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TMI Blog2021 (11) TMI 1154X X X X Extracts X X X X X X X X Extracts X X X X ..... its wholly owned holding company. In terms of the provisions of Sec.92-A of the Income Tax Act, 1961 (Act), the Assessee and its wholly owned holding company were Associated Enterprises ("AEs"). In terms of Sec.92B(1) of the Act, the transaction of providing SWD Services was an "international transaction" i.e., a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises. In terms of Sec.92(1) of the Act, the any income arising from an international transaction shall be computed having regard to the arm's length price. In this appeal by the Assessee, the dispute is with regard to det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me on account of adjustment to ALP as follows: Computation of arm's length price by the TPO and the adjustment made: Arm's Length Mean Margin 20.90% Less: Working Capital Adjustment 2.29% Adjusted mean margin of the comparables 18.61% Operating Cost (`OC') ₹ 3,718,877,368/- Arm's Length Price (ALP') = 118.61% of OC ₹ 4,411,038,744/- Price Received ₹ 4,217,374,663/- Short fall being adjustment u/S. 92CA ₹ 193,664,081/- Thus a sum of ₹ 19,36,64,081/- was added to the total income of the Assessee on account of determination of ALP for provision of SWD services by the Assessee to its AE. 6. The Assessee filed objections before the Disputes Resolution Panel (DRP) against the draft assessment order passed by the AO wherein the addition suggested by the TPO as adjustment to ALP was added to the total income of the Assessee by the AO. The Assessee filed objections before the DRP and the DRP gave certain directions. Based on the directions of the DRP, the AO passed the final order of assessment. To the extent the Assessee did not get relief from the DRP, the Assessee has preferred appeal before the Tribunal. 7. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic transaction] entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base; (ii) the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base; (iii) the net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction [or the specified domestic transaction] and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market; (iv) the net profit margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-clause (iii); (v) the net profit margin thus established is then taken into account to arrive at an arm's length price in relation to the international transaction [or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he TPG. A revised version of this guidance was approved by the Council of the OECD on 22 July 2010. In paragraph 2 of these guidelines it has been explained as to what is comparability adjustment. The guideline explains that when applying the arm's length principle, the conditions of a controlled transaction (i.e. a transaction between a taxpayer and an associated enterprise) are generally compared to the conditions of comparable uncontrolled transactions. In this context, to be comparable means that: None of the differences (if any) between the situations being compared could materially affect the condition being examined in the methodology (e.g. price or margin), or Reasonably accurate adjustments can be made to eliminate the effect of any such differences. These are called "comparability adjustments. 12. In the light as laid down in the relevant statutory provisions as explained in decided cases, we shall proceed to examine the claim of the Assessee for exclusion of 3 comparable companies. In the case of Metristream Infotech (supra), the Tribunal held on the comparability of the aforeasaid companies, as follows: "11. As far as L&T Infotech Ltd. and Persistent Systems Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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