Dar Al Handasah Consultants (Shair & Partners) I. P. Ltd., Pune V. Income-tax Officer,

CO 32/PUN/2016

• Counselvise Citation: [2017] 119 COUNSELVISE.COM (IT) 3504 (ITAT-PUNE)
• Duration Of Justice: 11 month(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 30-08-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-02-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 30-09-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; Principle of natural justice; International transaction; Onus to prove
• Section: 92C; 143(3); 92D; 92F; 115JB; 139; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI D. KARUNAKARA RAO , AM . / ITA NO. 1 711 /P U N/201 4 / ASSESSMENT YEAR : 20 0 9 - 1 0 THE INCOME TAX OFFICER , WARD 1 (4), PUNE . / APPELLANT VS. DAR AL - HANDASAH CONSULTANTS (SHAIR AND PARTNERS) INDIA PVT. LTD., TOWER - 11, CYBERCITY, LEVEL 2, WING A & B, MAGARPATTACITI, HADAPSAR, PUNE 411013 . / RESPONDENT PAN: A ACCD6524H . /CO NO. 32 /PUN/201 6 / ASSESSMENT YEAR : 2009 - 10 (OUT OF ITA NO.1711/PUN/2014 ) DAR AL - HANDASAH CONSULTANTS (SHAIR AND PARTNERS) IN DIA PVT. LTD., TOWER - 11, CYBERCITY, LEVEL 2, WING A & B, MAGARPATTACITI, HADAPSAR, PUNE 411013 / CROSS OBJECT OR PAN: AACCD6524H VS. THE INCOME TAX OFFICER, WARD 1 (4), PUNE . / RESPONDENT ASSESSEE BY : SHRI RAJENDRA AGIWAL REVENUE BY : SHRI ACHAL SHARMA, JCIT / DATE OF HEARING : 01 .0 8 . 2017 / DATE OF PRONOUNCEMENT: 30 . 0 8 .201 7 ITA NO. 1 711 /PUN/201 4 CO NO.32/PUN/2016 2 / ORDER PER SUSHMA CHOWLA, J M : TH E APPEAL FILED BY THE REVENUE IS AGAINST THE ORDER O F CIT (A) - IT/TP, PUNE , DATED 1 9 .0 6 .201 4 RELATING TO ASSESSMENT YEAR 20 0 9 - 1 0 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . THE ASSESSEE ALSO FILED CROSS OBJECTIONS AGAINST THE APPEAL OF REVENUE. 2 . THE APPEAL O F REVENUE AND THE CROSS OBJECTIONS FILED BY THE ASSESSEE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : - 1. ON THE FACTS AND IN THE CIRCUMSTA NCES OF THE CASE AND IN LAW, THE LD, CIT(A) HAS ERRED IN ALLOWING PRE - OPERATIVE EXPENSES AS NON - OPERATING EXPENSES WITHOUT APPRECIATING THAT THE APPELLANT ITSELF IN ITS COMPUTATION OF INCOME / FINANCIAL STATEMENT HAS SHOWN THESE EXPENSES AS OPERATING EXPEN SES. 1.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW , THE LD. CIT (A) HAS FAILED TO APPRECIATE THAT SAFE HARBOUR RULES CANNOT BE APPLIED TO THE ASSESSMENT YEAR PRIOR TO ITS INTRODUCTION. 1.2 WITHOUT PREJUDICE, IF SUCH PRE - OPERATIVE EXPENSE S ARE TREATED AS NON - OPERATING EXPENSES, THEN IT OUGHT NOT TO BE ALLOWED AS DEDUCTION IN COMPUTATION OF INCOMER 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING TO INCLUDE M/S. MICROGENETIC SYSTEMS LTD., AS FRESH COMPARABLE WITHOUT APPRECIATING THAT ASSESSEE IS NOT PERMITTED TO MAKE FRESH SEARCH DURING THE TP PROCEEDINGS. 2.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) FAILED TO APPRECIATE THAT ASSESSEE IS SUPPOSED TO MAINTA IN CONTEMPORANEOUS INFORMATION AND DOCUMENTS UNDER RULE 10D AS ON SPECIFIED DATE I.E. DUE DATE OF FILING OF RETURN U/S. 139(1) FOR BENCH MARKING ANALYSIS AS HELD BY HON BLE ITAT BANGALORE IN THE DECISION OF KODIAK NETWORKS ( I ) PVT. LTD. (ITA NO. 1413/BANG/ 2010). 2.2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) OUGHT TO HAVE APPRECIATED THAT SECTION 92C(3) PERMITS ONLY ITA NO. 1 711 /PUN/201 4 CO NO.32/PUN/2016 3 ASSESSING OFFICER / TRANSFER PRICING OFFICER TO MAKE FRESH SEARCH THAT TOO SUBJECT TO THE CONDITIONS STIPULA TED THEREIN. 4 . THE ASSESSEE IN CO NO.32/PUN/2016 HAS RAISED THE FOLLOWING GROUNDS OF OBJECTIONS: - 1. NON CONSIDERATION OF CONTEMPORANEOUS NATURE OF DATA ERRED IN CONFORMING 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 RESPONDENT. 2. NON CONSIDERATION OF MULTIPLE YEAR DATA ERRED IN NOT CONSIDERING MULTIPLE YEAR DATA I.E. DATA FOR FINANCIAL YEAR (HEREINAFTER REFERRED TO AS 'FY') 2008 - 09 AND TWO PRIOR YEARS, IN RESPECT OF COMPARABLE COMPANIES FOR DETERMINING THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS PERTAINING TO IT ENABLED DESIGN ENGINEERING SERVICES. 3. INAPPROPRIATE MODIFICATIO N IN EXPORT SALES FILTER ERRED IN MODIFYING THE SELECTION CRITERIA USED BY THE RESPONDENT I.E . REJECTING THE COMPANIES HAVING EXPORT SALES LESS THAN 25 % OF THE TOTAL OPERATING REVENUE AND APPLYING A CRITERIA TO REJECT COMPANIES HAVING EXPORT SALES OF LESS THAN 75 % OF THE OPERATING REVENUE. 4. INAPPROPRIATE REJECTION OF COMPARABLES WITH DIFFERENT ACCOUNTING YEAR ENDING ERRED IN REJECTING COMPANIES HAVING DIFFERENT ACCOUNTING YEAR ENDING FROM THE COMPARABLE SET. 5. INAPPROPRIATE REJECTION OF LOSS MAKING COMPANIES ERRED IN REJECTING COMPANIES, WHICH ARE MAKING LOSS DURING FY 2008 - 09 BUT ARE NOT PERSISTENT LOSS MAKERS, AS COMPARABLE TO THE RESPONDENT. 6. ACCEPTING COMPANIES HAVING SUPER NORMAL PROFITS ERRED IN ACCEPTING COMPANIES HAVING SUPERNORMAL PRO FIT FOR FY 2008 - 09 AS COMPARABLE TO THE RESPONDENT. 