TaxTMI 
TaxTMI 
2019 (4) TMI 1476
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....ting the addition of Rs. 4,46,29,132/- made by the AO on account of Arm's length price of international transaction u/s 92CA(3) of the Act in view of the findings of the TPO order dated 04.10.2010 and as per the provisions of 92CA(4) of the IT Act." 3. The brief facts of the case shows that assessee, a company engaged in the business of engineering consultancy services and is providing consultancy, project monitoring and supervising services, in the 2nd year of its business, filed its return of income on 31/10/2007 declaring nil income. The assessee has entered into an international transaction with its associated enterprise of contract for technical services from its associated enterprise. The international transaction was referred by the learned assessing officer to the learned transfer pricing officer for determination of its arm's-length price. The learned transfer pricing officer determined the ALP of the transaction vide order dated 04/10/2009 and proposed an adjustment of Rs. 44629132/-. The learned AO further made an addition of Rs. 1177601/- on account of late payment of the provident fund. The learned assessing officer passed an order u/s 143 (3) of the act read with sec....
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....e in computation of margin of the above two segments. He further stated that the assessee has disclosed that profit of Rs. 844,000/- from the receipt of Rs. 17,900,000/- from the Non AE segment which is completely at variance with the above two segmental accounts where the assessee is incurring loss in non associated enterprise segment. It was further argued that the assessee has claimed business development cost of Rs. 16,400,000/- on total revenue of Rs. 17,900,000/- in the Non AE segment and has not furnished any details regarding those expenses. He submitted that assessee has also claimed Rs. 28,81,000/- on account of AMP expenditure from Non AE transactions in profit and loss account. He therefore strongly stated that the reliability of the above two segments is highly doubtful and cannot be accepted for internal benchmarking. Learned DR further stated that there is no reference about the kind of services provided to the nonassociated enterprise and their functional analysis is also not available and therefore they cannot be compared with the transactions of associated enterprise. It was further stated that the non-AE segment consist of 7 different parties and therefore unles....
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....igning, supply, construction, installation, operation or maintenance of any structure, roads and highways et cetera. For bench making of international transaction of rendering of technical and consultancy services to its associated enterprise assessee adopted Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM). It selected 3 comparables whose arithmetic mean of the Profit Level Indicator (PLI) of operating profit/total cost was 1.68%, whereas the assessee's profit level indicator was 1.36% and therefore it was stated that its international transactions are at arm's-length. The assessee computed its profit level indicator with respect to the transactions with associated enterprise and nonassociated enterprise as under:- particulars Associated enterprise Non-associated enterprise Operating income 192064997 17959145 Operating expenditure 189491737 21404968 Operating profit 2573260 (-) 3445823 Net contribution margin 1.36% (-) 16.10% 8. The learned transfer pricing officer challenged the above margin of 1.36 percentage earned by the assessee from associated enterprises and a negative margin of (-) 16.10% from non-associated enterprise.....
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....fit level indicator of operating profit/operating expenses of the assessee is (0.22) percentage. Thereafter he selected the comparables afresh, allowed the assessee to object them and ultimately selected 8 comparables, whose profit level indicator of operating profit/operating expenditure was found to be 24.91% and then, against the total price paid of Rs. 192064997/- arm's-length price at Rs. 236694129/- and accordingly proposed an adjustment of Rs. 44629132/- . Consequently, the assessment order u/s 143 (3) of the act was passed on 7/1/2011 determining the total income of the assessee of Rs. 45806733/- against the returned income of Rs. Nil. The assessee preferred an appeal before the learned CIT(A). The learned Commissioner of Income Tax (Appeals) in para No. 6.1 of his order has accepted that internal uncontrolled transactions are the good comparables after relying upon the OECD guidelines. He therefore reached conclusion that these guidelines suggest preference for internal comparable of assessee. He relied on the decision of the coordinate bench in case of Birla soft India Ltd vs DCIT, wherein it has been held that the assessee was justified in undertaking internal comparison....
