TaxTMI 
TaxTMI 
2020 (7) TMI 791
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....AO / TPO has erred in law and on facts in making transfer pricing adjustment of Rs. 1,44,22,000 to the total income of the Appellant oil basis of various presumption and surmises: 2.1. The learned DRP/TPO have erred in law and facts by not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Income-tax Rules, 1962 ("Rules"), and holding that the Appellant's international transaction is not at arm's length; 2.2. The learned AO has erred in law and facts by upholding the action of DRP! TPO in determination of the arm's length margin/ price using only single year data i.e. for FY 2010- 11, and not allowing the use of multiple year data as applied by the Appellant in the transfer pricing documentation; 2.3. The learned AO / TPO has erred in law and on facts in selecting ABC Rearing Ltd. as an additional comparable to the Appellant without carrying out a methodical and scientific search of comparables and rejected the assessee's contentions to exclude the same as a comparable company. 2.4. The learned AO / TPO have erred in law and on facts in not allowing the working ca....
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....ns.:- "3.5 In Ground 5, the assessee has claimed that the TP adjustment should be restricted to the value of International transactions with AE alone and should not be made at entity level. The assessee also highlighted the fact the assessee's claim for proportionate adjustment was also accepted by this Panel in assessee's own case for A.Y 2009-10. The relevant extract of ORP order for A.Y 2009- 10 is provided below: "However, the TPO is directed to compute the adjustment at transaction level only. The objection is therefore allowed." 3.5.3 Considering the facts of the case and submissions made, the TPO is directed to compute the TP adjustment at transaction level and not entity level. It is so held by Bombay High Court also in the case of Firestone International (P) Ltd. in ITA No 1354 of 2013 order dated 15.06.201, this objection is thus allowed. 7. In view of the above, The Deputy Commissioner of Income Tax, Transfer Pricing 2(1)(2). Mumbai was requested vide this office letter dated 30/10/2015 to provide a working of the TP adjustment as per the directions of Hon Dispute Resolution Panel. The DCIT Transfer Pricing 2(1)(2), Mumbai, vid....
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....arable of the international transaction of the assessee. The Ld. Representative of the assessee has placed reliance upon the decisions in the case of Bayer Material Science P. Ltd. Vs. The ACIT and CIT Mentor Graphics (Noida) Ltd. It is specifically argued that the no research was done by the TPO who randomly cherry picked the comparable company having high margin company 20.5%, therefore, the same is not liable to be added in view of the decision in the case of Toshiba India Pvt. Ltd. and Allscripts India Pvt. Ltd. The sale of the company was 200.24 crores which was not comparable to the assessee company's sale of Rs. 54.94 crores. However, on the other hand, the Ld. Representative of the Department has strongly relied upon the order passed by the AO as well as direction by the DRP. It is correct that the company of the assessee was established in the year 2006 and was its first year of functioning. The ABC Bearing had been established nearly 5 decades above. The company was leading entrepreneurial entities in this field. The BSE report on the file speaks that the ABC is one of the market leaders in the tapered roller bearing(TRB) market, driven by its established relationships wi....
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....ways has the prerogative of choosing the comparable cases. ii. Once the assessee has chosen the comparable eases, then it becomes the duty of the TPO to find whether these cases are, in fact, comparable or not. If he finds that the cases given by the assessee are comparable on the basis of FAR analysis, the matter ends. He will accept them and then determine the average profit. iii. If the TPO is not satisfied as to the comparability of some of the cases given by the assessee, he will exclude such cases from the final list of comparables, after giving cogent reasons. iv. The TPO may possibly find that the assessee has done cherry picking and ignored the comparable cases giving higher profit margins. In such a case he may himself find out such comparable cases and after taking objections from the assessee include them also in the final list of comparables along with those left out of the assessee's list as per step iii. above. Here it is important to mention that the voluntary selection of comparable cases by the TPO is his power and not the duty. He may or may not exercise his power in given circumstances. If he gets satisfied with the cases left out ....
