Huawei Telecommunications (India) Company Pvt. Ltd., Gurgaon V. ACIT, Gurgaon

ITA 1384/DEL/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0240 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-07-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I2
• Next Hearing Date: 29-06-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 23-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBHAKANT SAHU; VIJAY CHOUDHARY JCI
• Keywords: Transfer pricing; Opportunity of being heard; International transaction
• Section: 92C; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-2 : NEW DELHI BEFORE SHRI R.S. SYAL, AM AND SHRI A.T. VARKEY, JM ITA NO.1384/DEL/2012 ASSESSMENT YEAR : 2006-07 HUAWEI TELECOMMUNICATIONS (INDIA) COMPANY PVT. LTD., 14 TH FLOOR, TOWER C, UNITECH CYBER PARK, SECTOR 39, GURGAON. PAN : AABCH1376E VS. ACIT, CIRCLE 1(1), GURGAON. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ROHIT TIWARI, CA DEPARTMENT BY : SHRI SUBHAKANT SAHU, ADDL. CIT & SHRI VIJAY CHOUDHARY, JCIT ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE FINA L ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER (AO) U/S 143(3)/144 C READ WITH SECTION ITA NO.1384/DEL/2012 2 254 OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO C ALLED THE ACT) ON 30.1.2012 IN RELATION TO THE ASSESSMENT YEAR 2006-0 7. 2. THE ONLY DISPUTE RAKED UP IN THIS APPEAL IS AGAI NST THE ADDITION OF RS.4,21,48,306/- MADE BY THE ASSESSING OFFICER (AO) ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE WAS INCORPORATED IN INDIA IN 2002 FOR THE PURPOSE OF MA NUFACTURING TELECOM EQUIPMENTS. THE ASSESSEE IS A SUBSIDIARY OF HUAWEI TECH INVESTMENT COMPANY LTD., A COMPANY INCORPORATED IN HONG KONG, WHICH IS ULTIMATELY OWNED BY HUAWEI TECHNOLOGIES COMPANY LTD., CHINA. THE ASSESSEE REPORTED FOUR INTERNATIONAL TRANSACTIONS IN FORM NO .3CEB. THE ASSESSING OFFICER (AO) REFERRED THE MATTER OF DETERMINATION O F THE ARMS LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANSACTIONS REPORTED BY THE ASSESSEE TO THE TRANSFER PRICING OFFICER (TPO). THE ENTIRE CONTROV ERSY IN THE INSTANT APPEAL IS AGAINST THE INTERNATIONAL TRANSACTION OF PROVISION OF MARKETING SUPPORT SERVICES WITH THE TRANSACTED VALUE OF RS.2 8,89,60,870/-. THE ASSESSEE APPLIED TRANSACTIONAL NET MARGIN METHOD (T NMM) AS THE MOST ITA NO.1384/DEL/2012 3 APPROPRIATE METHOD FOR DEMONSTRATING THAT THIS INTE RNATIONAL TRANSACTION WAS AT ALP. PROFIT LEVEL INDICATOR (PLI) WAS CHOSE N AS OPERATING PROFIT/TOTAL COST (OP/TC). THE