AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2011 (7) TMI 636
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....the international transactions of the assessee to the Transfer Pricing Officer (T.P.O.) who made an adjustment of Rs. 1,41,06,903/- to the arm's length price of the international transactions made by the assessee relating to professional fee/training fee/service fee. 4. It is pertinent to mention that the assessee in its TP study report followed TNMM method for professional fees received as the most appropriate method and CUP method for reimbursement of expenses, the details of which are as under:- Sr. No. Description Amount in Rs. Method 1 Professional fees received 3.83 crores TNMM 2 Fee for training of seafarers received 91.73 lakhs TNMM 3 Service fee received 1.27 crores TNMM 4 ECB introit paid at libor plus 75 basic points 4.73 lakhs TNMM 5 Reimbursement of expenses 1.63 crores CUP 6 Manning expenses recovery (receipt) 2.08 lakhs CUP 7 Reimbursement of salaries (payment) 57.81 lakhs CUP 5. The T.P.O. examined the set of comparables given by the assessee and held that the assessee had erred in including loss making entities in its comparables, specially in the case of Vans Information Ltd. and Star Estates Management Ltd. The TPO after rejectin....
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....ea that the assessee should be able to assess the arm's length nature of the transaction within a suitable time frame, wherein it could take such commercial steps to align the transactions with the arms length standard. According to the AO the transfer pricing study is dated 02.10.2003 and, thus, has been undertaken much after the end of the financial year. Rejecting the various explanations given by the assessee, the AO assessed the income of the assessee by making necessary adjustments to the ALP relating to the professional fees, training fees, service fees by a sum of Rs. 1,41,06,903/-. 8. Before the ld. CIT(A), it was submitted that during financial year 2002-03, the search for comparables based on the "Company Main Activity" as identified by Prowess and ERS, yielded no matches for "manning" within the databases. Generally, such companies in India are private companies or proprietary/partnership firms and hence data was not readily available. Accordingly, the assessee felt it appropriate to search for Indian companies having similar operational model and therefore similar functional profile as MOLMI. Hence, companies providing administrative back office support services were ....
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....s length price. 8.4 It was submitted that the assessee has determined the ALP in accordance with the relevant provisions of the Act and the Rules and has adequately discharged the onus bestowed upon it to determine the arm's length price. Therefore, it is inappropriate to disregard the transfer pricing analysis carried out by the assessee and to arbitrarily exclude loss-making companies to determine the arms length price. The provisions of section 92C(1) of the Act was also brought to the notice of the Ld. CIT(A) and it was submitted that keeping in mind the various factors, the assessee has determined the TNMM as the most appropriate method. The analysis performed by the assessee to determine the most appropriate method has been documented in detail in paragraph 5.07 to 5.26 of the T.P.O. study report dated 02.10.2003. It was submitted that the assessee has duly complied with the provisions of section 92C(1) of the Act in relation to the choice of the most appropriate method. The comparable data used for determining the arm's-length price of the Company has been arrived at after considering various factors, particularly a comparative analysis of the functions performed by the Com....
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....ased on its profitability, there was an error in removing the loss-making companies from the list of comparables. The error got further compounded with a company with a OP/TC of 105.34% - M/s. Hinduja TNT Ltd. being included for determining the average mean. In fact, if the data of Hinduja T.M.T. Ltd. is removed from the T.P.O.'s list of comparable cases, the OP/TC would then work out to 11.5%. Thus, having considered each and every aspect of the case, and the grounds pertaining to use of multiple year data and the determination of arms length price as per section 92C(3), it is held that the T.P.O. committed an error adjusting the arms length price by a sum of Rs. 1,41,06,903/- which resulted in the income being assessed by the A.O. at a sum of Rs. 2,05,03,000/-. The AO shall recompute the income accordingly." 10. Aggrieved with such order of the ld. CIT(A), the Revenue is in appeal before us. 11. The ld. D.R. while challenging the order of the ld. CIT(A) submitted that he should not have deleted the comparables on the basis of excessive profit or loss. He submitted that those comparables given by the A.O. are only an indicator. Even the assessee himself has included Hinduja TMT....
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.... that the data for financial year 2002-03 was not available at the time the T.P. report was compiled. We find the assessee in its transfer pricing study analysis has given a set of comparables relating to financial year 2000-01 and 2001-02 according to which the mean of their operating profit by total cost ratio was 5.35%. Since the profit disclosed by the assessee is more than the mean profit, it was argued by the assessee that transactions are at arm's length. The details of comparable companies given by the assessee are as under:- Comparable Companies Adjusted OP/TC Star estates Management Ltd. -13.27% International Travel House Ltd. 3.58% Mercury Travels Ltd. -3.87% Vans Information Ltd. -36.78% A M I Computers (I) Ltd. -7.69% Ace Software Exports Ltd. 22.63% Hinduja T M T Ltd. 76.43% M C S Ltd. 7.52% Nucleus Netsoft & Gis India Ltd. 0.37% 13.1 We find the assessee, on being further questioned by the TPO, has given the following companies as comparables:- Company Name Individual Company Mean Ace Software Exports Ltd. 8.65% International Travel House Ltd. 10.78% M C S Ltd. 15.08% Hinduja T M T Ltd. 105.34% Mean 34.96% We find the TPO rejected th....