TaxTMI 
TaxTMI 
2017 (2) TMI 117
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....an international transaction with its AE within the meaning of section 92B and 92A of the Act. Therefore, he referred the computation of Arm's Length Price (ALP) to the TPO. The TPO passed order u/s 92CA of the Act proposing the adjustment of Rs. 2,86,85,168. On receipt of the Transfer Pricing Order, the AO passed the draft assessment order in which, in addition to making the transfer pricing adjustment, the AO has also sought to reject the claim of deduction u/s 10A on the ground that the assessee has failed furnish Form No.56F along with the return of income. Aggrieved by the draft assessment order, the assessee preferred its objections before the DRP. The DRP partly allowed the objections of the assessee and in consonance with the DRP's order, the final assessment order was passed. The assessee is in appeal before us against the assessment order dated 11.12.2015. The assessee has raised the following grounds of appeal: "The grounds mentioned herein are without prejudice to one another. 1. On the facts and circumstances of the case and in law, the Hon'ble Dispute Resolution Panel ('DRP') / Learned Assessing Officer ('Learned AO')/ Learned Transfer Pricin....
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....on of total income as per provisions of section 32(2) of the Act. The Appellant prays that the claim of unabsorbed depreciation ought to be allowed u/s. 32(2) of the Act. 7. On the facts and circumstances of the case and in law, the learned AO/DRP erred in charging interest u/s 234B of the Act. The appellant prays that the interest u/s 234B of the Act ought to be deleted". 3. Further, vide letter dated 31.03.2011, the assessee has also raised the following additional grounds of appeal: "1. On the facts and circumstances of the case and in law, the learned AO/DRP erred in upholding the action of the learned AO/TPO of applying a broad set of ITeS comparables for benchmarking the Appellant's international transaction, without appreciating the facts that the Appellant is providing design and engineering services. It is prayed that companies which are functionally similar to the Appellant i.e. engaged in design and engineering services be considered by the TPO for comparability analysis. 2. On the facts and circumstances of the case and in law, the learned AO/DRP erred in considering Projects & Development India Ltd, a govt. owned company as a comparable company in ....
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....ssee filed its reply thereto. The comparables selected by the assessee are as under: i) Apex Knowledge ii) Godrej Infotech iii) Babcock Bor Soft iv) KND Engineering Technologies v) Powermech Infra vi) Projects and Development vii) I-Design Engineering viii) Stewarts & Lloyd 7. The comparables selected by the TPO are as under: 1. Acropetal Technologies Ltd 2 Projects & Development India Ltd 3 Accuspeed Engineering Ltd 4 Jeevan Scientific Technology Ltd 5 Accentia Technologies Ltd 6 Techno Electric & Engineering Co. Ltd 7 I-Design Engineering Solutions Ltd 8 Eclerx Services Ltd 8. Thus, it can be seen that the TPO has accepted only two companies selected by the assessee companies as comparable to the assessee i.e. (i) Projects & Development India Ltd and (ii) IDesign Engineering Solutions Ltd. The TPO has brought in, six new companies as comparables to the assessee. Out of these companies, the assessee has accepted only Acropetal Technologies Ltd and Accuspeed Engineering Ltd as comparable to the assessee and objected to the inclusion of the other four companies as comparables in the final list of....
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....n. 11. Having regard to the rival contentions and the material on record, we find that in the case of Fortune Infotech Ltd (cited Supra), the Coordinate Bench of this Tribunal at Ahmedabad has analyzed the issue of the most appropriate method and the relevant factors and the necessary inputs for various alternative options for adoption of a particular method and at Paras 10 & 11 of its order held as under: "10. We have noted that during the course of the hearing before us, learned counsel vehemently contended that, on the facts of this case, the internal transactional net margin method was wrongly rejected by the authorities below. His contention was that undoubtedly Fidelity US was an associated enterprise in an earlier accounting period but that aspect of the matter was wholly irrelevant since the prices for work done for Fidelity US were negotiated afresh after this concern ceased to an AE. Learned counsel took pains to take us through the documents in support of the facts embedded in his arguments, but, for the reasons we will set out in a short while and in our considered view, it is not really necessary to go into that aspect of the matter. When we put it to the learned....