ASSESSEE CALCULATED OP/TC OF THIS INTERNATIONAL TRANSACTION AT 17.90%, WHICH HAS BEEN EXTRACTED FROM PAGE 10 OF THE TPOS ORDER, AS UNDER : - TABLE I. OPERATING EXPENSES RS.245,906,097 (A) ADD: NON OPERATING PROVISION FOR TAX RS.11,592,050 PROVISION FOR FBT RS.13,363,746 TOTAL EXPENSES RS.270,861,893 ADD: 7% MARK UP RS.19,071,560 TOTAL REVENUE RS.289,933,453 (B) OPERATING PROFIT (B-A) RS.44,027,356 (C) MARGIN ON COST (C/A) 17.90% 4. THE TPO DID NEITHER DISPUTE THE APPLICATION OF T NMM AS THE MOST APPROPRIATE METHOD NOR REJECT THE PLI OF OP/TC. HO WEVER, IN HIS OPINION, THE CALCULATION DONE BY THE ASSESSEE WAS MADE BY AR TIFICIALLY INFLATING ITS OPERATING PROFIT. HE OPINED THAT THE NON-OPERATING EXPENSES COULD NOT BE ITA NO.1384/DEL/2012 4 CONSIDERED FOR CALCULATION OF MARK-UP AND, HENCE, T HE MARK-UP SHOULD BE CALCULATED ONLY ON OPERATING EXPENSES. HE, THEREFO RE, RECAST THE OPERATING REVENUE OF THE ASSESSEE, ON PAGE 11 OF HIS ORDER, A S UNDER:- TABLE II. OPERATING EXPENSES : RS.245,906,097 ADD 7% MARK UP : RS.17,213,426 OPERATING REVENUE : RS.263,119,523 5. THE ASSESSEE HAD CHOSEN 11 COMPANIES AS COMPARAB LE, WHICH HAVE BEEN ENLISTED ON PAGE 167 OF THE PAPER BOOK. THE T PO SHORTLISTED FOLLOWING FOUR COMPANIES AS COMPARABLE WITH THE ARI THMETIC MEAN OF THEIR OP/TC COMPUTED AT 25.31%, AS PER PAGE 27 OF HIS ORDER :- TABLE III. S.NO. NAME OP/TC (%) 1. ENGINEERS INDIA LTD. 20.96 2. RITES LTD. 40.82 3. CRISIL (INFORMATION & ADVISORY SERVICES SEGMENT) 14.23 4. WAPCOS LTD. 25.23 ARITHMETIC MEAN 25.31 ITA NO.1384/DEL/2012 5 6. HE WORKED OUT THE AMOUNT OF TRANSFER PRICING ADJ USTMENT AT PAGE 27 OF HIS ORDER IN THE FOLLOWING MANNER :- TABLE IV. TOTAL COST OF THE ASSESSEE : RS.245,906,097/- ALP AT A MARGIN OF 25.31% : RS.308,144,930/- REVENUE SHOWN (AS PER TABLE III): RS.263,119,523/- DIFFERENCE : RS.45,025,407/- 7. THE ASSESEE APPROACHED THE DISPUTE RESOLUTION PA NEL (DRP) RAISING OBJECTIONS AGAINST CERTAIN ASPECTS OF THE DETERMINA TION OF THE ALP BY THE TPO. THE DRP VIDE ITS ORDER DATED 19.12.2011, INTER ALIA , DIRECTED TO INCLUDE TWO MORE COMPANIES IN THE LIST OF COMPARABL ES, NAMELY, IDC LTD., AND TSR DARASHAW LTD. (SEGMENTAL). IN THE FINAL AS SESSMENT ORDER PASSED BY THE AO, AN ADDITION ON ACCOUNT OF TRANSFER PRICI NG ADJUSTMENT WAS MADE AT RS.4.21 CRORE. THE ASSESSEE IS AGGRIEVED AGAIN ST THIS ADDITION. 8. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE REL EVANT MATERIAL ON RECORD. BEFORE PROCEEDING FURTHER, WE WANT TO MAKE IT CLEAR THAT THERE IS NO ITA NO.1384/DEL/2012 6 DISPUTE ON THE APPLICATION OF THE TNMM AS THE MOST APPROPRIATE METHOD AND THE ADOPTION OF THE PLI AS OPERATING PROFIT TO TOTAL COSTS ON THE INTERNATIONAL TRANSACTION OF `PROVISION OF MARKETIN G SUPPORT SERVICES. THERE IS A THREE-FOLD ATTACK TO THE COMPUTATION OF THE ALP. FIRST IS THE DETERMINATION OF THE ASSESSEES PROFIT MARGIN BY TH E TPO; SECOND IS THE SELECTION OF SOME COMPARABLES; AND THIRD IS AGAINST NOT ALLOWING RISK ADJUSTMENT. WE WILL DEAL WITH THESE ISSUES, ONE BY ONE. 9. FIRST WE ESPOUSE THE ASPECT OF DETERMINATION O F THE ASSESSEES PROFIT MARGIN FROM THE INTERNATIONAL TRANSACTION OF `PROVI SION OF MARKETING SUPPORT SERVICES. THE LD. AR AGITATED THE COMPUTAT ION OF THE ASSESSEES OP/TC. MORE SPECIFICALLY AND TO NARROW DOWN THE CO RE OF CONTROVERSY, IT IS ON THE COMPUTATION BY THE TPO OF REVENUE SHOWN AS PER TABLE II ABOVE CALCULATED AT RS.26,31,19,523/-. THE ASSESSE ES CONTENTION IS THAT THIS AMOUNT HAS BEEN ERRONEOUSLY TAKEN BY THE TPO. 10. IT CAN BE SEEN THAT THE ASSESSEE WAS COMPENSA TED BY ITS AE FOR RENDERING MARKETING SUPPORT SERVICES AT DIRECT AND INDIRECT COSTS INCURRED WITH A MARK-UP OF 7% ON SUCH TOTAL COSTS. THE TOTA L AMOUNT RECEIVED BY ITA NO.1384/DEL/2012 7 THE ASSESSEE IS TO THE TUNE OF RS.28,89,60,870/-. T HIS FIGURE OF REVENUE WAS COMPUTED BY APPLYING MARK-UP OF 7% ON BOTH OPERATIN G AND NON-OPERATING COSTS INCURRED BY THE ASSESSEE IN PROVIDING THE MAR KETING SUPPORT SERVICES. THE AMOUNT OF OPERATING EXPENSES IN THE TOTAL COSTS WAS COMPUTED BY THE ASSESSEE AT RS.24,59,06,097/- AND THE TPO HAS NOT D ISPUTED THIS CALCULATION. RATHER, THE TPO HAS HIMSELF ADOPTED TH E FIGURE OF OPERATING COSTS AT THIS LEVEL WHICH IS EVIDENT FROM TABLE II ABOVE REPRODUCED FROM HIS ORDER. THIS IS THE FIGURE OF OPERATING EXPENSES WHICH THE ASSESSEE HAS TAKEN IN THE COMPUTATION OF ITS OP/TC MARGIN AT 17. 90%. THE TPO TOOK UP THE SAME FIGURE OF OPERATING EXPENSES AND THEREAFT ER ADDED 7% MARK-UP FOR WORKING OUT THE AMOUNT OF `OPERATING REVENUE A T RS.26,31,19,523/-, WHICH AMOUNT FORMS THE BEDROCK FOR THE TRANSFER PRI CING ADJUSTMENT OF RS.4,50,25,407/- (RS.30,81,44,930/- MINUS RS.26,31 ,19,523/-). IT IS OBSERVED THAT AS AGAINST THE ASSESSEES MARK-UP OF 7% EARNED FROM ITS AES ON TOTAL COSTS INCURRED, ITS OP/TC CAME AT 17.90%. THE TPO COMPUTED AVERAGE OF OP/TC OF COMPARABLE COMPARABLES AT 25.31 %. NOW THE QUESTION ARISES AS TO WHETHER THE TPO WAS RIGHT IN TAKING THE FIGURE OF REVENUE AT RS.26,31,19,523/- BY CONSIDERING THE PRO FIT RATE OF 7% ( BEING ITA NO.1384/DEL/2012 8 THE MARK-UP ALLOWED BY THE AE ON TOTAL COSTS INCURR ED). THE CONTENTION OF THE ASSESSEE IS THAT THE AMOUNT OF REVENUE SHOULD B E TAKEN AS THE ACTUAL AMOUNT RECEIVED FROM ITS AES AND NOT THIS FRACTURED AMOUNT. 