TaxTMI 
TaxTMI 
2013 (9) TMI 632
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....e assessee raised the following grounds of appeal : "1. On the facts and in the circumstances of the case, the Assessing Officer/Transfer Pricing Officer erred in making an adjustment of Rs.13,83,86,187 by holding that the international transactions of import of raw material, tools and consumables, stores and spares do not satisfy the arm's length principle envisaged under the Act and in doing so he erred in (a) conducting a fresh comparability analysis and including companies in the comparability analysis which do not satisfy the test of comparability ; (b) not applying multiple year/prior year data for comparable companies while determining the arm's length price ; (c) using data as at the time of the assessment proceedings, instead of that available for comparable companies as on the date of preparing the transfer pricing documentation while determining the arm's length price ; (d) concluding that the amended proviso to section 92C(2) of the Act under the Finance (No. 2) Act, 2009, would be applicable for the assessment year 2006-07 and in not appreciating that even if the arm's length price falls outside the 5 per cent. tolerance band the adjustment would have to....
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.... and in the circumstances of the case, the Assessing Officer/Transfer Pricing Officer erred in making an adjustment of Rs.13,83,86,187 by holding that the international transactions of import of raw material, tools and consumables, stores and spares do not satisfy the arm's length principle envisaged under the Act and in doing so he erred in (a) conducting a trash comparability analysis and including companies in the comparability analysis which do not satisfy the test of comparability ; (b) not applying multiple-year/prior-year data for comparable companies while determining the arm's length price ; (c) using data as at the time of the assessment proceedings, instead of that available for comparable companies as on the date of preparing the transfer pricing documentation while determining the arm's length price ; 1. Comparability analysis (a) Comparability analysis performed by the appellant not considered by the learned Panel : The appellant has provided a detailed search process (refer page 29 onwards in the appeal memo) and had presented a list of comparable companies which were summarily rejected by the learned Panel without providing proper and cogent reason....
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....he appellant and the comparable companies. Figure 1-Comparative analysis of the cost composition of the appellant versus the comparable companies selected by the learned Transfer Pricing Officer 120% 100% 80% Value added expenses 60% 40% 20% Raw material cost 0% Iljin Automotive P. Ltd. Comparables selected by TPO (iii) The appellant undertakes more of a routine assembly function and hence cannot be compared to companies which are involved in fullfledged manufacturing operations. ....
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....in line with that of Iljin India. A summary of the same has been appended below in table 1 for your reference. Table 2 : Cost structure of the Transfer Pricing Officer's comparable companies Name of the company RM/TC OP/sales CPEC 43.78% 56.22% Fairfield Atlas 50.61% 49.39% Flender 53.96% 46.04% Premium Energy 50.51% 49.49% Rane Madras 59.34% 40.66% Rane TRW Steering 56.30% 43.70% Shanti Gears 48.31% 51.69% UT Ltd. 57.67% 42.33% XLO India 60.37% 39.63% ZF Steering 66.08% 33.92% Average 54.69% 45.31% Furthermore, when we draw a correlation between the raw material cost component and the operating margin on sales of the learned Transfer Pricing Officer's set of comparable companies, we would understand that the correlation is fundamentally weak (-0.106). Economic understanding and the cost accounting equation suggests that there is an inverse relationship between the cost of raw materials and the operating profit of a company. Thus, the relationship is bound to be negative in number. According to the principles of statistical inference, a correlation coefficient ranges....
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.... -Linear (OP/sales) 10.00% 5.00% 0.00% 40.00% 50.00% 60.00% 70.00% As we observe in figure 1, the line indicating the relationship between the RM/TC and OP/sales of the learned Transfer Pricing Officer's comparable companies is almost straight-indicating that there is a very weak relationship between the two variables, corroborating the results of the correlation analysis. Observation 2 If we undertake a similar analysis for the set of comparable companies proposed by the appellant, we find that the RM/TC component is the most significant cost component. Further, the statistical correlation between the RM/TC and OP/sales of the assemblers suggests a strongly inverse relationship-with a correlation coefficient of -0.845. Table 4 : Cost structure of the appellant's comparables companies Name of the company RM/TC OP/sales Automotive ....