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....while rejecting the revised segmental figures, has accepted the original segmental figures and also used the margin over the cost as given by the assessee. Therefore he held that on both the counts, the segmental results of the associated segment are better than Non-AE segment, and internal benchmarking analysis under the segmental results prepared using the valid allocation key is justified. On careful analysis of the decision of the CIT(A) we find that he has given a valid reasons for accepting the segmental results. Further with respect to all the arguments raised by the learned departmental representative, there is an answer in the order of the learned CIT(A) which cannot be dislodged without having any factual infirmity in the same. Further, on reading the transfer pricing study report prepared by the assessee, it is mentioned that assessee incurred marketing expenses only for procuring business from Non AE customers without giving any finding that such is not the fact the factual statement cannot be ignored. Further, ld TPO also did not state what is the difference between the functions performed, assets deployed and risk assumed by the assessee in its transactions with AE a....
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....On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 7,52,66,923/- made by the Assessing Officer on account of Arm's Length Price of International Transaction u/s 92CA(3) of the Act in view of findings of the TPO order dated 28.10.2011 and as per the provisions of section 92CA(4) of the I.T. Act." 13. The assessee filed its return of income declaring income of Rs. 222615/- on 26/9/2008. The assessment u/s 143(3) read with section 144C of the act was completed at Rs. 75489540/- on 26/12/2011 wherein the addition of Rs. 75266923/- was made. Against the order of the learned Assessing Officer, assessee preferred an appeal before the learned CIT(A), Faridabad who allowed the appeal and therefore revenue is in appeal before us. The only dispute is an addition of Rs. 75266923/- on account of arm's-length price of international transaction. The assessee entered into an international transaction with its associated enterprise of rendering of technical and consultancy services to the associated enterprise. The assessee selected the TNMM as the most appropriate method for benchmarking the international transaction....
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....smissed. 17. Now we come to the appeal of the learned assessing officer for assessment year 2009 - 10 in ITA No. 2316/Del/2015. The learned assessing officer has raised the following grounds of appeal:- "1. The ld CIT(A) erred in accepting the assessee's contention that internal CUP can be used when margins are being compared. The use of CUP the comparison of actual and not margins. 2. The ld CIT(A) erred in holding that since no adjustment was made in AE's case, no adjustment can be made in the assessee case. This is ignorance of section 92(3) of the IT Act, 1961. 3. The ld CIT(A) erred in applying the decision of Intera Technologies, Hugehs Sytique and lummns Technology to reject the TPO's stand of rejecting Inter TNMM. These decisions are related to the threshold of related party transaction and not to the use of Internal TNMM. 4. The ld CIT(A) erred in rejecting comparables used by the TPO based on the earlier years order. The FAR analysis has to be done separately for each year and only then can be decision on comparability to arrived at." 18. For this year the assessee filed its return of income on 30/9/2009 declaring income of Rs. 9901133/-. The assessment u/s 143 ....
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....rcumstances of the case, the ld CIT(A) is correct in applying the decision of Intera Technologies, Hughes Systique and Lummns Technology to reject the TPO's stand of rejecting internal TNMM. These decisions are related to the threshold of related party transaction and not the use of internal TNMM? 3. Whether on the facts and circumstances of the case, the ld CIT(A) is correct on the facts and in law in non adjucating the grounds raised by the assessee on the issue of comparable." 22. Facts for this year show that the assessee has filed its return of income on 7/10/2010 declaring total income of Rs. 56485470/- which was revised on 10/1/2012 at Rs. 77189930/-. The assessment u/s 143 (3) of the act was passed on 18/3/2014 wherein the total income of the assessee was determined at Rs. 134994381/- where the addition of Rs. 57804451/- was made. The only addition in dispute was the determination of the arm's-length price of the international transaction of Rs. 55072979/-. The learned CIT(A), on appeal by the assessee, deleted the above addition following his own decision for assessment year 2009 - 10. Therefore, the assessing officer is in appeal before us. 23. Both the parties confi....