11. SECTION 92 OF THE ACT DEALS WITH THE COMPUTAT ION OF INCOME FROM INTERNATIONAL TRANSACTION HAVING REGARD TO ARM'S LE NGTH PRICE. SUB-SECTION (1) PROVIDES THAT : `ANY INCOME ARISING FROM AN INT ERNATIONAL TRANSACTION SHALL BE COMPUTED HAVING REGARD TO THE ARM'S LENGTH PRICE. SECTION 92C DEALS WITH THE COMPUTATION OF ARM'S LENGTH PRICE. S UB-SECTION (1) STIPULATES THAT THE ARM'S LENGTH PRICE IN RELATION TO AN INTER NATIONAL TRANSACTION SHALL BE DETERMINED BY ANY OF THE GIVEN METHODS, BEING THE M OST APPROPRIATE METHOD, HAVING REGARD TO THE NATURE OF TRANSACTION OR CLASS OF TRANSACTION OR CLASS OF ASSOCIATED PERSONS OR FUNCTIONS PERFORMED BY SUCH PERSONS OR SUCH OTHER RELEVANT FACTORS AS THE BOARD MAY PRESCRIBE. ONE OF THE METHODS SPECIFIED UNDER SUB-SECTION (1) IS THE TRANSACTIONA L NET MARGIN METHOD. THE MECHANISM FOR DETERMINATION OF THE ALP UNDER TNMM I S GIVEN IN RULE 10B(1)(E) OF THE INCOME-TAX RULES, 1962. SUB-CLAUSE (I) OF THIS RULE PROVIDES FOR DETERMINING THE NET OPERATING PROFIT M ARGIN REALIZED BY THE ITA NO.1384/DEL/2012 9 ENTERPRISE FROM AN INTERNATIONAL TRANSACTION IN REL ATION TO SOME BASE, WHICH ALSO INCLUDES, COSTS INCURRED. SUB-CLAUSE (II) STAT ES THAT THE NET PROFIT MARGIN REALIZED BY THE ENTERPRISE OR BY AN UNRELATE D ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTION OR A NUMBER OF SUCH TRANSACTIONS IS COMPUTED HAVING REGARD TO THE SAME BASE. UNDER SUB- CLAUSE (III), THE NET PROFIT MARGIN AS PER SUB-CLAUSE (II) IS ADJUSTED TO TAKE INTO ACCOUNT THE DIFFERENCES BETWEEN THE INTERNATIONAL TRANSACTION A ND THE COMPARABLES. SUB-CLAUSES (IV) AND (V) STATE THAT THE NET OPERATI NG PROFIT MARGIN REALIZED BY THE ASSESSEE AS PER SUB-CLAUSE (I) IS ESTABLISHE D TO BE THE SAME AS THE NET PROFIT MARGIN REFERRED TO IN SUB-CLAUSE (III) AND T HE NET PROFIT MARGIN THUS ESTABLISHED IS THEN TAKEN INTO ACCOUNT TO ARRIVE AT AN ARMS LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTION. HAVING D ETERMINED THE ALP OF AN INTERNATIONAL TRANSACTION AS PER RULE 10B(1)(E), W E COME BACK TO THE SECOND PROVISO TO SECTION 92C(2) WHICH PROVIDES TH AT IF THE VARIATION BETWEEN THE ARM'S LENGTH PRICE SO DETERMINED AND PRICE AT WHICH THE INTERNATIONAL TRANSACTION HAS ACTUALLY BEEN UNDERTA KEN