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.... to that of the raw material costs that they have incurred since the relationship is significantly strong. Thus, we are able to deduce that the comparable companies chosen by the appellant are more comparable with Iljin India and plead your honours to consider the same as appropriate for economic analysis. (c) Search conducted by Transfer Pricing Officer without any scientific basis : The learned Transfer Pricing Officer has not conducted a proper search and has not followed any qualitative and quantitative criteria. The flaw in the process is evident as the learned Transfer Pricing Officer has searched the comparables in the database only using the following keywords "gears, flying ring gears, steering gears and front axle assembly" (paragraph 12.9 of page 6 of the Transfer Pricing Officer's Order, page 51 of the appeal memo.) Qualitative review : Generally, a qualitative review process includes extensive review of the annual report (directors report, management discussion, notes to accounts) and website of companies which makes the review process very robust to attain the highest degree of comparability and reliability. It can be reiterated upon placing reliance on....
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....d party does not use valuable intangible assets nor participate in significant research and development activities. Criteria related to the importance of export sales (foreign sales/ total sales), where relevant. Criteria related to inventories in absolute or relative value, where relevant. Other criteria to exclude third parties that are in particular special situations such as start-up companies, bankrupted companies, etc. when such peculiar situations are obviously not appropriate comparisons. The choice and application of selection criteria depends on the facts and circumstances of each particular case and the above list is neither limitative nor prescriptive." The qualitative step involves verifying the company based on its functionality, industry it caters to, utilities and product profile. This is of paramount importance for conducting a comprehensive benchmarking search. Therefore, the degree of comparability is to be emphasised while selecting the most appropriate method and under transaction net margin method it is achieved by application of a combination of quantitative and qualitative review. Further, the above view of qualitative analysis is supp....
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....(1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely :- (e) transactional net margin method, by which, (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; Further, as regards the threshold limit for RPT filter, reliance can be placed on the ruling of the hon'ble jurisdictional Delhi Tribunal in the case of Sony India P. Ltd v. Deputy CIT [2009] 315 ITR (AT) 150 (Delhi) (I. T. A. No. 1189/Del/2005, 819/M/2007 and 820/Del/2007) which provides that an entity can be taken as uncontrolled if its related party transaction do not exceed 10 to 15 per cent. of the total revenue. Further, the learned Transfer Pricing Officer has not done an appropriate search and has included companies with related-party transactions from 17 per cent. to as high as 53 per cent. of sales. The following is the list of comparables that have significant levels of r....
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....ransfer pricing regulations (covered under sections 92 to 92F of the Act read with rule 10A to rule 10D of the Rules) which is to test the arm's length nature of the international transaction, and not to test the uncontrolled transactions. Without prejudice to the above the appellant humbly prays before the panel that if a transfer pricing adjustment is necessary to be made on the international transaction and not on an overall basis. Section 92(1) of the Act provides : (1) Any income arising from an international transaction shall be computed having regard to the arm's length price. Explanation.-For the removal of doubts, it is hereby clarified that the allowance for any expense or interest arising from an international transaction shall also be determined having regard to the arm's length price. Further, it can be noted that rule 10B(1)(e) of the Rules provide that the net profit margin realised by the assessee from its international transitions with its associated enterprises needs to be compared to the net profit margin realised by an unrelated enterprise from comparable uncontrolled transactions. Further, paragraph 2.78 on page number 84 of the revised OECD G....
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....as a subsidiary of the Dong-A Automotive Co. Ltd., Korea. During the financial year 2006-07 relevant to the assessment year 2007-08, the assessee entered into the following international transactions : Purchase of raw materials, tools and consumables, stores and spares with Iljin Global, Samsung Dong, Kangnam-Ku, Seoul, Korea. Purchase of machinery from Iljin Global, Samsung Dong, Kangnam-Ku, Seoul, Korea. For the above transactions, the assessee had selected comparable uncontrolled price (CUP) method as the most appropriate method for establishing the arm's length price of its international transaction with its associated enterprises (AE). The Transfer Pricing Officer rejected the comparable uncontrolled price method adopted by the assessee as it is not the most appropriate method and held that the price list issued by the Iljin Global and the valuation issue by the Commissioner (Customs) cannot be considered as uncontrolled price. The Transfer Pricing Officer concluded that the transaction net margin method (TNMM) was the most appropriate method in this case. The Transfer Pricing Officer conducted an independent search using the keywords : gears, flying ring gears, steer....
