TaxTMI 
TaxTMI 
2017 (4) TMI 1060
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....r referred to as 'the learned AO') pursuant to the directions of the Hon'ble Dispute Resolution Panel - II (hereinafter referred to as 'the Hon'ble DRP') under section 143(3) read with section 144C of the Income-tax Act, 1961 ('Act'), is a vitiated order having been passed in violation of principles of natural justice and is otherwise arbitrary and is thus bad in law and is void ab-initio. 2) That, without prejudice, the learned AO has grossly erred in making a transfer pricing addition of Rs. 116,939,450/- while computing the income of the Appellant. The addition made to the returned income is highly unjustified and also suffers from mistakes apparent from record. 3) That the Hon'ble DRP has committed gross errors in confirming the order passed u/s 92CA(3) of the Act by the learned Transfer Pricing officer (the learned TPO') proposing a transfer pricing adjustment to the actual value of the international transactions of the Appellant with its associated enterprises and only granting a partial relief thereof. 4) That, on the fact and the circumstances of the case and in law, the learned TPO/Hon'ble DRP has grossly erred in not accepting the economic analysis of the Appella....
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....e DRP has erred by selecting certain companies which are earning super normal profits as comparable to the Appellant to benchmark the international transactions. 8) That on the facts and in law, the learned TPO has grossly erred in treating foreign exchange gain/ loss as non-operating item while determining the arm's length price of the international transactions of the Appellant without considering the terms & conditions of the inter-company transactions of the Appellant. 9) That without prejudice, on the fact and the circumstances of the case and in law, the learned TPO / Hon'ble DRP has erred in not allowing a risk adjustment to the Assessee on account of the fact that the Appellant is remunerated on a cost plus basis for the international transaction related to provision of marketing and after sales support services to associated enterprise irrespective of the outcome of the services provided and hence undertakes no market risk, service liability risk, credit and collection risk as against comparable companies that are the full-fledged risk taking entrepreneurs. 10) 10. That without prejudice, on the facts and circumstances of the case and in law, the learned AO/ TPO h....
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....as selected for scrutiny and notice under section 143(2) of the Act was issued on 19/09/2011 and duly served upon the assessee within the prescribed statutory period. The learned Assessing Officer referred the case to the ld. Transfer Pricing Officer (TPO) for determination of the arm's length price of the international transactions carried out by the assessee. In transfer pricing study submitted before the ld. TPO, the assessee reported following international transactions and method of benchmarking of the transactions as under: Sl. No. Nature of Transaction Approach of taxpayers Value of transaction Method PLI 1. Availing of technical services (for providing technical services to Reliance & Others) TNMM OP/OR Rs. 503,120,607 2. Provision of marketing and after sales support services TNMM OP/OC Rs. 3,198,610,466 3. Import of telecommunication equipment for BSNL contract TNMM OP/OR Rs. 133,082,754 4. Import of components and availing of technical services for Bharti IVR contract TNMM OP/OR Rs. 4,599,982,641 5. Reimbursement of expenses to AEs BNR NA Rs. 327,634....
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.... 0.08 25.75 20.48 7. MN Dastur 162.82 99.75 0.00 100.00 42.14 9.49 7.42 6.91 8. Rites 582.84 609.75 0.19 100.00 40.37 6.12 24.83 19.89 9. Semac Ltd. 34.68 14.60 0.22 97.31 43.22 NA 25.22 20.14 10. TCE Consulting Engineers Ltd. 319.05 116.47 0.66 98.29 50.10 0.05 27.20 21.38 11. WAPCOS Ltd. 223.92 75.21 0.41 100.00 27.92 0.00 25.57 20.36 12. Zipper Trading Enterprises Ltd. 1.02 1.04 1.16 93.58 62.35 NA 34.11 25.43 13. TCIL (Seg.) 5.39 5.11 25.66 19.44 After applying the PLI of 19.44 % over the operating revenue of the technical service segment computed the adjustment of Rs. 3,16,62,222/- as under: Operating Revenue 59,06,42,570 Arm's Length Margin 19.44% of Op. revenue Arm's Length Price (ALP) 11,48,20,916 Profit shown by taxpayer 8,31,54,694 Shortfall being adjustment u/s 92CA 3,16,66,222 ....
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.... 20.99 20.66 4. Indus Technical & Financial Consultants Ltd. 1.45 0.83 0.72 98.62 27.74 NA 6.78 6.78 5. L&T Ramboll Cons 24.46 16.94 0.39 100.00 51.52 0.00 41.79 41.79 6. Mahindra Consulting Engineers Ltd. 8.48 3.50 0.00 99.07 38.62 0.08 25.67 25.75 7. MN Dastur 162.82 99.75 0.00 100.00 42.14 9.49 7.42 7.42 8. Rites 582.84 609.75 0.19 100.00 40.37 6.12 24.83 24.83 9. Semac Ltd. 34.68 14.60 0.22 97.31 43.22 NA 25.22 25.22 10. TCE Consulting Engineers Ltd. 319.05 116.47 0.66 98.29 50.10 0.05 27.20 27.20 11. WAPCOS Ltd. 223.92 75.21 0.41 100.00 27.92 0.00 25.57 25.57 12. Zipper Trading Enterprises Ltd. 1.02 1.04 1.16 93.58 62.35 NA 34.11 34.11 27.38 27.36 2.6 Applying the average PLI of 27.36% of the comparables chosen above, over the cost of technical support service , which was bifurcated by the ld. TPO and the adj....
