TaxTMI 
TaxTMI 
2026 (4) TMI 1481
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..../-. 2. Hon'ble DRP /Ld. TPO erred in rejecting certain comparables, without establishing their functional non comparability, and failed to undertake appropriate functional, asset risk analysis of comparable vis-à-vis the Appellant. 3. Hon'ble DRP /Ld. TPO erred in understanding the business model of the Appellant and accordingly failed to comprehend the limited environment in which the Appellant is operating which is also confirmed by Hon'ble DRP in 2007-08 A.Y.2008- 09 and A.Y.2010-11, thereby misunderstood the operational profile of the Appellant and erred in rejecting the appropriate comparable companies while determining the arm's length price. 4. Hon'ble DRP/ Ld. TPO applied inconsistent approach; rejected India Tourism Development Corporation Limited being the company earns most of its revenue from interest. However in contrast for the purpose of the comparability analysis the "ARMS & Misc Operation " Segment has been considered under which the company continues to operate in a functional profile which has been accepted by the Ld. CIT(A) in A.Y. 2005-06 and Hon'ble DRP in A>Y> 2010-11 in the Appellant's own case. 5. Hon'ble DRP/ Ld. ....
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....of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal and consider each of the grounds as without prejudice to the other grounds of appeal. 3. The brief facts of the case are that the assessee was incorporated under the provision of the Companies Act, 1956 as a wholly owned subsidiary of Honda R&D Co. Ltd. Japan ("Honda R&D Japan"). Honda R&D is engaged in providing market research and testing services to Honda R&D Japan (which provides R&D services to all Honda Group entities) and is remunerated on a cost, plus mark-up basis for the same. The assessee filed its return of income on 16-11-2011 declaring total income of Rs. 82,33,481/-. Since the assessee had undertaken international transactions with its associated enterprises, a reference was made by the Assessing Officer to the Transfer Pricing Officer, New Delhi under section 92CA(1) of the Act. The Transfer Pricing Officer proposed an addition of Rs. 4,81,69,158/- and AO vide his draft assessment order proposed to assess the assessee at an income of Rs. 5,64,09,439/-. The assessee entered into the international transactions tabulated below; Sl. No. Nature of transaction Method ....
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....ived 294,803,877 4 Adjustments u/s 92CA 48,169,158 5. The AO vide his draft assessment order purposed to assess the assessee's income at Rs. 5,64,09,439/-. Aggrieved by the action of the AO the assessee preferred the appeal before the Hon'ble DRP, who vide order dated 31-07-2015 dismissed the objection of the assessee against the comparable and directed the TPO to give working capital adjustment and denied the adjustments of average margins of the comparable. Being aggrieved the order of the Ld. DRP the assessee is in appeal before the tribunal. 6. The ld. AR of the assessee submitted that the TPO wrongly rejected the three comparables namely India Tourism Development Corporation Limited, Inhouse, Production Limited and Elbit Diagnostics selected by the assessee. He further submitted that out of three two comparables were accepted by Ld. CIT(A) for A.Y.2010-11 in the assessee's own case. He also submitted that third comparable was rejected on the basis of the persistent loss for three years, while the Elbit Diagnostics has made profits in financial year 2008-09. 7. Ld. DR relied the order of the Ld. DRP. He further submitted that the Ld. DRP rightly rejected th....
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....rvices Ltd. suffered, loss for the A.Y. 2008-09 and the year under consideration but, in fact, there was profit for the A.Y. 2007-08 at %.08%. As this company earned profit of 5.08% for the A.Y.2007-08, it ceases to be a persistent loss, making company in so far as the A.Y. 2009-10 is concerned, since, one of the three years is in profit through the other years are in loss. 9.4 The ITDC Company is not a persistent losses company because the company earned profit for the A.Y.2010-11 in the ARM Segment. Relying the judgment, we remand this comparable to the Ld. AO/TPO to consider it afresh taking as a comparable for the ARM segment after giving reasonable opportunity of being heard to the assessee. Inhouse Production Ltd. 10. The Ld. TPO rejected this company in the final list of the comparables on the ground that this company the media division the revenue is being earned from sale of television programs and assignment of film distribution rights, has been used. 10.1 The Ld. Counsel for the assessee has submitted that Hon'ble DRP does not consider the comparable valid comparable. The relevant extract of DRP order is reproduced below: The above functions can by n....
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.....DRP in A.Y.2010-11. He also submitted that the company to be considered as a persistent loss maker if the company making losses for a period of at least three. The company has made the profits in F.Y. 2008-09. He relied the above sited judgment Yazaki India Private Limited (Formely) Known Yazaki India Limited) vs. DCIT ITA NO.621/PUN/2014. 11.2 The Ld. DR relied upon the order of the Ld. DRP and TPO and stated that the company is a persistent loss maker and cannot be a valid comparable. 11.3 We have heard the parties and gone through the material available on record. The assessee demonstrated that the company is not a persistent losses maker company. In support of his contention the assessee has filed the profit & loss account of the Company and the company has made the profit in F.Y. 2008-09 and suffered losses in F.Y.2009-10 & 2010-2011. Relied the above cited judgment we hold that the Elbit Diagnostics Limited cannot be considered a persistent loss maker. But the company also not earned profit and did not function for more than 3 months. This company has reported in its annual report that it is in the process of opening new centres, expanding and shifting existing ones wi....
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....le for making reasonably accurate working capital adjustment. This DRP is of the view that the average of opening and closing balance of the inventories and of the trade receivable/ payable trade debtors / creditors for the relevant year may be adopted which may broadly give the representative level of working capital over the year, as monthly data in respect of comparables would not be available. Even if there is some differences with respect to the representative level, it will not affect the comparability as the same method will be applied to all cases. Same is the case with segmental data. 7.2.4 Hence, from the above discussion the TPO is directed to give working capital adjustment using the OECD methodology given at it in Annex to Chapter III and apply SBI Prime Lending rate (as on 30Th June of the relevant financial year) as the interest rate. 12.2 It is clear from the above that the finding of the Hon'ble DRP is based on cogent reasons. The Ld. TPO has also provided working capital adjustment in subsequent A.Y.2013-14. We therefore, direct the Ld. AO/TPO to provide working capital adjustment. Adjustments on account of risk ete. 13. The Ld. Counsel for the a....
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....mparability adjustments are discussed in Chapter V" Even the various judicial decisions on the issue of adjustment and even OECD guidelines, impresses upon time and again that the adjustment should br" reasonable accurate adjustment" In the present case except pointing out various risks, the taxpayer has not shown with evidence as to whether each of the risk actually undertaken or not by the comparables and if so, how these risks affected each of them and whether such adjustment improve the comparability. In the absence of robust and reliable data, both for the taxpayer and the comparables risk adjustments cannot be considered for enhancing comparability. 13.3 We observed that the assess works as per the directions received from Honda R&D Japan. The assessee acts in the capacity of an Independent, contractor and does not bear risks associated with the provision of the market research and testing services to Honda R &D Japan. The margins of the Assessee operating as a risk mitigated contract service provider are not dependent on scale or size of operations. It is evident from the records that the assessee had acquired the business and also earned income out of t....