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....ection 92D of the Act read with rule 100 of the Income-tax Rules, 1962 ('the Rules'). Further, hearings were attended from time to time by the authorised representatives of the assessee before the learned Transfer Pricing Officer and detailed submissions (refer item No. 2 of 'Reference of Appendix-Transfer Pricing') were filed in response to the queries raised/ notices issued by the learned Transfer Pricing Officer. The show-cause notice was issued by the learned Transfer Pricing Officer dated September 28, 2010 which is attached (refer item No. 3 of 'Reference of Appendix-Transfer Pricing'). Thereafter the transfer pricing proceedings was initiated and concluded vide the order of the learned Transfer Pricing Officer dated October 29, 2010 ('order') (refer item No. 4 of 'Reference of Appendix-Transfer Pricing'). The learned Transfer Pricing Officer made an adjustment of INR 138,386,187 details of which are provided below. The same has been incorporated by the order issued by the learned Assessing Officer dated December 30, 2010 (refer item No. 5 of 'Reference of Appendix-Transfer Pricing'). Summary of transfer pricing approach followed by the assessee During the financial yea....
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....ars, and front axle assembly". The learned Transfer Pricing Officer selected a totally different set of having 10 companies with a mean (OP/ sales) of 12.09 per cent. The adjustment was made to the difference of 12.09 per cent. and 6.02 per cent. (assessee's margin) to the extent of INR 138,386,137 as follows : Particulars Amount in INR Operating revenue 2,279,349,144 Less : Operating cost 2,14,21,02,925 Operating profit/(loss) 13,72,46,219 OP/sales 6.02% Summary of the proposed transfer pricing adjustment is as follows: Sr. No. Particulars Amount (INR) 1. Purchase of raw materials, tools and consumables, stores and spares and machinery 3,83,86,187 Objections against the draft order dated December 30, 2010 under section 144C of the Act grounds of objection The draft assessment order passed by the learned Assessing Officer under section 143(3) read with section 144C of the Act, along with the order passed by the learned Transfer Pricing Officer under section 92CA(3) of the Act is bad in law. 1. Considering the circumstances of the case, the learned Transfer Pricing Officer erred in law and f....
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....page 4 supra. 1(a)(ii) Facts/transfer pricing approach, modified by the learned Transfer Pricing Officer/Assessing Officer The learned Transfer Pricing Officer rejected the comparable uncontrolled price method and adopted transaction net margin method by carrying out a fresh benchmarking analysis. The search process adopted by the learned Transfer Pricing Officer is not correct. 1(a)(iii) Do you wholly agree with the modifications in the facts by the Assessing Officer ? if not, give reasons pointing the specific fact or facts with which you do not agree along with the reasons and documentary evidence, if any. The assessee would like to humbly submit its disagreement with the search process undertaken by the learned Transfer Pricing Officer. In lieu of the same, the assessee would like to submit the following reasons for disagreement. I. The learned Transfer Pricing Officer used 'only keywords' to identify comparable companies ; II. Inadequate keywords were used ; III. Neither any quantitative filters were used nor any qualitative analysis was performed. It is respectfully submitted before the learned Panel that Iljin India assembles automotive components suc....
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....e learned Transfer Pricing Officer are not comparable to the assessee since the search process followed by the learned Transfer Pricing Officer is not correct. This is evident from the fact that a detailed analysis of the annual account of this company may reveal that the comparables may be significantly different in functional and product profile. Hence, it is important to conduct the quantitative and qualitative review of all the companies, in order to obtain a comprehensive and robust set of functionally comparable companies. Therefore, the quantitative and qualitative review analysis is a must in order to arrive at a proper set of comparables with close functional comparability with the assessee. Qualitative review : Generally, a qualitative review process includes extensive review of the annual report (director's report, management discussion, notes to accounts) and website of companies which makes the review process very robust to attain the highest degree of comparability and reliability. It can be reiterated upon placing reliance on rule 10B(2)(a) of the Rules which state that : "For the purposes of sub-rule (1), the comparability of an international transact....
