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TMI Blog2020 (5) TMI 630X X X X Extracts X X X X X X X X Extracts X X X X ..... ly sophisticated area as oil and gas sector, the fact that the client is in jurisdiction A and B, by itself, does not make such factor on standalone basis. This objection of the TPO that merely because clients are located at different geographical location, the prevailing market conditions will be different proceeds on the unproven assumption that that the scope of such market as consultancy services with respect to oil and gas sector in India is based on location of the client and that, therefore, it has a bearing on the profit margin. Unlike the market for a physical product, the market for consultancy services of such a nature is unlikely to be restricted to national boundaries, and, therefore, location of some of the clients at one location or the other would not really matter. In any case, the stand of the TPO was that some of the non-AEs are situated in India, and for this reason, these transactions should not have been treated as valid internal comparables is unsustainable in law, inasmuch as, all it can justify at best is exclusion of such transactions within Indian market, rather than rejecting the method, of ascertaining the ALP, itself. In our considered view, therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in force. In our considered view, even without the words ordinarily , in the light of the above analysis of the legal position, the period during which lockout was in force is to excluded for the purpose of time limits set out in rule 34(5) of the Appellate Tribunal Rules, 1963. Viewed thus, the exception, to 90-day time-limit for pronouncement of orders, inherent in rule 34(5)(c), with respect to the pronouncement of orders within ninety days, clearly comes into play in the present case. Of course, there is no, and there cannot be any, bar on the discretion of the benches to refix the matters for clarifications because of considerable time lag between the point of time when the hearing is concluded and the point of time when the order thereon is being finalized, but then, in our considered view, no such exercise was required to be carried out on the facts of this case. - ITA No. 1524/Mum/14 - - - Dated:- 27-5-2020 - Pramod Kumar (Vice President) And Ravish Sood (Judicial Member) For the Appellant : Aarti Vissanji For the Respondent : Rignesh Das, Inder Solanki ORDER PER PRAMOD KUMAR (VICE PRESIDENT): 1. By way of this appeal, the assessee appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing consultancy services for ₹ 23,06,24,942. A reference under section 92CA(1) was, in this backdrop, made to the Transfer Pricing Officer for ascertainment of arm s length price. The TPO noted that the benchmarking of these transactions, as arm s length transactions, was done by the assessee on the basis of cost plus method. It was also noted that, according to the assessee, while the cost plus margin earned by the assessee, from these transactions, worked out to 17.91% on cost, the cost plus margin, on similar transaction, was 7.36% on cost. It was on the basis of this comparison that the intra AE transactions by the assessee were claimed to be at an arm s length price. The TPO, however, did not accept this claim of the assessee. He was of the view that while the volume of transactions with AE was ₹ 23.06 crores, the transactions with non AEs (i.e. independent enterprises was only ₹ 12.08 crores. According to the TPO, thus, there is significant volume difference between AE and non-AE segments . The TPO further observed that there is significant difference in functions performed, assets deployed and risks taken in respect of projects taken from the related part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Learned Dispute Resolution Panel rejected grievance of the assessee, so as far as rejection of cost plus method is concerned. The adopted of TNMM was thus confirmed. The DRP did give some relief on other issues, such as selection of comparable companies, so far as computation of ALP under TNMM is concerned, but, for our purposes, and for the reasons we will set out in a short while, we are not, at this stage, concerned about these aspects of the matter. Suffice to note that rejection of CPM, for benchmarking purposes, was upheld by the DRP, and, accordingly, the final assessment order contained the ALP adjustment of ₹ 1,80,00,639 though with a rider that in view of the DRP directions, the matter regarding ascertainment of ALP is referred to the TPO and the issue, as on now, is pending at the end of the TP authority and that addition made on account of arm s length price of ₹ 1,80,00,639 is retained, subject to modification by the TPO . The assessee is aggrieved of the order so passed by the Assessing Officer and is in appeal before us. 5. We have heard rival contentions, perused the material on record and duly considered facts of the case in the light of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efits are to be divided between the respective parties to the transactions; (d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail. Quite clearly, therefore, the choice of method on the basis of which arm's length price is determined is, therefore, not an unfettered choice on the part of taxpayer, and, in our considered view, this choice has to be exercised on the touchstone of principles, governing selection of most appropriate method, set out in section 92C(1). The first step in determination of arm's length price is the selection of the right method of computing the arm's length price. Once the right method is selected under section 92C(1), the next step is application of the method so selected in computation of arm's length price - as is set out under section 92C(2). On both of these aspects of exercise of determining the arm's length price, however, the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the same. We may also add that while these powers are vested in the Assessing Officer under section 92C, in view of the Explanation below Section 92CA(7), the Transfer Pricing Officer, authorised by the Board, can exercise all or any the powers of the Assessing Officer specified in Section 92C and 92D. 8. In the light of the above analysis, it emerges that the Transfer Pricing Officer has the powers to modify the method of computing the arm s length price, the reasons for which are subject to judicial scrutiny, the manner in which the method of ascertaining the ALP can be modified by the TPO is as follows: - The starting point of this exercise is the formation of prima facie view by the Transfer Pricing Officer