2016 (5) TMI 1491

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....gnificant International Transactions (ITs) entered into by the assessee are on account of provision of marketing and sales support, provision of assembly and delivery management support services, provision of repairs and maintenance of marine equipment and provision of business promotion and liaison services. The assessee had bifurcated its activities into four segments as follows: (i) After sales service, (ii) Assembly and delivery management support services (iii) Marketing, sales support coordination and other allied activities, (iv) Application engineering services The assessee had benchmarked its transactions by using TNMM in respect of Sl. No. (ii), (iii) and (iv). As regards sales services segment it used CUP method. The AO made a reference to the Transfer Pricing Officer (TPO) for determining the Arm's Length Price (ALP) of the transactions as per provision of Sec. 92 of the Act. During the TP proceedings the TPO found that the Profit Level Indicator (PLI) was net operating profit to operating cost (OP/OC), that for assembly and delivery management services, the assessee had selected following six comparables: S.N. Name of the Comparable Company ....

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....07%.- Sr. No. Name of the Company NCP(%) 1. Anup Malleables Ltd. 22.44 2. De Two Forging Pvt. Ltd. 11.70   Arithmetic Mean 18.07   He computed the ALP as under :- AE Sales 45,791,463 OP/OC of Assessee 9.32% Corrected AE cost 41887543 ALP Mean 18.07 ALP Sales 49456622 105% of sales 48081036 95% 43501889 Adjustment 3665159 As a result, he proposed an adjustment of Rs. 36.65 lakhs. Following the order of the TPO, the AO made an addition of the said amount in his draft order. 3. Aggrieved by the order of the TPO/AO the assessee filed objections before the DRP. Before it, the assessee argued that it was a contract service provider, that the AE would sell its products to third party in India, that the contract would be entered into between the third party and AE directly, that the assessee would be sub-contracted the manufacturing and assembling work in respect of such contract entered into by the AE with the third party, that the manufacturing and assembling work was carried out in accordance with the specification provided by AE, that the goods were delivered by assesse....

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....96 -2.14 4. Keycee Industries Ltd. 25.52 6.29 5. Salzer Electronics Ltd. 171.16 12.04 6. Switching Technologies Gunther Ld. 6.53 -0.94   Arithmetic Mean   5.12% As the alternate comparables set were produced before the DRP for the first time the same was remanded to the TPO for seeking his comments on comparability of those comparables. In his report, the TPO stated that the assessee could not submit new set of comparable at the appellate stage, that the remaining two comparables (Anup Malleables Ltd. & De Two Forging Pvt. Ltd.) were functionally similar to the assessee. After examining the remand report, the DRP held that the TPO had failed to address the core issue on which the report was called for, that he again and again reiterated the point that two comparables finally accepted by him were the valid comparable to determine the ALP, that he failed to address the issue as to why the four comparables were rejected when they were performing the same job as that of the remaining two, that the remaining two comparables suffered the same infirmity of the rejected four comparables, that he had failed to address the is....

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....nt, therefore picking up only two comparables was highly objectionable. The DRP had specifically asked him to justify the selective acceptance/rejection of the comparables. Instead of carrying out the direction of the DRP, he questioned the authority of the Panel in accepting the new comparables. In our opinion the stand taken by TPO is not supported by provisions of any of the sections of the Act. Principles of natural justice demand that before using new material the affected party should be given an opportunity to rebut such material. The DRP had given a reasonable opportunity to him. But, instead of availing and making a positive contribution he stuck to the two comparables that were endorsed by him for computing ALP. If we take into consideration the behavior of the TPO, it becomes clear that he was not following the mandate of Chapter-X of the Act. It appears that he had decided to make adjustment at any cost. Therefore, he sidelined the basic issue raised by DRP and did not offer any comment of new comparables. Therefore, we have no hesitation to hold that DRP had rightly and justifiably held that the approach of the TPO was 'illogical' and 'inconsistent'.....

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....eason given by the TPO for making the adjustment was that assessee had not justified the writing off, that assessee had written back only a sum of Rs. 39,056/-, that it had written back the balance sum of Rs. 12.49 lakhs in the books of account, that the TPO had not given any comment in respect of the items that were written back, that the assessee had already offered the amount of Rs. 12,49,939/- as part of its income, that the adjustment made by the TPO resulted in taxing the same amount twice. Finally the DRP deleted the addition except for Rs. 39,056/-. 7.2 Before us, the DR stated that the matter could be decided on merits. The AR supported the order of the DRP. Without prejudice, it was stated that working capital adjustment should be granted to the assessee of Rs. 39.056/-. 7.3 It is found that following amounts were written off/written back by the assessee for the year under consideration: S.N. Name of the AE Description Amount 1. Rolls-Royce Marine AS Dep. Propulsion Balance written back 19,188 2. Rolls-Royce Marine Middle East Balance written back 3,27,177 3. Rolls-Royce Marine AS Dep. Engines Balance written back 4,02....