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....ary for application of such method. The method selected for benchmarking must not only be a permissible method but it also be the 'most appropriate method' on the facts and circumstances of that case and vis-à-vis the other methods which can be applied on the facts of that case. The selection of most appropriate method is not simply deciding a question as to what is permissible and what is not permissible, because, as is elementary, everything permissible in law, as indeed in all walks of life, is not necessarily the most appropriate thing as well. It is important to bear in mind the fact that under section 92C(1), "the arm's length price in relation to an international transaction shall be determined by one of the ...(prescribed)... methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe." Rule 10C, which prescribes the relevant factors for determining the most appropriate method, as it stood at the relevant point of time, states as follows: Rule 10 C- Most appropriate method. (1) For the pu....
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....ning the ALP is "most appropriate method" of determining ALP on the facts of that case, or not. When only one comparable is available for application of a particular method, this serious limitation on the availability of data, in our considered view, certainly relegates its appropriateness vis-a-vis other alternate methods available, such as external TNMM, in respect of which sufficient, and essentially reliable, data is available. For this short reason alone, the internal TNMM is certainly not the most appropriate method on the facts of this case. That is one aspect of the matter. The other aspect of the matter is its reliability. The fact that the independent enterprise was an associated enterprise in not so distant a past, the fact that despite its becoming, in legal terms and as an offshoot of group restructuring, an independent enterprise, the assessee continues to work for this enterprise even after making huge losses, as high as 21.75% on cost, and the fact that it is a single comparable, does raise serious apprehensions about its reliability. This fact situation, coupled with the admitted position that sufficient number of external comparables for TNMM are available, does l....
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....O to examine the comparability of this company and to include it in the final list of comparables if it is so comparable. 15. In view of the rival submissions, we deem it fit and proper to remand this ground to the file of the AO/TPO for reconsideration and re-computation of ALP in accordance with law. 16. As regards additional ground of appeal No.2 for exclusion of Projects & Development India Ltd from the final list of comparables, the assessee has filed a petition for admission of the additional ground. It is stated by the assessee that the assessee had itself taken this company as comparable inadvertently, though it is a Govt. Company and has diversified set of activities. It is submitted that the assessee is now seeking to exclude this comparable company since it is not comparable to the assessee. For admission of the additional ground of appeal, the learned Counsel has placed reliance upon the following decisions: i) CIT vs. S.Nelliappan (66 ITR 722 (S.C) ii) CIT vs. Kanpur Coal Syndicate (53 ITR 225 (S.C) iii) Jute Corporation of India Ltd (187 ITR 688 (S.C) iv) New India Industries Ltd (207 ITR 1010 (Guj.) v) Union Coal Co. Ltd (70 ITR 45....
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....mtex Global Engineers P Ltd in ITA No.3590/Mum/2010. 20. The learned DR, however, opposed the said contention stating that even though the Projects & Development India Ltd is a government company, it is not restricted to executing only govt. projects, but as seen from the annual report, it also executes private contracts. Therefore, according to him, it cannot be said that govt. companies are working/operating only in protective atmosphere and should not be included in the final list of comparables. 21. Having regard to the rival contentions and the material on record, we find that the Hon'ble Bombay High Court in the case of CIT vs. Thyssen Krupp Industries India (P) Ltd (cited Supra) has considered this issue at length and has held that the Public Sector Undertakings were not driven by profit motive alone but such other considerations also weigh such as discharge of social obligations etc. and hence they cannot be considered as comparable to the private companies. Relevant portion of the order is reproduced hereunder: "5. Re question (b) :- (a) The grievance of the respondent assessee before the Tribunal was that M/s. Engineers India Ltd. has been errone....
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....im of deduction or ought to have directed the AO to consider the claim of deduction u/s 10A of the Act. In support of his contention that non furnishing of Form No.56F is only an irregularity, and is a curable defect, he placed reliance upon the following decisions: i) CIT vs. American Data Solutions India P Ltd (2014) 223 Taxman 143 (Kar.) ii) CIT vs. Medicaps Ltd (2010) 323 ITR 554 (MP) iii) CIT vs. ACE Multitaxes Systems P Ltd (2009) 317 ITR 207 (Kar.) iv) Zenith Processing Mills vs. CIT (1996) 134 CTR 288 (Guj.) 23. The learned DR, however, supported the orders of the authorities below and placed reliance upon the judgment of the Hon'ble Supreme Court in the case of CIT vs. Nagpur Hotel Owners reported in (2001) 247 ITR 0201 wherein it was held that non furnishing of audit report along with the return of income is fatal to the claim u/s 11 of the Act.. 24. Having regard to the rival contentions and the material on record, we find that the assessee is required to file form No.56F along with the return of income to enable the AO to examine the allowability of and also to compute the deduction u/s 10A of the Act. The Hon'ble Supreme ....