PARADIGM GEOPHYSICAL (I) P.LTD, NAVI MUMBAI V. DCIT CIR 9(2), MUMBAI

ITA 1878/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2605 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 23-04-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 19-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Assessee Lawyers: NIRAJ SHETH SHRI AYUSH RAJANI
• Keywords: Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Arm length price
• Section: 143(3); 92B; 92A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL K BE NCH, MUMBAI BEFORE SHRI RAJENDRA, ACCOUNTANT MEMBER AND SHRI C.N. PRASAD, JUDICIAL MEMBER, / I .TA NO.1878/M/2014 ( / ASSESSMENT YEAR: 2009-10 M/S. PARADIGM GEOPHYSICAL (I) PVT. LTD., 614, B-WING, RUPA SOLITAIRE, SECTOR-1, MILLENNIUM BUSINESS PARK, THANE-BELAPUR ROAD, MAHAPE, NAVI MUMBAI -400 710 / VS. THE DCIT, CIRCLE 9(2), AAYAKAR BHAVAN, MUMBAI-400 020 ./ ./ PAN/GIR NO. AACCP 8903C ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY: SHRI NIRAJ SHETH SHRI AYUSH RAJANI / RESPONDENT BY: SHRI N.K. CHAND / DATE OF HEARING :21.04.2016 ! / DATE OF PRONOUNCEMENT :13.07.2016 / O R D E R PER C.N. PRASAD, JM: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE DI RECTION OF THE DRP-III, MUMBAI DATED 11.12.2013 PERTAINING TO ASS ESSMENT YEAR 2009-10. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL IN RESPECT OF TRANSFER PRICING ADJUSTMENT IN ITS APPEAL: ITA NO. 1878/M/2014 2 1. THE IMPUGNED ORDER PASSED BY THE LEARNED ASSESS ING OFFICER U/S. 143(3) OF THE ACT AND THE IMPUGNED DIR ECTIONS ISSUED BY THE HONBLE DRP U/S. 14C(5) OF THE ACT AR E BAD IN LAW AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 2. THE LEARNED AO/ HON'BLE DRP ERRED, IN LAW AND IN FACTS, BY UPHOLDING THE UPWARD ADJUSTMENTS OF RS. 26,13,95,031 MADE BY THE LEARNED TRANSFER PRICING O FFICER ('TPO') WHILE DETERMINING THE ARM'S LENGTH PRICE (' ALP') IN RESPECT OF PROVISION OF INFORMATION TECHNOLOGY ENAB LED SERVICES TO ITS ASSOCIATED ENTERPRISES. 3. THE LEARNED AO / HON'BLE DRP ERRED IN LAW BY MAKING THE TRANSFER PRICING ADDITION WITHOUT PROVID ING AN ADEQUATE OPPORTUNITY OF BEING HEARD AND IN COMPLETE DISREGARD OF PRINCIPLE OF NATURAL JUSTICE. REJECTION OF AUDITED SEGMENTAL RESULTS AND FOLLOWIN G AN ENTITY LEVEL APPROACH AND NOT MAKING ADDITIONS ONL Y TO INTERNATIONAL TRANSACTIONS 4.1. THE LEARNED AO/ HON'BLE DRP ERRED IN LAW AND I N FACTS, BY CONFIRMING THE ADDITION OF RS. 26,13,95,031/-MADE B Y THE TPO BEING TRANSFER PRICING ADJUSTMENT BY COMPLETELY DIS REGARDING THE SIGNED SEGMENTAL ACCOUNTS OF THE APPELLANT. 