TaxTMI 
TaxTMI 
2026 (2) TMI 1229
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....Rs. 17,93,00,500/- as against declared loss of Rs. 7,03,94,093/-in an order of assessment dated 29.10.2024 under section 143(3)/144C(13) read with section 144B of the Act. 2. That the learned AO/TPO/DRP has erred both in law and on facts in making an adjustment of Rs. 24,76,99,067/- to arms length price in respect of international transaction relating to import of goods for manufacturing of telecommunication equipment in an order dated 29.10.2024 read with order dated u/s of the 143(3)/144C(13) Act 30.10.2023/26.10.2024 u/s 92CA(3) of the Act and order dated 30.9.2024 u/s 144C(5) of the Act. 2.1 That the learned AO/TPO/DRP have also erred both in law and on facts in calculating the net margin of the appellant company and comparables, considering foreign exchange gain/loss related to revenue-earning operations as a non-operating item 2.2 That the learned AO/TPO/DRP has erred both in law and on facts in not accepting the valuation of goods so imported by the appellant company from related foreign supplier under section 14 of the Custom Act, 1962 read with Rule 2(2) of the Customs Valuation (Determination of value of imported goods) Rules vide SVB order no. ....
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....tional transaction relating to interest on External Commercial Borrowings (ECBs') in an order dated 29.10.2024 u/s 143(3)/144C(13) of the Act read with order dated 30.10.2023/26.10.2024 u/s 92CA(3) of the Act and order dated 30.9.2024 u/s 144C(5) of the Act. 6.1 That the learned AO/TPO/DRP have also erred both in law and on facts in neglecting the ALP computation in respect of international transaction relating to interest payment on ECB's presented in the transfer pricing report using widely popular databases ie. Refinity LPC Loan Connector and the RBI's published monthly details of ECBs, FCCBs, and RDBs and making in accurate accusations regarding the alleged use of the RBI ceiling as the ALP, subsequently recomputing the ALP, actions that are incorrect and bad in law. 6.2 That the learned AO/TPO/DRP have also erred both in law and on facts in comparing the interest rate on unsecured loan (ECB) availed from AE with debentures interest rate issued by big conglomerate in different time periods. 6.3 That the learned AO/TPO/DRP have also erred both in law and on facts in making an addition in interest paid on External Commercial Borrowings (ECBs....
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....saction Associated Enterprises Method Selected Total Value of Transaction (Rs.) 1. Import of raw material Wuhan Fiberhome International Technologies Co Ltd, China TNMM 1,13,07,225 2. Fiberhome Telecommunication Technologies Co Ltd, China 55,15,33,203 3. Sale of Goods Wuhan Fiberhome International Technologies Co Ltd, China TNMM 2,57,66,231 4. Provision of Software Development Services Fiberhome Telecommunication Technologies Co Ltd, China TNMM 8,17,57,342 5. Payment of Interest on Loan on ECB Fiberhome Telecommunication Technologies Co Ltd, China CUP 28,88,400 6. CUP 89,93,130 3.3 The Transactional Net Margin Method (TNMM) applied by the assessee for Benchmarking was accepted by Transfer Pricing Officer 3.4 Several notices under Section 92CA(2) of the Act were issued by the Ld. TPO and replies thereto were duly furnished by the assessee. Finally, on 30.10.2023 order under Section 92CA(3) of the Act was framed proposing adjustment of Rs. 26,60,76,304/- in respect of import of goods and Rs. 19,95,526/- in respect of interest on ECBs. 3.5 Thereafter, draft order under Section 144C....
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....of information contained in the annual report was enclosed along with methodology to compute the same, which was specifically provided to the Department in a pen-drive being Annexure A-5. 3.10 As it was the case of Revenue that though the assessee has provided certain work but they are not backed up by the annual report of the company and therefore, failed to provide the complete and verifiable data and thus complying with the direction of the Ld. DRP working capital adjustment is not being provided as is evident from the order dated 29.10.2024 passed by the Assessing Officer. 4. It is the further case made by the assessee that the Ld. TPO failed to appreciate that adjustment should be restricted in proportion to international transaction and further submitted by the Ld. AR that the international transaction under consideration i.e. purchase of goods from AE is 64% of the operating cost of the appellant. In this regard he has relied upon the calculation of proportion adjustment as made by the assessee appearing at page 6 of the synopsis filed before us in the following manner: S. No. Particulars Rs. i) Purchase of goods from AE(A) 56,28,40,428 ii) Oper....
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....assemblers etc. of telecom power backup solutions equipment and lithium ion batteries. It has two segments namely, telecom products and solar projects. (ii) In this regard, it is submitted that the learned DRP has already accepted the company as comparable in its Directions. The learned Transfer Pricing Officer also accepted the same, however, the learned Transfer Pricing Officer made clerical error while not including the same in final calculation of PLI. As this is a mechanical mistake on part of Transfer Pricing Officer, it is prayed that the order be directed to be rectified as such. Relevant Extract from page 8 of the final Transfer Pricing Officer order is as follows: "DRP Direction: The Panel had already discussed regarding comparability of Tejas Network. Regarding the remaining 3 comparables, the Hon'ble DRP stated that they are functionally broadly similar to the assessee enterprise and further directed to include the comparables if the data of F.Y. 2020-21 is available. TPO Comment: As per direction, the data was reverified. The financials of Fibcom India Ltd. & Cygnus Micro Systems Pvt. Ltd. are still not available and hence the same is not....
