AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2013 (11) TMI 1413
X X X X Extracts X X X X
X X X X Extracts X X X X
....termine arms length price of transactions with the AEs. The transactions undertaken by the assessee with the AEs were as under :- S.No. International Transaction Method used by Assessee Value in transaction (INR) 1. Provision of administrative and technical support services TNMM 240,127,068 2. Charge back of expenses borne by PESPL on behalf of AR --------- 14,937,677 3. Charge back of expenses borne by AEs on behalf of PESPL --------- 74,023,785 In the case of provision of administrative and technical support services, by adopting the method of Transaction Net Marin Method (TNMM), the value of transaction was shown as Rs.24,01,27,068/-. The borrowing cost incurred by the assessee was shown as Rs.22,17,06,942/-. Thus, the borrowing margin was shown at Rs.1,84,20,126/-. The operating profit to total cost (OP/TC) ratio was 8.30%. The assessee has chosen the TNMM with OP/TC ratio as the Profit Level Indicator (PLI) to benchmark its international transaction with the AEs. The assessee chose 14 comparables and used three years data. The PLI ratio of the comparable selected by the assessee was computed at 11.25% and the assessee justifie....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... On the facts and circumstances of the case, the learned DRP and the AO has erred both on facts and in law in rejecting the contention of the appellant that the ld. TPO has erred both on facts and in law in not applying the comparability criterion/filters uniformly. 8. On the facts and circumstances of the case, the learned DRP has erred both on facts and in law in ignoring the contention of the appellant that segment accounts should not be considered when direct comparables are available. 9. On the facts and circumstances of the case, the learned Assessing Officer has erred both on facts and in law in applying arm's length price for determination of income of the appellant based on the data of comparables which are not comparable with the level of operation of the appellant. 10. On the facts and circumstances of the case, the learned DRP has erred, both on facts and in law in rejecting the contention of the assessee that the exceptional comparable having 'abnormal profit/losses' should be excluded while determining the arms' length price. 11. On the facts and circumstances of the case, the learned AO has erred both on facts and in law in excluding a sum of Rs.29,86,257....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... disallowing an amount of Rs.1,04,780/- on account of professional consultancy fee invoking the provision of Section 40(a)(ia) of the Act. 19. On the facts and circumstances of the case, the learned DRP has erred both on facts and in law in disallowing an amount of Rs.1,07,500/- out of donation made by assessee allowable under Section 80G of the Act. 20. That the appellant craves leave to add, amend or alter any of the grounds of appeal." 3. The assessee objected the use of current year data by the TPO for transfer pricing analysis on the basis that such data was not available in public domain at the time of finalization of transfer pricing study and the use of multiple year data would result in better capturing of market/business cycles reflected in the industry in comparison to single year data. This plea of the assessee was not accepted in view of the provisions of Rule 10B(4) of the Income-tax Act, 1961 wherein it is provided that data of the comparable transactions shall be for the same financial year in which the assessee has entered into international transactions unless data related to earlier years (not more than 2 years) reveals certain facts which could have an ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ear. The events were being organized on its own account, thus the FAR of the Saket Projects Ltd. was entirely different than the FAR of assessee company. As per the TP study, page 59 para 3.02.1 to 3.02.3, the following international transactions were undertaken by assessee with AEs :- "3.02.1. Provision of administrative and technical support services During the FY 2007-08, PESPL has provided administrative and technical support services to its AEs. The value of this international transactions undertaken by the PESPL with the AEs is as follows : Associated enterprise Amount (INR) Premier Oil Cachar BV - India Project Office 135,931,806 Premier Oil (North East India) BV -India Project Office 9,265,511 Premier Oil & Gas Services Limited 94,929,751 Total 240,127,068 "3.02.2. Charge back of expenses borne by PESPL on behalf of AEs During the FY 2007-08, PESPL has charged back expenses borne on behalf of its AEs. These expenses were charged for legal fee and travel related expenditure, incurred by PESPL on behalf its AEs. The value of the charge back of these expenses is as follows : Associated enterprise Amount (INR) Premier Oil Cachar BV -....