TaxTMI 
TaxTMI 
2018 (6) TMI 153
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.... difference in the arm's length price of the 'international transactions' on the basis of the order passed under section 92CA(3) of the Act by the Transfer Pricing Officer ('TPO') 2.1 The AO/TPO erred on facts and in law in disregarding the benchmarking analysis undertaken by the appellant applying internal TNMM in the Transfer Pricing Documentation allegedly holding that: (i) The segmental analysis/profitability undertaken by the appellant in the Transfer Pricing Documentation is not appearing in the audited financial statement (ii) The internal TNMM, applied by the appellant, is a sort of CUP and accordingly, strictly comparability is required for applying CUP method (iii) The services provided to the associated enterprises and non-associated enterprises are not identical. (iv) The details of services and billing structure of the associated enterprises and non-associated enterprises is not provided by the appellant 2.2 That the AO/TPO erred on facts and in law in characterizing appellant as a provider of financial advisory services and also erred in comparing the appellant with companies engaged in the business of stock brokin....
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....ment on the ground that the appellant did not furnish Tax Residency Certificate(s), not appreciating that there was no such requirement in law in the relevant assessment year. 3.2 That the AO erred on facts and in law in confirming the directions issued by the Dispute Resolution Panel ('DRP') without appreciating that the DRP had failed to consider challans evidencing deduction and deposit of tax at source in financial year 2016-17_by the appellant in respect of inter- company fee payment made to group company located in USA, furnished by the appellant before the DRP by way of additional evidence. 3.3 Without prejudice, that the AO erred on facts and in law in confirming the directions issued by the DRP without appreciating that the DRP had failed to consider Tax Residency Certificates of group companies located in UK and Singapore, duly furnished by the appellant before the DRP by way of additional evidence. 3.4 That the AO erred on facts and in law in disallowing under section 40(a)(i) of the Act, payments in the nature of international commission amounting to Rs. 1,04,29,520 made by the appellant to its group companies located outside India for failure....
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....in of those five comparables proposed by the assessee at 6.87%. After considering submissions of the assessee, the Ld. TPO finally selected following four comparables and computed mean margin at 25.29%: No. Name of company OP/OC(%) i. Cholamandalam MS Risk Services Ltd. 36.82% ii. Apitco Limited 20.46% iii. ICRA Management Consulting Services Ltd. 6.62% iv. Ladderup Corporate Advisory Pvt. Ltd. 37.25% Average 25.29% 2.2 Accordingly, he computed the adjustment of Rs. 3,95,61,889/- as under: Operation Cost 168,380,063 Arm's Length Price at a margin of 25.29% 210,963,381 Price received 171,401,492 105% of price received 179,971,567 Proposed adjustment u/ 92CA 39,561,889 2.3 The Ld. TPO passed order under section 92CA(3) of the Act on 27/01/2016 and proposed upward adjustment of Rs. 3,95,61,889/- to the value of international transaction declared by the assessee. The Assessing Officer issued a draft assessment order to the assessee, against which the assessee filed objection before the Ld. DRP, who issued certain directions to the Ld. TPO for verification. After taking i....
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.... concurred with the Ld. counsel of the assessee that matter need to be restored to the Ld. TPO for carrying out fresh search of comparables in the light of correct characterisation of the assessee. 4.4 We have heard the rival submissions and perused the relevant material on record. We find that the Tribunal in ITA No. 979/Del/2015 for assessment year 2010-11 has restored the issue to the Ld. TPO for re-characterization and selection of the comparables observing as under: "8.3. Accordingly, considering the ratio of the decision of the Jurisdictional High Court in Text Hundred India Private Limited (cited supra), we find that the assessee has successfully demonstrated that since the very nature of assessee's business activity has not been correctly understood the conclusion drawn for characterisation of the assessee suffer from a fundamental error wherein the TPO has understood the assessee on considering the TP report filed as being engaged in providing investment and other financial advisory services to its AE. Whereas the peculiar facts of the case as evident from the evidence placed before the TPO and the tax authorities read along with the fresh evidence sought to be....
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....time was prevented by sufficient cause to lead such an evidence and that this evidence would have material bearing on the issue which needs to be decided by the Tribunal and ends of justice demand admission of such an evidence, the Tribunal can pass an order to that effect." (emphasis provided) 8.4. We further find our conclusion supported by a decision of the Co-ordinate Bench in the case of UCB India Pvt. Ltd Vs. ACIT, Circle 7(3), Mumbai, 121 ITD 131, wherein it is held as under: "In all fairness, the assessee should not be pinned down to his submissions in the first round of Transfer Pricing proceedings. It should be appreciated that Transfer Pricing regulations are relatively new provisions and the case does require special consideration. The assessee is free to support his case in any manner it deems fit by filing any additional evidence or document before the A.O. Further information may be gathered from the parent company, if possible. Fresh methods may be adopted to prove ALP. Our intention is that, the assessee should not be shut out in the second round of proceedings, on the ground that, certain documents were not filed in the first round or ce....
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....the issue of characterization of the profile of assessee and selection of comparables to Ld. TPO, respectfully following the finding of the Tribunal, in the year under consideration also, we redirect the Ld. AO/TPO for choosing external TNMM as most appropriate method and after characterization of the assessee in view of the transfer pricing study of the assessee and evidences produced, make fresh selection of comparables functionally similar to the assessee and then decide the arm's length price of the international transaction accordingly in accordance of law. It is needless to mention that the assessee shall be afforded adequate opportunity of being heard. 5. On the issue of taking only cost related to AE transactions for applying mean margin of comparables and computing the arm's length price of the transaction, we agree with the contention of the Ld. counsel as the value of the international transaction only has to be compared with uncontrolled transaction. 5.1 When the transaction of the assessee consist both AE and Non-AE transactions, then the mean margin of comparables has to be applied only over the operating cost of the AE transaction, which are international trans....