4.2. THE LEARNED AO/ HON'BLE DRP ERRED, IN LAW AND IN FACTS, BY NOT APPRECIATING THE FACT THAT AS PER AS 17- SEGMEN TAL REPORTING AND CLAUSE 2(F) OF THE COMPANIES (ACCOUNTING STANDA RDS) RULES 2006, PERTAINING TO 'SMALL AND MEDIUM SIZED COMPANY ', IN ABSENCE OF ANY STATUTORY REQUIREMENTS, THE APPELLAN T IS NOT REQUIRED TO PREPARE SEGMENTAL ACCOUNTS AS PART OF I TS ANNUAL ACCOUNTS AND PROCEEDED TO UPHELD TPO'S STAND THAT S AID SEGMENTAL ACCOUNTS OUGHT TO BE PART OF APPELLANT'S ANNUAL ACCOUNTS. 4.3. THE LEARNED AO/ HON'BLE DRP ERRED, IN LAW AND IN FACTS, BY UPHOLDING THE ADOPTION OF ENTITY LEVEL APPROACH TO DETERMINE THE ALP OF INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE APPELLANT WITH ITS ASSOCIATED ENTERPRISES AND NOT APPRECIATIN G THE FACT THAT UNDER THE TNMM METHOD, COMPARISON OF NET PROFIT MAR GIN ITA NO. 1878/M/2014 3 REALIZED FROM INTERNATIONAL TRANSACTIONS OR AGGREGA TE OF INTERNATIONAL TRANSACTIONS IS REQUIRED AND NOT COMP ARISON OF OPERATING MARGINS OF THE ENTERPRISE AS A WHOLE. 4.4. THE LEARNED AO/ HON'BLE DRP ERRED, IN LAW AND IN FACTS, BY FAILING TO MAKE TRANSFER PRICING ADDITION ONLY TO T HE INTERNATIONAL TRANSACTIONS OF THE APPELLANT AND IGN ORED JUDICIAL PRECEDENTS IN THIS REGARD. 4.5. THE LEARNED AO/ HON'BLE DRP ERRED IN LAW AND O N FACTS BY MAKING TRANSFER PRICING ADDITIONS EVEN IN RESPECT O F TRANSACTIONS WITH NON-ASSOCIATED ENTERPRISES. A. REJECTION OF BENCH MARKING ANALYSIS PERFORMED BY THE APPELLANT 5.1. THE LEARNED AO / HON'BLE DRP ERRED ON THE FACT S AND CIRCUMSTANCES OF THE CASE AND IN LAW, IN CONFIRMING THE TPO'S STAND OF REJECTING THE SEARCH PROCESS METHODOLOGY F OLLOWED BY THE APPELLANT AS PER THE PROVISIONS OF LAW AND COND UCTING A NEW SEARCH PROCESS. 5.2. THE LEARNED AO / HON'BLE DRP ERRED, IN LAW AND IN FACTS, BY CONFIRMING THE TPO'S STAND OF REJECTING THE INDEPEN DENT COMPARABLE COMPANIES SELECTED BY THE APPELLANT IN I TS TRANSFER PRICING STUDY REPORT WITHOUT PROVIDING ANY COGENT R EASONS OR POINTING OUT ANY DEFICIENCIES IN THE SAID REPORT AS REQUIRED PER PROVISIONS OF SECTION 92C(3) OF THE ACT. B. SELECTION OF ERRONEOUS COMPARABLE COMPANIES BY T HE TPO 6.1. THE LEARNED AO / HON'BLE DRP ERRED, IN LAW AND IN FACTS, BY CONFIRMING THE FRESH COMPARABLE SEARCH ANALYSIS CON DUCTED BY THE LEARNED TPO, WITHOUT HAVING REGARD TO THE FUNCT IONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED. 6.2. THE LEARNED AO / HON'BLE DRP ERRED, IN LAW AND IN FACTS, BY NOT APPRECIATING THAT, IN CONDUCTING THE FRESH COMP ARABILITY ANALYSIS, THE LEARNED TPO HAS ERRED IN USING DATA W HICH WAS NOT ITA NO. 1878/M/2014 4 AVAILABLE AS ON THE SPECIFIED DATE {AS DEFINED IN S ECTION 92F{IV} OF THE ACT}. 6.3. THE LEARNED AO/ HON'BLE DRP ERRED, IN LAW AND IN FACTS, BY UPHOLDING THE SELECTION OF ALLEGED COMPARABLE COMPA NIES EARNING ABNORMALLY HIGH PROFITS/SUPER PROFITS BY TH E TPO; 6.4. THE LEARNED AO/ HON'BLE DRP ERRED, IN LAW AND IN FACTS, BY UPHOLDING SELECTION OF ALLEGED COMPARABLE COMPANIES WHICH ARE FUNCTIONALLY DIFFERENT / DISPROPORTIONATE TO THE AP PELLANT. 