7. INAPPROPRIATE REJECTION OF CERTAIN COMPARABLE COMPANIES IDENTIFIED BY THE RESPONDENT ERRED IN REJECTING CERTAIN COMPANIES, AS IDENTIFIED BY THE RESPONDENT DURING TRANSFER PRICING DOCUMENTATION AND T RANSFER PRICING ASSESSMENT, FROM THE SET OF COMPARABLES IN RESPECT OF INTERNATIONAL TRANSACTION PERTAINING TO PROVISION OF IT ENABLED DESIGN ENGINEERING SERVICES. ITA NO. 1 711 /PUN/201 4 CO NO.32/PUN/2016 4 8. SELECTION OF COMPANIES HAVING EXCEPTIONAL YEAR OF OPERATIONS AS COMPARABLE ERRED IN SELE CTING CERTAIN COMPANIES HAVING EXCEPTIONAL YEAR OF OPERATIONS AS COMPARABLE TO THE RESPONDENT. 9. ACCEPTING ADDITIONAL COMPANY AS IDENTIFIED BY THE LEARNED TRANSFER PRICING OFFICER ('TPO') AS COMPARABLE ERRED IN ACCEPTING ADDITIONAL COMPANY, AS INAPPROP RIATELY SELECTED BY THE LEARNED TPO, AS COMPARABLE TO THE RESPONDENT. 10. ADJUSTMENT FOR DIFFERENCES ON ACCOUNT OF FUNCTIONAL AND RISK PROFILE OF COMPARABLE COMPANIES VIS - A - VIS THE RESPONDENT ERRED IN COMPARING THE FULL - FLEDGED RISK BEARING ENTITIES WIT H THE RESPONDENT'S CAPTIVE OPERATIONS WITHOUT MAKING ANY RISK ADJUSTMENT FOR DIFFERENCES BETWEEN THE FUNCTIONAL AND RISK PROFILE OF COMPARABLES VIS - A - VIS THE RESPONDENT. 11. NON APPLICABILITY OF TRANSFER PRICING PROVISIONS TO UNIT OF THE RESPONDENT WHICH IS ENJOYING TAX HOLIDAY UNDER SECTION 10A OF THE ACT ERRED IN IGNORING THE FACT THAT SINCE RESPONDENT IS AVAILING TAX HOLIDAY UNDER SECTION 10A OF THE ACT, THERE IS NO INTENTION TO SHIFT THE PROFIT BASE OUT OF INDIA, WHICH IS ONE OF THE BASIC INTENTIONS OF THE INTRODUCTION OF TRANSFER PRICING PROVISIONS AND ACCORDINGLY TRANSFER PRICING PROVISIONS SHALL NOT BE APPLICABLE IN SUCH CASES. 5. THE REVENUE HAS RAISED TWO ISSUES VIDE GROUNDS OF APPEAL NO.1 AND 2. THE FIRST ISSUE RAISED BY THE REVENUE IS AGAINST THE ORDER OF CIT(A) IN ALLOWING PRE - OPERATIVE EXPENSES AS NON - OPERATING EXPENSES. THE SECOND ISSUE RAISED BY THE REVENUE IS AGAINST INCLUSION OF M/S. MICROGENETIC SYSTEMS LTD. AS FRESH COMPARABLE IN TP ANALYSIS . 6. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD FILED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.2,99,130/ - AND BOOK PROFIT OF RS.1,06,43,672/ - . DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE WAS RENDERING DESIGN ENGINEERING SERVICES TO DAR HOLDI NG , ITS HOLDING COMPANY. THE ASSESSING OFFICER MADE A REFERENCE UNDER ITA NO. 1 711 /PUN/201 4 CO NO.32/PUN/2016 5 SECTION 92CA(1) OF THE ACT TO THE TRANSFER PRICING OFFICER (TPO) FOR COMPUTATION OF ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE. THE TPO MADE AN UPWARD ADJUSTMENT TO THE ARM'S LENGTH PRICE OF RS.2,50,66,695/ - . AS AGAINST THE FILTERS APPLIED BY THE ASSESSEE, THE TPO APPLIED FOLLOWING FILTERS: - I) USE OF SINGLE YEAR DATA II) TURNOVER BETWEEN 1 TO 200 CRORES III) EXPORT SALES LESS THAN 75% OF OPERATING RE VENUE IV) COMPANIES HAVING DIFFERENT YEAR ENDING 7. ANOTHER ASPECT APPLIED BY THE TPO WAS THE USE OF SINGLE YEAR DATA. THE ASSESSEE HAD SELECTED EIGHT COMPARABLES IN ITS TP STUDY REPORT. THE TPO EXCLUDED FIVE OF THE COMPARABLES AND ADDED ONE MORE COMPAR ABLE AND WORKED OUT THE ARITHMETIC MEAN MARGINS OF COMPARABLES AT 37.01% AND THE REVISED PLI OF COMPARABLES AFTER WORKING CAPITAL ADJUSTMENT WAS WORKED OUT AT 42.35%. THE PLI OF ASSESSEE ON THE OTHER HAND, WAS AT 22.73%. THE CONTENTION OF ASSESSEE BEFORE THE TPO WAS THAT M/S. MICROGENETIC SYSTEMS LTD. MAY BE CONSIDERED AS COMPARABLE WHICH WAS REJECTED BY THE TPO AS THE ASSESSEE HAD HIMSELF REJECTED THE SAID CONCERN ON THE GROUND OF INSUFFICIENT DATA. WE ARE NOT REFERRING TO THE OTHER ASPECTS OF TP ADJUST MENT BECAUSE THE LIMITED ISSUE WHICH HAS BEEN RAISED BY WAY OF GROUND OF APPEAL NO.2 BY THE REVENUE IS AGAINST DIRECTIONS OF CIT(A) TO INCLUDE M/S. MICROGENETIC SYSTEMS LTD. AS COMPARABLE. THE TPO THUS, PROPOSED UPWARD ADJUSTMENT OF RS.2.50 CRORES. THE A SSESSEE FILED AN APPLICATION UNDER SECTION 92CA(5) R.W.S. 154 OF THE ACT AGAINST THE ORDER PASSED BY THE TPO UNDER SECTION 92CA(3) OF THE ACT. THE TPO RE - COMPUTED THE ARMS LENGTH ADJUSTMENT AT RS.3,54,62,256/ - . THE ASSESSING OFFICER MADE AN ADDITION ON THIS COUNT, AGAINST WHICH THE APPEAL WAS FILED BEFORE THE CIT(A). VIDE PARA 2.9.5 AT PAGES 18 AND 19 OF THE ITA NO. 1 711 /PUN/201 4 CO NO.32/PUN/2016 6 APPELLATE ORDER, THE CIT(A) NOTED THAT M/S. MICROGENETIC SYSTEMS LTD. WAS NOT PART OF ASSESSEES TRANSFER PRICING STUDY REPORT AS THE ADEQUATE FINA NCIAL DATA WAS NOT AVAILABLE. HOWEVER, THE CIT(A) HELD THAT SINCE THE DATA WAS NOW AVAILABLE, THEN THE SAME COULD BE CONSIDERED IF THE SAID COMPANY SATISFIES ALL THE FILTERS USED BY THE TPO IN ITS TRANSFER PRICING ASSESSMENT ORDER. THE PLEA OF ASSESSEE W AS IN RESPECT OF TWO CONCERNS I.E. M/S. MICROGENETIC SYSTEMS LTD. AND CEPHA IMAGING PVT. LTD. THE CIT(A) HELD THAT CEPHA IMAGING PVT. LTD. WAS NOT COMPARABLE COMPANY BECAUSE OF IT BEING FUNCTIONALLY DIFFERENT. AS FAR AS M/S. MICROGENETIC SYSTEMS LTD. WAS CONCERNED, THE ASSESSING OFFICER WAS DIRECTED TO EXAMINE ITS COMPARABILITY WITH THE ASSESSEE AND IF THE SAID CONCERN MET ALL THE FILTERS USED BY THE TPO IN ITS TRANSFER PRICING REPORT, THEN THE COMPANY SHOULD BE ACCEPTED AS COMPARABLE WITH THE ASSESSEE. 8. THE REVENUE IS IN APPEAL AGAINST THE SAID DIRECTIONS OF THE CIT(A) VIDE GROUND OF APPEAL NO.2. 