TaxTMI 
TaxTMI 
2010 (10) TMI 693
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.... deleted. 3. The CIT (A) erred in not considering the corroborative transactional data in the form of CUP analysis to support the conclusion of the TNMM analysis 4. The CIT (A) failed to recognize the internal benchmark corroborating the conclusions of TNMM analysis and erred in concluding that Appellant's project business is not meeting arm's length test. 5. Without prejudice to the above grounds, the CIT (A) has erred in confirming the adjustment based on the wrong calculation of the NPM of 5.65% instead of 4.04%. The CIT (A) also erred in confirming the rejection of one of the comparable companies from the final set on the premise that the said company has incurred losses." 2. The Ld. Counsel for the assessee has submitted that he is not pressing ground no.1. As the ground no.1 is not pressed the same is dismissed. 3. So far as the ground nos.2 to 5 are concerned, the only issue is the determination of the Arm's Lengths Price (ALP) by way of adjustment u/s.92CA(3) of the I.T. Act. The assessee has also raised the following additional ground:- "The CIT (A) grossly erred in confirming the levy of the interest under section 234D. T....
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....tions & (ii) Project Functions. So far as Trading functions / distributions functions are concerned, the TPO accepted the ALP as declared by the assessee. The TPO's reservation in respect of international transactions which are the Project functions, classified as: (i) Purchase of building automation material and (ii) SCALA maintenance charges. 7. After examining the report submitted by the assessee, it was noticed by the TPO that for the Project functions, comparable companies have earned an average Net Profit Margin of 5.9%, which was calculated by using three years average data. At the same time, the assessee has shown NP Margin of 2.50%. In the opinion of the TPO, the average profit margin of the comparable companies was beyond 5% and hence, he sought the explanation of the assessee why the adjustment should not be made to the ALP shown by the assessee in it's report. The show notice issued by the TPO dated 10.3.2006 is reproduced in the order u/s.92AC(3) of the Act. In short, that is the case of the TPO for making the adjustment for determining the ALP. The assessee filed the reply to the sh....
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....d figure was not appearing in the data submitted in the TP report filed by the assessee. The TPO declined to accept the results of Mahindra Ashtech Ltd. as a comparable as said company has incurred loss of (-)10.47%. As noted by the TPO a search was done by his office and some data was collected in respect of the companies which were shown by the assessee in the TP report as comparables and as per the search the arithmetical mean was working out to 5.65%. The TPO, therefore, rejected the explanation of the assessee that the arithmetical mean of NP margins of the comparable independent company worked out to (-) 2.59% was factually not correct, after excluding loss making entity reported by the assessee. The A.O. also declined to consider the results Mahindra Ashtech Ltd. as in view of the TPO, the results shown by the said company was on account of abnormal circumstances being faced by the company. The A.O. therefore, adopted the net profit margin at 5.65% and made the adjustment of Rs. 94,62,394/- vide order u/s.92CA....
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....certain reasons for inadequate profitability is the project business and accordingly said that adjustments should be made for non- recurring / exceptional items i.e. change in accounting policy, start up cost and certain one time cost. The adjustments have also to be made in the margins of the comparable companies for these excluding all non-operating and extraordinary items. Accordingly, the AR submitted that the above conclusion of the TPO is without basis. Further, the appellant brought my attention to the Clause (i) Rule 10B(1)(e) of the Income-tax Rules. The Rule requires all the assesses to benchmark net profit margin realized from an international transaction, which makes it necessary to exclude exceptional items that do not entail international transactions and do not have any bearing on the profitability of the international transactions. 5.7 First of all, I am not in agreement with the appellant that Net Profit Margin has been affected due to change in accounting policy on account of its merger with M/s. Siemens Ltd. during the current year. The fact is&nbs....
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....an exceptional cost item is also rejected." ... 9. Now the assessee has challenged the impugned order of the Ld. CIT (A). 10. We have heard the rival submissions of the parties. We have also perused the reasons given by both the parties below. The Ld. Counsel vehemently argued that the international transaction with the associate enterprise are in respect of the building automation system. It is argued that the margin shown by the assessee are more than its competitors. The Ld. Counsel vehemently assailed the order of the TPO and submitted that the Ld. TPO has to consider the comparable even if it is loss makingIt is argued that whatever allege search was made by the TPO for gathering the data, which was not given at all to the assessee to reply. It is argued that the entire ALP is determined which is based on the data as per the research of the TPO and the A.O. mechanically accepted the same and confirmed by the Ld. CIT (A) is in gross violation of principles of natural justice. 11 We find force in the argument of Ld. Counsel. On the perusal of the TPO's order, it is seen that instead of dealing with comparables given by the assessee....