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r, Diamond Sponsor, Platinum Sponsor, Gold Sponsor, Silver Sponsor, etc. Ld. AR also draws our attention to objections filed before DRP where functional analysis carried out by DRP was claimed to be defective. The event management was quite different then oil and exploration consultancy then functions cannot be compared to assessee company. Financial results of Saket Projects Ltd. were also not reliable. The ld. AR also drew our attention to the objections filed before the DRP in the written submissions placed at pages 714 - 728 of the paper book. He has also drawn our attention of remand report at pages 746 -747 of the paper book and rejoinder at pages 756 to 760. 8. On the other hand, the ld. DR submitted that initially assessee took it comparable and the assessee has objected to inclusion of the company as having abnormal margins in the set of comparables taken by the TPO after using current year data. The Saket Projects Limited has shown higher margins of profit for the year. The assessee has himself chosen as its comparable for the earlier year and also in the year under consideration on the basis of earlier years data. When the assessee has taken functional comparable comp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r considered view, the Saket Projects Ltd. was not comparable to assessee because the event management was done by sponsorships which is evident form various documents placed in paper book. Further the segment allocation of expenses also appears to be not reliable. We agree with the view of revenue that no comparable can be rejected merely on the basis of high margins if the comparable is functionally comparable to the assessee and also that there is miner variation in functional similarity. However, in the case of Saket Projects Ltd. there is functional dissimilarity. The company is organizing events with various kinds of sponsorships. The facts also suggest that segmental allocation of expenses were not reliable. We also hold that when direct comparables are available then segmental results of companies engaged in other business should not be taken as comparable. On the basis of these facts, we hold that Saket Projects Ltd. was not comparable to the extent wherein the various variations could be ruled out or iron out by provisions of law and rules. 10. In ground no.5, the issue is regarding ICRA Management Consultant Services Limited wherein the assessee claims that in the TNM....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ot operational income then direct to exclude the same. 14. In the ground no.6, the issue involved is regarding the comparable Educational Consultants (P) Ltd. where the assessee prayed that the profit has been overstated by Rs.2.72 crores which is evident from the auditor's report of Educational Consultants (P) Ltd. placed at pages 689 to 692 of the paper book. 15. While pleading on behalf of the assessee, the ld. AR submitted that auditors in their report which is placed at pages 689 to 692 of the paper book in its para 4.vii has clearly mentioned that the profit has been overstated by Rs.2.72 crores and this profit should be deducted while working out the OP/TC. The revenue's reliance that the observation of the auditors has been rebutted by the company in its annual report should not be made a basis for rejecting the contention of the assessee. 16. We have heard both the sides on the issue. We find that the auditors have in their report at para 4.vii has reported as under :- "Subject to our comments in paragraph 4(vi)(a), non confirmation and non reconciliation of Sundry Debtors, Sundry Creditors, Loan & Advances and other Liabilities, the impact of which is indeterm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....le deciding the issue relating to 80HHC wherein the Courts have held that foreign exchange fluctuation gain forms part of the sale proceeds of the exporter and he prayed that this income should not be excluded from the computation of the operating margin of the assessee company. Ld. AR also submitted that this has been followed in the case of Tilogy E Business Software India (P.) Ltd. vs. DCIT - 12 Taxmann.com 464 (Bang.). It was also prayed that if assessee's contention is not accepted then the foreign exchange fluctuation income of the comparables needs to be excluded from the operating income of the comparables. 20. We have heard both the sides on this issue and we agree with the ld. AR that this issue is no more res integra. Various Benches of the ITAT have decided the issue in favour of the assessee by taking the foreign exchange fluctuation income in case of exporters as a part of the operating income and we direct the TPO to include the foreign exchange income as operating income while working out the PLI. 21. In the ground no.13, it is prayed that the DRP ahs erred both on facts and in law in rejecting the calculation of the assessee for making appropriate adjustment ....