TaxTMI 
TaxTMI 
2017 (1) TMI 1037
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....rges the following substantial questions of law for our consideration : (i) Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in directing inclusion of the two companies in the list of comparables, ignoring the fact that consistently loss making companies and companies having high fluctuations in margins over the years does not reflect comparable conditions? (ii) Whether on the facts and in the circumstances of the case and despite the prescription of parameters of comparability by Rule 10 B(2) of the Income Tax Rules, 1962, the Tribunal was correct in law, in directing the inclusion of DEPB in turnover and depreciation in net profit for the purpose of profit margin of comparables and assessee?....
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.... CIT(A) upheld the exclusion on the ground that the two companies were not comparables for subject assessment year as they had suffered losses during the year and the respondent had not analysed the reason for the losses. It also stated that FAR (Function, Assets and Risks) analysis of the two companies with that of the appellant had not been done. Therefore, SEL and VTI could not be used as comparables to determine the ALP of the respondent assessee's sales to A.E. (c) Being aggrieved, the respondent assessee carried the issue in appeal to the Tribunal. The impugned order records the fact that the two companies viz. SEL and VTI which have been excluded from the list of comparables for the subject assessment year were in fact accepte....
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....rd 'namely'. The Rule 10B(2) of the Rules reads as under : "2. For the purposes of subrule (1), the comparability of an international transaction (or a specified domestic transaction] with an uncontrolled transaction shall be judged with reference to the following, namely:- (a) the specific characteristics of the property transferred or services provided in either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions; (c) the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks an....
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.... if the Revenue were of the view that only because of the losses in the subject assessment year the two companies are not comparable, then further examination / enquiry ought to have been done by the Revenue to find out that whether the loss was a symptom of the reference points in Rule 10B(2) of the Rules making it noncomparable. This is more so as the Revenue before us does not dispute that otherwise the two companies are comparable to the respondent assessee even on the parameters laid down in Rule 10B(2) of the Rules. Therefore, if in the present facts, the Revenue seeks to discard the two companies SEL and VTI from the comparables for the subject assessment year, the onus would be upon the Revenue to justify the same. (h) In the abo....
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....ses of arriving at operating profit for the application of the TNMM method. This on the basis that comparison should be made on like to like and similar to similar. So far as the depreciation is concerned, the impugned order of the Tribunal adopted the same reasoning which it had applied while holding that DEPB benefit is includable in arriving at the net profit in its order in the earlier Assessment Years 200506 and 200708 in the subject assessment year with regard to the claim of depreciation. Therefore, the DEPB was includable in arriving at the operating profit and depreciation was includable while arriving at the total costs of the respondent assessee as the same is not excluded in arriving at the profits of the comparable companies. ....