that there is a violation of Section 92C(2) inasmuch method of computation of arm s length price is not the most appropriate method , in the light of the mandate of Section 92C(1) read with rule 10B(2) and rule 10C(2). It is only a prima facie view for the reason that if this is to be treated as a final view than the issuance of show cause notice to the assessee will be rendered a ritualistic formality. - The view so formed by the Transfer Pricing Officer has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in functions performed, assets deployed and risks taken in respect of projects taken from the related parties and the services performed for the AE but then he does not elaborate that point as to what are the differences in assets employed, functions performed and risks assumed. That s a valid reason for rejection of an ALP determination method as MAM, but one needs little more than such macro observations without any specifics, to support that approach. This is a sweeping generalisation made by the TPO and at no stage, including before us, there was even an effort to demonstrate as to what were these differences. The next objection taken by the TPO, against adoption of cost plus method, was that the projects with unrelated party have suffered because of the problem faced by client in respect of funding and environment clearance . It is first of all an uncontroverted factual claim of the assessee that there were no such issues in the relevant financial year. The bigger question, as rightly raised by the assessee, is that in any case such problems have no bearing on profit element embedded in the revenue which is negotiated in advance. The funding and environmental issues may have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sultancy services with respect to oil and gas sector in India is based on location of the client and that, therefore, it has a bearing on the profit margin. Unlike the market for a physical product, the market for consultancy services of such a nature is unlikely to be restricted to national boundaries, and, therefore, location of some of the clients at one location or the other would not really matter. In any case, the stand of the TPO was that some of the non-AEs are situated in India, and for this reason, these transactions should not have been treated as valid internal comparables is unsustainable in law, inasmuch as, all it can justify at best is exclusion of such transactions within Indian market, rather than rejecting the method, of ascertaining the ALP, itself. In our considered view, therefore, none of the reasons assigned by the TPO, for rejection of the CPM, was thus sustainable in law. Undoubtedly, the TPO does indeed have powers, under section 92C(3), where he is, inter alia, of the opinion that the most appropriate method for ascertaining the arm s length price has not been used for determination of arm s length price, to proceed with his determination of arm s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned ALP adjustment itself, and that was the only addition in the impugned assessment, it is not really necessary to go into this aspect of the matter, as indeed all other issues raised in this appeal, at this stage. These issues are rendered wholly infructuous. 11. However, before we part with the matter, we must deal with one procedural issue as well. While hearing of this appeal was concluded on 24th February 2020, this order is being pronounced today on th day of May, 2020, much after the expiry of 90 days from the date of conclusion of hearing. We are also alive to the fact that rule 34(5) of the Income Tax Appellate Tribunal Rules 1963, which deals with pronouncement of orders, provides as follows: (5) The pronouncement may be in any of the following manners :- (a) The Bench may pronounce the order immediately upon the conclusion of the hearing. (b) In case where the order is not pronounced immediately on the conclusion of the hearing, the Bench shall give a date for pronouncement. (c) In a case where no date of pronouncement is given by the Bench, every endeavour shall be made by the Bench to pronounce the order within 60 days from the date on which the he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the Maharashtra Government, and on account of strict enforcement of health advisories with a view of checking spread of Covid 19. The epidemic situation in Mumbai being grave, there was not much of a relaxation in subsequent lockdowns also. In any case, there was unprecedented disruption of judicial wok all over the country. As a matter of fact, it has been such an unprecedented situation, causing disruption in the functioning of judicial machinery, that Hon ble Supreme Court of India, in an unprecedented order in the history of India and vide order dated 6.5.2020 read with order dated 23.3.2020, extended the limitation to exclude not only this lockdown period but also a few more days prior to, and after, the lockdown by observing that In case the limitation has expired after 15.03.2020 then the period from 15.03.2020 till the date on which the lockdown is lifted in the jurisdictional area where the dispute lies or where the cause of action arises shall be extended for a period of 15 days after the lifting of lockdown . Hon ble Bombay High Court, in an order dated 15th April 2020, has, besides extending the validity of all interim orders, has also observed that, It is als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay High Court itself has, vide judgment dated 15th April 2020, held that directed while calculating the time for disposal of matters made time-bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly . The extraordinary steps taken suo motu by Hon ble jurisdictional High Court and Hon ble Supreme Court also indicate that this period of lockdown cannot be treated as an ordinary period during which the normal time limits are to remain in force. In our considered view, even without the words ordinarily , in the light of the above analysis of the legal position, the period during which lockout was in force is to excluded for the purpose of time limits set out in rule 34(5) of the Appellate Tribunal Rules, 1963. Viewed thus, the exception, to 90-day time-limit for pronouncement of orders, inherent in rule 34(5)(c), with respect to the pronouncement of orders within ninety days, clearly comes into play in the present case. Of course, there is no, and there cannot be any, bar on the discretion of the benches to refix the matters for clarifications because of considerable time lag between the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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