9. ANOTHER ISSUE RAISED BY THE REVENUE IS IN RESPECT OF TREATMENT OF PRE - OPERATIVE EXPENSES. THE TPO FOUND THAT THE ASSESSEE HAD EXCLUDED PRE - OPERATIVE E XPENSES OF RS.1,94,61,396/ - FROM COMPUTATION OF OPERATING PROFITS. HOWEVER, THE TPO INCLUDED THE SAME AS OPERATING EXPENSES. THE PLEA OF ASSESSEE THAT THE EXPENSES WERE INCURRED BEFORE STARTING OF ASSESSEES COMMERCIAL OPERATIONS I.E. BEFORE 01.08.2008 W AS NOT ACCEPTED BY THE TPO. THE CIT(A) OBSERVED THAT WHERE PRE - OPERATIVE EXPENSES WERE INCURRED PRIOR TO COMMENCEMENT OF ASSESSEES PROFIT GENERATING BUSINESS OPERATIONS AND EXPENSES HAD NOT CONTRIBUTED TO THE GENERATION OF ASSESSEES BUSINESS PROFIT. TH E CIT(A) THUS, HELD THAT WHERE THE PLI WAS TO BE COMPUTED FOR SPECIFIC ITA NO. 1 711 /PUN/201 4 CO NO.32/PUN/2016 7 PERIOD AND SINCE PRO - OPERATIVE EXPENSES WERE NOT PART OF THE SAME PERIOD, HENCE, PRE - OPERATIVE EXPENSES COULD NOT BE CONSIDERED FOR COMPUTING OPERATING PROFIT. THE CIT(A) MADE A REFERE NCE TO TH E SAFE HARBOUR RULES NOTIFIED BY THE BOARD AND CASE LAWS RELIED UPON BY THE ASSESSEE WHICH AS PER HIM, SUPPORTS ASSESSEES CASE. HE THUS, DIRECTED THE ASSESSING OFFICER TO CONSIDER PRE - OPERATIVE EXPENSES AND ALSO CERTAIN INTEREST EXPENSES AS NON - OPERATIVE EXPENSES AND TO RE - COMPUTE THE PLI OF ASSESSEE. 10. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN THIS REGARD POINTED OUT THAT THE ISSUE OF PRE - OPERATIVE EXPENSES IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF TRIBUNAL IN ACIT VS. M/S. AMBERPOINT TECHNOLOGY INDIA PVT. LTD. IN ITA NO.266/PUN/2012 AND M/S. AMBERPOINT TECHNOLOGY INDIA PVT. LTD. VS. ACIT IN ITA NO.1862/PUN/2012, RELATING TO ASSESSMENT YEAR 2006 - 07, ORDER DATED 15.02.2017 . THE LEARNED AUTHORIZED REPRESENTAT IVE FOR THE ASSESSEE REFERRED TO THE ORDER OF TRIBUNAL IN THE CASE OF M/S. VISHAY COMPONENTS INDIA PVT. LTD. VS. DCIT IN ITA NO.133/PN/2011, RELATING TO ASSESSMENT YEAR 2006 - 07, ORDER DATED 16.05.2016 , WHEREIN IT WAS HELD THAT FRESH SEARCH CAN BE CARRIED O UT BY THE TPO DURING THE COURSE OF TP PROCEEDINGS AND APPLYING THE SAME SIMILE , THE ASSESSEE CAN ALSO CONDUCT FRESH SEARCH DURING THE COURSE OF TP PROCEEDINGS. 11. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE RELYING ON THE ORDER OF TPO / ASS ESSING OFFICER POINTED OUT THAT THE ISSUE RAISED VIDE GROUND OF APPEAL NO. 1.2 DOES NOT ARISE IN THE PRESENT APPEAL. ITA NO. 1 711 /PUN/201 4 CO NO.32/PUN/2016 8 12. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THAT IN CASE THE APPEAL OF REVENUE IS DISMISSED, THEN NO TP ADJUSTMENT IS REQUIRED TO BE MADE IN THE HANDS OF ASSESSEE AND CONSEQUENTLY, THE GROUNDS OF OBJECTIONS RAISED IN CROSS OBJECTIONS BECOME ACADEMIC IN NATURE. 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE HAD PROVIDED DESIGN ENGINEERING SERVICES TO M/S. DAR HOLDING DURING THE YEAR UNDER CONSIDERATION. IN ORDER TO BENCHMARK THE SAID INTERNATIONAL TRANSACTION, THE ASSESSEE HAD APPLIED TNNM METHOD AND ON SELECTION OF CERTAIN CONCERNS, HELD ITS TRANSACTIONS WITH ITS ASSOCIATED EN TERPRISES TO BE AT ARM'S LENGTH PRICE. HOWEVER, IN THE FIRST INSTANCE, THE TPO APPLIED SINGLE YEAR DATA IN ORDER TO WORK OUT THE AVERAGE OF MARGINS OF COMPARABLES. FURTHER, THE TPO APPLIED CERTAIN FILTERS AS MENTIONED ABOVE AS AGAINST THE FILTERS APPLIED BY THE ASSESSEE. THERE IS NO ISSUE AGAINST APPLICATION OF FILTERS APPLIED BY THE TPO. THE ASSESSEE IS AGGRIEVED ON TWO COUNTS I.E. FIRST IS THE CONSIDERATION OF PRE - OPERATIVE EXPENSES AS PART OF OPERATING EXPENSES TO WORK OUT THE PLI OF ASSESSEE. THE A SSESSEE HAD EXCLUDED PRE - COMMENCEMENT EXPENSES OF RS.1,94,61,396/ - FROM THE OPERATING EXPENSES FOR WORKING OUT ITS PLI OF OP/OC AT 22.72%. THE TPO NOTED THAT THOUGH THE ASSESSEE HAD REMOVED PRE - COMMENCEMENT EXPENSES FROM THE COMPUTATION OF OPERATING EXPEN SES, THE SAME WAS CONSIDERED AS EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT AND ALSO IN THE COMPUTATION OF INCOME UNDER SECTION 115JB OF THE ACT. THE TPO DURING THE COURSE OF TP PROCEEDINGS OBTAINED THE DETAILS OF PRE - COMMENCEMENT EXPENSES AND OBSERVED THA T THE SAID EXPENSES WERE REVENUE EXPENSES SUCH AS SALARY, RENT, ITA NO. 1 711 /PUN/201 4 CO NO.32/PUN/2016 9 DEPRECIATION, ELECTRICITY, STAFF WELFARE AND OTHER ADMINISTRATIVE EXPENSES. THE TPO THUS, HELD THAT EXPENSES WERE INCURRED IN CONNECTION WITH THE OPERATIONS OF ASSESSEE AND HENCE, COULD NOT B E EXCLUDED FROM OPERATIONAL EXPENSES. HE CONSIDERED THE PRE - OPERATIONAL EXPENSES AS OPERATING EXPENSES AND THE REVISED OPERATING PROFIT WAS DETERMINED AND THE PLI WAS WORKED OUT TO 7.06%. THE ASSESSEES EXPLANATION THAT PRE - OPERATING EXPENSES RELATED TO THE PERIOD BEFORE COMMENCEMENT OF COMMERCIAL OPERATIONS AND NOT RELATED TO THE YEAR UNDER CONSIDERATION WAS ACCEPTED BY THE CIT(A). THE CIT(A) HELD THAT WHERE PLI WAS COMPUTED FOR SPECIFIC PERIOD AND WHERE PRE - OPERATIVE EXPENSES WERE NOT PART OF THE SAME PERIOD, THEN THE SAME COULD NOT BE CONSIDERED FOR COMPUTING OPERATING PROFIT. 