6.5. THE LEARNED AO / HON'BLE DRP ERRED, IN LAW AND IN FACTS, BY DISREGARDING THE DIFFERENCES IN RISK PROFILE AND WO RKING CAPITAL OF THE APPELLANT AND THE ALLEGED COMPARABLE COMPANIES SELECTED BY HIM, BY NOT ALLOWING THE RISK ADJUSTMENT AND WORKIN G CAPITAL ADJUSTMENT , 3. BRIEF FACTS ARE THAT THE ASSESSEE IS IN THE BUSI NESS OF PROVIDING COMPUTER AIDED SOFTWARE SOLUTIONS, MAINTENANCE AND IMAGING SERVICES TO OIL & GAS COMPANIES, SIMILAR SERVICES W ERE PROVIDED TO AES. DURING THE FINANCIAL YEAR 2008-09, THE ASSESS EE COMPANY HAD PROVIDED IT ENABLED SERVICES TO ITS ASSOCIATED ENTE RPRISES AMOUNTING TO RS. 3,70,55,707/-. THE ASSESSEE HAS BENCH MARKED ITS INTERNATIONAL TRANSACTION UNDER TNMM BY USING OPERATING PROFIT/OP ERATING COST AS THE PROFIT LEVEL INDICATOR (PLI). THE ASSESSEE IDE NTIFIED A SET OF 25 COMPARABLE COMPANIES WITH ARITHMETIC MEAN OF 20.54% . THE ASSESSEE ARRIVED AT ITS SEGMENT PROFITABILITY IN RE SPECT OF IT ENABLED SERVICES AT 27.54% AND THEREFORE CONTENDED THAT ITS INTERNATIONAL TRANSACTIONS ARE AT ARMS LENGTH. HOWEVER, THE TPO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND HE OBSERVED THAT SEGMENTAL PROFITABILITY FOR THE YEAR ENDED 31.3.2009 WAS NOT PRODUCED BY THE ASSESSEE. HE ALSO OBSERVED THAT COPY OF ANNUAL REP ORT FOR FINANCIAL YEAR 2008-09 SUBMITTED BY THE ASSESSEE WAS ALSO DOE S NOT CONTAIN ITA NO. 1878/M/2014 5 ANY SEGMENTAL REPORTING. THEREFORE, HE REJECTED SE GMENTAL PLI CALCULATED BY THE ASSESSEE AND ADOPTED ENTITY LEVEL PLI OF THE ASSESSEE AND ARRIVED AT OPERATING PROFIT TO OPERATI NG COST AT 60.81%. 3.1. THE TPO WAS OF THE VIEW THAT SINCE ASSESSEES BUSINESS DOES CONSISTS OF PROVIDING COMPUTER AIDED EXPLORATION AN D PRODUCTION COUPLED WITH SOFTWARE PRODUCTS AND SERVICES TO THE OIL AND GAS INDUSTRY WHICH IS A HIGH END KNOWLEDGE ORIENTED IT ENABLED SERVICES AND SINCE ASSESSEES SET OF COMPARABLES WAS NOT IN TO SUCH ACTIVATES, THE ASSESSEES SET OF COMPARABLES WAS FOUND NOT ACC EPTABLE. A SHOW CAUSE NOTICE DATED 21.12.2012 WAS ISSUED PROPOSING NEW SET OF 9 COMPARABLE COMPANIES TO BENCH MARK INTERNATIONAL TR ANSACTION. HE OBSERVED THAT ASSESSEE FILED SUBMISSIONS ON 41.2013 REGARDING ALL OTHER POINTS LISTED IN THE SHOW CAUSE NOTICE EXCEPT ON THE PROPOSED COMPARABLE COMPANIES PROVIDED BY THE TPO. THEREFOR E, THE TPO PROCEEDED WITH THESE 9 COMPARABLES FOR BENCH MARKIN G THE INTERNATIONAL TRANSACTIONS AND ARRIVED AT OPERATING PROFIT/OPERATING COST MARGIN AND ARRIVED AT ARITHMETIC MEAN OF 69.7 6%. THUS, THE TPO ARRIVED AT AN ADJUSTMENT OF RS. 26,13,95,031/- BY PASSING ORDER U/S. 92CA(3) OF THE ACT ON 16.1.2013. 