DOES NOT EXCEED SUCH PERCENTAGE OF THE LATTER, AS MAY BE NOTIFIED B Y THE CENTRAL GOVERNMENT IN THE OFFICIAL GAZETTE IN THIS BEHALF, THE PRICE AT WHICH THE ITA NO.1384/DEL/2012 10 INTERNATIONAL TRANSACTION HAS ACTUALLY BEEN UNDERTA KEN SHALL BE DEEMED TO BE THE ARM'S LENGTH PRICE. PER CONTRA, IF THE VARIA TION BETWEEN THE ALP SO DETERMINED AND PRICE AT WHICH THE INTERNATIONAL TRA NSACTION HAS ACTUALLY BEEN UNDERTAKEN EXCEEDS THE STIPULATED CUSHION, THE N THE DIFFERENCE CALLS FOR ADDITION TOWARDS TRANSFER PRICING ADJUSTMENT. T WO PROPOSITIONS ARE RELEVANT FROM THE ABOVE DISCUSSION INSOFAR AS WE AR E INSTANTLY CONCERNED. FIRST IS THAT UNDER THE TNMM THE NET OPERATING PROF IT MARGIN OF THE ASSESSEE AS WELL AS COMPARABLES IS COMPUTED WITH RE FERENCE TO THE SAME BASE [SUB-CLAUSES (I) AND (II & III) OF RULE 10B(1) (E)] AND SECOND IS THAT THE ADDITION, IF ANY, IS MADE BY COMPARING THE ALP AND THE PRICE AT WHICH THE INTERNATIONAL TRANSACTION HAS ACTUALLY BEEN UNDERTA KEN [SECOND PROVISO TO SECTION 92C(2)]. 12. COMING TO THE FIRST PROPOSITION, IT IS CLEAR THAT AS PER RULE 10B(1)(E), THE NET OPERATING PROFIT MARGIN OF THE ASSESSEE AND THAT OF COMPARABLES IS REQUIRED TO BE CALCULATED W.R.T. THE SAME BASE. IN THE INSTANT CASE, THE ASSESSEE AS WELL AS THE TPO HAVE ADOPTED THE BASE O F `OPERATING COSTS. WITH THIS BASE, THE RATE OF THE ASSESSEES PROFIT M ARGIN COMES TO 17.90% ITA NO.1384/DEL/2012 11 (TABLE I) AND THE ARITHMETIC MEAN OF COMPARABLES AT 25.31% (TABLE III). A COMPARISON IS REQUIRED TO BE MADE OF THESE PROFIT M ARGINS OF THE ASSESSEE AS WELL AS THE COMPARABLES. THE SECOND PROPOSITION IS THAT THE ADDITION, IF ANY, IS MADE BY COMPARING THE ARMS LENGTH MARGIN A ND THE PRICE AT WHICH THE INTERNATIONAL TRANSACTION HAS ACTUALLY BEEN UND ERTAKEN. THE PRICE AT WHICH THE INTERNATIONAL TRANSACTION HAS ACTUALLY BE EN UNDERTAKEN IN THE EXTANT CASE IS RS.28,89,60,870/-. IT IS THIS AMOUN T WHICH IS TO BE CONSIDERED FOR MAKING ADDITION, IF ANY. IT IS BUT N ATURAL THAT THE ADDITION TOWARDS TRANSFER PRICING ADJUSTMENT CAN BE MADE BY VIEWING THE ALP OF THE INTERNATIONAL TRANSACTION AND THEN IT IS COMPAR ED WITH THE ACTUAL TRANSACTED VALUE. THE DIFFERENCE, IF BREACHES THE S AFE HARBOR, REPRESENTS THE AMOUNT WHICH THE ASSESSEE OUGHT TO HAVE RECEIVED FR OM ITS AE BUT NOT REALIZED. IT IS SUCH SHORTFALL, WHICH CALLS FOR ADD ITION. 