14. WE FIND SIMILAR ISSUE OF EXCLUSION OF PRE - OPERATIVE EXPENSES AROSE BEFORE THE TRIBUNAL IN THE CASE OF ACIT VS. M/S. AMBERPOINT TECHNOLOGY INDIA PVT. LTD. (SUPRA) AND THE T RIBUNAL HELD AS UNDER: - 29. THE ISSUE WHICH ARISES BEFORE US IS WHETHER THE SAID PRE - OPERATIVE COST ARE TO BE INCLUDED AS PART OF THE OPERATING COST WHILE DETERMINING THE PLI OF THE ASSESSEE. THE QUESTION HAS TO BE SEEN FROM THE BUSINESSMANS POINT OF VI EW WHEREIN ADMITTEDLY THERE IS CONTRACT BETWEEN THE PARTIES, I.E. ASSESSEE WHICH IS INCURRING THE EXPENSES AND ITS ASSOCIATE ENTERPRISE WHICH IS REIMBURSING THE COST WITH MARKUP. THE QUESTION WHICH ARISES IS THAT ALL SUCH EXPENSES WHICH HAVE BEEN INCURRED BY THE ASSESSEE FOR ESTABLISHING ITS BUSINESS OF PROVIDING SOFTWARE DEVELOPMENT SERVICES TO ITS ASSOCIATE ENTERPRISE, BEFORE ITS REGISTRATION UNDER THE STPI SCHEME, CAN THE SAME BE PART OF THE OPERATING COST OF GIVING SERVICES TO THE ASSOCIATE ENTERPRISE. THE ANSWER TO THE QUESTION IS NO, BECAUSE THE EXPENSES WHICH HAVE BEEN INCURRED BY THE ASSESSEE ARE FOR ESTABLISHMENT OF ITS BUSINESS AND NOT FOR RENDERING SERVICES OF SOFTWARE DEVELOPMENT SERVICES. THE SAID BUSINESS OF PROVIDING SOFTWARE DEVELOPMENT SE RVICES TO THE ASSOCIATE ENTERPRISE STARTS ONLY AFTER THE ASSESSEE GETS REGISTRATION UNDER THE STPI SCHEME. THE CLEAR CUT TERMS OF THE AGREEMENT AGREED UPON BETWEEN THE PARTIES EFFECTIVELY DETERMINE THE UNDERSTANDING AGREED UPON, UNDER WHICH THE ASSOCIATE ENTERPRISE IS TO REIMBURSE THE ASSESSEE, ONLY, IN RESPECT OF SUCH COSTS WHICH ARE INCURRED FOR PROVIDING SERVICES TO IT AFTER THE ASSESSEE RECEIVES THE RECOGNITION UNDER THE STPI SCHEME. THE DATE OF REGISTRATION IN THE PRESENT CASE IS 17 - 06 - 2005 AND THE AS SOCIATED ENTERPRISE HAS COMPENSATED THE ASSESSEE FOR THE SERVICES PROVIDED ON COST PLUS MARKUP BASIS W.E.F. 01 - 07 - 2005. THE EARLIER COSTS INCURRED BY THE ASSESSEE FOR SETTING UP OF THE ITA NO. 1 711 /PUN/201 4 CO NO.32/PUN/2016 10 BUSINESS, I.E. FOR RENT, EMPLOYEE COST AND ADMINISTRATIVE EXPENSES CAN NOT FORM PART OF THE OPERATING COST OF THE ASSESSEE, AS THE UNDERSTANDING BETWEEN THE PARTIES DECIDE THE DATE FROM WHICH THE ASSESSEE WOULD BE REIMBURSED THE COST WITH MARKUP. ACCORDINGLY, WE HOLD THAT THE COST OF RS.39,14,814/ - WHICH IS THE PRE - OPERATIVE EXPENDITURE INCURRED BY THE ASSESSEE, I.E. BEFORE STARTING ITS ACTIVITY OF PROVIDING SERVICES TO ITS ASSOCIATE ENTERPRISE IS TO BE EXCLUDED FROM THE OPERATING COST WHILE COMPUTING THE OPERATING PROFITS. 30. WE FIND BEFORE THE HYDERABAD BENCH OF THE TRIB UNAL IN M/S. MARKET TOOLS RESEARCH PVT. LTD. VS. DCIT SIMILAR ISSUE OF PRE - OPERATING EXPENSES AROSE, WHERE THE ASSESSEE WAS INCORPORATED ON 04 - 06 - 2004 AND THE AGREEMENT WAS ENTERED WITH THE ASSOCIATED ENTERPRISE ON 01 - 09 - 2004. THE QUESTION WAS IN RESPECT OF THE PRE - OPERATIVE EXPENSES PRIOR TO THE DATE OF THE AGREEMENT AND IT WAS HELD THAT THERE IS NO QUESTION OF CONSIDERING THE PRE - OPERATING EXPENSES AS PART OF THE OPERATING COST. SIMILAR PROPOSITION HAS BEEN LAID DOWN BY THE BANGALORE BENCH OF THE TRIBUN AL IN KHF COMPONENTS PVT. LTD. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE THE PRE - OPERATIVE EXPENDITURE FROM THE OPERATING COST AND ALSO SIMILARLY MAKE ADJUSTMENTS, IF ANY, IN THE CASE OF COMPARABLE COMPANIES FINALLY SELECTED, TO BENCHMARK T HE INTERNATIONAL TRANSACTION OF THE ASSESSEE. ACCORDINGLY, GROUNDS OF APPEAL NO.3(D) RAISED BY THE ASSESSEE IS ALLOWED. 15. THE ISSUE ARISING VIDE GROUNDS OF APPEAL NO.1 AND 1.1 RAISED BY THE REVENUE IS SQUARELY COVERED BY THE ORDER OF TRIBUNAL IN ACIT VS. M/S. AMBERPOINT TECHNOLOGY INDIA PVT. LTD. (SUPRA) AND FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT PRE - OPERATIVE EXPENSES CANNOT BE INCLUDED AS PART OF OPERATING EXPENSES TO WORK OUT THE OPERATING PROFIT. ACCORDINGLY, WE UPHOLD THE ORDER OF C IT(A) IN THIS REGARD AND DISMISS THE GROUNDS OF APPEAL NO.1 AND 1.1 RAISED BY THE REVENUE. THE GROUND OF APPEAL NO.1.2 RAISED BY THE REVENUE IS ALSO DISMISSED AS THE SAME DO NOT ARISE AS NO SUCH ISSUE WAS RAISED BEFORE THE CIT(A). 16. COMING TO THE SECON D ISSUE RAISED BY THE REVENUE I.E. IN RESPECT OF INCLUSION OF M/S. MICROGENETIC SYSTEMS LTD. THE ASSESSEE HAD THOUGH SELECTED THE SAID CONCERN IN ITS TP STUDY REPORT BUT BECAUSE OF NON - AVAILABILITY OF FINANCIAL DATA, THE SAME WAS NOT INCLUDED IN THE FINAL SET OF COMPARABLES. HOWEVER, DURING THE COURSE OF TP PROCEEDINGS, SINCE THE DATA WAS AVAILABLE, ITA NO. 1 711 /PUN/201 4 CO NO.32/PUN/2016 11 THE ASSESSEE PRAYED THAT THE FINANCIAL DATA OF THE SAID CONCERN BE APPLIED IN ORDER TO WORK OUT AVERAGE MARGINS OF COMPARABLES. THE TPO REJECTED THE PLEA OF ASSESSEE ON THE GROUND THAT NO FRESH CONCERN CAN BE SO INCLUDED. THE CIT(A) ON THE OTHER HAND, ADMITTED THAT PLEA OF ASSESSEE AND DIRECTED THE TPO TO CONSIDER THE SAME IN THE FINAL SET OF COMPARABLES IN CASE IT IS FUNCTIONALLY COMPARABLE AND SATISFIES ALL THE OTHER FILTERS APPLIED BY THE TPO. THE PLEA OF REVENUE IS THAT NO NEW CONCERN CAN BE INCLUDED IN THE FINAL SET OF COMPARABLES WHICH WAS NOT INCLUDED IN THE TP STUDY REPORT. 17. WE FIND THAT THE TRIBUNAL WHILE DECIDING THE ISSUE OF POWERS OF TPO TO SE LECT AND INCLUDE ANY FUNCTIONALLY COMPARABLE CONCERN IN THE FINAL SET OF COMPARABLES, DATA OF WHICH WAS AVAILABLE DURING THE TP PROCEEDINGS AND NOT DURING TP STUDY REPORT, HELD THAT THE SAME IS PERMISSIBLE. THE TRIBUNAL IN THE CASE OF M/S. VISHAY COMPONEN TS INDIA PVT. LTD. VS. DCIT (SUPRA) HELD AS UNDER: - 13. NOW, COMING TO THE STAND OF ASSESSEE WITH REGARD TO FRESH SEARCH UNDERTAKEN AT THE TIME OF ASSESSMENT PROCEEDINGS. 