TaxTMI 
TaxTMI 
2022 (1) TMI 647
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.... 3. That on the facts and in law, the Ld. TPO/AO failed to recognize that Appellant is joint venture between two unrelated entities. B. Inappropriate economic analysis 4. That on the facts and in law, the Learned AO/TPO grossly erred in undertaking an opaque analysis and acting in violation of natural justice by not sharing the search methodology, keywords used, criterions of selection/rejection of companies, number of companies rejected by way of applying various filters applied for identification of comparable companies, for the purpose of making impugned adjustment. 5. That on the facts and in law, the present comparability analysis needs to be discarded and a fresh analysis having regard to the functional profile ought to be undertaken whereby determination of most appropriate method considering appropriate comparable data along with necessary comparability adjustment needs to be undertaken. 6. That on the facts and in law, the Learned AO/TPO did not apply a scientific process of selection of new comparable companies and merely "cherry-picked" companies arbitrarily without providing any cogent reasons for selecting the companies. ....
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.... compare to the turnover of the assessee of Rs. 48 crores. Though assessee argued on the un-comparable turnover, keeping in view 1:5 ratio of the comparable, we are unable to accept the contention of the assessee on the turnover filter. At the same time, we find that the operation and manufacturing of the assessee is functionally dissimilar to the comparable which is in the manufacturing of voltage panels. Hence, we hold that the comparable doesn't pass the functional analysis and is liable to be excluded from the list of comparables. 6. Havells India Ltd. - The turnover of the company is Rs. 5833 crores and is involved in manufacturing of domestic electronic and electrical products like switches, heaters etc. 7. It has been decided in number of Tribunal decisions that the companies having a turnover from Rs. 1 Crore to Rs. 200 Crores have to be taken as a particular range. Since the assessee company falls in this range having total turnover of Rs. 18.97 Crores, the companies which have turnover in the range of Rs. 1 Crore to Rs. 200 Crores only should be taken into consideration for comparable for the purpose of determining arm's length price. This proposition is bei....
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....e appeal and has not pressed other grounds. In the instant case assessee has declared a operating profit margin of only 1.67% (AR of the assessee also agreed to this fact). The assessee is in the business of set top boxes manufacturing and apparently a margin of 1.67% is very low on any yard stick for manufacturing sector. 2. As seen from the TPO order there was repeated non-compliance on the part of the assessee by the TPO. Relevant part of the TPO order is reproduced below:- S. N. Notice u/ s / reminder Date of notice/ reminder Date of compliance fixed as Per the notice Summary contents of Remarks 1 92 CA( 2 ) 92 D(3 ) and 14 . 12 . 2018 26 . 12 . 2018 Detailed questionnaire initiation of proceedings for TP No compliance and no request for adjournment either 2 92 CA( 2 ) 92 D(3 ) and 17 . 01 . 2019 29 . 01 . 2019 Detailed questionnaire TP proceedings for -do- 3 92 CA( 2 ) 92 D(3 ) and 13 . 09 . 2019 19 . 09 . 2019 Detailed questionnaire TP proceedings for -do- 4 271 G 20 . 09 . 2019 27 . 09 . 2019 Notice u/ s....
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....determining the arm's length price in relation to each international transaction [or specified domestic transaction] or class of transaction, the method selected as the most appropriate method along with explanations as to why such method was so selected, and how such method was applied in each case; (j) a record of the actual working carried out for determining the arm's length price, including details of the comparable data and financial information used in applying the most appropriate method, and adjustments, if any, which were made to account for differences between the international transaction [or the specified domestic transaction] and the comparable uncontrolled transactions, or between the enterprises entering into such transactions; 6. In view of the above it can be seen that the order which has come before the Hon. Tribunal is in the nature of ex-parte of the order. Following judicial pronouncements forbid any change in best judgment assessment- (i) 24 ITR 95 (Del) - Singh Engg. Work - Best judgement Assessment cannot be interfered with by appellate authority or courts unless it is shown to be malafide and capricious. The burden is on ....
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.... AO should be rejected on the ground of functional difference. This issue has been dealt by Hon. DRP in page 6 para 3.1.7 and para 3.1.8 of their order the same is reproduced below:- The Panel notes that if a company which is otherwise comparable, is also engaged in a minor activity different from the assessee then, this company cannot be excluded from the comparables only because of this minor difference. A perfect comparable is never available and such variations as pointed out by the assessee are not material, as the variations in both directions would balance themselves. This has been recognized by the Hon'ble ITAT in the following decisions: (i) ST Microelectronics Pvt. Ltd. v Addl. CIT 2011-TII-63-ITAT-DEL-TP (ii) Variant Systems (India) Pvt. Ltd. v ITO 2015-411-362-ITAT-DEL-TP 3.1.8 Comparable cannot be expected to be a perfect replica A comparable cannot be expected to be a perfect replica. This has been recognized by the Hon'ble ITAT in the following decisions: (i) DCIT v Deloitte Consulting India Pvt. Ltd. ( 2011 -TII-88-ITAT-HYD-TP) In our considered opinion, no two comparable companies can be replica....
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....ter noting that the Tribunal had, in a series of decisions, held that the tolerance range of RPT in normal circumstances was 15% and in extreme cases it could be extended upto 25%. Also, relying on the decision in the case of Wipro BPO Solution Ltd., directed TPO to apply turnover filter of 10 times of assessee's turnover on both sides since it was a consistent view that the if turnover was within range of 1/10th of the turnover or upto 10 times, then the comparable was considered to be a good comparable. Accordingly, it remitted the issue to the file of the AO/TPO to carry out the search afresh pursuant to its directions. Sykes Enterprises (India) Pvt. Ltd. [TS-410-ITAT-2017(Bang)-TP] - IT(TP)A No. 1034//Bang/2011 dated 28.04.2017 (iii) The Tribunal following the ruling in McAfee India excluded 3 companies viz. L&T Infotech Ltd. (turnover of 2.959.55 cr). Persistent Systems Ltd. (turnover of 810.36 cr.) and Mindtree Ltd. (Turnover of 1255.80 cr) from the list of comparables while benchmarking the international transaction of the assessee engaged in the business of software development services as the said companies failed to satisfy the turnover filter of 10 ....