2014 (5) TMI 742

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....der section 143(3) read with section 144C of the Act passed by the Ld. AO is void-ab-initio and infructuous and is liable to be quashed as the said order is in violation of section 144C(10), (13), (5) of the Act, in so far, as it is contradictory to and ignorant of the directions issued by the Hon'ble DRP. 3 Without prejudice to Ground 2, on the facts and in law, the order of the Ld. AO is erroneous to the extent of not incorporating the binding directions of the Hon'ble DRP while finalizing the order section 143(3) read with section 144C of the Act. 4 On facts and in law, the Ld. TPO, Ld. AO and the Hon'ble DRP erred in rejecting the Transfer Pricing ("TP") Documentation maintained by the Appellant u/s 920 of the Income Tax Act, I961 ("the Act"), read with Rule 100 of the Income Tax Rules, 1962 ("the Rules") and in carrying out a fresh search for comparable companies. 5 On the facts and in law, the Ld. TPO, the Ld. AO and the Hon'ble DRP erred in selecting certain companies as comparable, with a prejudiced intention of making an addition to the returned income of the Appellant, without appreciating that in cognizance of Rule 1OB(2), the functional, asset a....

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....ed services. The assessee was found to have undertaken international transactions with its associated enterprises of the amount of more than Rs. 15 crores. Accordingly, after taking requisite sanction and in light of the provisions of section 92CA of the I.T. Act, the transactions entered into by the assessee with associated enterprises were referred to the Transfer Pricing Officer (TPO) for determining the arm's length price. The TPO after considering the material on record found that the assessee has benchmarked its international transactions by using TMM as the most appropriate method in the Transfer Pricing Report. The OP/OC of the assessee is shown as Cost + 14%. Five comparables have been selected by the assessee and their average margin for three years shown at 13.58%. The economic analysis and documentation relating to the international transactions reported were duly examined and commented upon. The TPO found the Study conducted by the tax payers to be defective in terms of section 92CA(3)(c) read with section 92CA and not reliable. As the arm's length price (ALP) has not been determined correctly, he issued show cause notice dated 28.12.2012, more so when the defects in T....

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.... Darashaw 26.98 9. Techprocess Solutions Ltd. (SEg.) 24.57 Average 25.50 2.1 The arm's length price of the international transactions related to the provisions of marketing support services stood computed by taking the OP/TC at 25.50% resulted into an adjustment dated 1,13,51,925/- as the price charged by the assessee varied by more than 5% from the value of international transactions. 3. The AO having regard to the TPO's Order u/s 92CA(3) of the Act made addition of Rs. 1,13,51,925/- in his draft order passed u/s. 144C of the Act and sought objections from the assessee on the variation so proposed in the draft assessment order. 3.1 The assessee filed objections to the draft assessment order on 12.4.2013 in Form No. 35A against the draft order dated 13.3.2013 requiring the Disputes Resolution Panel (DRP) to issue directions u/s. 144C (5) of the Act for the guidance of AO for enabling him to complete assessment order. The Panel after carefully considering the objections of the assessee came to the conclusion that in the year under consideration though some of the defects as stated in the order of the TPO may be curable, but by keeping the totality comparable iss....

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....DRP after considering the objections of the assessee found taht Cyber Media (India) Online Ltd. is broadly comparable to the assessee company. The Assessing Officer, however, did not incorporate the aforesaid directions of the DRP in his order. Even though the mandate of Section 144C(10) of the Act is that every direction issued by the DRP is binding on the AO. The AO thus has violated the provisions of section 144C(5) & (13) and has impact in reduction of addition by an amount of Rs. 17,58,067/-. 4.2 In support of ground no. 5 in appeal, the assessee's counsel contends that there has been a practice in making addition to the returned income without appreciating the cognizance of Rule 10B(2) of the IT Rules, 1962 particularly when the functional, asset and risk profile of these alleged comparable companies are dissimilar to that of the appellant. I. Aptico Limited The first comparable of Aptico Ltd. is functional dissimilar to the appellant as they were engaged in a diverse range of activities/ operations and services rendered by them cannot be compared with those of the services rendered by the assessee. Even the segmental profitability details of Aptico Limited not provi....

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....similar and that company had substantial amount of computers software in its block of assets. VII. Kotak Mahindra Capital Company Limited The DRP has rejected the comparables adopted by the assessee without giving reasonable basis of RPT adopted at 47.62% in the case of Kotak Mahindra Capital Company Ltd. and at 34.47%. VIII. M/s India Infoline Marketing Services Limited besides other companies are also contained in chart and those excluded wrongfully the appellant's computation. In addition to the assessee's claim in ground no. 6 the assessee supported its claim of risk adjustment taken in ground no. 7 in appeal by raising the key arguments with reference to the risk adjustment and citing the judicial precedents that were not considered by the authorities below in the right perspective. It has therefore, been contended that the order of the AO resulting into the addition of Rs. 1,13,51,925/- needs to be held as void abnitio and infructuous and if the alternate the comparables adopted by the TPO of their Study and confirmed by the TPO need to be excluded from the adjustment and those offered by the assessee alone need to be included so that the Assessing Authority computes....