AI Drafter 
TaxTMI 
TaxTMI 
2023 (5) TMI 107
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....l transactions with its AE. Sl.No. Particulars Amount Rs. 1. Sale of finished goods 12,09,70,294 2. Engineering Design services rendered 16,32,073 3. Reimbursement of expenses 2,48,45,593 4. Payment of interest on ECB loan 1,58,97,571 3. Since the transactions related to sale of finished goods, Engineering Design services rendered and reimbursement of expenses were closely linked to the primary activity of manufacture of goods, assessee aggregated the said transactions for benchmarking purposes in the TP study. The assessee applied cost plus method being the most appropriate method for benchmarking using gross profit by direct and indirect cost as Profit Level Indicator and accordingly concluded the transactions to be at arm's length. 4. The assessee filed return of income for AY 2012-13 on 28.11.2012 returning total income of NIL. The case was selected for scrutiny and statutory notices were duly served on the assessee. Since the assessee had international transactions, a reference was made to the TPO. The TPO rejected the method adopted by the assessee and accordingly made an adjustment of Rs.3,29,82,771. The AO passed the ....
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.....s. 144C(13) of the Act. The ld AR also submitted that the additional ground, challenging the validity of final assessment order dated 31.01.2017 was inadvertently not taken while filing the original grounds of appeal and hence it was prayed that the same may be admitted for adjudication. Reliance was placed on Jute Corporation of India Ltd. [187 ITR 688 (SC)] and other judgments. 9. After hearing both the parties, following the Hon'ble Supreme Court judgment in the case of M/s National Thermal Power Co. Ltd. Vs. CIT, 229 ITR 383 (SC), the additional ground is admitted for adjudication 10. With regard to the issue contended through additional ground, it is submitted that the TPO vide the order u/s. 92CA of the Act dated 29.01.2016, made transfer pricing adjustment to the tune of Rs. 3,29,82,771. The summary of adjustment is reproduced herein below:- Sr. No. Particular Amount (Rs.) 1. Sale of finished products to AE 78,83,334 2. Provision for Engineering services 2,53,844 3. Reimbursement of expenses 2,48,45,593 Total 3,29,82,771 11. The AO incorporated the above adjustment and passed draft assessment order on ....
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....transactions separately. 16. In respect of transaction of finished goods, the TPO selected a single comparable which had a margin of 9.49%. Accordingly, the TPO arrived at the TP adjustment as given below:- Particulars Amount (Rs.) Operating Revenue (OR) A 9,32,69,10,390 Operating Cost (OC) B 9,07,36,35,341 Operating Profit (OP) C 25,32,75,049 OP/OC of the Appellant D 2.80% OP/OC of the comparable E 9.49% ALP profit F = E*B 86,10,87,994 ALP Sale G = F+B 9,93,47,23,335 Difference H = G-A 60,78,12,945 Sales to AE I 12,09,70,294 % of AE sales to total sales J = I/A 1.2970% ALP adjustment at transaction level K = J*H 78,83,334 17. With regard to Engineering Design services, the TPO conducted his own search to select the following comparables and arrived at an average margin of 24.22% as under:- OP/OC OP/OR S.No. Company Name 2012-13 2012-13 1. Cades Digitech Pvt. Ltd,[Merged] 2.92% 2.84% 2. Holtec Consulting Pvt. Ltd. 59.00% 37.11% 3. I-Design Engineering Solutions Ltd. 16.....
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....in project management and industrial engineering segments. Therefore, tinder TNNM, there is no infirmity in selection of this company as a comparable. M/s. Onward Technologies Limited is found to be in the area of EDS and IT consulting services and hence, comparable to assessee. As regards the objection of the assessee about this company having intangible assets. it is found that the assessee also owns substantial intangible assts. As regards the objection that RPT of this company is 26.7%, the exact computation of the same has not been famished. Even if it is accepted as claimed by the assessee, the same being marginally higher than the RPT filter of 25% applied by the filter, will not significantly defeat the purpose of the filter for which it is used. As regards Mahindra Engineering Services Limited, the assessee has objected that companies functionally different and RPT is 56.00%. On perusal of the financials, it is found that the company fails the RPT filter used by the TPO. Hence, the TPO is directed to exclude this company from the list of comparables. Similarly, IOT Design and Engineering Limited also does not qualify the RPT filter and the TPO is required to exclude this c....
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....djustment is quashed. 13. We see merit in the contention that the jurisdictional AO has become functus officio once the final assessment order is passed and that there is no authority for him to pass any order modifying the final assessment order. We therefore hold that the order dated 28.02.2022 passed by the jurisdictional AO giving effect to the revised TP adjustment is not sustainable in law and is infructuous. This ground of the assessee is allowed. 14. Since the issue of TP adjustment is quashed on the basis that the final assessment order is not in accordance with the directions of the DRP, we are not adjudicating the rest of the grounds raised with regard to TP adjustment leaving them open." 23. We notice that the assessee's case is similar where the AO had not given effect to the directions of the DRP in the final assessment order and has retained the same adjustment as in the draft assessment order. Respectfully the above decision of the coordinate Bench, we quash the TP adjustment and hold the legal contentions raised in favour of the assessee. Since the TP adjustment is quashed on the basis of legal issue, we are not adjudicating the grounds raised ....