13. WHEN WE ADVERT TO THE FACTS OF THE INSTANT C ASE, IT IS NOTICED THAT THE PRICE OF THE INTERNATIONAL TRANSACTION IS RS.28,89, 60,870/-, BUT THE TPO HAS SUBSTITUTED SUCH PRICE OF THE INTERNATIONAL TRANSAC TION WITH A FIGURE OF RS.263,119,523 AS PER TABLE II ABOVE. BY DOING SO, THE TPO IS SEEKING TO ITA NO.1384/DEL/2012 12 COMPARE THE PROFIT RATE (7%) REALIZED BY THE ASSESS EE ON TOTAL COSTS (BOTH OPERATING AND NON-OPERATING) WITH THE PROFIT RATE ( 25.31%) OF COMPARABLES ON OPERATING COSTS ALONE, WHICH IS AN INVALID COMPA RISON BECAUSE THE BASE OF THE ASSESSEES INTERNATIONAL TRANSACTION AND THA T OF COMPARABLES HAS BECOME DIFFERENT, WHICH UNDER ALL CIRCUMSTANCES MUS T REMAIN SAME AS PER RULE 10B(1)(E). AS SUCH, WE HOLD THAT THE AUTHORIT IES BELOW WERE NOT JUSTIFIED IN WORKING OUT THE TRANSFER PRICING ADJUS TMENT BY CONSIDERING THE AMOUNT OF REVENUE AT RS.263,119,523, WHICH OUGHT T O HAVE BEEN TAKEN AT RS.28,89,60,870/-. 14. WE FIND FROM THE ASESSEES PROFIT & LOSS ACCOUN T THAT THE AMOUNT OF REVENUE RECEIVED FROM AES STANDS AT RS.28,89,60,870 /-. AS AGAINST THAT, THE ASSESSEE CALCULATED ITS MARGIN AT 17.90% BY CON SIDERING OPERATING REVENUE AT RS.28,99,33,453/-. IT IS SELF EVIDENT TH AT THE GROSS REVENUE RECEIVED BY THE ASSESSEE FROM ITS AE FROM THIS INTE RNATIONAL TRANSACTION IS ACTUALLY RS.28,89,60.870/-, WHICH THE ASSESSEE ERRO NEOUSLY TOOK AS RS.28,99,33,453/-, THEREBY INCREASING THE REVENUE A ND THE RESULTANT OPERATING PROFIT MARGIN FROM THE INTERNATIONAL TRAN SACTION TO THIS EXTENT. ITA NO.1384/DEL/2012 13 THE LD. AR WAS FAIR ENOUGH TO CONCEDE THAT THE REVE NUE SHOULD BE CORRECTLY TAKEN AT RS.28,89,60,870/- INSTEAD OF THE INFLATED FIGURE GIVEN IN ITS TP STUDY REPORT. IT IS OBSERVED THAT THE TPO AL SO FOLLOWED THE SUIT BY ERRONEOUSLY TAKING SUCH AN INFLATED FIGURE OF THE R EVENUE. WE, ERGO, SET ASIDE THE IMPUGNED ORDER TO THIS EXTENT AND DIRECT THE TPO TO ADOPT THE CORRECT FIGURE OF OPERATING REVENUE AT RS.28,89,60, 870/-. 15. THE SECOND ASPECT OF THE TRANSFER PRICING ADJUS TMENT WHICH HAS BEEN ASSAILED BY THE ASSESSEE IN THE INSTANT APPEAL IS T HE INCLUSION OF THREE COMPARABLES IN THE FINAL SET OF COMPARABLES VIZ., E NGINEERS INDIA LTD., RITES LTD., AND WAPCOS LTD. THE LD. AR SUBMITTED T HAT THESE THREE COMPANIES ARE NOT FUNCTIONALLY COMPARABLE WITH THE ASSESSEE INSOFAR AS THE INTERNATIONAL TRANSACTION OF PROVISION OF MARKETING SUPPORT SERVICES IS CONCERNED. 