TaxTMI 
TaxTMI 
2014 (1) TMI 1395
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....es. In doing so the AO erred in the following: 1.1 considering data which is not in accordance with Rule 10B(4) and Rule 100(4) of the Income Tax Rules, 1962 for the comparable companies; 1.2 considering wind energy companies (Indo wind Energy Ltd and BF Utilities Ltd) in the comparable set as against the Appellant's business of manufacturing of solar modules; 1.3 considering consolidated financial statement in the case of M/s. BF Utilities Ltd instead of considering standalone financial statement; 1.4 rejecting M/s. Photon Energy Ltd citing reasons that the actual functions of the company was not ascertainable from the annual report of the company; and 1.5 rejecting M/s. Rajasthan Electronics and Instruments Ltd - Electronics & solar segment citing reasons that when direct comparables are available, segment should not be accepted. The Appellant prays that the aforesaid adjustment be deleted. 2. On the facts and in the circumstances of the case, the AO erred in making an adjustment on the ....
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....Solar International Inc., USA 64,13,02,028 4. Reimbursement of expenses (paid/payable) BP Solar International LLC, USA 98,82,791 BP Solar Espana, SA 5,87,365 5. Purchase of Fixed Assets BP Solar Proprietary Ltd., Australia 2,12,589 BP Solar International LLC, USA 2,32,096 BP Solar Espana, SA 4,59,08,100 3. The assessee, in ground no.1 and 2, has disputed the adjustment made with regard to the international transactions undertaken for the export of cells and modules to various A.Es. given in sr. no.2. Under these transactions, the assessee manufactures cells and modules from the raw materials purchased from the A.E. and export the finished products to various A.Es. The aggregate transactions of the export were ' 6,41,49,36,255. For bench marking the margin of these transactions, the assessee had adopted Transactional Net Margin Method (for short "TNMM") as the most appropriate method for substantiating the arm's length price (for short "ALP"). The net margin was shown at 6.80% on cost. For the purpose of comparability analysis in T.P. study report (in short TPR), the assessee had selected seven comparables, with....
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.... from the financial data for B.F. Utility Ltd. the operating margin should be taken on segmental basis i.e., it has to be calculated from stand alone financial of the manufacturing segment and not for the whole entity result and lastly, with regard to Udhaya Semi Conductors Ltd. and Websol Energy Systems Ltd., it was stated that they have related party transactions of 37.44% and 50.64% respectively. After raising these objections, the assessee conducted a fresh search and submitted that three more comparables are to be included on FAR analysis as they are good comparables. These companies were as under: - Name of the Company OP/TC Titan Energy Systems Ltd. 8.93% Photon Energy Systems Ltd. 7.74% Rajasthan Electronics & Instruments Ltd. - Segment Electronics and Solar Segment 5.15% 6. The TPO accepted the assessee's contention with regard to the exclusion of Udhaya Semiconductors Ltd. and Websol Energy Systems Ltd. He also accepted one of the comparables from the fresh search given by the assessee i.e., Titan Energy Systems Ltd. However, he rejected the assessee's contention to exclude Indo Wind Energy Ltd. and B.F. Utilities Ltd. on the ground that firstly....
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....sion of three new comparables was concerned, the TPO accepted one comparable, that is, Titan Energy Systems Ltd. and in case of Photon Energy Systems Ltd., he held that financials are not available in the public domain. For Rajasthan Electronic and Instruments Ltd., he held that the segmental details cannot be compared because once there are other comparables which could be bench marked at the entity level, then there is no requirement for comparing on the basis of segmental results of the comparables. Thus, he took following four comparables from the list of the comparables of the assessee for bench marking the ALP. Name of the Comparable F.Y. 2007-08 (OP/OT (%) BF Utilities Ltd. 20.24 Central Electronics Ltd. 4.48 Indo Wind Energy Ltd. 30.26 Titan Energy Systems Ltd. 11.61 Average 16.65 Assessee's PLI 6.80 8. Accordingly, the ALP of the transactions under this segment was determined in the following manner:- Net Sales 909,91,45,631 Total Operating Cost 853,25,59,179 Operating Profit 56,65,86,452 Arm's length mean margin of Comparables OP/OC 16.65 Arm's length profit 142,06,71,103 Arm's length price of s....
