TaxTMI 
TaxTMI 
2018 (10) TMI 1433
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....parables selected by it after conducting TP study should be considered when Rule 10D(4) maintains that documents and information should exist latest by the 'specified date' specified in s.92F(4) i.e. the due date for filing the ROI. 03. For the facts and such other reasons as may be urged at the time of hearing, the order of the Hon'ble Dispute Resolution Panel may be vacated and that of the Assessing Officer be restored. 4. The assessee in ITA No.592/PUN/2015 has raised the following grounds of appeal:- On the facts and in the circumstances of the case and in law, the Hon'ble DRP and consequentially the learned Assessing Officer have: 1. General ground challenging the transfer pricing adjustment of Rs. 2,00,61,662 Erred in making transfer pricing adjustment to the international transactions of the Appellant in connection with payment for expenses towards management fees, meeting expenses and communication cost and not accepting the analysis undertaken by the Appellant to determine the arm's length price of aforesaid international transactions. 2. Adjustment on account of payment for management fees, meeting expenses and communication cost Erred ....
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....vices to MSC US. The assessee was involved in various facets of MSC's operations i.e. Development of Software, Testing Software, Technical Support, etc. The assessee had selected TNNM method as the most appropriate method to benchmark its international transactions relating to the provision of software development services and provision of sales support services to its associated enterprises. In TNNM analysis, PLI was worked out on Operating Profit / Operating Cost. The assessee had identified certain comparable companies on the basis of FAR analysis and had selected 10 companies as comparable. The assessee had worked out average PLI of comparables at 2.75%, whereas PLI margins of assessee company was 16.22% and hence, claimed that international transactions were at arm's length price. The TPO perused various documents and information filed by assessee during TP proceedings and issued show cause notice to the assessee, which raised objections against use of contemporaneous data. Consequently, certain companies identified by assessee were rejected and additional comparable companies were selected both by TPO and assessee. There were other filters which were also applied i.e. on ....
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.... 7(i). Hence, total adjustment of Rs. 2,00,61,662/- was made to international transactions relating to payment of management fees and communication expenses. The Assessing Officer issued draft assessment order proposing the said adjustment, against which the assessee filed objections before the DRP. 8. The DRP in turn, gave directions i.e. it was directed to adopt the turnover filter of Rs. 1 crore to 300 crores and hence, certain companies were rejected from the final set of comparables. Further, the DRP also directed to include certain additional companies identified by the assessee during TP proceedings totaling No.3. The DRP also directed the Assessing Officer to examine computation of working capital and to adopt the method as provided in Annexure to Chapter III of OECD Transfer Pricing Guidelines, 2002. In view of the directions of DRP, the Assessing Officer / TPO drew up revised final set of comparables along with margins numbering 9, wherein arithmetic mean of margins of comparables worked out to 20.66% and after working capital adjustment at 15.30%, the assessee's operating margins were 46.78%. In view thereof, the Assessing Officer held that operating margins earned by a....
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....nterprises, since the margins shown by the assessee were higher than the margins of comparables selected. However, the TPO made the aforesaid adjustment on account of intra group services relying on earlier directions of DRP in assessment year 2008-09. He further went on to note that the DRP had also directed to exclude intra-group cost from operating expenditure in case arm's length price of same was taken at Nil. So, sum of Rs. 2,00,61,662/- was excluded from operating cost and revised PLI margins of assessee worked out to 46.78%. The PLI margins of comparables finally selected numbering 11 were 27.04% after allowing working capital adjustment and since the PLI of assessee was more than comparables, no adjustment was made to international transactions of provision of software development services. The TPO further pointed out that if the adjustment made on account of intra-group cost is deleted at appellate stage, then the adjustment to software development services segment will have to be made adopting PLI margins of assessee. The assessee thus, raised objections before the DRP both in the segment of provision of software development services and also in the segment of provis....
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....ction 92D of the Act. It is not any ones' case that the assessee has not maintained such documents as prescribed under Rule 10D of the Rules. The plea of the assessee before us is that by way of maintenance of such information and documents, the assessee is to keep a record of its international transactions and by way of clause (l) to also prepare the details of adjustments, if any, made to the transfer prices to align them with arm's length prices determined under these Rules and consequent adjustments made to the total income for tax purposes. The proviso under sub-rule (2) to Rule 10D of the Rules provides that the assessee shall be required to substantiate, on the basis of material available with him, that income arising from international transaction entered into by him has been computed in accordance with section 92 of the Act. Further, information which is specified in sub-rule (1) is to be supported by authentic documents which include various publications, reports and financial statements as per sub-rule (3) to the said Rule 10D of the Rules. Under sub-rule (4), it is provided that the information and documents specified under sub-rules (1) and (2) as far as possible b....