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.... and adjustment as follows: Operating Revenue 51,46,04,454 Arm's Length Margin 19.44% of Op. revenue Arm's Length Price (ALP) 10,00,39,106 Price shown by taxpayer 8,89,52,048 Shortfall being adjustment u/s 92CA 1,10,87,058 2.10 In this manner, the ld. TPO vide his order under section 92CA dated 30/01/2013 proposed a transfer pricing adjustment of Rs. 14,36,62,486/-, which is summarized as under: A. Technical services under Mktg. & after sales support segment :Rs.2,13,94,007/- B. Business Support under Mktg. & after sales support segment :Rs.7,95,15,199/- C. Technical Services Segment :Rs.3,16,66,222/- D. Bharti IVR Project Segment :Rs.1,10,87,058/- Total :Rs.14,36,62,486/- 2.11 The learned Assessing Officer after incorporating the transfer pricing adjustment proposed by the TPO, passed a draft assessment order under section 143(3) read with section 144C of the Act on 22/03/2013. The assessee filed objections to the draft assessment order before the Ld. DRP on 29/04/2013. The Ld. DRP after taking into account submission filed on behalf of the assessee and hearing the Authorize....
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....ent years were pursuant to the same service agreement dated 01/07/2000 and thus there was no question of any change in the function performed by the assessee in this assessment year viz-a-viz earlier assessment years in respect of the services. The Ld. counsel further submitted that international transaction undertaken by the assessee in present assessment year being similar to the transaction in earlier assessment year and there is no change in the functionality of the assessee, the rule of consistency should have been followed and there is no reason why the comparables which were not considered earlier should be included in the list of comparable in the present assessment year. Reliance in this regard was placed on the order of the Mumbai bench of the Tribunal in the case of Thomas Cook (India) Limited Vs. Deputy Commissioner of Income Tax, in ITA No. 1261 and 1238/Mum/2015. The learned consul further submitted that the Ld. DRP did not consider the arguments in respect of consistency in the approach of the ld. TPO followed in earlier years. The Ld. counsel also submitted a chart showing status of companies selected as comparable by the TPO in the year under consideration for mark....
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....The Assessing Officer holding jurisdiction over the case also appeared in the hearing dated 2/02/2017 and filed the copy of letter addressed to the ld. CIT(DR). In the letter, he submitted the reasons stated by the ld. TPO for rejecting the comparables chosen by the assessee, both in the technical service segment as well as in the marketing and sales support service segment. But he also could not address the issue raised by the assessee as why comparables having similar FAR have been selected in earlier and subsequent years but rejected in the year under consideration. 8. We have heard the rival submissions and perused the relevant material on record. The first issue raised by the Ld. counsel, citing the rule of consistency, is that in earlier years, the marketing and sales support services segment has been considered as single transaction as against two separate transactions of marketing support services and technical support services considered by the learned AO/TPO. The ld. Counsel has asserted that marketing and after sales support services provided in the year under consideration as well as in earlier assessment year were pursuant to the same service agreement dated01/07/20....
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....the departmental authorities cannot take an opposite view. It brings uncertainty in the assessment proceedings. In our opinion, stand taken in the earlier years should not be disturbed in the subsequent years until and unless new facts emerge and the same are confronted to the assessee. Here, we would like to refer to the case of Galileo Nederland BV,(367ITR319),of the Hon'ble Delhi High Court wherein it has been held that decision on an issue or question taken in earlier years though not binding should be followed and not ignored unless there are good and sufficient reasons to take a different view, that said principle was based upon rules of certainty and that a decision taken after due application of mind should be followed consistently as this lead to certainty, unless there were valid and good reasons for deviating and not accepting earlier decision. The Hon'ble Bombay High Court in the case of Aroni Commercials Ltd.(362 ITR 403) has held as under: "Though the principle of res judicata is not applicable to tax matters as each year is separate and distinct, nevertheless where facts are identical from year to year, there has to be uniformity and in treatment." In the....
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.... We find that in absence of records of earlier years, the Ld. CIT(DR) could not address on the issue, and therefore in such circumstances, we feel it appropriate to restore following issues to the file of the Assessing Officer for deciding afresh in the light of rule of consistency: (i) the issue of single transaction of marketing and sales support services viz-a-viz two separate transactions of marketing support services and technical support services, (ii) accepting the comparables chosen by the assessee for marketing and sales support services segment (iii) accepting the comparables chosen by the assessee for technical services segment The learned AO/TPO is directed accordingly to re-compute the arm's length price of the international transaction carried out by the assessee. It is needless to mention that the assessee shall be afforded sufficient opportunity of hearing on the issues in dispute. Accordingly, ground No. 4, ground No. 4.2(part other than dismissed), ground No. 5, ground No. 6 are allowed for statistical purpose. 11. The decision in respect of ground No. 8 to 11, is dependent on the decision taken in ground No. 4, ground No. 4.2 (part other than dismi....