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....who were purely into wind energy generation. These submissions are given in the paper book from Page- 118 to 123. The TPO or the DRP has not given any adverse comment or rejected the assessee's submissions which was based on the functional differences but have only included these comparables on the ground that they were included by the assessee in its TPR. He submitted that the inclusions/exclusions of the comparables have to be based on FAR analysis, and not on the ground that the assessee had selected the comparable initially which has been subsequently demonstrated that such an inclusion were not correct on various counts. The TPO himself has excluded some of the comparables chosen by the assessee after accepting the assessee's objections and, therefore, such a selective approach by the TPO cannot be held to be justifiable. He further brought to our notice that in the assessment year 2009-10, the TPO had issued a show cause notice wherein these two comparables were proposed to be included. However, after entertaining the assessee's detail objections for exclusion based on functional difference, the TPO has excluded these comparables from the comparable listed. Thus, when these c....
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.... of 2008, the assessee is pleading that the same should be excluded. This should not be permitted. He relied upon the decision of the Tribunal, Mumbai Benches, in Kansai Nerolac, ITA no.3858/Mum./2006, wherein the Tribunal has held that the assessee cannot allow to back track its own comparables without any cogent reasons. Regarding functional comparability, he relied upon the order of the TPO/DRP. 14. On the issue of different financial year, he submitted that the approach of the DRP in taking weighted average of two financial closing is fully correct as once the data for 31st March 2008 is not available, then the approximate data available for the entire year should be taken into consideration. On this issue also, he strongly relied upon the observations and findings of the DRP. Regarding the inclusion and exclusion of the comparable as aforesaid by the TPO in the subsequent year, he submitted that every year is different and the analysis has to be done on the basis of data available for the current financial year. Regarding Rajasthan Electronics and Instruments Ltd., he submitted that the segmental results as placed by the assessee in the paper book does not provide the prope....
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.... should to be included simply because the assessee had included the same initially. If the cogent reasons have been given by the assessee for excluding the same, the same should be considered. The initial onus or duty is cast upon the assessee to carry out the selection of proper comparables based on FAR analysis and by adopting suitable transfer pricing method and then analyse its transaction to show the correct arm's length result. Thereafter, it is axiomatic that the taxing authorities/TPO, should scrutinize the assessee's report on arm's length result and the entire process of arriving at the ALP, whether they are based on transfer pricing principles and statutory provisions or not. If he himself founds some irregularity or mistake in any of the process or the steps undertaken, then he is bound to correct in accordance with the settled principles and law. If the assessee points out some mistake or any irregularity in the arm's length result, then it is incumbent upon the TPO to examine and consider the same and if the assessee's contentions are found to be correct or tenable, then he has to accept the same. There cannot be estoppel against correct procedure of law and principle....
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....ectly comparable to the products manufactured by the assessee company and, hence, it is a direct functionally comparable. Moreover, this company has also been included as comparable by the TPO in the assessment year 2009-10 based on functional similarity and other factors. The financial data for the current financial year i.e., 2007-08 is also available which were placed before the DRP and has also been placed in the paper book. These financial data show that the revenue of these companies are mainly from production and sale of solar Photovoltaic modules. Thus, this company is good comparable and is to be included in the comparable list for the benchmarking the transactions. 19. As regards Rajasthan Electronic and Instruments Ltd. (segmental), it is seen from the segmental results (which has been placed in the paper book at Page-384), that it is very difficult to work out the exact margin on OP/TC and also the working of the operating expenses with regard to the said segment. In the absence of proper segmental details for the working of the margin and the operating expenses, we do not find any reason to include the same as comparable in this year. Thus, the assessee's contention....
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....ged to the A.E. to whom the services have been rendered by the assessee. The TPO held that the SESI is a different division and separate from solar cell manufacturing division and, therefore, the same cannot be linked to the manufacturing segment for the purpose of bench marking the ALP. To bench mark the same, the TPO selected following seven comparables with operating margins:- Sl.no. Company Name OP/TC 1. Mahindra Consulting Engineers Ltd. 28.96% 2. Alphageo (India) Ltd. 41.58% 3. Stup Consultants Pvt. Ltd. 36.72% 4. Semac Ltd. 49.65% 5. Mitcon Consultancy Serices Ltd. 41.21% 6. Kirloskar Consultants Ltd. 21.29% 7. Computronics Financial 38.02% Mean 36.77% 25. The assessee, in response to the show cause notice, objected to the aforesaid comparables which has been dealt by the TPO in Para- 4.8. which the TPO has rejected and held that out of seven companies, six are functionally comparable and after taking the mean margin of six comparables, computed at 36.56% determined the ALP at Rs. 40,04,672 in the following manner:- Receipt for the provisions of services to the A.E. 1,48,12,631 ....