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....ioned in this submission below are required to be used in the search process in order to increase the reliability of the comparability analysis. The details of the criteria/filters used by the assessee are discussed below. Hence, the assessee would humbly request the learned Panel to consider the fact that the search process/benchmarking undertaken by the learned Transfer Pricing Officer erred in law and in facts and hence should not be considered. 1(a)(iv) Legal arguments submitted by the assessee : Rule 10B(2)(a) of the Rules Rule 10C(2)(d) of the Rules 1(a)(v) case law relied upon by the assessee None 1(a)(vi) Legal argument relied upon by the Assessing Officer : Rule 10B(4) of the Rules Section 92C(3) of the Act 133(6) of the Act 92CA(3) of the Act OECD Guidelines 2010 1(a)(vii) Case law relied upon by the Assessing Officer None. 1(a)(viii) Any additional new case law which the assessee may rely upon The assessee desires leave to rely upon any new case law during the proceedings before the honourable Panel. 1(a)(ix) Factual and legal arguments against the additions proposed by the Assessing Officer : The assessee prays that the entire compara....
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....t to total cost ratio greater than 75 per cent. 2. Related party transactions < 15 per cent. 3. Net fixed assets to sales greater than 30 per cent. 4. Net intangible assets to sales lesser than 1 per cent. Further, the reasons for considering the filters in the comparability analysis are as follows : (i) Raw material/total cost of production Difference between an assembler and a manufacturer : The assessee would like to state that generally the assembler would be incurring high raw material cost as compared to the manufacturers who have low amount of raw material cost and high amount of value added expenses since the manufacturer acts as a converter of raw material to finished goods. As mentioned earlier, based on the function, asset and risk analysis, the assessee can be characterised as a routine assembler. The same is evident from the ratio raw material cost/total cost of productions is 82.32 per cent. (1,842,630,521 / 2,238,441,493). Therefore, comparable companies who undertake the following reasons were rejected : more of manufacturing activities value adding activities more efforts in converting raw material into finished products In other words....
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....atives of such personnel ; and Enterprises over which any person described in (c) or (d) is able to exercise significant influence. As stated above, your assessee would like to place on record that AS 18, defines when the parties under control be treated as related parties, however, it does not prescribe the percentage of share held by the reporting entities to fall within the parameters of being related. Companies that have significant related party transactions cannot be used as a basis for arriving at the arm's length margins. The assessee recommends that companies with any related party transaction be excluded from the final set. The assessee submit to the learned Transfer Pricing Officer that there exists no correlation between the quantum of the related party transactions and companies being uncontrolled. Without prejudice to the above, companies that would have negligible related party transactions may be considered since they would have a very insignificant influence on the profitability. However, guidance from the ruling of the hon'ble Delhi Tribunal in the case of Sony India P. Ltd v. Deputy CIT [2009] 315 ITR (AT) 150 (Delhi) (I. T. A. No. 1189/Del 2005, 819/....
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....st < 75%, Net intangible assets/sales >1%, Net fixed assets/sales > 30% 3 Flender Ltd. (Merged) Rejected related party Transactions, RM/total Cost <75%, net intangible assets/sales >1%. 4. Premium Energy Transmissions Ltd. RM / total cost < 75% 5. Rane (Madras) Ltd. RM/ total cost <75% 6. Rane TRW Steering Systems Ltd. RM/ total cost <75% 7. Shanthi Gears Ltd. RM/ total cost < 75%, net fixed assets/sales > 30% 8. U. T. Ltd. Non electrical machinery, RM/total cost < 75% 9. X L O India Ltd. RM/ total cost < 75% 10. Z F Steering Gear (India) Ltd. Rejected related party transactions, RM / total cost < 75% (The quantitative and qualitative details are taken from the Annual Reports of the comparable companies-refer Item No. 13 of 'Reference of Appendix-Transfer Pricing') Hence we observe that all the comparables selected by the Transfer Pricing Officer are rejected on the above mentioned grounds. Consequently the assessee would request the learned Panel to consider the search process....
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....spension and braking parts" and "engine parts" "Equipment" and "body parts" and "other parts" "Other parts", "suspension and braking parts" and "drive transmission and steering parts" In order to identify manufacturers, to start with the assessee extracted companies which had sales greater than zero, and which had ratio of sales manufacturing to sales (net of internal transfers and sales tax) greater than 90 per cent. This search listed 113 companies. To ensure comparability the assessee quantitatively screened these companies by comparing economically significant financial data and ratios (refer table below). This step resulted in 16 companies. Companies clearing the quantitative criteria were analysed qualitatively to eliminate companies, which were not essentially engaged in similar products, functions, using similar technology and catering to similar industry. Also, companies that had transactions with related/associated entities were rejected. At the end of the above described search process, the assessee was left with 5 companies. The summary of our search is given in the table below along with reasons for application of particular screening criteria. Sum....