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.... or (d) the assessee has failed to furnish, within the specified time, any information or document which he was required to furnish by a notice issued under sub-section (3) of section 92D, the Assessing Officer may proceed to determine the arm's length price in relation to the said international transaction [or specified domestic transaction] in accordance with sub-sections (1) and (2), on the basis of such material or information or document available with him." 17. Under the said sub-section, the Assessing Officer during the course of any proceedings for assessment of income, on the basis of material or information or documents in his possession, is of the opinion that the conditions laid in clauses (a) to (d) are not fulfilled, then the Assessing Officer may proceed to determine the arm's length price in relation to such international transaction in accordance with sub-section (1) and (2), on the basis of material or information or documents available with him. The said exercise of power by the Assessing Officer is after affording an opportunity of hearing to the assessee to show cause as to why the arm's length price should not be so determined on the basis of mat....
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....ch material collected to be used against assessee should be put to the assessee to explain. Further, as decided by us in the paras hereinabove in view of Rule 10B(4) of the Rules, the data should be relatable to the financial year in which the international transaction has been entered into. Thus, it is incumbent upon the TPO to ensure that all the conditions provided under the Act and as per the Rules are fulfilled. 19. In the facts of the present case itself, we have noted that the assessee had prepared its transfer pricing report and computed the PLI of comparables by adopting the data for preceding two years. The assessee in its transfer pricing report had not used the data of the year in which the international transaction had taken place to benchmark its international transaction to be at arm's length price or not. During the course of transfer pricing proceedings, the TPO show caused the assessee as to why instant year's data should not be used and further computed the arithmetic mean of PLI of comparables on the basis of data relating to assessment year 2006-07. The data compiled by the TPO relates to assessment year 2006-07 of the listed companies which were picked ....
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.... by the TPO after confronting the same to assessee, to compute the transfer pricing adjustment, if any, in the hands of the assessee. Accordingly, the TPO under the Act is fully justified in carrying out the fresh search, if needed, for identifying the comparable companies, may be additional and proceed with transfer pricing proceedings. Such data collected by the TPO cannot be called as non-contemporaneous, where the concerns picked up by the TPO are functionally comparable and the data for the relevant year was available. 20. We find support from the ratio laid down by the Bangalore Special Bench in Aztec Software and Technology Vs. ACIT (supra), wherein the Tribunal while considering the statutory provisions for determination of arm's length price of a taxpayer observed that the burden to establish the transaction to be at arm's length price was upon the taxpayer, who had to furnish comparable transactions, apply appropriate method for determination of arm's length price and justify the same by producing the relevant material and documents before the Revenue authorities. Where the Revenue authorities were not satisfied with the arm's length price and supportin....
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.... and reasonable. The relevant findings of the Tribunal are as under:- "133. Having regard to the statutory provisions, particularly the mandate of sections 92(1) and 92D read with relevant rules, we hold that it is obligatory on the part of the taxpayer to furnish information relating to controlled international transactions, select a suitable method for determination and furnish ALP of such international transactions carried by it and give basis and supporting authentic evidence of ALP and adjustments made. The taxpayer has further to cooperate in the determination of the ALP by the tax authorities by furnishing all relevant information. The tax authorities in cases where they are of the opinion that ALP has not been correctly determined by the taxpayer, can substitute their own ALP on the basis of material or information furnished by the assessee or collected by them. However, such ALP has to be determined having in mind provisions of sections 92 and 92C and other rules and regulations. While determining ALP, tax authorities are bound to follow principles of natural justice and be fair and reasonable to the taxpayer. Any material collected to be used against the taxpayer is to....
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.... the assessee or collected by him. In case, such an authority has been delegated to the TPO and in exercise of such authority, certain information is collected by the TPO, which in turn, is confronted to the assessee and thereon applied to determine the arm's length price of international transaction, the said exercise of the jurisdiction by the TPO cannot possibly be questioned. Accordingly, we find no merit in the reliance placed upon by the learned Authorized Representative for the assessee. The learned Authorized Representative for the assessee further relied upon on other decisions which are factually different from the issue before us. Accordingly, we find no merit in the claim of assessee in this regard and upholding the action of TPO, the grounds of appeal No.2 and 3 raised by the assessee are dismissed." 16. In view of said proposition laid down by the Tribunal in the case of M/s. Vishay Components India Pvt. Ltd. Vs. DCIT (supra), which has been followed in ITO Vs. Dar Al-Handasah Consultants (Shair And Partners) India Pvt. Ltd. in ITA No.1711/PUN/2014 along with CO No.32/PUN/2016, relating to assessment year 2009-10, order dated 30.08.2017, we hold that the concern....