4. A DRAFT ASSESSMENT ORDER WAS PASSED ON 12.3.2013 BY THE ASSESSING OFFICER PROPOSING THE ADJUSTMENT IN RESPE CT OF ARMS LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTIONS WITH AE AS COMPUTED BY THE TPO. THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP ON 19.4.2013 CONTENDING THAT THERE IS VIOLATION OF PRINCIPLES OF NATURAL JUSTICE IN REJECTING SEGMENTAL ACCOUNTS SUB MITTED BY THE ASSESSEE, IN ADOPTING ENTITY LEVEL APPROACH BY THE TPO AND ALSO ITA NO. 1878/M/2014 6 CONTENDED THAT THE 9 COMPARABLE COMPANIES SELECTED BY THE TPO ARE WRONG COMPARABLES. HOWEVER, THE DRP REJECTING ALL T HE SUBMISSIONS OF THE ASSESSEE AFFIRMED THE ORDER OF THE TPO IN AR RIVING AT THE ADJUSTMENT OF 26.12 CRORES IN RESPECT OF THE INTERN ATIONAL TRANSACTIONS WITH ITS AES. 5. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET S UBMITS THAT THE TPO ERRED IN NOT PROVIDING SUFFICIENT TIME TO FURN ISH RESPONSE TO THE SHOW CAUSE NOTICE ISSUED BY HIM. REFERRING TO PAGE -131 OF THE PAPER BOOK SUBMITS THAT THE TPO ISSUED SHOW-CAUSE NOTICE DATED 21.12.2012 REQUIRING THE ASSESSEE TO SHOW CAUSE BY 3.1.2013 AS TO WHY AN ADJUSTMENT SHOULD NOT BE MADE BY BENCH MARKI NG THE TRANSACTION WITH THE 9 COMPARABLES IN THE FIELD OF INFORMATION TECHNOLOGY ENABLED SERVICES. THE LD. COUNSEL FOR T HE ASSESSEE SUBMITS THAT THE 9 COMPARABLES PROPOSED BY THE TPO ARE AS UNDER: 5.1. THE LD. COUNSEL FOR THE ASSESSEE FURTHER REFER RING TO PAGE-128 TO 130 OF THE PAPER BOOK SUBMITS THAT ASSESSEE BY L ETTER DATED S. NO. COMPARABLE NAME 1. ACCENTIA TECH. 2. ADITYA BIRLA MINACS WORLDWIDE LTD. 3. CORAL HUB LTD. 4. COSMIC GLOBAL LTD. 5. CROSS DOMAIN 6. DATAMATICS GLOB. 7. ECLERX SERVICES LTD. 8. EXCEL INFOWAYS LTD. 9. GENPACT INDIA (PVT. COMPANY WITH UNLIMITED LIABILITY) ITA NO. 1878/M/2014 7 4.1.2013 FILED TRANSFER PRICING STUDY INCLUDING SEG MENTAL PROFITABILITY BEFORE THE TPO. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITS THAT THE ASSESSEE HAD RAISED ITS FURTHER O BJECTIONS VIDE STATEMENT DATED 15.1.2013 WHEREIN REBUTTALS WERE RA ISED AGAINST THE COMPARABLES SELECTED BY THE TPO. HOWEVER, AT THE T IME OF FILING THE SAID LETTER, THE ASSESSEES AUTHORIZED REPRESENTATI VE WAS INFORMED THAT THE TP ORDER HAS BEEN ISSUED AND HENCE THE SAI D SUBMISSION CANNOT BE TAKEN ON RECORD. THEREFORE, THE LD. COUN SEL FOR THE ASSESSEE SUBMITS THAT NO OPPORTUNITY OF BEING HEAR D WAS GIVEN TO THE ASSESSEE FOR FURNISHING THE DETAILED ANALYSIS OF TH E ALLEGED COMPARABLE COMPANIES SELECTED BY THE TPO AND THE RE ASONS WHY THE SAME SHOULD BE REJECTED WAS NOT CONSIDERED. THEREF ORE, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT TPO ERRED IN PASSING HIS ORDER BY DISREGARDING THE DETAILS FILED BEFORE HIM AND WI THOUT ACCEPTING FURTHER DETAILS AND WITHOUT OPPORTUNITY OF BEING HE ARD WHICH HAS LEAD TO DENIAL OF NATURAL JUSTICE TO THE ASSESSEE. 