14. UNDER SECTION 92D OF THE ACT, IT IS PROVIDED THAT EVERY PERSON WHO HAS ENTERE D INTO AN INTERNATIONAL TRANSACTION IS TO KEEP AND MAINTAIN SUCH INFORMATION AND DOCUMENTS IN RESPECT THEREOF AS MAY BE PRESCRIBED. RULE 10D OF THE RULES PRESCRIBES THE INFORMATION AND DOCUMENTS TO BE KEPT AND MAINTAINED UNDER SECTION 92D OF THE ACT. IT IS NOT ANY ONES CASE THAT THE ASSESSEE HAS NOT MAINTAINED SUCH DOCUMENTS AS PRESCRIBED UNDER RULE 10D OF THE RULES. THE PLEA OF THE ASSESSEE BEFORE US IS THAT BY WAY OF MAINTENANCE OF SUCH INFORMATION AND DOCUMENTS, THE ASSESSEE IS TO KEEP A RECORD OF IT S INTERNATIONAL TRANSACTIONS AND BY WAY OF CLAUSE (L) TO ALSO PREPARE THE DETAILS OF ADJUSTMENTS, IF ANY, MADE TO THE TRANSFER PRICES TO ALIGN THEM WITH ARM'S LENGTH PRICES DETERMINED UNDER THESE RULES AND CONSEQUENT ADJUSTMENTS MADE TO THE TOTAL INCOME FO R TAX PURPOSES. THE PROVISO UNDER SUB - RULE (2) TO RULE 10D OF THE RULES PROVIDES THAT THE ASSESSEE SHALL BE REQUIRED TO SUBSTANTIATE, ON THE BASIS OF MATERIAL AVAILABLE WITH HIM, THAT INCOME ARISING FROM INTERNATIONAL TRANSACTION ENTERED INTO BY HIM HAS B EEN COMPUTED IN ACCORDANCE WITH SECTION 92 OF THE ACT. FURTHER, INFORMATION WHICH IS SPECIFIED IN SUB - RULE (1) IS TO BE SUPPORTED BY AUTHENTIC DOCUMENTS WHICH INCLUDE VARIOUS PUBLICATIONS, REPORTS AND FINANCIAL STATEMENTS AS PER SUB - RULE (3) TO THE SAID R ULE 10D OF THE RULES. UNDER SUB - RULE (4), IT IS PROVIDED THAT THE INFORMATION AND DOCUMENTS SPECIFIED UNDER SUB - RULES (1) ITA NO. 1 711 /PUN/201 4 CO NO.32/PUN/2016 12 AND (2) AS FAR AS POSSIBLE BE CONTEMPORANEOUS AND SHOULD EXIST LATEST BY SPECIFIED DATE REFERRED TO IN CLAUSE (4) OF SECTION 92F OF T HE ACT . 15. UNDER THE PROVISIONS OF SECTION 92F(4) OF THE ACT, THE SPECIFIED DATE IS THE SAME AS ASSIGNED TO DUE DATE IN EXPLANATION (2) SUB - SECTION (1) OF SECTION 139 OF THE ACT. IN OTHER WORDS, THE DATA WHICH IS TO BE USED BY THE ASSESSEE IN RELATION TO ITS INTERNATIONAL TRANSACTION VIS - - VIS TRANSFER PRICING PROVISIONS SHOULD BE SUCH WHICH IS AVAILABLE BY THE DUE DATE OF FILING THE RETURN OF INCOME. FIRST ONUS IS UPON THE ASSESSEE TO JUSTIFY THAT THE INTERNATIONAL TRANSACTION ENTERED INTO BY IT WITH ITS ASSOCIATE ENTERPRISES IS AT ARM'S LENGTH PRICE, IN CASE IT IS COMPARED WITH UNCONTROLLED TRANSACTIONS I.E. TRANSACTIONS ENTERED INTO BY OTHER CONCERNS IN SIMILAR CIRCUMSTANCES. THIS DOCUMENTATION IS TO BE COMPILED BY THE ASSESSEE BY WAY OF TRANSFER P RICING REPORT IN ORDER TO JUSTIFY THE ARM'S LENGTH PRICE OF ITS INTERNATIONAL TRANSACTIONS. 16. UNDER SECTION 92C OF THE ACT, IT IS PROVIDED THAT ARM'S LENGTH PRICE IN RELATION TO INTERNATIONAL TRANSACTION SHALL BE DETERMINED BY FOLLOWING ANY OF THE MET HODS PRESCRIBED THEREIN WHICH IS THE MOST APPROPRIATE METHOD, HAVING REGARD TO THE INTERNATIONAL TRANSACTION OR CLASS OF TRANSACTIONS OR CLASS OF ASSOCIATED PERSONS OR FUNCTIONED PERFORMED BY SUCH PERSONS OR SUCH OTHER RELEVANT ENTITIES AS THE BOARD MAY PR ESCRIBE. SUB - SECTION (2) THEREIN PROVIDES THAT THE MOST APPROPRIATE METHOD SHALL BE APPLIED FOR DETERMINATION OF ARM'S LENGTH PRICE IN THE MANNER AS MAY BE PRESCRIBED. SECTION 92C(3) OF THE ACT READS AS UNDER: - 92C. (1)..... (2)..... (3) WHERE DURING THE COURSE OF ANY PROCEEDING FOR THE ASSESSMENT OF INCOME, THE ASSESSING OFFICER IS, ON THE BASIS OF MATERIAL OR INFORMATION OR DOCUMENT IN HIS POSSESSION, OF THE OPINION THAT (A) THE PRICE CHARGED OR PAID IN AN INTERNATIONAL TRANSACTION [OR SPECIFIED DO MESTIC TRANSACTION] HAS NOT BEEN DETERMINED IN ACCORDANCE WITH SUB - SECTIONS (1) AND (2); OR (B) ANY INFORMATION AND DOCUMENT RELATING TO AN INTERNATIONAL TRANSACTION [OR SPECIFIED DOMESTIC TRANSACTION] HAVE NOT BEEN KEPT AND MAINTAINED BY THE ASSESSEE IN A CCORDANCE WITH THE PROVISIONS CONTAINED IN SUB - SECTION (1) OF SECTION 92D AND THE RULES MADE IN THIS BEHALF; OR (C) THE INFORMATION OR DATA USED IN COMPUTATION OF T HE ARMS LENGTH PRICE IS NOT RELIABLE OR CORRECT; OR (D) THE ASSESSEE HAS FAILED TO FURNISH, WITHIN THE SPECIFIED TIME, ANY INFORMATION OR DOCUMENT WHICH HE WAS REQUIRED TO FURNISH BY A NOTICE ISSUED UNDER SUB - SECTION (3) OF SECTION 92D , THE ASSESSING OFFICER MAY PROCEED TO DETERMINE THE ARMS LENGTH PRICE IN RELATION TO THE SAID INTERNATIONAL TRANSACTION [OR SPECIFIED DOMESTIC TRANSACTION] IN ACCORDANCE WITH SUB - SEC TIONS (1) AND (2), ON THE BASIS OF SUCH MATERIAL OR INFORMATION OR DOCUMENT AVAILABLE WITH HIM. 17. UNDER THE SAID SUB - SECTION, THE ASSESSING OFFICER DURING THE COURSE OF ANY PROCEEDINGS FOR ASSESSMENT OF INCOME, ON THE BASIS OF MATERIAL OR INFORMATION O R DOCUMENTS IN HIS POSSESSION, IS OF THE OPINION THAT THE CONDITIONS LAID IN CLAUSES (A) TO (D) ARE NOT FULFILLED, THEN THE ASSESSING OFFICER MAY PROCEED TO DETERMINE THE ARM'S LENGTH PRICE IN RELATION TO SUCH ITA NO. 1 711 /PUN/201 4 CO NO.32/PUN/2016 13 INTERNATIONAL TRANSACTION IN ACCORDANCE WITH S UB - SECTION (1) AND (2), ON THE BASIS OF MATERIAL OR INFORMATION OR DOCUMENTS AVAILABLE WITH HIM. THE SAID EXERCISE OF POWER BY THE ASSESSING OFFICER IS AFTER AFFORDING AN OPPORTUNITY OF HEARING TO THE ASSESSEE TO SHOW CAUSE AS TO WHY THE ARM'S LENGTH PRIC E SHOULD NOT BE SO DETERMINED ON THE BASIS OF MATERIAL OR INFORMATION OR DOCUMENTS IN THE POSSESSION OF ASSESSING OFFICER. 