TaxTMI 
TaxTMI 
2015 (11) TMI 1563
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.... who deleted the addition made by TPO vide order dated 29.07.2011. 3. The Revenue challenged the order dated 29.07.2012 passed by Ld. CIT(A) before the Tribunal who vide order dated 21.12.2012 restored the matter to the TPO with the direction to determine the arm's length price (ALP) afresh by treating the taxpayer as engaged in the business of engineering, design and drawing services. By complying with the direction made by the Tribunal, TPO proposed the addition of Rs. 22,99,41,641/- vide order dated 27.01.2011 and the A.O. vide his draft assessment order proposed to assess the taxpayer at an income of Rs. 25,38,74,760/-. Then, aggrieved with the draft assessment order passed by A.O., taxpayer has filed the objection before DRP, who after examining the issue, passed directions u/s 144C of the Act to the A.O. to complete the assessment as per the directions of DRP vide order dated 16.12.2014. 4. In accordance with the directions made by the Tribunal vide its order dated 21.12.2012 in I.T.A. No. 4338/Del./2011, TPO passed the order dated 27.12.2014, as under: "A reference was received from the DCIT, Circlo~2(1), New Delhi to determine the 'arm's length price' in res....
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.... fairly conceded that except grounds No.1.1, 1.2, 1.3, 1.4 and 1.5 and Ground No.2, rest of the grounds are of academic in nature and need no adjudication. Undisputedly, the facts of this case are inter alia that there is no dispute between the parties to the appeals qua the earlier year that the method selected for transfer pricing is also not in dispute; that the assessee company was set up in April 1994 and is into the business of engineering support services in respect of engineering design and drawings, for various AEs to support overseas offices on turnkey project execution basis. The taxpayer company also entered into international transaction as under: S.No. Nature of transaction Arm's Length price as per taxpayer i Provision of engineering services and relating services Rs.43.46 cores ii Reimbursement of expenses (paid) Rs.0.16 crores iii Reimbursement of expenses (received) Rs.5.53 crores 8. To assess the international transaction referred at Sl. No.1 above, the taxpayer had selected 9 comparables in the TP study out of which TPO rejected 8 comparables on account of use of certain filters and TPO complying with the direction of ITAT by conductin....
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....tin Networks Ltd 51.29 5 Rites Ltd. 30.7 6 Stup Consultants Pvt. Ltd. 19.36 7 TCE Consulting Engineers Ltd. 11.79 8 Wapcos Ltd 18.95 Average 32.47 Foreign exchange fluctuation has been considered to be nonoperating expenses for the detailed reasons given above. As per submissions dated 03.08.2006, the foreign exchange fluctuation loss amounts to Rs. 2,99,75,931/- which is considered as non operating in nature. The operating cost as submitted by the taxpayers vide its letter dated 30.08.2006 is Rs. 46,51,39,145/-. This is reduced by foreign exchange loss ofRs.2,99,75,931/-. The operating cost therefore works out to Rs. 43,51,63,214/-. 4.10 Computation of arm's length Operating cost 435163214 Arms Length Margin (%) 32.47% Arms Length Price (ALP) 576460710 Price received 439671294 Shortfall being adjustment u/s 92CA 136789416 14. TPO made the final TP adjustment as under: S.No. Nature of international transaction Appellant's margin (OP/total cost) refer page 152 of paper book Arm's Length margin determined by Ld. TPO (refer page 184 of appeal set) Adjustment u/s 92CA (In INR crores) (refer page 198 of appeal s....
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....to operation. It is also involved in operation and maintenance of tolls and collection of tolls, whereas appellant company is undisputedly involved in engineering design and drawings for various overseas AEs to support overseas offices turnkey project execution. So the business of comparables is inherently different from the business of the appellant and as such, cannot be adopted for TP. IL & FS Transportation Networks Ltd. taken as comparable by the TPO/DRP has to be excluded having been engaged in different business. 19. RITES Ltd., taken as comparable by DRP/TPO: The taxpayer filed detailed objections to the different orders against inclusion of aforesaid company as comparable. The crux of the same is lying at pages 73-75 of the appeal set. Major objection raised by the taxpayer is that the comparable company is engaged in providing services in the areas of engineering consultancy, traffic studies, exports of locomotives and maintenance of the locomotives, construction and project management for railway track, electrification together with traffic and software consultancy assignments. More so, its income from non consultancy services is less than 75% and this filter is applied....
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.... page 48 of appeal set goes to prove that this company has service income to sale is more than 75% i.e. 93.82%; hence arbitrarily rejected by the TPO/ DRP. So, M/s. Steewards Lloyed India Ltd. qualifies for adoption as comparable for transfer pricing. Accordingly, Grounds No.1 read with grounds 1.1, 1.2, 1.3 , 1.4 and Ground No.2 are determined in favour of the appellant for statistical purposes. So, the file is ordered to be restored to the TPO to pass afresh speaking order after providing opportunity of being heard to the parties. 23. Regarding ground No.2 read with ground No.1.6, Ld. A.R. has contended that TPO/DRP has erred in denying the adjustment of complete utilization as well as risk adjustment while working on average matching of comparables. Rule 10B(3) read with Rule 10B(1)(e) clarifies that appropriate adjustment should be made to eliminate material effect of difference between the international transaction and the comparable transaction to establish comparability. DRP in para 8.2.6 of the impugned order written its findings for denying the capital utilization adjustment as well as risk adjustment, which are as under: "8.2.6 With regard to the issue of adjustment sou....
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....mparability. Further in respect of comparables no data is 'made available to show at what capacity they are operating at and what is the average strength of the employees on account of which capacity adjustment should be carried out to improve the comparability analysis. Mechanical adjustment cannot be made to the margins of the comparables without knowing which risks were taken by the entity concerned and how its profitability was affected. Probability of risk and certainty of risk are two different aspects and cannot be equated for the purpose of adjustments. The significant of risk depends on its economic significance, likelihood of its realization and "predictability. All" these requires robust and reliable data, both for the taxpayer" and the comparables in the absence of which risk and capacity adjustments cannot be considered for enhancing comparability. 24. Bare perusal of the findings returned by TPO/DRP reproduced above denying the benefit of capital utilization adjustment and risk adjustment goes to prove that the objection raised by the tax payer having been mechanically disposed off without returning the specific findings as to how and under what circumstances, th....