TaxTMI 
TaxTMI 
2018 (5) TMI 2206
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....in the nature of provision of design engineering services and not considering/accepting the comparability analysis documented in the Transfer Pricing study report for benchmarking analysis. 2. Non applicability of transfer pricing provisions to unit of the Appellant which is enjoying tax holiday under section 10A of the Act Erred in applying transfer pricing provisions to the unit of the Appellant which enjoys tax holiday under section 10A of the Act. 3. Non consideration of contemporaneous nature of data Erred in conducting arm's length analysis based on information of comparable companies available at the time of transfer pricing assessment but not available at the time of compliance with the transfer pricing regulations by the Appellant. 4. Non consideration of multiple year data Erred in not considering multiple year data i.e. data for Financial Year (hereinafter referred to as 'FY') 2009-10 and two prior years, in respect of comparable companies for determining the arm's length price of international transactions pertaining to provision of design engineering services. 5. Accepting companies having s....
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....ustained, the learned AO erred in levying interest under section 234B of the Act, as applicable, on account of unanticipated additions made to the total income of the Appellant on account of transfer pricing adjustment on which is due to difference of opinion and as at the due date of payment of advance tax by no means the Appellant could have estimated such adjustments and consequential tax on such adjustment. II. Grounds in respect of matters other than transfer pricing adjustment : 14. Deduction under section 10A of the Act to be allowed at the source level (i.e. from the income of the eligible undertaking) before setting off of current year losses of non-eligible unit. Erred in law and in facts in allowing the claim of deduction under section 10A of the Act in respect of the eligible undertaking after set-off of current year losses of non-eligible unit. In doing so, the Honourable DRP and consequentially the learned AO have: a) Erred in placing reliance on the decision of the Hon'ble Supreme Court in the case of Himatasingike Seide Ltd v CIT (Civil Appeal No 1501 of 2008) without appreciating that the same is distinguishable on f....
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....te/ non-Transfer Pricing issues, Ld. Counsel submitted that they relate to the claim of deduction u/s.10A of the Act and disallowance u/s.14A of the Act. 4. Before us, Ld. Counsel for the assessee filed a chart giving the particulars of the grounds/issue-wise revenue comments, contentions of the assessee on each issue and other details. According to the chart, Ground Nos. 7 and 8 relate to the decision of the DRP/TPO/AO rejecting certain additional comparables introduced by the assessee during the proceedings before the TPO. Further, the Ground Nos. 9 and 10 relate to incorrect computation of operating margins of the comparables as well as the error in not granting working capital adjustments by the TPO. For the sake of completeness, the said Ground Nos. 7 to 10, 14 & 16 are extracted here as under : Transfer Pricing related grounds "7. Rejection of certain additional comparable companies identified by the Appellant. Erred in rejecting certain additional comparable companies identified by the Appellant in respect of international transactions pertaining to provision of design engineering services. 8. Accepting certain additional companies as compara....
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....nture incorporated in the year, 2004. Tata Auto Comp Systems Ltd. (TACO) and Faurecia Automotive Holdings, France (FAHF) are the members of the said joint venture. During the assessment proceedings, AO noted that the assessee entered into the international transactions and the details of these transactions are given in Para 5 of the TPO order. In the TP study, the assessee considered these transactions are at Arm's Length qua the 8 comparables selected by the assessee. Assessee followed TNM method and the Arithmetic Mean of the 8 comparables works out to 20.72%. However, during the Transfer Pricing proceedings, the TPO considered only 5 comparables, details of which are available at Para No.7.6.1 of the TPO order and rejected 3 of 8 comparables selected by the assessee. Assessee furnished additional comparables during the TP proceedings before the TPO and the same were rejected by the TPO. TPO is of the view that the comparables/data not maintained at the relevant dates are not admissible or sustainable. Rejecting the assessee's additional comparables, the TPO identified 12 comparables as final set of comparables for the TP study and worked out Arithmetic Mean of the same - OP/OC a....
