exchange differences as operating in nature while computing the operating margins of the Appellant. However, the Learned AO/TPO have considered foreign exchange difference as a nonoperating in nature while computing the margins of the comparable companies. The Appellant prays that the loss on account of foreign exchange differences ought to be considered as non-operating in nature. 5. On the facts and circumstances of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d entered into two international transactions with its AE, i.e. for (i) for provision of ITeS and; (ii) payment for technical support services. The assessee, in its TP study, adopted the TNMM as the most appropriate method and the profit level indicator i.e. PLI as operating profit/operating cost and arrived at the margin of 10.11% as against the margin of comparables taken by the assessee at 5.74%. The TPO observed that the taxpayer has used the capitaline data base for search of comparable companies for the I.T. enabled services. After applying certain filters, the assessee has shortlisted 8 companies as comparables, and the arithmetic mean/PLI of the comparables was computed at 5.74% as against its own PLI of 10.11% and that the assessee has treated its transaction to be at ALP. The TPO observed that as per the audited statement of accounts, the financials of the taxpayer are as under: Description Amount (in Rs.) Operating Revenue 31,81,69,320 Operating Cost 28,97,99,105 Operating Cost 2,83,70,215 OP/OR (%) 8.92 OP/OC(%) 9.79 He observed that the assessee has aggregated both the transactions i.e. of ITES as well as technical support services and treated the combined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that both the assessee as well as the TPO have adopted TNMM as the most appropriate method which is an indirect method of arriving the ALP. He submitted that while computing the ALP under TNMM, a reasonable number of comparables are to be considered to ensure that the results are truly representative of the segment to which tested party belongs. In support of this contention, he placed reliance upon the following two decisions: i) Fortune Infotech Ltd vs. ACIT (ITA No.274/Ahd/2013, dated 3.2.2016) ii) M/s.GE Healthcare Bio-Sciences Ltd vs. DDIT (ITA No.677/Mds/2015, dated 3.3.2016). Therefore, according to the learned Counsel for the assessee, the DRP ought not to have directed the AO to consider only two companies which have been selected by the assessee and accepted the TPO to be comparable to the assessee. He submitted that the TPO had made further search and since the TPO has taken Acropetal Technologies Ltd and Accuspeed Engineering Ltd., whose margins were 11.12% and 9.18% respectively as comparables and the assessee also has accepted them to be comparable to the assessee, the DRP ought not to have directed that only two companies be adopted for the computation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts of that case, in the light of availability of necessary inputs for various alternative options and in the light of other relevant factors. If in one case the Tribunal has held that even one comparable is good enough for determining the arm's length price on the basis of one of the prescribed methods, and that method is most appropriate method in a given situation, it cannot be inferred that irrespective of the method employed and de-hors the peculiarities of a fact situation, a single comparable is good enough for all the methods of determining arm's price, so as to be treated as most appropriate method for that purpose. In an indirect method like TNMM, a reasonable number of comparables is an important factor to ensure that the results are truly representative of the segment to which the tested party belongs. The situation with regard to direct methods like CUP, as long as transactions are established to be bonafide, could be slightly different. There are no yardsticks of universal application. However, the mandate of Section 92C(1), read with rule 10C, is unambiguous. A method selected for benchmarking must be a permissible method to be included in the consideration zone, but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he degree of comparability existing between the international transaction and the uncontrolled transaction and between the enterprises entering into such transactions; (e) the extent to which reliable and accurate adjustments can be made to account for differences, if any, between the international transaction and the comparable uncontrolled transaction or between the enterprises entering into such transactions; (f) the nature, extent and reliability of assumptions required to be made in application of a method. [Emphasis, by underlining, supplied by us] 11. The scheme of the transfer pricing legislation in India is thus unambiguous. There is no dispute that the selection of 'most appropriate method' is not in the unfettered discretion of the assessee and it is something which can always be subject matter of adjudication at the assessment as well as appellate stage. The TPO has a right, as indeed duty, to examine whether a particular method adopted by the assessee is indeed most appropriate method of determining arm's length price on the facts of a particular case. One of the important factors governing the decision on as to what will constitute the most appropriate metho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Coordinate Bench of this Tribunal at Chennai in the case of M/s. GE Healthcare Bio-Sciences Ltd vs. DDIT (Cited Supra). Therefore, respectfully following the above decisions, we hold that the DRP is not correct in holding that the TPO can compute the ALP by considering only the two companies which have been selected by the assessee and accepted by the TPO for computing the ALP. Further, the TPO u/s 92CA of the Act has conducted his own search for comparable companies and has arrived at Acropetal Technologies Ltd and Accuspeed Engineering Ltd and the assessee also has accepted these companies as comparables by not objecting to the same before the DRP. Therefore, in view of the fact that the TNMM is the indirect method, requiring a reasonable set of comparables, to arrive at the correct ALP, we do not agree with the directions of the DRP. Ground of appeal No.3 is accordingly allowed. 13. Ground No.2 is against the rejection of Babcock Borsig Soft Tech Pvt. Ltd one of the companies taken as comparable by the assessee, on the ground that, the financial results of the said company are not available. The learned Counsel for the assessee submitted that at the time of TP study and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dly, the assessee has taken this company as comparable in its own TP study and has not objected to either before the AO or before the DRP. But the assessee is not precluded from raising a ground against its comparability before the Tribunal which is the final fact finding authority and is the first appellate authority as far as the TP matters are concerned. Therefore, in our opinion, the assessee is at liberty to question the comparability of Projects & Development India Ltd before the Tribunal. Therefore, we admit the additional ground of appeal. 19. On the merits of the said ground, the learned Counsel for the assessee has drawn our attention to the annual report of the said company which is placed at page 203 of the paper book wherein it is clearly stated that it is a Govt. of India undertaking. In support of its contention that a Govt. Undertaking cannot be taken as a comparable to private companies like the assessee herein which operate in a totally different and risk bearing environment, the learned Counsel for the assessee placed reliance upon the following decisions: i) CIT vs. Thyssen Krupp Industries India (P) Ltd (2016) 385 ITR 612 (Bom.) ii) M/s. Thyssen Krupp Indu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder under Section 92CA(3) of the Act, while taking TRF Ltd. as a comparable on the ground that its related party transaction was not in excess of 25% of its total turnover. Thus, applying consistent filter of 25% or less of related party transaction alone to be considered comparable, Engineers India Ltd. could not be considered to be comparable. (b) We find that the view taken by the Tribunal in the impugned order is a reasonable and possible view. Nothing has been shown which would justify our interference in the impugned order of the Tribunal excluding Engineers India Ltd. from the list of comparables. (c) In the above view, question (b) as framed also does not give rise to any substantial question of law. Thus, not entertained". The other case law relied upon by the learned Counsel for the assessee is also to this effect only. Therefore, we direct the AO to exclude the Company M/s. Projects & Development India Ltd from the final list of comparables and the additional ground of appeal No.2 is accordingly allowed. 22. As regards Ground No.5 against the disallowance of the claim of the assessee u/s 10A of the Act, amounting to ₹ 1,58,84,238 for non furnishing of Form ..... X X X X Extracts X X X X X X X X Extracts X X X X
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