6. COMING TO THE MERITS OF THE CASE, THE LD. COUNSE L FOR THE ASSESSEE SUBMITS THAT DURING THE FINANCIAL YEAR END ED MARCH 31 ST 2009, ASSESSEE HAD PROVIDED IT ENABLED SERVICES IN THE SOFTWARE SUPPLY AND SUPPORT/MAINTENANCE SERVICES AND IMAGING SERVICES TO ITS ASSOCIATED ENTERPRISES NAMELY PARADIGM BV AND PARA DIGM AUSTRALIA AGGREGATING TO RS. 3,70,55,707/- BUT THE TPO PROCEE DED TO MAKE AN UPWARD ADJUSTMENT BY CONSIDERING ENTITY LEVEL APPRO ACH FOR DETERMINING THE ARMS LENGTH PRICE OF THE INTERNATI ONAL TRANSACTIONS AND NOT APPRECIATING THE FACT THAT, UNDER TNMM METH OD, THE TRANSFER PRICING ADDITION, IF ANY, OUGHT TO BE RESTRICTED TO THE INTERNATIONAL ITA NO. 1878/M/2014 8 TRANSACTIONS ONLY. THE LD. COUNSEL FOR THE ASSESSE E FURTHER SUBMITTED AS UNDER: THE LEARNED TPO REJECTED THE TP DOCUMENTATION SUBMI TTED BY THE APPELLANT AND UNDERTOOK A FRESH BENCHMARKING AND MA DE AN UPWARD ADJUSTMENT OF RS.26, 13,95,031 BY DETERMINING THE A RM'S LENGTH MARGIN AT 69.76% VIDE ORDER DATED 16 JANUARY 2013 ('TP ORDER' ) ISSUED UNDER SECTION 92CA(3) OF THE INCOME-TAX ACT, 1961. THE LEARNED TP O ALSO RE-COMPUTED THE OPERATING PROFIT 1 (LOSS) OF THE APPELLANT AT RS. ( 12,17,40,195/-) I.E. LOSS OF (60.81 %) ON TOTAL COST, BY CONSIDERING ENTITY LEVE L PROFITS RATHER THAN RESTRICTING THE ADJUSTMENT ONLY TO THE AE TRANSACTI ONS THEREBY MAKING AN ADJUSTMENT OF OF RS. 26,13,95,031 AT ENTITY LEVEL. IT IS WELL SETTLED THAT TRANSFER PRICING ADJUSTMENT IS WARRANTED ONLY QUA THE TRANSACTIONS WITH AES AND NOT NON-AES. THUS, TH E TPOI AO HAS GROSSLY ERRED IN MAKING AN ADDITION OF RS. 26,13,95,031 WHI CH IS 7 TIMES OR 705% OF THE INTERNATIONAL TRANSACTION VALUE ON ENTITY LEVEL RATHER THAN RESTRICTING IT TO THE INTERNATIONAL TRANSACTION UNDER REVIEW. THE AO PASSED A DRAFT ASSESSMENT ORDER DATED 12 MA RCH 2013 AFTER CONSIDERING THE TP ORDER ISSUED UNDER SECTION 92CA( 3) OF THE ACT DATED 16 JANUARY 2013 WHEREIN THE TPO MADE AN UPWARD ADJUSTM ENT OF RS. 26,13,95,031. AGAINST THE SAID DRAFT ASSESSMENT ORDER DATED 12 MA RCH 2013 THE APPELLANT FILED ITS OBJECTIONS BEFORE THE HON'BLE D ISPUTE RESOLUTION PANEL-ILL, MUMBAI ('DRP'). THE SAID APPEAL OF THE APPELLANT WAS DISPOSED-OF BY THE HON'BLE DRP VIDE ITS DIRECTIONS DATED 11 DECEMBER 2013 PASSED U NDER SECTION 144C(5) OF THE ACT, CONFIRMING THE ACTION OF THE TPO AND AO AN D UPHELD THE TRANSFER PRICING ADJUSTMENT OF RS. 26,13,95,031. BEING AGGRIEVED BY THE ORDER OF THE AO DATED 31 DEC EMBER 2013 PURSUANT TO THE DIRECTIONS BY THE HON'BLE DRP PASSE D UNDER SECTION 143(3) R.W.S. 144C(13) OF THE ACT, THE APPELLANT HAS FILED AN APPEAL WITH THE ITA T. B. APPELLANT'S CONTENTIONS RAISED BEFORE THE HON'BL E BENCH B.1.1 REJECTION OF AUDITED SEGMENTAL RESULTS AND FO LLOWING AN ENTITY LEVEL APPROACH AND NOT RESTRICTING ADDITIONS ONLY TO INTE RNATIONAL TRANSACTIONS. 