16. IN THIS REGARD, WE FIND THAT THE ASSESSEE ENT ERED INTO AN AGREEMENT WITH ITS AE ON 1.9.2002 FOR RENDERING MARKETING SUP PORT SERVICES, A COPY OF WHICH IS AVAILABLE ON RECORD. AS PER THIS AGREE MENT, THE ASSESSEE IS REQUIRED TO RENDER SERVICES TO ITS AES AS HAVE BEEN ENUMERATED IN ITA NO.1384/DEL/2012 14 APPENDIX-1, WHICH ARE IN THE NATURE OF PROVIDING MA RKETING ASSISTANCE, ADVICE AND OTHER INFORMATION TO ITS AE. MORE SPECI FICALLY, THESE INCLUDE MARKET DEVELOPMENT; LIAISING WITH THE CUSTOMERS FOR OBTAINING FEEDBACK ON BEHALF OF THE COMPANY; EXPLORING NEW SERVICE LIN ES/VENTURES FOR THE COMPANY IN INDIA; PROVIDING INFORMATION ON POTENTIA L CUSTOMERS; AND CONDUCTING STUDY ON THE VIABILITY OF SOURCING PARTS AND COMPONENTS FROM INDIA AND ITS NEIGHBOURING COUNTRIES. IT CAN BE N OTICED FROM THE ORDER OF THE TPO THAT IN EXAMINING THE COMPARABILITY, INTER ALIA , OF THE ABOVE REFERRED THREE COMPANIES, HE RELIED ON THE PROCEEDI NGS FOR THE ASSESSMENT YEAR 2005-06. THE TPO HAS DISCUSSED THIS ASPECT IN PARA 5.2 OF HIS ORDER FOR THE YEAR UNDER CONSIDERATION. BY ADOPTING THE SAME REASONS AS GIVEN IN THE ORDER OF THE PRECEDING YEAR, HE SELECTED THE AB OVE REFERRED THREE COMPANIES ALSO AS SUITABLE COMPARABLES. IT APPEARS THAT SOME ADDITION WAS MADE ON THIS SCORE IN THE ORDER FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR AND THE ASSESSEE CHALLENGED THE SAME BEFORE TH E TRIBUNAL. THE TRIBUNAL HAS SINCE DISPOSED OF THE ASSESSEES APPEAL FOR THE IMMEDIATELY PRECEDING YEAR AND A COPY OF SUCH ORDER DATED 4.4.2014 (IN IT A NO.3236/DEL/2011) IS AVAILABLE ON RECORD. VIDE THIS ORDER, THE TRIBUN AL HAS RESTORED THE MATTER ITA NO.1384/DEL/2012 15 TO THE FILE OF THE AO FOR EXAMINING THE COMPARABILI TY OR OTHERWISE OF THESE COMPANIES ALONG WITH THE QUESTION OF ALLOWABILITY O R OTHERWISE OF WORKING CAPITAL ADJUSTMENT. IT HAS BEEN BROUGHT TO OUR NOT ICE THAT THE MATTER OF THE PRECEDING YEAR IS STILL PENDING BEFORE THE TPO AND NO FINAL DECISION HAS SO FAR BEEN TAKEN ON THE COMPARABILITY OR OTHERWISE OF THESE THREE COMPANIES. UNDER SUCH CIRCUMSTANCES AND RESPECTFULLY FOLLOWING THE PRECEDENT, WE ALSO SET ASIDE THE IMPUGNED ORDER AND REMIT THE MAT TER TO THE FILE OF TPO/AO FOR DECIDING THE COMPARABILITY OR OTHERWISE OF THE ABOVE REFERRED THREE COMPANIES IN LINE WITH HIS DECISION PURSUANT TO THE TRIBUNAL ORDER FOR THE AY 2005-06. APART FROM CONSIDERING THE QUESTIO N OF INCLUSION OR EXCLUSION OF THESE THREE COMPANIES IN THE FINAL SET OF COMPARABLES, THE TPO WILL ALSO GO INTO THE ISSUE OF WORKING CAPITAL ADJU STMENT AS HAS BEEN DIRECTED BY THE TRIBUNAL IN ITS AFOREQUOTED ORDER. 