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....iled an application before the DRP with series of objections against the said draft order of the AO/TPO. DRP issued directions to the AO and the same are summarised in Para No.7 of the DRP order dated 26-12-2014 passed u/s.144C(13) of the I.T. Act, 1961. AO incorporated the same in his final assessment order dated 30-03-2015. Aggrieved with the same, assessee filed the present appeal before us with the grounds referred above. BEFORE THE TRIBUNAL 9. Ground No.7 : Referring to ground No.7 of the appeal, Ld. Counsel submitted that the issues raised in Ground No.7 relates to the correctness of the decision of the TPO in rejecting the introduction of the additional comparables in respect of said international transactions pertaining to provision of Design Engineering Services. Before the TPO, assessee introduced five comparables and filed relevant financial data. In this regard, the arguments of the TPO/AO/DRP as mentioned in the chart filed before us, reads as under : "The TPO held that as per the provisions of the act, the Assessee can only use the documents and data maintained by the specific date. In the instant case, the Assessee has included additional 5 comparable ....
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....e position adopted by the learned TPO during the transfer pricing assessment proceedings is inconsistent. The Appellant would like to mention that it has been consistently upheld by various Hon'ble ITAT's that the appellant can submit for acceptance/ rejection of additional companies as comparable even before the Appellate Authorities. In this regard, the Appellant would like to rely upon following rulings of the Hon'ble ITAT: 1. DCIT v. Quark Systems (P.) Limited - [2010] 38 SOT 307 (CHD.)(SB) 2. Barclays Technology Centre India Private Limited - ITA No. 2279/PN/2012 Thus, it is the case of the assessee before us that it is legally a settled issue that selection/rejection of comparables is allowed even before the Appellate bodies, leave alone before the TPO/AO. Assessee relied on certain decisions (supra) in support of the same. 11. We heard both the sides on the legal issue relating to the decision of the DRP/TPO/AO in not entertaining the assessee's request for considering the five additional comparables for benchmarking the international transactions. The TPO rejected the 5 additional comparables selected by the assessee during the p....
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....e of the TPO proceedings stands already considered by the Pune Bench of the Tribunal in the case of Barclays Technology Centre India Private Limited Vs. ACIT - ITA No.2279/PN/2012, dated 28-01-2015. It is a case of exclusion and the Tribunal held in favour of the assessee and the relevant lines from para No.14 is extracted here as under : "14. . . . . . . . . .In our view, the plea of the assessee for exclusion of Infosys Technologies Ltd. cannot be shut out merely because the said concern was initially adopted by the assessee as a comparable in its Transfer Pricing Study. However, we may wish to point out that the cause and justification for its exclusion is liable to be demonstrated by the assessee.. . . . . ." From the above, it is evident that subject to the offer of reasons justifying the request for exclusion of a comparable to be demonstrated by the assessee. The TPO can entertain the case of exclusions or inclusions, as the case may be. Further, we also perused another order of the Tribunal in the case of DCIT Vs. Quark Systems Pvt. Ltd. 38 SOT 307 (Chd. -SB) has observed as under : "39. We have, however, also noted that the very basis of selection o....
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.... entered by the assessee. TPO/AO shall grant reasonable opportunity of being heard to the assessee. Before them, the assessee shall demonstrate the reasonable cause. Accordingly, Ground No.7 is restored to the file of the AO and the thus the same is allowed for statistical purposes. 14. Ground No.8 : This ground relates to decision of the TPO for inclusion of his comparables in the final list during Transfer Pricing proceedings. The TPO introduced couple of comparables namely, Jeevan Softech (Segment) and BNR Udyog Ltd. for benchmarking the international transactions. However, assessee contends that they needs to be rejected as they cannot pass FAR test. In this regard, assessee filed written submissions giving arguments of DRP/TPO/AO as well as the contentions of the assessee. The same are extracted here as under : "During the TP assessment proceedings for the year under consideration, the TPO has selected certain additional companies in the list of comparables identified by the Assessee. In this regard, the Assessee submits that the TPO has grossly erred in accepting additional companies as comparable to the Assessee as the companies selected by the learned TPO are no....
