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TMI Blog2018 (5) TMI 2090X X X X Extracts X X X X X X X X Extracts X X X X ..... the directions issued by the Hon'ble Dispute Resolution Panel-2, Bangalore (DRP) to the extent prejudicial to the Appellant, is erroneous, bad in law and contrary to the facts and circumstances of the case. 2.The Learned TPO/AO and Hon'ble DRP have erred in law and in facts by making an adjustment of INR 31,87,73,135 to the arm's length price of the Appellant's international transactions. 3.The Learned TPO/AO and Hon'ble DRP have erred, in law and in facts by rejecting the detailed transfer pricing documentation prepared by the Appellant in accordance with the provisions of the Income tax Act, 1961 (the Act) and proceeded to undertake a fresh search without providing cogent reasons for doing the same. 4.The Learned TPO/AO and Hon'ble DRP have erred, in law and in facts by not providing the complete details of the search process undertaken in order to arrive at the comparable companies to test the ALP of international transaction undertaken by the Appellant. 5.The learned TPO/ AO and Hon'ble DRP have erred in law and in facts by disregarding the pricing policy adopted by AEs to export the raw material/ components to Appellant and the alternate app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while computing the ALP of an international transaction ought to have eliminated the expenses incurred by the Appellant in relation to customs duty, freight and insurance etc. from the value of international transaction of import of raw materials as these expenses are paid to the third parties and not to its AEs. Thus, the adjustment should be restricted to the value paid/payable by the Appellant to its AEs on the international transaction undertaken between them and not for the value paid/payable to third parties 15.The learned TPO/ AO and Hon'ble DRP have erred in law and in facts, by rejecting the use of financial data of the prior two years i.e. FY 2010-11, FY 2009-10, which is permitted under proviso to Rule 10B(4) of the Income tax Rules,1962 without providing any cogent reasons for the same. 16.The learned TPO/ AO and Hon'ble DRP have erred in law and in facts, in computing the ALP without giving benefit of +/- 5 percent under the proviso to section 92C of the Act. Corporate tax matters 17.The learned AO has erred in law and facts by is regarding brought forward losses pertaining to earlier assessment years while computing the gross total income of the Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder the ld. Assessing Officer, had proposed an upward adjustment of F5,73,22,445/- for Arms Length Pricing. 4. Continuing his submissions, ld. Authorised Representative stated that assessee had assailed the draft assessment before the ld. DRP taking a pleading that computing Arms Length Price as done by the ld. TPO was incorrect. As per the ld. Authorised Representative, ld. DRP, while rejecting the grounds raised by the assessee took a view that the Arms Length Pricing adjustment had to be carried out on a global basis, not for the international transactions alone. Contention of the ld. Authorised Representative was that this view taken by the ld. DRP was incorrect. According to him, upward adjustment that could be made, if it all any, should be only with regard to the international transactions with the Associated Enterprises. As per the ld. Authorised Representative, uncontrolled transactions of the assessee was always on Arms Length Prices and hence if a global adjustment was carried out, it would result in upward revision of the cost relating to uncontrolled transactions also. Thus, according to the ld. Authorised Representative, ld. DRP fell in error in directing the ld. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s would get considered when Transactional Net Margin Method (hereinafter referred to as ''TNMM''). Both these presumptions, in our opinion, had no factual or legal basis. In our opinion the directions of the ld. DRP to calculate the upward adjustment considering all the transactions of the assessee without restricting it to the transactions undertaken by the assessee with its Associated Enterprises is not in accordance with law. Hon'ble Bombay High Court in the case of Alstom Projects India Ltd (supra) had held as under at paragraphs 11 and 12 of its judgment:- 11 We also note that the Delhi High Court in Commissioner of Income Tax Vs. Keihin Panalfa Ltd. (ITA No.11 of 2015) decided on 9th September, 2015 has while dealing with transfer pricing adjustment in the absence of segmental accounts held that adjustments have to be restricted only to transactions with Associated Enterprises. It further held that where separate accounts are not available, then proportionate adjustments to be made only in respect of the international transactions with Associated Enterprises. 12 We are in respectful agreement with the view of the Delhi High Court in Keihin Panalfa Ltd. (Supra). One must no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjustment proportionate to that extent could be made in respect of such international transactions. Thus, only an adjustment of Rs. 30,33,593 could be attributed to the international transactions in question. The same was accepted by the Commissioner of Income-tax (Appeals) as well as the Tribunal. We do not find any infirmity with their decision''. No doubt, Hon'ble Apex Court has admitted an appeal filed by Revenue in the case of CIT vs. Firestone International P. Ltd (2016) 96 CCH 271 against a judgment of Hon'ble Bombay High Court in (2015) 378 ITR 558 affirming the view taken by the Tribunal that adjustments on arms length transactions had to be restricted to the value of international transactions with Associated Enterprises. However no stay was granted by Hon'ble Apex Court. Hence as on date the judgment of Hon'ble Bombay High Court, is operative. We are therefore of the opinion that ld. DRP fell in error in giving a direction to do an upward adjustment on aggregate of international transactions of the assessee without restricting it to the proportion of such transactions with its Associated Enterprises. Such directions of the ld. DRP are set aside. Ground No.6 of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l was a factor to be considered while arriving at the Profit Level Indicator (PLI). However, it is also mentioned in the said case that higher import raw materials by itself did not warrant an adjustment for operating margins. For making such adjustment, assessee should be able to demonstrate that higher import content was necessitated by some extraordinary circumstances which was beyond its control. Just because there is a difference in proportion of imports between comparables and the assessee would not by itself, in our opinion, warrant any adjustment on profits unless assessee is able to show some extraordinary circumstances which necessitated higher imports when compared to the selected comparables. Assessee in the case before us, has been unable to demonstrate that raw materials purchased after payment of custom duty was of a similar nature as purchased by the comparable entities and there was a substantial difference in custom duties and excise duties on such material. Thus, in our opinion, assessee was rightly denied the adjustment sought by it for custom duty on raw materials. Grounds 7 and 8 of the assessee stand dismissed. 11. No arguments were addressed by the ld. Auth ..... X X X X Extracts X X X X X X X X Extracts X X X X
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