18. UNDER SECTION 92CA OF THE ACT, WHERE THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTION IN ANY PREVIOUS YEAR AND WHERE TH E ASSESSING OFFICER CONSIDERS IT NECESSARY OR EXPEDIENT, HE MAY WITH PREVIOUS APPROVAL OF THE COMMISSIONER REFER THE COMPUTATION OF ARM'S LENGTH PRICE IN RELATION TO THE SAID INTERNATIONAL TRANSACTION UNDER SECTION 92C OF THE ACT TO THE TPO. UNDER SECTION 92CA(3) OF THE ACT, THE TPO IS EMPOWERED TO DETERMINE THE ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTION IN ACCORDANCE WITH SUB - SECTION (3) OF SECTION 92C OF THE ACT. FOR DOING SO, THE TPO IS TO SERVE NOTICE UPON THE ASSESSEE REQUIRING H IM TO PRODUCE OR CAUSE TO BE PRODUCED, ANY EVIDENCE ON WHICH HE MAY RELY UPON IN SUPPORT OF COMPUTATION MADE BY HIM OF THE ARM'S LENGTH PRICE IN RELATION TO INTERNATIONAL TRANSACTION. AFTER HEARING SUCH EVIDENCE INCLUDING ANY INFORMATION OR DOCUMENTS REFE RRED TO IN SECTION 92C(3) OF THE ACT AND AFTER CONSIDERING SUCH EVIDENCE AS THE TPO MAY REQUIRE ON SPECIFIED DATE AND ALSO TAKING INTO ACCOUNT RELEVANT MATERIAL WHICH HE HAS GATHERED AND CONFRONTED TO ASSESSEE, THE TPO HAS TO PASS AN ORDER IN WRITING. HEN CE, UNDER THE PROVISIONS OF THE ACT, THE MACHINERY TO PASS AN ORDER FOR DETERMINATION OF ARM'S LENGTH PRICE OF AN INTERNATIONAL TRANSACTION ENTERED INTO BY ANY PERSON IS SO PROVIDED. IT IS NOT ONLY THE EVIDENCES WHICH ARE RELIED UPON BY THE ASSESSEE IN SU PPORT OF ITS COMPUTATION OF ARM'S LENGTH PRICE OF ITS INTERNATIONAL TRANSACTION BUT ALSO ANY OTHER EVIDENCE WHICH THE TPO MAY REQUIRE ON SOME SPECIFIED POINTS OR THE INFORMATION WHICH MAY BE GATHERED BY THE TPO CAN BE USED BY THE TPO TO DETERMINE THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION. UNDOUBTEDLY, THE ASSESSEE IS THE FIRST PERSON WHO IS TO COLLECT THE INFORMATION AND DOCUMENTS IN RESPECT OF ITS INTERNATIONAL TRANSACTION WHICH ARE ENLISTED UNDER RULE 10D OF THE RULES. BUT MERE COLLECTIONS OF DOCUMENTS AND COMPILATION OF DATA IS NOT THE ONLY RESPONSIBILITY OF THE ASSESSEE, WHO CAN BE ASKED TO PRODUCE SUCH OTHER EVIDENCE AS THE TPO MAY REQUIRE ON ANY POINTS. FURTHER, THE TPO IS ALSO EMPOWERED TO TAKE INTO ACCOUNT SUCH MATERIAL WHICH HE HAS GATH ERED I.E. THE DATA. HOWEVER, THERE IS A RESTRICTION IN THE SECTION ITSELF THAT SUCH DATA SHOULD BE AVAILABLE IN PUBLIC DOMAIN. SUCH MATERIAL COLLECTED TO BE USED AGAINST ASSESSEE SHOULD BE PUT TO THE ASSESSEE TO EXPLAIN. FURTHER, AS DECIDED BY US IN THE PARAS HEREINABOVE IN VIEW OF RULE 10B(4) OF THE RULES, THE DATA SHOULD BE RELATABLE TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO. THUS, IT IS INCUMBENT UPON THE TPO TO ENSURE THAT ALL THE CONDITIONS PROVIDED UNDER TH E ACT AND AS PER THE RULES ARE FULFILLED. 19. IN THE FACTS OF THE PRESENT CASE ITSELF, WE HAVE NOTED THAT THE ASSESSEE HAD PREPARED ITS TRANSFER PRICING REPORT AND COMPUTED THE PLI OF COMPARABLES BY ADOPTING THE DATA FOR PRECEDING TWO YEARS. THE ASSESS EE IN ITS TRANSFER PRICING REPORT HAD NOT USED THE DATA OF THE YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAD TAKEN PLACE TO BENCHMARK ITS INTERNATIONAL TRANSACTION TO BE AT ARM'S LENGTH PRICE OR NOT. DURING THE COURSE OF TRANSFER PRICING PROCEEDINGS, TH E TPO SHOW CAUSED THE ASSESSEE AS TO WHY INSTANT YEARS DATA SHOULD NOT BE USED AND FURTHER COMPUTED THE ARITHMETIC MEAN OF PLI OF COMPARABLES ON THE BASIS OF DATA RELATING TO ASSESSMENT YEAR 2006 - 07. THE DATA COMPILED BY THE TPO RELATES TO ASSESSMENT YEA R 2006 - 07 OF THE LISTED COMPANIES WHICH WERE PICKED UP BY THE ASSESSEE ITSELF AS BEING COMPARABLES. HOWEVER, WHILE DOING THE SEARCH PROCESS FOR BENCHMARKING THE INTERNATIONAL TRANSACTION, THE ITA NO. 1 711 /PUN/201 4 CO NO.32/PUN/2016 14 TPO INCLUDED TWO FURTHER COMPANIES I.E. DEKI ELECTRONICS LTD. A ND TIBREWALA ELECTRONICS LTD., DATA OF WHICH WAS CONFRONTED TO THE ASSESSEE. THE OBJECTION OF ASSESSEE TO THE INCLUSION OF ABOVE SAID CONCERNS WAS THAT THE DATA RELATING TO THE SAID CONCERNS WAS NOT AVAILABLE AT THE TIME OF COMPLYING WITH THE DOCUMENTATIO N REQUIREMENTS AND HAD COME INTO PUBLIC DOMAIN MUCH LATER. WE FIND NO MERIT IN THE CLAIM OF THE ASSESSEE THAT THE DATA OF COMPANIES WHICH WERE NOT AVAILABLE IN PUBLIC DOMAIN AT THE TIME OF COMPLYING WITH DOCUMENTATION REQUIREMENTS CANNOT BE CONSIDERED. T HE COMPANIES WHICH ARE PICKED UP BY THE TPO ARE FUNCTIONALLY COMPARABLE TO THE ASSESSEE AND THE DATA WHICH HAS BEEN COMPILED BY THE TPO RELATES TO ASSESSMENT YEAR 2006 - 07, AND WAS CONFRONTED TO THE ASSESSEE AND MERELY BECAUSE THE DATA CAME INTO PUBLIC DOMA IN AT A LATER DATE, THE SAME CANNOT BE IGNORED. THE TPO HAS POWER TO USE ANY DATA WHICH COMES INTO HIS POSSESSION AND SECTION HAS NOT PROVIDED ANY FETTERS TO THE COLLECTIONS OF DATA ON A PARTICULAR DATE OR OTHERWISE AND USE OF SUCH DATA; IN THE ABSENCE OF WHICH, THERE COULD NOT BE CURTAILMENT OF