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....nclude functionally comparable companies 27 Companies with research and development to sales > 1 per cent. were excluded to differentiate from a contract manufacturer 23 Companies with ratio of the sum of advertising, marketing and distribution expenses to sales less than 3 per cent., were selected, thereby resulting in identification of comparables that do not have ownership of marketing intangibles 19 Companies with ratio of royalty to sales less than 1 per cent., were selected, thereby resulting in identification of comparables that do not have ownership of intangibles 17 Companies with a ratio of net intangible assets to sales (net of internal transfers and sales tax) greater than 1 per cent. were excluded to exclude all companies which own intangibles 16 Qualitative-companies that were not functionally comparable and that had related party transactions were eliminated 5 * Includes certain companies having changed their financial year during the period under consideration (ii) Search from Capitaline Plus As also mentioned above, to broaden our search for comparables, the assess....
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....facture of transport equipment industry. 17 Companies that are not owned by government and co-operative enterprises were selected as such the economic model of companies is not the same as private sector companies. 15 Companies with sales manufacturing as a percentage of sales greater than 90 per cent. were accepted in order to select companies that were primarily engaged in manufacturing activity. 12 Companies with a positive net worth were included to exclude companies whose net worth had eroded 11 Companies that had average sales of less than INR 1 crore during the time period, indicating that the companies are starting up operations, were rejected. Moreover, the reliability of the financial data for companies with low levels of sales can be significantly reduced because the same persons are often both major shareholders and key employees, diminishing the economic distinction between profits and salaries. 10 Companies with a ratio of net fixed assets to sales (net of internal transfers and sales tax) greater than 30 per cent. were excluded to exclude all companies which are highly capital intensive ....
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....lves Ltd. Prowess 10.54% 6.93% 4. Vybra Automet Ltd. Prowess 9.92% 8.25% 5. Wheels India Ltd. Prowess 4.81% 2.82% 6. Lumax Auto Technologies Ltd. Capitaline 5.15% 3.18% Arithmetic mean 6.43% 4.47% * The business description of the comparable companies is provided vide item No. 8 of "Reference of Appendix-Transfer Pricing" ** Adjusted for Working Capital-For details refer item No. 9 of "Reference of Appendix-Transfer Pricing" The Indian Regulations require that the arithmetic mean of a range of comparables be used to determine the arm's length price of intra-group transactions. The results of the analysis in the above table shows that the assessee is required to earn an operating margin (OP/sales) of 4.47 per cent. to confirm that its transactions with the group companies comply with the arm's length standard prescribed by the Indian regulations. The operating profit margin (OP/sales) of 5.80 per cent. (post exercising Añ 5 per cent. benefit-refer Item No. 10 of "Reference of Appendix-Transfer Pricing") earned by the assessee for the year 2006-07, is higher than the arithm....
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....e learned Assessing Officer/ learned Transfer Pricing Officer erred in law and in facts in not applying multiple year/prior year data for comparable companies while determining the arm's length price. Further, the learned Assessing Officer/ learned Transfer Pricing Officer erred in using the data as at the time of the assessment proceedings, instead of that available for comparable companies as on the date of preparing the transfer pricing documentation while determining the arm's length price. 1(c)(i) Statement of facts as submitted to the learned Transfer Pricing Officer/Assessing Officer For the reasons summarised hereunder, the assessee submits that the comparable data relied upon by the assessee is contemporaneous, existed by the latest data specified by the rules and has been used in accordance with law. 1(c)(ii) Facts/transfer pricing approach, modified by the learned Transfer Pricing Officer/Assessing Officer : The learned Transfer Pricing Officer rejected the use of the multipleyear data. 1(c)(iii) Do you wholly agree with the modifications in the facts by the Assessing Officer ? If not, give reasons pointing the specific fact or facts with which you do not ....
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....nsfer Pricing Guidelines for Multinational Enterprises and Tax Administrations ("OECD Guidelines"), vide paragraphs 3.75 3.78, it has been provided that the use of prior year data, in addition to the information of the current year, is reflective of the economic conditions and business cycles. Principle of impossibility of performance Based on the following reasons, the assessee submits that the data relied upon by it is in accordance with the provisions of the Act and the rules and requiring the assessee to use any non-contemporaneous data, especially beyond the latest date specifically prescribed by the rules (i.e., October 31) would amount to compelling the assessee to do something which is impossible of being performed. (a) In the absence of internal comparables, the assessee has relied upon external data (i.e., data of companies available in the public domain) for the purposes of the comparability analysis in relation to its international transactions. (b) Under the Companies Act, 1956, an assessee is normally required to file its annual report with the Registrar of Companies ("RoC"), comprising, inter alia, its financial statements latest by October 31*. (c) Th....
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....termined. In considering whether documentation is adequate, a tax administration should have regard to the extent to which that information reasonably could have been available to the taxpayer at the time transfer pricing was established. Paragraph 5.10 of the OECD Guidelines states : Tax administrations further should not require taxpayers to produce documents that are not in the actual possession or control of the taxpayer or otherwise reasonably available, e.g., information that cannot be legally obtained, or that is not actually available to the taxpayer because it is confidential to the taxpayer's competitor or because it is unpublished and cannot be obtained by normal enquiry or market data. 1(c)(v) Case law relied upon by the assessee The above also finds support from the ruling in Philips Software Centre P. Ltd. v. Asst. CIT [2008] 119 TTJ (Bang) 721, which states (paragraph 3.10) that : "The Transfer Pricing Officer grossly erred in several areas of law and facts. Some of the relevant issues are summarised below :..... (d) Rule 10D(4) clearly specifies that the information relating to the international transactions, including the comparability analysis, h....
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....ibility of performance as under : "When the law creates a duty or charge and the party is disabled to perform it, without there being any default on his part, and there is no remedy for him, the law will in general excuse him. When the obligation is one implied by law, impossibility of performance is a good excuse, say, impotentia excusat legem. Even under the Control Act, dealing with private rights and obligations of a party to the agreement, the contract is deemed to be void on account of impossibility of performance (section 56). The law regards the order and course of nature and will not force a man to demand that which he cannot recover. The law will not itself attempt to do an act which would be vain-lex nil frustra facit-nor enforce one which would be frivolous-lex neminem cogit ad vana seu inutilia-the law will not force anyone to do a thing vain and fruitless." Similarly, it was held in Asst. CIT v. Jindal Irrigation Systems Ltd. [1996] 56 ITD 164 (Hyd) : "When the law creates a duty or charge and the party is disabled to perform it, without there being any default on his part, and there is no remedy for him, the law will in general excuse him. When the obliga....
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....ii) Facts/transfer pricing approach modified by the learned Transfer Pricing Officer/Assessing Officer The learned Transfer Pricing Officer vide paragraph 12.2 and 12.3 of page 5 of the transfer pricing order quoted the following "12.2 There is a difference between the valuation of the arm's length price done by the Customs Department and Transfer Pricing Officer of the Income-tax Department . . ." "12.3 Both Customs and Transfer Pricing Rules are designed to reach arm's length value, but the end results are diverse . . . Hence the argument of the assessee that the Customs Department has given a valuation, supporting the adjusted arm's length price of the assessee cannot be accepted at the face value by the transfer pricing authorities." 2(iii) Do you wholly agree with the modifications in the facts by the Assessing Officer ? if not, give reasons pointing the specific fact or facts with which you do not agree along with the reasons and documentary evidence, if any. The assessee would like to humbly state its disagreement with the views of the learned Transfer Pricing Officer. The assessee would like to submit that the learned Transfer Pricing Officer acknowledges the....
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....essing Officer. The assessee filed the grounds of objections along with Form No.35A as under : (a) The Assessing Officer/Transfer Pricing Officer erred in law and in facts in rejecting the assessee's documentation and conducting a fresh comparability analysis. Further, the analysis is incorrect since it does not follow any quantitative and qualitative steps. (b) The Assessing Officer/Transfer Pricing Officer erred in law and in facts in including companies in the comparability analysis which do not satisfy the test of comparability. (c) The Assessing Officer/Transfer Pricing Officer erred in law and in facts in not applying multiple-year/prior-year data for comparable companies while determining the arm's length price. Further, the Assessing Officer/Transfer Pricing Officer erred in using data available at the time of the assessment proceedings, instead of that available for comparable companies as on the date of preparation of the transfer pricing documentation, while determining the arm's length price. 3. In response to notice issued by the Dispute Resolution Panel M/s. Prasum Maiti, Chandra Mohan and Ashish Mehta, learned authorised representative for the assessee....
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....ength price of an international transaction to be determined by application of any of the methods prescribed. (iv) the transfer pricing rules draw upon the OECD guidelines, whereas the customs valuation rules are based on GATT valuation code. (v) most importantly, the two taxes are driven by diametrically opposite approaches to valuation. Customs scrutinise the value of goods for suspected undervaluation whereas the Transfer Pricing Officer seek to detect whether the price is overvalued, with a view to the shifting of profits out of the country. There is an inherent divergence in approach. (vi) the OECD has also acknowledged the divergence of approach between transfer pricing rules and customs valuation rules, the world over. 6. Since the purpose, scope and application of customs valuation are vastly different from that of transfer pricing rules, the Transfer Pricing Officer was right in holding that the valuation by customs cannot be taken as the arm's length price. 7. As regards the transaction net margin method adopted by Transfer Pricing Officer it is found to be in order having considered that (i) the comparables given by the assessee for comparable unco....
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....nder transaction net margin method broadly takes into account the functions performed, costs involved, return on capital, etc. (iv) the assessee has not disputed the correctness of the search adopted, except to state that the search should contain few more additional filters. (v) it is observed that the comparables given by the assessee also includes manufacturers. It is also seen that while determining its own basket of comparables, the assessee has not applied all the filters, which the assessee wanted the Transfer Pricing Officer to adopt. 11. The Transfer Pricing Officer has adopted the search based on the broad activities and functions of the assessee and applied few filters, which is not disputed by the assessee. The assessee has not established a case for disturbing the basket of comparables adopted by the Transfer Pricing Officer. Finally, on the usage of contemporaneous data, as raised in Ground 1(3), the Transfer Pricing Officer has explained in detail (paragraph 12.4 of the order) as to why the database used by the Transfer Pricing Officer is correct. The reasoning given by the Transfer Pricing Officer is valid and correct. 12. Hence, no adjustment to the Tra....
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....Pricing Officer or any other authority ; (e) records relating to the draft order ; (f) evidence collected by, or caused to be collected by, it ; and (g) result of any inquiry made by, or caused to be made by, it. Under sub-section (7), Dispute Resolution Panel is also authorised before issuing of direction under sub-section (5) to make such further inquiry, as it think fit or cause any further inquiry to be made by any income-tax authority and report the result of the same to it. Under sub-section (8) the Dispute Resolution Panel has power to confirm, reduce or enhance the variations proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any direction under sub-section (5) for further inquiry and passing of the assessment order. Under sub-section (11) no direction under sub-section (5) shall be issued unless an opportunity of being heard is given to the assessee and the Assessing Officer on such directions which are prejudicial to the interest of the assessee or the interests of the Revenue respectively. Under sub-section (12) directions under subsection (5) cannot be passed after nine months from the end of the month in which draft ord....
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....d for issue of a writ of certiorari for quashment of the order dated September 30, 2010, passed by the Dispute Resolution Panel-II, the first respondent herein. What could have been a matter of debate was put to rest by Mr. Sanjeev Sabharwal, learned counsel for the Revenue by stating that the order passed on September 30, 2010, contained in annexure P 1 deserves to be quashed and the matter be remanded to the said authority for fresh adjudication. In view of the aforesaid fair concession, the order dated September 30, 2010, passed by respondent No. 1 is quashed and the matter is remanded to the said respondent to adjudicate afresh. Be it noted, when a quasi-judicial authority deals with a lis, it is obligatory on its part to ascribe cogent and germane reasons as the same is the heart and soul of the matter. And further, the same also facilitates appreciation when the order is called in question before the superior forum. Needless to say that the competent authority, while passing the order, shall keep in mind the order dated November 29, 2010, wherein we had directed that the period from the date of filing the writ petition and four weeks after its disposal shall stand exc....