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....e which is hereby reproduced as under.:- "Determination of arm's length price u/s 92C. 10B(1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely:- (e) transactional net margin method, by which, - (i) the net profit margin realized by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base: (ii) the net profit margin realized by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base; (iii) the net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to taken into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, or between the....
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....king capital adjustments are required to be made because these do impact the profitability of the company. Rule 108(2)(d) also provides that the comparability has to be judged with respect to various factors including the market conditions, geographical conditions, cost of labour in the market. Accounts receivable/payable effect the cost of working capital. A company which has a substantial amount blocked with the debtors for a long period cannot be fully comparable to the case which is able to recover debt promptly..." In our view, working capital adjustment will improve the comparability. We, therefore, direct the AO/TPO to make the working capital adjustment after necessary examination in the light of the observations made above and after allowing opportunity hearing to the assessee." (emphasis supplied) 10. In the case of IKA India Pvt. Ltd. has given the following finding.:- "In the case of IKA India Pvt. Ltd. Vs. DCIT (IT(TP)A. No.2192/Bang/2017) (ITEM 3 of the caselaws paper book, the Hon'ble Bangalore ITAT held as follows: "....the TPO/AO is directed to consider the claim of the assessee and allow adjustment to profit margins towards w....
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....ruption of judicial work all over the country and the order could not be pronounced despite lapse of considerable period of time. The situation created by pandemic covid-19 could be termed as unprecedented and beyond the control of any human being. The situation, thus created by this pandemic, could never be termed as ordinary circumstances and would warrant exclusion of lockdown period for the purpose of aforesaid rule governing the pronouncement of the order. Accordingly, the order is being pronounced now after the re-opening of the offices. 6.3 Faced with similar facts and circumstances, the co-ordinate bench of this Tribunal comprising-off of Hon'ble President and Hon'ble Vice President, in its recent decision titled as DCIT V/s JSW Limited (ITA Nos. 6264 & 6103/Mum/2018) order dated 14/05/2020 held as under: - 7. However, before we part with the matter, we must deal with one procedural issue as well. While hearing of these appeals was concluded on 7th January 2020, this order thereon is being pronounced today on 14th day of May, 2020, much after the expiry of 90 days from the date of conclusion of hearing. We are also alive to the fact that rule 34(5) of the ....
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....90 days. The question then arises whether the passing of this order, beyond ninety days, was necessitated by any "extraordinary" circumstances. 9. Let us in this light revert to the prevailing situation in the country. On 24th March, 2020, Hon'ble Prime Minister of India took the bold step of imposing a nationwide lockdown, for 21 days, to prevent the spread of Covid 19 epidemic, and this lockdown was extended from time to time. As a matter of fact, even before this formal nationwide lockdown, the functioning of the Income Tax Appellate Tribunal at Mumbai was severely restricted on account of lockdown by the Maharashtra Government, and on account of strict enforcement of health advisories with a view of checking spread of Covid 19. The epidemic situation in Mumbai being grave, there was not much of a relaxation in subsequent lockdowns also. In any case, there was unprecedented disruption of judicial wok all over the country. As a matter of fact, it has been such an unprecedented situation, causing disruption in the functioning of judicial machinery, that Hon'ble Supreme Court of India, in an unprecedented order in the history of India and vide order dated 6.5.2020 read wit....
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....s of law being enacted on the basis of pragmatism, and that is how the law is required to interpreted. The interpretation so assigned by us is not only in consonance with the letter and spirit of rule 34(5) but is also a pragmatic approach at a time when a disaster, notified under the Disaster Management Act 2005, is causing unprecedented disruption in the functioning of our justice delivery system. Undoubtedly, in the case of Otters Club Vs DIT [(2017) 392 ITR 244 (Bom)], Hon'ble Bombay High Court did not approve an order being passed by the Tribunal beyond a period of 90 days, but then in the present situation Hon'ble Bombay High Court itself has, vide judgment dated 15th April 2020, held that directed "while calculating the time for disposal of matters made timebound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly". The extraordinary steps taken suo motu by Hon'ble jurisdictional High Court and Hon'ble Supreme Court also indicate that this period of lockdown cannot be treated as an ordinary period during which the normal time limits are to remain in force. In our considered view, ev....