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....d - ITA No.572/PUN/2015 16. From the above extract, it is obvious that the assessee contends that Jeevan Softech Ltd. is not functionally comparable to that of the assessee. Infact, the same was communicated to the TPO as evident from the contents of Para No.8.1.1 of his order. Further, it is discussed by the TPO that the assessee considered this comparable in the accept and reject matrix and assessee rejected the same in the TP study on the ground of super normal activity of the said company. TPO rejected the said argument of the assessee and relied on the decision in the case of M/s. Trilogy E-business software India Pvt. Ltd. Vs. DCIT - ITA No.1054/Bang/2011, dated 23-11-2012. However, there is no discussion about the functional comparability of the said comparable to that of the assessee while including the same by the TPO in benchmarking the international transactions. In the background of the above, assessee raised the present ground stating that Jeevan Softech Ltd. is not comparable to that of the assessee. According to him, the said is engaged in 'rendering services in relation to the medical writing, clinical data management and research services etc'. They are not akin....
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....cted to exclude the same from the final list of the comparables. 19. Regarding the BNR Udyog Ltd., the assessee submitted that the same is again not a good comparable to that of the assessee, which is engaged into providing Design Engineering Services. Narrating the functions of BNR Udyog Ltd., Ld. Counsel for the assessee demonstrated that it is into the function of the medical transcription, construction and financial activities and the same is nowhere comparable to the functions of the assessee. Referring to the order of Tribunal in the case of DCIT Vs. PTC Software India Pvt. Ltd. - ITA No.572/PUN/2015 and vice-versa dated 27-10-2017 for the A.Y. 2010-11, Ld. Counsel for the assessee brought our attention to the contents of Para Nos. 31 to 35 and submitted that the Tribunal considered the said functions of BNR Udyog Ltd. while deciding the said case. Further, the same is supported by the contents of the Directors report of the BNR Udyog Ltd., that it is into medical transcription business. In addition, it is the further submission of the assessee for the year under consideration that BNR Udyog Ltd. cannot be considered as a good comparable as the value of RPT for the said co....
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.... India Pvt. Ltd. - ITA No.1250/PUN/2015 were relied upon. The fact that the judgment of Apex Court was pertaining to the period prior to the amendment to section 10A of the Act was also brought to our notice. The submission of the Ld. Counsel for the assessee in this regard are extracted here as under : "The Appellant submits that deduction under section 10A of the Act should be allowed from the income of the eligible unit i.e. before aggregating the income of both the units and before set-off of current year losses of ineligible unit. In this regard, the Appellant submits that: The CAD and PPV businesses of the Appellant are two separate units wherein CAD is eligible unit and is into profits and PPV business has made loss for the year under consideration. Accordingly, the eligible CAD unit constitutes a separate undertaking. Deduction under section 10A is 'undertaking' specific and losses of other units can be adjusted 1 carried forward only after allowing deduction under section 10A of the Act. This is amply clear from section 10A(1) and 10A(4) of the Act which specifically provide the mechanism of computing deduction from 'profits derived b....
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....f the decision of the Tribunal in the case of Trizetto Services India Pvt. Ltd. Vs. DCIT - ITA No. 2537/PUN/2016, dated 28-03-2018 for the A.Y. 2010-11. The said finding of the Tribunal is extracted here as under : "8. We heard both the parties and perused the orders of the Revenue as well as the Apex Court judgment in the case of CIT Vs. Yokogawa India Private Ltd. (Supra). It is a settled legal proposition on the issue raised in Ground No.1, i.e. set off of brought forward losses before considering deduction u/s.10A of the Act. The legal proposition laid down by the Hon'ble Apex Court (supra) reads as under : "Conclusion : "After amendment of section 10A by Finance Act 2000 with effect from 1-4-2001, said section has become a provision for deduction but stage of deduction would be while computing gross total income of eligible undertaking under Chapter IV of Act and not at stage of computation of total income under Chapter VI of Act." The said Apex Court judgment is categorical in stating that the deduction u/s.10A should be first computed and allowed before setting off brought forward losses. The stage of granting the said deduction is categorically sp....