TaxTMI 
TaxTMI 
2017 (1) TMI 1626
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....risdictional error as the Ld. AO did not record any reasons in the draft assessment order based on which he reached the conclusion that it was "expedient and necessary" to refer the matter to the Ld. Transfer Pricing Officer ("TPO") for computation of the arm's length price, as is required under section 92CA(1) of the Income Tax Act, 1961 ("Act"). 3. That on facts and circumstances of the case and in law, Ld. A.O/Ld. TPO/Ld. DRP failed to appreciate that there was no intention of shifting of profits outside India by the Appellant. 4.That on facts and circumstances of the case and in law, the Ld. AO/ Ld. TPO/ Ld. DRP erred in determining the ALP of the Appellant's international transaction at Rs. 73,14,59,416 as (tm) against Rs. 63,96,88,383 determined by the Appellant and recommending an addition of Rs. 9,17,71,033 on that account to the Appellant's income. 5.That on facts and circumstances of the case and in law, the Ld. AO/ Ld. TPO/ Ld. DRP erred while making an aforesaid addition of Rs. 9,17,71,033 to the value of international transactions by: (i) failing to consider and appreciate that the business of the Appellant and the group companies is....
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....nd in law, the Ld. DRP erred in not examining the validity of initiation of penalty proceedings u/s 271(l)(c). The Appellant craves leave to add, amend, alter, delete, rescind, forgo or withdraw any of the above grounds of appeal either before or during the course of the proceedings before the Hon'ble Tribunal in the interest of the natural justice. The aforesaid grounds are mutually exclusive and without prejudice to each other." 2. The facts in brief are that the assessee company is a subsidiary of M/s. Fluor Daniel Engineers and Consultants Ltd., Mauritius and Indo Mauritian Affiliates Ltd., Mauritius, which are in turn subsidiaries of Fluor Corporation, USA. The Fluor Corporation, USA is an engineering, procurement, construction and maintenance company engaged into five industry segments, namely, oil and gas, industrial and infrastructure, power, global services and government services. The assessee forms a functional part of the oil and gas strategic business group of 'Fluor Corporation' and is engaged in the business of providing engineering design services to its Associated Enterprise (AEs). The AEs, after the contract is awarded to them by ultimate customer, sub....
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....unsel of the assessee did not press grounds No. 2 and 3 and, thus, the same are dismissed as infructuous. The ground No. 1 and 4 are general in nature and, thus, we are not required to adjudicate upon specifically. The grounds no. 6, 8 & 11 were also not specifically pressed and thus the same are dismissed as infructuous. 4. Addressing the ground No. 5(i), the learned counsel submitted that the life-cycle of an engineering project in relation to the assessee was divided into two phases, i.e., (i) basic engineering phase and, (ii) detail and production engineering phase. He further submitted that projects often take two or three years to complete and during the initial stage, the work performed is limited to basic engineering and project planning, which includes planning project processes, layout and equipment specifications based on the parameters defined and finalized by the customers. He further submitted that the project at its peak, get into detailed and production engineering phase, when the assessee uses software for execution of its engineering design and provides output in the form of designs and drawings, which are restored in hardcopy format for customers. The learned ....
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....learned Departmental Representative submitted that just because there was increase in turnover, it cannot be said that operations are cyclic in nature. He further referring to page 186 of the assessee's paper book, submitted that that the assessee was implementing many projects simultaneously, out or which, few contracts will be at the first stage and other contracts will be at the second stage and so it may not possible that in one year the assessee would be executing one phase only and another year another phase only. According to the learned CIT(DR), the pricing will not be affected by the phases of the contract executed. He further submitted that the argument of the learned counsel that the initial phase result into low profit and later phase result into more profit was not substantiated by any evidences. He further submitted that the learned counsel has not brought out any documents in support of his claim that the earlier year data is having influence on the current year data. 4.4 In the rejoinder, the learned counsel submitted that 'TNMM' has been chosen as most appropriate method and not the 'Cup Method' and therefore the arguments of learned Departmental Representative ....
