TaxTMI 
TaxTMI 
2012 (11) TMI 174
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....in these grounds. 2. The brief facts of the case are that assessee has filed its return of income electronically on 22.11.2006 declaring taxable income of Rs. 33,92,504. The case of the assessee was selected for scrutiny assessment and a notice under section 143(2) of the Act was issued and served upon the assessee. Learned Assessing Officer has observed that assessee company was formerly known as M/s. Kampsax India Pvt. Ltd. started its operation in India in October 1994 as infrastructure consultancy company. In 1998, it diversified its operation to digital mapping. The assessee is a 100% Export Oriented Unit registered with Software Technology Park of India. It is engaged in the production of large mapping which involved digital mapping, photogrammetry , GIS , satellite remote sensing, orthophoto etc. On an analysis of the accounts, learned Assessing Officer formed an opinion that assessee had entered into international transaction with its associate enterprises and, therefore, a reference under section 92CA(1) of the Act is required to be made to the learned transfer pricing officer under section 92-CA(3) of the Income-tax Act, 1961, in respect of those international transact....
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....rom it's A.Es for export services. The Assessing Officer shall enhance the income of the assessee by an amount of R.1,04,37,360 while computing its total income. The Assessing Officer may examine issue of initiation of penalty u/s. 271(1)(c) of the Act in accordance with Explanation 7 of the same. No exemption u/s. 10B shall be admissible on such adjustment in accordance with proviso of Sub-Section (4) of Section 92C" 4. On the strength of learned TPO's order, Assessing Officer has framed a draft assessment order which was served upon the assessee. The assessee has filed detailed objection on the proposed adjustment before the learned Dispute Resolution Panel but learned Dispute Resolution Panel without considering any of the objections raised by the assessee rejected them and directed the Assessing Officer to frame the assessment order. The brief order of the learned DRP reads as under: "ORDER UNDER SECTION 144C OF THE INCOME-TAX ACT The objections to proposed draft assessment order was objected to and the objections were filed before the DRP on 31.12.2009. The case was fixed for hearing on 23.7.2010, Shri Ankit Arora, Richa Gupta and Priyanka appeared on behalf of the as....
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....s, namely, (a) comparable uncontrolled price method; (b) resale price method; (c) cost plus method; (d) profit split method; (e) transactional net margin method; and (F) one residuary method i.e. such other method as may be prescribed by the Board. The assessee in order to determine the ALP has adopted transactional net marginal method i.e. TNMM. Learned TPO did not dispute for the selection of this method, therefore, as far as selection of method is concerned, there is no dispute between parties. Therefore, no detailed discussion is required on this issue. 6. The next aspect where there could be a possible dispute is how to determine profit level indicator. Learned TPO has made a detailed analysis in this regard and ultimately observed that operating profit/total cost is to be selected as PLI for the benchmarking of the international transaction relating to ITSS/BPO. The assessee has also selected this very profit level indicator, therefore, there is no dispute about this procedural aspect also. 7. The next area of dispute is whether multiple year data is to be used or current year data is to be used. Rule 10(4) prescribed the use of current year data, learned TPO again made....
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..... The stock and inventory registers have been lost. Thus, according to the learned TPO, this loss and untraceability of important statutory and accounting register and documents throws doubt on the veracity of the accounts of the previous year also. Learned TPO after excluding VJIL has worked out the margin of six comparable companies which read as under: S.No. Name of the Company OP/TC(%) 1. Ace Software Exports Ltd. 8.24% 2. Alphageo India Ltd. 42.81% 3. CSS Technenergy Ltd. 19.00% 4. IDC (India)Ltd. 14.37% 5. KLG Systel Ltd. 19.3% 6. WTI Advanced Technology Ltd. 1.78% Arithmetic Mean 17.54% 9. The learned counsel for the assessee while impugning the order submitted that learned TPO ought to have not excluded VJIL Consulting Ltd. from list of comparables. He pointed out that assessee has placed on record the comparables analysis of all the seven companies. He took us through pages 244 to 246 of the paper book and pointed out that if the exact nature of service is considered then most of the companies selected as comparables are not exactly comparables to that of assessee. He emphasized that if VJIL ....
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....rable would not lost its status of comparability, but the cumulative setting of all other factors highlighted by the learned TPO on an FAR analysis, we are of the view that learned TPO has rightly excluded this concern from the list of comparables. Therefore, we do not find any merit in this submission raised by the learned counsel for the assessee. 11. In the next fold of submissions, learned counsel for the assessee submitted that assessee made a claim for working capital adjustment before the learned TPO. Learned TPO made a detailed analysis exhibiting how such an adjustment is to be granted. According to the learned counsel for the assessee, learned TPO made reference to Rule 10B(3) demonstrating comparability adjustment. On the strength of this Rule, learned TPO opined that Indian transfer provisions prescribed only reasonable accurate adjustment. He also pointed out that thereafter learned TPO made reference to OECD Commentary and also the judicial precedents on comparability adjustment. Learned TPO, however, did not consider the case of assessee on the ground that assessee failed to supply requisite information for making the working capital adjustment in the cases of the....
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....justment. 7.9. Claim of Working Capital Adjustment: Whether there was material deviation in working capital of the assessee and finally selected comparables? The working capital adjustment could be considered when a tested party exhibits different working capital intensities relative to a set of comparables. In other words, working capital adjustment implies adjustment for differences in the credit terms and working capital policies. There are three critical elements in working capital policy of any entity: (a) Time lag between the sale of products and payments received, which creates accounts receivable; (b) Time lag between the purchase of inputs and payments becoming due, which creates accounts payable; and (c) Time lag between production and sale, which create inventories. ** ** ** 7.14 The working capital adjustments can not be made routinely for the opportunity cost of money tied up in working capital. The complex algebra is....