17. THE LAST ASPECT OF THE TRANSFER PRICING ADJUSTM ENT IS AGAINST NOT ALLOWING ANY RISK ADJUSTMENT. DURING THE COURSE OF PROCEEDINGS BEFORE THE TPO, THE ASSESSEE CLAIMED RISK ADJUSTMENT BY CONTEN DING THAT IT IS A CAPTIVE SERVICE PROVIDER. THE TPO EXAMINED RISK MA TRIX RELEVANT TO THE ITA NO.1384/DEL/2012 16 BUSINESS OF THE ASSESSEE AND THE RISK MATRIX AS DIS CLOSED IN THE TP STUDY UNDER RULE 10D. THEREAFTER, IT WAS HELD THAT THE A SSESSEE WAS NOT ENTITLED TO ANY RISK ADJUSTMENT BECAUSE IT WAS NOT A RISK FR EE ENTITY. APART FROM THAT, THE TPO ALSO DECLINED TO GRANT ANY SUCH ADJUS TMENT BY NOTICING THAT NO COMPUTATION OF RISK ADJUSTMENT WAS FILED BY THE ASSESSEE AND, AS SUCH, THE ONUS IN THIS REGARD WAS NOT DISCHARGED. 18. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE WANT TO MAKE A MENTION THAT THE ASSESSEE INITIALLY CLAIMED RISK ADJUSTMENT BEFORE T HE TRIBUNAL IN THE PROCEEDINGS FOR THE AY 2005-06. HOWEVER, SUCH GROU ND WAS NOT PRESSED. NOTWITHSTANDING THAT, WE FIND THAT THE INITIAL ONUS FOR CLAIMING ANY ADJUSTMENT IN THE COMPUTATION OF ALP IS ALWAYS ON T HE ASSESSEE. IT IS ONLY WHEN SUCH INITIAL ONUS IS DISCHARGED THAT THE TURN OF THE TPO COMES FOR ASCERTAINING WHETHER THE CLAIM SO MADE BY THE ASSES SEE IS CORRECT OR NOT. ADVERTING TO THE FACTS OF THE INSTANT CASE, WE FIND THAT THERE IS NO MATERIAL WORTH THE NAME JUSTIFYING THE CLAIM OF RISK ADJUSTM ENT BY COMPARATIVELY SHOWING PARTICULAR RISKS UNDERTAKEN OR NOT UNDERTAK EN BY THE ASSESSEE VIS- ITA NO.1384/DEL/2012 17 -VIS THE COMPARABLES. A GENERALIZED SUBMISSION ABOUT T HE ASSESSEE ASSUMING LOW/NO RISK VIS--VIS ITS COMPARABLES, CAN NOT BE COUNTENANCED. THE ASSESSEE HAS TO EXPRESSLY EXHIBIT THAT THE SPEC IFIC RISKS UNDERTAKEN BY THE COMPARABLES WERE ABSENT IN ITS CASE AND VICE VERSA . IN THE ABSENCE OF ANY SUCH WORKING AVAILABLE EITHER BEFORE THE AUTHOR ITIES BELOW OR US, WE ARE DISINCLINED TO DIRECT THE GRANTING OF ANY RISK ADJUSTMENT. THIS CONTENTION OF THE LD. AR, THEREFORE, FAILS. 19. TO SUM UP, WE SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF AO/TPO FOR A FRESH DETERMINATION OF THE ALP OF THE INTERNATIONAL TRANSACTION OF `PROVISION OF MARKETIN G SUPPORT SERVICES IN LINE WITH OUR ABOVE DIRECTIONS. NEEDLESS TO SAY, T HE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNITY OF BEING HEARD. 20. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIS TICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 01.07.20 15. SD/- SD/- [A.T. VARKEY] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 01 ST JULY, 2015. ITA NO.1384/DEL/2012 18 DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.