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....ot available at the time of furnishing the return of income by the assessee, for the assessment year relevant to the current year: Provided that where the data relating to the current year is subsequently available at the time of determination of arm's length price of an international transaction or a specified domestic transaction during the course of any assessment proceeding for the assessment year relevant to the current year, then, such data shall be used for such determination irrespective of the fact that the data was not available at the time of furnishing the return of income of the relevant assessment year.]" 4.6 We find from the above that during the relevant time, the rule permitted data for comparison should be of contemporaneous financial year only and as an exception, if the contemporaneous data had some deficiency rendering it not readily comparable, then that data of multiple year could be considered if such data have influence on the determination of transfer prices of the International transactions being compared. 4.7 The learned counsel has submitted that main reason of the fluctuation in the profit of the assessee is the less number of man-ho....
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....relating to the financial year in which the international transaction has been entered into and Proviso of this rule for use of multiple year data is only an exception and not a rule, which can be invoked if the data for the current year does not result into the determination of correct prices. 4.9 Having regard to the discussion above and facts and circumstances of the present case, the objection of the assessee against the action of the Assessing Officer in using current year data cannot be accepted. The ground of the appeal is accordingly dismissed. 5. Addressing the ground No. 5(ii), the learned counsel submitted that comparable Alphageo (India) limited should be rejected. The learned counsel submitted that the standards of comparability provided in rule 10B of the Rules mandate that while comparing a tested party with an uncontrolled party, functions performed (taking into account assets employed and risk undertaken) should be examined and any comparable having material difference in this respect, which cannot be adjusted with reasonable accuracy has to be excluded. 5.1 The learned counsel referred to Annual report of M/s. Alphageo (India) Ltd. available on page 324 t....
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....n 31/03/2006, mentioned in the synopsis, which is reproduced as under: Particulars Alphageo The Appellant Net Fixed Assets as on March 31, 2006 (in INR) 53,11,48,259 3,10,91,698 Net Sales (in INR) 23,86,65,270 63,92,06,650 Average NFA / Sales ratio 222.55% 4.86% 5.4 In view of the above table, it was submitted that there were huge difference in the assets deployed by the comparable M/s Alphageo as compared to the assessee company. 5.5 The learned counsel further submitted that the prerequisite for arriving at ALP is that the transaction of the tested party should be benchmarked with uncontrolled transaction and presence of related party transactions dilutes the reliability of the data, therefore it is desirable that related party transactions should not be there at all or only to a minimal possible extent. The learned counsel submitted that the Alphageo had related party transactions amounting to 16.88% of the sales. In this connection, the learned counsel relied on the following rulings, wherein the Tribunal/Hon'ble High Court held that the companies having related party transaction more than 15% of its sales should b....
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....file, the said comparable should be excluded from the set of comparables. 5.9 We have heard the rival submission and perused the relevant material on record including the paper book of the assessee. On perusal of the annual report of M/s Alphageo, we find that during the year under consideration the comparable company has shown income from seismic survey and other related services. On perusal of page 326 of the paper book, which is part of the annual report of M/s Alphageo , we find that the company was engaged in providing services of design and preplanning of 2-D and 3-D surveys, seismic data acquisition, seismic data interpretation , topographic surveys etc. as compared to the services of engineering design by the assessee. Thus, in our opinion, the comparable company was engaged in providing designs for survey as well as in conducting the surveys and data acquisition etc. Thus, we find that the assessee is engaged in providing only engineering design services whereas M/s Alphageo has provided many other engineering services. Further, the asset employed by M/s Alphageo is higher in terms of net fixed assets/sales ratio. In the case of the assessee, net fixed asset/sales ratio....
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....before the transfer pricing officer (TPO). 6.3 In rejoinder, the learned counsel submitted that detailed working capital adjustment was submitted before the dispute resolution panel (DRP), a copy of which is available on page 282 of the paper book. 6.4 We have heard the rival submissions and perused the relevant material on record on the issue in dispute. In the entire exercise of Transfer Pricing, the objective is to have better comparability and the purpose of working capital adjustment is to increase the comparability of tested party and its comparables. Working capital adjustment irons out the differences between assessee and comparables. 6.4 In various decisions including the decision cited by the assessee, it is held that if there are differences with comparables which can be adjusted, then adjustment are required to made including the working capital adjustment. Accordingly, we direct the Assessing Officer/TPO to grant an appropriate working capital adjustment to the assessee. 7. In ground No. 9 the assessee has challenged the finding of the AO/DRP in holding that the amount of Rs. 3,69,91,451/-paid by the assessee for use of sublicense software package was a cap....