9911796707
TMI Blog2018 (6) TMI 153X X X X Extracts X X X X X X X X Extracts X X X X ..... nal transactions' on the basis of the order passed under section 92CA(3) of the Act by the Transfer Pricing Officer ('TPO') 2.1 The AO/TPO erred on facts and in law in disregarding the benchmarking analysis undertaken by the appellant applying internal TNMM in the Transfer Pricing Documentation allegedly holding that: (i) The segmental analysis/profitability undertaken by the appellant in the Transfer Pricing Documentation is not appearing in the audited financial statement (ii) The internal TNMM, applied by the appellant, is a sort of CUP and accordingly, strictly comparability is required for applying CUP method (iii) The services provided to the associated enterprises and non-associated enterprises are not identical. (iv) The details of services and billing structure of the associated enterprises and non-associated enterprises is not provided by the appellant 2.2 That the AO/TPO erred on facts and in law in characterizing appellant as a provider of financial advisory services and also erred in comparing the appellant with companies engaged in the business of stock broking and trading of shares. 2.3 That the AO/TPO erred on facts and in law in rejecting the followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO erred on facts and in law in confirming the directions issued by the Dispute Resolution Panel ('DRP') without appreciating that the DRP had failed to consider challans evidencing deduction and deposit of tax at source in financial year 2016-17_by the appellant in respect of inter- company fee payment made to group company located in USA, furnished by the appellant before the DRP by way of additional evidence. 3.3 Without prejudice, that the AO erred on facts and in law in confirming the directions issued by the DRP without appreciating that the DRP had failed to consider Tax Residency Certificates of group companies located in UK and Singapore, duly furnished by the appellant before the DRP by way of additional evidence. 3.4 That the AO erred on facts and in law in disallowing under section 40(a)(i) of the Act, payments in the nature of international commission amounting to Rs. 1,04,29,520 made by the appellant to its group companies located outside India for failure to withhold tax therefrom under section 195 of the Act. 4. That the AO erred on facts and in law in levying interest under Section 234A and 234B of the Act. The appellant craves leave to add, amend, alter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.2 Accordingly, he computed the adjustment of Rs. 3,95,61,889/- as under: Operation Cost 168,380,063 Arm's Length Price at a margin of 25.29% 210,963,381 Price received 171,401,492 105% of price received 179,971,567 Proposed adjustment u/ 92CA 39,561,889 2.3 The Ld. TPO passed order under section 92CA(3) of the Act on 27/01/2016 and proposed upward adjustment of Rs. 3,95,61,889/- to the value of international transaction declared by the assessee. The Assessing Officer issued a draft assessment order to the assessee, against which the assessee filed objection before the Ld. DRP, who issued certain directions to the Ld. TPO for verification. After taking into account the direction of the Ld. DRP and the comments of the Ld. TPO, the Assessing Officer issued final assessment order on 31/01/2017, finding of which, have been challenged by the assessee before us. In the impugned order, the Assessing Officer made following two addition/disallowances: 1. Transfer pricing adjustment of Rs. 3,95,61,889/-. 2. Disallowance under section 40(a)(i) of the Act amounting to Rs. 3,21,92,652/- for non-deduction of tax at source on certain payments. 3. The groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of the Jurisdictional High Court in Text Hundred India Private Limited (cited supra), we find that the assessee has successfully demonstrated that since the very nature of assessee's business activity has not been correctly understood the conclusion drawn for characterisation of the assessee suffer from a fundamental error wherein the TPO has understood the assessee on considering the TP report filed as being engaged in providing investment and other financial advisory services to its AE. Whereas the peculiar facts of the case as evident from the evidence placed before the TPO and the tax authorities read along with the fresh evidence sought to be placed in the proceedings before us whose filing has not been objected to by the I.T.A .No.-979/Del/2015 Page 16 of 21 Revenue demonstrates to the contrary. We find that the taxpayer no doubt undertakes financial services but these are not activities engaged in stock broking; trading; depositaries etc. these are in the context of forensic, investigative, risk assessments etc. requiring appreciation of socio-political and geopolitical studies which necessarily impact the financials and may be incorporated in the financial comparativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down to his submissions in the first round of Transfer Pricing proceedings. It should be appreciated that Transfer Pricing regulations are relatively new provisions and the case does require special consideration. The assessee is free to support his case in any manner it deems fit by filing any additional evidence or document before the A.O. Further information may be gathered from the parent company, if possible. Fresh methods may be adopted to prove ALP. Our intention is that, the assessee should not be shut out in the second round of proceedings, on the ground that, certain documents were not filed in the first round or certain method was not adopted originally." (emphasis provided) 9. Accordingly in view of the above detailed reasoning on facts and law, the issue is restored to the file of the TPO to carry out a FAR analysis of the assessee after characterizing its activity on the basis of evidence on record and then proceed to selecting comparables as per Rules and in accordance with law. Needless to say that the assessee shall be afforded a reasonable opportunity of being heard." 4.5 Similarly, following the order for assessment year 2010-11, the Tribunal in ITA No. 109 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that the assessee shall be afforded adequate opportunity of being heard. 5. On the issue of taking only cost related to AE transactions for applying mean margin of comparables and computing the arm's length price of the transaction, we agree with the contention of the Ld. counsel as the value of the international transaction only has to be compared with uncontrolled transaction. 5.1 When the transaction of the assessee consist both AE and Non-AE transactions, then the mean margin of comparables has to be applied only over the operating cost of the AE transaction, which are international transactions, for determination of arm length price. By including the cost of non-AE transactions into the operating cost for the purpose of computing arm's length price, would distort the comparison of the international transaction with uncontrolled comparable transactions. Since, we have already restored the matter to the Ld. AO/TPO for re- characterization of profile of the assessee and selection of fresh comparables, we feel it appropriate to direct the Ld. AO/TPO for considering only the operating cost of AE transaction, for applying mean margin of comparables and compute adjustment, if any ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