POWERS TO BE EXERCISED BY THE TPO FOR DETERMINING ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION. MERELY BECAUSE, THE FINANCIAL RESULTS OF A CONCERN WHICH WERE FUNCTIONALLY SIMILAR TO THE ASSESSEE CAME INTO PUBLI C DOMAIN ON A LATER DATE, BUT RELATE TO THE YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAD BEEN UNDERTAKEN, CANNOT BE REJECTED ON THE SURMISE THAT THEY WERE NOT AVAILABLE ON THE DATE OF COMPILATION OF DOCUMENTATION AND / OR CAME IN THE PUBLIC DOMAIN LATER . THE ARGUMENT OF LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE BEFORE US IS THAT IF THE TP PROCEEDINGS OF A PARTICULAR CASE HAD BEEN TAKEN UP ON AN EARLIER DATE WHEN NO SUCH DATA WAS AVAILABLE, WOULD PUT SUCH A PERSON ON AN ADVANTAGEOUS POSITION AS COMPARED TO PERSON WHOSE TP PROCEEDINGS WERE TAKEN UP ON A LATER DATE WHEN INFORMATION IN RESPECT OF SUCH COMPARABLES WERE RECENTLY PUBLISHED. THE SEARCH PROCESS IS TO BE CARRIED OUT BY THE TPO WHO IN TURN, HAS TO DETERMINE THE ARM'S LENGTH PRICE OF INTER NATIONAL TRANSACTION ON THE BASIS OF INFORMATION AVAILABLE WITH HIM AND ONCE SUCH INFORMATION IS MADE AVAILABLE TO HIM, THEN THE SAME CAN BE APPLIED BY THE TPO AFTER CONFRONTING THE SAME TO ASSESSEE, TO COMPUTE THE TRANSFER PRICING ADJUSTMENT, IF ANY, IN T HE HANDS OF THE ASSESSEE. ACCORDINGLY, THE TPO UNDER THE ACT IS FULLY JUSTIFIED IN CARRYING OUT THE FRESH SEARCH, IF NEEDED, FOR IDENTIFYING THE COMPARABLE COMPANIES, MAY BE ADDITIONAL AND PROCEED WITH TRANSFER PRICING PROCEEDINGS. SUCH DATA COLLECTED BY THE TPO CANNOT BE CALLED AS NON - CONTEMPORANEOUS, WHERE THE CONCERNS PICKED UP BY THE TPO ARE FUNCTIONALLY COMPARABLE AND THE DATA FOR THE RELEVANT YEAR WAS AVAILABLE. 20. WE FIND SUPPORT FROM THE RATIO LAID DOWN BY THE BANGALORE SPECIAL BENCH IN AZTE C SOFTWARE AND TECHNOLOGY VS. ACIT (SUPRA), WHEREIN THE TRIBUNAL WHILE CONSIDERING THE STATUTORY PROVISIONS FOR DETERMINATION OF ARM'S LENGTH PRICE OF A TAXPAYER OBSERVED THAT THE BURDEN TO ESTABLISH THE TRANSACTION TO BE AT ARM'S LENGTH PRICE WAS UPON THE TAXPAYER, WHO HAD TO FURNISH COMPARABLE TRANSACTIONS, APPLY APPROPRIATE METHOD FOR DETERMINATION OF ARM'S LENGTH PRICE AND JUSTIFY THE SAME BY PRODUCING THE RELEVANT MATERIAL AND DOCUMENTS BEFORE THE REVENUE AUTHORITIES. WHERE THE REVENUE AUTHORITIES WER E NOT SATISFIED WITH THE ARM'S LENGTH PRICE AND SUPPORTING DOCUMENTS / INFORMATION FURNISHED BY THE TAXPAYER, THE TRIBUNAL HELD THAT THE AUTHORITIES HAD AN AMPLE POWER TO DETERMINE THE SAME AND MAKE SUITABLE ADJUSTMENT. IN SUCH CASE, THE RESPONSIBILITY OF DETERMINATION OF ARM'S LENGTH PRICE IS SHIFTED TO THE REVENUE AUTHORITIES WHO ARE TO DETERMINE THE SAME IN ACCORDANCE WITH STATUTORY REGULATIONS. THE TRIBUNAL FURTHER WHILE CONCLUDING THE ISSUE HAD CONSIDERED THE BURDEN OF PROOF ON THE TAXPAYER AND THE R EVENUE AUTHORITIES AND HAD OBSERVED AS UNDER: - ITA NO. 1 711 /PUN/201 4 CO NO.32/PUN/2016 15 132. A DISPASSIONATE STUDY OF PROVISIONS OF VARIOUS COUNTRIES ON BURDEN OF PROOF, WOULD SHOW, THE FOLLOWING FUNDAMENTAL FEATURES: (I) THAT THE BURDEN TO ESTABLISH THAT INTERNATIONAL TRANSACTION IS CARRIED AT ALP, IS ON THE TAXPAYER WHO IS TO DISCLOSE ALL THE RELEVANT INFORMATION AND DOCUMENTS RELATING TO PRICES CHARGED AND PROFIT EARNED WITH RELATED AND UNRELATED CUSTOMER. (II) IF THE ASSESSING OFFICER HAS DETERMINED AN ALP, OTHER THAN THE PRICE DECLARED BY THE ASSESSEE, ASSESSING OFFICER HAS TO PROVE THAT THE PRICE DETERMINED BY HIM IS RELIABLE AND REASONABLE AND CONFIRMS THE STATUTORY REQUIREMENT UNLESS THE CASE IS COVERED BY SITUATION NO. (III) BELOW. (III) IN CASE OF FAILURE ON THE PART OF THE TAXPAYER T O COMPLY WITH THE STATUTORY PROVISIONS, THE TAX AUTHORITIES WOULD HAVE TO DETERMINE THE ALP. IN SUCH A SITUATION, BURDEN OF PROOF ON TAX AUTHORITIES IS MUCH REDUCED. 21. THEREAFTER, THE CONCLUSION OF THE TRIBUNAL WAS THAT THE TAXPAYER HAD TO COOPERATE WI TH THE TAX AUTHORITIES BY FURNISHING RELEVANT INFORMATION. FURTHER, WHERE THE AUTHORITIES WERE OF THE VIEW THAT ARM'S LENGTH PRICE WAS NOT CORRECTLY DETERMINED BY TAXPAYER, THEN THE SAME COULD BE SUBSTITUTED BY ARM'S LENGTH PRICE ON THE BASIS OF MATERIAL OR INFORMATION FURNISHED BY THE ASSESSEE OR COLLECTED BY THE REVENUE AUTHORITIES. IT WAS FURTHER HELD THAT SUCH ARM'S LENGTH PRICE HAD TO BE DETERMINED BY KEEPING IN MIND THE PROVISIONS OF THE ACT AND ALSO THE PRINCIPLES OF NATURAL JUSTICE AND BE FAIR AND REASONABLE TO THE TAXPAYER AND ANY MATERIAL COLLECTED TO BE USED AGAINST THE TAXPAYER WAS TO BE PUT TO THE TAXPAYER TO EXPLAIN. IT WAS FURTHER HELD THAT THE ADJUSTMENTS MADE ON ACCOUNT OF ARM'S LENGTH PRICE BY TAX AUTHORITIES COULD BE DELETED IN APPEAL O NLY IF APPELLATE AUTHORITIES ARE SATISFIED AND RECORDS A FINDING THAT ARM'S LENGTH PRICE SUBMITTED BY THE ASSESSEE WAS FAIR AND REASONABLE. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER: - 133. HAVING REGARD TO THE STATUTORY PROVISIONS, PARTICULARLY THE MANDATE OF SECTIONS 92(1) AND 92D READ WITH RELEVANT RULES, WE HOLD THAT IT IS OBLIGATORY ON THE PART OF THE TAXPAYER TO FURNISH INFORMATION RELATING TO CONTROLLED INTERNATIONAL TRANSACTIONS, SELECT A SUITABLE METHOD FOR DETERMINATION AND FURNISH ALP OF SUCH INTERNATIONAL TRANSACTIONS CARRIED BY IT AND GIVE BASIS AND SUPPORTING AUTHENTIC EVIDENCE OF ALP AND ADJUSTMENTS MADE. THE TAXPAYER HAS FURTHER TO COOPERATE IN THE DETERMINATION OF THE ALP BY THE TAX AUTHORITIES BY FURNISHING ALL RELEVANT INFORMATI ON. THE TAX AUTHORITIES IN CASES WHERE THEY ARE OF THE OPINION THAT ALP HAS NOT BEEN CORRECTLY DETERMINED BY THE TAXPAYER, CAN SUBSTITUTE THEIR OWN ALP ON THE BASIS OF MATERIAL OR INFORMATION FURNISHED BY THE ASSESSEE OR COLLECTED BY THEM. HOWEVER, SUCH AL P HAS TO BE DETERMINED HAVING IN MIND PROVISIONS OF SECTIONS 92 AND 92C AND OTHER RULES AND REGULATIONS. WHILE DETERMINING ALP, TAX AUTHORITIES ARE BOUND TO FOLLOW PRINCIPLES OF NATURAL JUSTICE AND BE FAIR AND REASONABLE TO THE TAXPAYER. ANY MATERIAL COLLE CTED TO BE USED AGAINST THE TAXPAYER IS TO BE PUT TO TAXPAYER TO EXPLAIN. HAVING REGARD TO THE PURPOSE OF THE LEGISLATION AND APPLICATION OF SIMILAR ENACTMENT WORLD OVER, IT MUST FURTHER BE HELD THAT ADJUSTMENTS MADE ON ACCOUNT OF ALP BY TAX AUTHORITIES CA N BE DELETED IN APPEAL ONLY IF THE APPELLATE AUTHORITIES ARE SATISFIED AND RECORDS A FINDING THAT ALP SUBMITTED BY THE ASSESSEE IS FAIR AND REASONABLE. MERELY BY FINDING FAULTS WITH THE ITA NO. 1 711 /PUN/201 4 CO NO.32/PUN/2016 16 TRANSFER PRICE DETERMINED BY THE REVENUE AUTHORITIES (AO/TPO), ADDITIO N ON ACCOUNT OF ADJUSTMENTS CANNOT BE DELETED. THIS IS BECAUSE THE MANDATE OF SECTION 92(1) IS THAT IN EVERY CASE OF INTERNATIONAL TRANSACTION, INCOME HAS TO BE DETERMINED HAVING REGARD TO ALP. THEREFORE, UNLESS ALP FURNISHED BY THE TAXPAYER IS SPECIFICA LLY ACCEPTED, THE APPELLATE AUTHORITIES ON THE BASIS OF MATERIAL AVAILABLE ON RECORD HAS TO DETERMINE ALP ITSELF. SUBJECT TO STATUTORY PROVISIONS, APPELLATE AUTHORITIES CAN DIRECT LOWER REVENUE AUTHORITIES TO CARRY THIS EXERCISE IN ACCORDANCE WITH LAW. THE MATTER CANNOT BE LEFT HANGING IN BETWEEN. ALP OF INTERNATIONAL TRANSACTION HAS TO BE DETERMINED IN EVERY CASE. 22. THE ABOVE SAID PROPOSITION HAS BEEN LAID DOWN BY THE SPECIAL BENCH OF BANGALORE TRIBUNAL WHILE INTERPRETING THE TRANSFER PRICING PROVISION S AND THE PRINCIPLE LAID DOWN BY THE SPECIAL BENCH OF TRIBUNAL IS APPLICABLE TO THE ISSUE BEFORE US. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE BEFORE US HAS PLACED RELIANCE ON THE RATIO LAID DOWN BY HONBLE BOMBAY HIGH COURT IN SCINDIA STEAM NAVIGATION CO. LTD. VS. CIT (SUPRA), WHEREIN THE ISSUE WAS THE APPLICABILITY OF AMENDED PROVISIONS OF THE ACT. THE QUESTION ARISING BEFORE THE HONBLE BOMBAY HIGH COURT WAS THAT IN CASE ANY PROVISION HAS BEEN AMENDED LATER, WERE SUCH AMENDED PROVISIONS TO BE APPLIED WHILE COMPLETING ASSESSMENT OF THE YEAR WHICH WAS PENDING AS ON THE DATE, ON WHICH THE AMENDMENT WAS BROUGHT IN OR AS PER THE PROVISIONS WHICH WERE APPLICABLE TO THE RELEVANT YEAR. THE HONBLE BOMBAY HIGH COURT DID NOT ACCEPT THE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE IN THIS REGARD AS IT WOULD CAUSE STARTLING RESULTS. THE SAID PROPOSITION LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE BEFORE US, WHERE UNDER THE PROV ISIONS OF THE ACT ITSELF, THE TPO IS EMPOWERED TO SUBSTITUTE THE ARM'S LENGTH PRICE ON THE BASIS OF MATERIAL OR INFORMATION FURNISHED BY THE ASSESSEE OR COLLECTED BY HIM. IN CASE, SUCH AN AUTHORITY HAS BEEN DELEGATED TO THE TPO AND IN EXERCISE OF SUCH AUT HORITY, CERTAIN INFORMATION IS COLLECTED BY THE TPO, WHICH IN TURN, IS CONFRONTED TO THE ASSESSEE AND THEREON APPLIED TO DETERMINE THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION, THE SAID EXERCISE OF THE JURISDICTION BY THE TPO CANNOT POSSIBLY BE QUES TIONED. ACCORDINGLY, WE FIND NO MERIT IN THE RELIANCE PLACED UPON BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER RELIED UPON ON OTHER DECISIONS WHICH ARE FACTUALLY DIFFERENT FROM THE ISSUE BEFORE US. ACCORDINGLY, WE FIND NO MERIT IN THE CLAIM OF ASSESSEE IN THIS REGARD AND UPHOLDING THE ACTION OF TPO, THE GROUNDS OF APPEAL NO.2 AND 3 RAISED BY THE ASSESSEE ARE DISMISSED. 18. IN VIEW OF ABOVE SAID PROVISIONS OF THE ACT AND THE PR OPOSITION LAID DOWN BY THE TRIBUNAL IN M/S. VISHAY COMPONENTS INDIA PVT. LTD. VS. DCIT (SUPRA), WE HOLD THAT WHERE THE FINANCIAL DATA OF M/S. MICROGENETIC SYSTEMS LTD. WAS AVAILABLE DURING TP PROCEEDINGS , THEN THE SAME MAY BE CONSIDERED IN CASE THE SAID CO NCERN FULFILS ALL THE FILTERS APPLIED BY THE TPO. ACCORDINGLY, WE ADOPT THE DIRECTIONS OF CIT(A) IN THIS REGARD AND DISMISS THE GROUND OF ITA NO. 1 711 /PUN/201 4 CO NO.32/PUN/2016 17 APPEAL NO.2 RAISED BY THE REVENUE. IN VIEW OF OUR DISMISSING THE REVENUES APPEAL, CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DISMISSED BEING ACADEMIC. 1 9 . IN THE RESULT, BOTH THE APPEAL OF REVENUE AND CROSS OBJECTIONS OF ASSES SEE ARE DISMISSED. ORDER PRONOUNCED ON THIS 30 TH DAY OF AUGUST , 201 7 . SD/ - SD/ - ( D.KARUNAKARA RAO ) (SUSHMA CHOWLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 30 TH AUGUST , 201 7 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT (A) - IT/TP , PUNE ; 4. / THE CIT - I / DIT (TP/IT) PUNE ; 5. , , / DR A , ITAT, PUNE; 6. / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE