TaxTMI 
TaxTMI 
2016 (7) TMI 811
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....ompany filed return of income for the assessment year 2003-04 on 25/11/2003 declaring loss of Rs. 2,15,482/-. After processing the return of income under the provisions of sec.143(1) of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short], the case was selected for scrutiny by issuing statutory notice u/s 143(2) of the Act. The assessee-company reported the following international transactions: * Import of components, machinery tools etc from Dynacrart Inc: 6.13 crores * Export of miniature ball bearings to FMC sales: 7.69 crores * Purchase of machinery from Dynacrart Inc: 0.04 crores. The assessee-company sought to justify the above international transactions entered with its AE to be at arm's length. The assessee-company also submitted transfer pricing study report adopting Comparable Uncontrolled Price (CUP) method as most appropriate method. AO after obtaining necessary approval from the CIT, made a reference to the Transfer Pricing Officer [TPO] for the purpose of determining the arm's length price [ALP] in respect of the above international transactions. The TPO, vide order dated 20/03/2006 passed u/s 92CA of the Act, computed the transfer pri....
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....rence made by the AO to TPO is invalid in law. The CIT(A), after upholding the validity of reference to the TPO, held that the TPO was justified in rejecting the transfer pricing study analysis conducted by the assessee-company. On the issue of selection of comparables, the ld.CIT(A) had upheld the selection of comparables by the TPO, however, directed the TPO to grant working capital adjustment as per norms. 6. Being aggrieved, the assessee-company is before us in the present appeal. The assessee-company raised the following grounds of appeal: 1.1 The order passed by the learned CIT(A)-IV, Bangalore to the extent prejudicial to the appellant is bad in law and liable to be quashed. 2.1 The learned ITO, Ward 11(2) and the learned Addl. Director of Income-tax (Transfer Pricing)-I have erred in passing the orders at the fag end of the limitation period, in a hurried manner and without affording a proper opportunity of being heard to the appellant. The orders having been passed in violation of the principles of natural justice and in a hurried manner, is bad in law. 3.1 The learned ITO, Ward 11(2), has erred in making a reference for the determination of the Arm's Length price ....
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....ost plus method, but, ultimately adopting the Transaction Net Margin method without any justifiable reasons. The learned ITO, Ward 11(2) and Addl. Director of Income tax (Transfer Pricing)-I, have erred in changing the method when it dawned upon them that the comparability analysis in the basis of the method originally proposed would have justified the price charged by the appellant in the international transactions. 5.5 On facts and in the circumstances of the case and law applicable, the transfer pricing adjustment should be deleted in entirety. 6.1 The learned ITO, Ward 11(2), and the learned CIT(A) has erred in not granting or considering the deduction under section 10B, while computing the book profits under section 115JB. 7.1 The learned ITO, Ward 11(2) has erred in levying a sum of Rs. 9,41,850/- as interest under section 234B and a sum of Rs. 1,351/- as interest under section 234D of the Income Tax Act. On the facts and circumstances of the case interest under section 234B & 234D is not leviable. The appellant denies its liability to pay interest under section 234B & 234D. 8.1 In view of the above and other grounds to be adduced at the time of hearing the appellant pray....
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....bmitted that the TPO was not justified in excluding foreign exchange gain from the operating profit. In support of this, he relied on the following decisions: i) M/s. Ameriprise India Pvt Ltd(TS-174-HC-2016(DEL)-TP) ii) M/s. SAP Labs India Pvt. Ltd v ACIT (2010) 8taxmann.com 207(Bang) iii) Trilogy E-Business Software India Private Limited v DCIT ITA No. 1054/Bang/2011. iv) CSR India Pvt Ltd v ITO - IT(TP)A No. 1119/Bang/2011 v) Four soft Ltd v DCIT (2011-TII-92ITAT-HYD-TP) vi) Capital IQ Information Systems (India) Pvt Ltd v DCIT - ITA No. 1961/HYD/2011 vii) M/s Bearing Point Business Consulting Pvt. Ltd Vs. DCIT - ITA No. 1124/Bang/2011 Learned AR of the assessee submitted that the TPO was also not justified in including the pre-operative and preliminary expenses written off and debited to P&L A/c as part of operating cost while computing margin of the assessee-company. He submitted that these expenses do not form part of operating expenditure and therefore, should be excluded from the operating cost while calculating operating margin. In support of this, he relied on the decision of the co-ordinate bench of Tribunal in the case of Aris Global Software Pvt.Ltd. vs. DCIT in....
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....9 taxmann.com 401)(Del) (ii) As regards exclusion of SLN Bearings Ltd., the assesseecompany is seeking exclusion of this company from the list of comparables on the ground that its export sales are less than 4%. We find from the Annual Report of the company, filed in paper book at page Nos.545 to 567, that the export sales were Rs. 62.03 lakhs as against total sales of Rs. 1239.17 lakhs which is less than 4% and whereas exports of assessee-company are 100% of total sales. The co-ordinate bench of Tribunal in the case of Bechtel India Pvt. Ltd. (supra) held as follows: "We may also point out that the revenue of CIEL form export of surplus is 3% which is insignificant and the income from export of services by the assessee Bechtel India is 100% of operating income as there is no domestic client, thus as per Rule 10B(2)(d) of the Rules, the comparability test also fails on this count. " Further, the pricing and profitability in export and domestic market are not likely to be the same for the following reasons: i) Conditions prevailing in the export and domestic market in which the respective parties to the transactions operate are different. ii) Geographical locations (domesti....