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...."Your company operates mainly in the strategic segment and any consolidation on Revenue/Capital procurement by the defence services would open new avenues for business. We expect positive influence of the increased defence outlays on pending procurement cases of the strategic customers leading to order conversion and enhanced enquiries for Avantel's product offerings." Page 29 of the Annual Report also mentions as follows (page 39 of Annexure to this Synopsis): "b) Research and Development The Company's Research and Development center is recognized by the Department of Scientific and Industrial Research (DISR), Ministry of Science and Technology, Government of India" 10.4 Without prejudice to anything contained in para 9.2 of the submission, it is further submitted that Avantel Ltd. has high value of R&D expenditure of Rs. 6,07,34,337/- during the FY 2020-21 out of total expenses of Rs. 60,06,57,225/-(Page 78 of the annual report at Page 41 of Annexure to this Synopsis), i.e. approximately 10% of total expenses amount to R&D expenses. It is brought to your honors special notice that Tejas Network Ltd. was rejected as a comparable by the learned Tr....
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....well. It cannot be open to any judicial authority to reject a comparable on the ground that the comparable has significant differences vis-à-vis the tested party, unless the differences are broad enough of general application, are such as materially affecting the profitability, as not being capable of reasonably accurate adjustments to eliminate the impact of such differences, and as are also not found in other comparables. All the comparables must face the same test on which comparability of a particular comparable is being sought to be rejected." iv) (ΙΤΑ ΝΟ. 3800, 3811/Ahd/2007) Daniel Measurement & Control (1) Pvt. Ltd. vs. ACIT "The AO's action to select only favourable instances and ignore rest of the instances was not justified. Even a question has been raised to explain the basis of the discrimination. The Appellant has, on the other hand, informed that the comparable instances have similar nature of business transaction and the comparison of those cases was suitable to the function of the Appellant. We have noted that except ignoring some of the comparable instances, the AO has not pin-pointed any defect in respect of ....
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....g of this company we find that the company is engaged in highly specialized products of defence sector and highly research and development, whereas the assessee is engaged in the telecommunication business, therefore, they are functionally dis-similar and accordingly we direct the Ld. AO/TPO to exclude the same. 8. Ground Nos. 6 to 6.3:So far as ground Nos. 6 to 6.3 is concerned it is submitted by the Ld. counsel for the assessee that the assessee availed unsecured external commercial borrowing from its AE Fiberhome Telecommunication Technologies Co. Ltd., China in USD which carried an interest rate at LIBOR + 3% on the last day of F.Y. i.e. effective rate of 3.077%. 8.1 The assessee's submissions are as follows: "17.1 In this regard it is submitted that the appellant had availed an Unsecured External Commercial Borrowing (ECB's) from its AE Fiberhome Telecommunication Technologies Co Ltd, China in USD. The loan carries an interest rate at LIBOR + 3% on the last day of FY i.e. effective rate of 3.077% and interest for the relevant AY amounted to Rs. 89,93,130/-. The appellant had also availed another Unsecured ECB from same AE. The loan carries a fixed interest r....
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....15-16. 17.2 The learned Transfer Pricing Officer overlooked the Arm's Length Price (ALP) computation presented by the appellant for External Commercial Borrowings (ECB) interest in the Transfer Pricing Report. Rather than conducting a thorough assessment of ALP in TP report, the learned TPO seemingly prepared this order by copying ALP computations from previous assessment years and incorporating them into the current year's order though the search process in TP report for subject assessment year is different. This action is factually incorrect, purely mechanical and constitutes a flawed interpretation of the law. 17.3 The appellant asserts that the ALP computation detailed in the Transfer Pricing Report accurately reflects the economic realities of the current assessment year. There are specific discrepancies between the TPO's methodology and the appellant's approach, creating evident inaccuracies in the TPO's order. With Reference to Point 10.1 on Pages 28-29 of TPO order dated 17.12.2023 (pages 265266 of Paper Book), which was later upheld by the learned DRP consequently, we bring following to the attention of the Hon'ble Tribunal demonst....
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....l track record will get much higher interest rates. iii. Hence comparability of unsecured ECB should also be done with financial track/health records of borrower. iv. Based on this filter, here is the comparability summary based on net worth of the companies- S. No. Company Name Net Worth 31.03.14 Fiberhome Net Worth 31.03.14 Difference in Net Worth Comparable 1 Larsen & Toubro Ltd. 3,36,61,83,00,000 67,75,645 3,36,61,15,24,355 Not comparable 2 Bharat Forge Ltd. 29,93,30,80,000 67,75,645 26,92,63,04,355 Not comparable 3 Videocon Industries Ltd. 1,03,62,55,00,000 67,75,645 1,03,61,87,24,355 Not comparable 4 Indian Synthetic Rubber Pvt. Ltd. 3,09,46,00,000 57,75,645 3,08,78,24,355 Not comparable 9.2 In fact it was further brought to our notice that for A.Y. 2015-16 & 2016-17 no adjustment was made on the identical loan taken by the assessee. 9.3 In this case new comparables namely Bloomberg database - 10. Last issue is addition on account of Interest on ECB amounting to Rs. 19,95,526/- 10.1. The appellant used Refinitiv LPC Loan Connector whereas TPO resorted Bloomb....