1) AS MENTIONED ABOVE, THE TPO REJECTED THE AUDITED SE GMENTAL ACCOUNTS (STPI REVENUES) DULY WERE FORMING PART OF THE TP DOCUMENT ATION (AS 'ANNEXURE 5' THEREIN) OF THE APPELLANT SUBMITTED DURING THE COUR SE OF THE TRANSFER PRICING ASSESSMENT PROCEEDINGS BEFORE THE TPO. ITA NO. 1878/M/2014 9 2. IN VIEW OF THE FACTS AND UNDER THE CIRCUMSTANCES OF THE CASE AND IN LAW, IT IS HUMBLY SUBMITTED THAT THE LEARNED TPO ERRED I N NOT APPRECIATING THE FACT THAT AS PER AS 17- SEGMENTAL REPORTING AND CLAUSE 2(F) O F THE COMPANIES (ACCOUNTING STANDARDS) RULES 2006, PERTAINING TO 'SMALL AND MED IUM SIZED COMPANY', IN ABSENCE OF ANY STATUTORY REQUIREMENTS, THE APPELLAN T IS NOT REQUIRED TO PREPARE SEGMENTAL ACCOUNTS AS PART OF IT'S ANNUAL ACCOUNTS. 3) IT WOULD ALSO BE APPRECIATED THAT THE SEGMENTAL ACCOUNTS WERE FORMING PART OF THE TP DOCUMENTATION (AS 'ANNEXURE 5' THERE IN) WHICH WAS LOST SIGHT OFF BY THE LEARNED TPO / AO. FURTHER, DURING THE COURSE OF THE PROCEEDINGS BEFORE THE HON'BLE DRP, THE AUDITED SEGMENTAL ACCOUNTS WERE RE -SUBMITTED HOWEVER, THE SAME WERE NOT CONSIDERED. THESE SEGMENTAL ACCOUNTS ARE CERTIFIED BY THE SAME CHARTERED ACCOUNTANT WHO HAD ALSO ISSUED AUDITED SE GMENTAL FOR THE PREVIOUS YEAR I.E. AY 2008-09 WHEN THE THEN TPO HAD ACCEPTED THE SAME, INSPITE OF IT NOT FORMING PART OF THE ANNUAL REPORT EVEN IN THE PREVI OUS YEAR. CONSIDERING THAT THERE IS NO CHANGE IN CIRCUMSTANCES AND THE SEGMENT AL WERE ACCEPTED IN PREVIOUS YEAR, THE SAME OUGHT TO HAVE BEEN ACCEPTED FOR THE YEAR UNDER CONSIDERATION AS SUCH. B.1.2. NO TRANSFER PRICING ADJUSTMENT! MINIMAL TRAN SFER PRICING ADJUSTMENT 1) WITHOUT PREJUDICE TO THE OTHER CONTENTIONS RAISED B Y THE APPELLANT AND CONSIDERING THE FACTS OF THE CIRCUMSTANCES AND IN L AW, THE APPELLANT BELIEVES THE AUDITED SEGMENTAL ACCOUNTS FILED BEFOR E THE TPO AND THE TRANSFER PRICING ADJUSTMENT, IF ANY, OUGHT TO BE RE STRICTED TO THE INTERNATIONAL TRANSACTIONS UNDERTAKE BY THE APPELLA NT WITH ITS AE IS SQUARELY COVERED IN FAVOUR OF THE APPELLANT AS ADJU DICATED BY THE JURISDICTIONAL HIGH COURT IN THE FOLLOWING CASES: TARA JEWELS EXPORTS PVT. LTD. (ITA NO. 1814 OF2013) SUMIT DIAMOND (INDIA) PVT. LTD. (ITA NO. 1647 OF 2013) RATILAL BECHARLAL & SONS [2016] 65 TAXMANN.COM 15 5 PETRO ARALDITE PVT. LTD (ITA NO. 1804 OF2013) THYSSEN KRUPP INDUSTRIES INDIA PVT. LTD. (ITA NO . 2201 OF2013 ) 6.1. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMI TS THAT OUT OF 9 COMPARABLES TAKEN BY THE TPO, 4 COMPARABLES WERE RE JECTED BY VARIOUS BENCHES OF THE TRIBUNAL FOR THE REASON THAT EITHER THEY ARE NOT INTO IT ENABLED SERVICES OR REJECTED THEY ARE F UNCTIONALLY DIFFERENT OR THEY EARNED ABNORMAL PROFITS ETC. THE LD. COUNS EL FOR THE ASSESSEE SUBMITTED DETAILED REASONS FOR EXCLUSION OF THE ALL EGED 4 COMPARABLE COMPANIES WITH DECISIONS OF VARIOUS TRIBUNALS AND COURTS AS UNDER: ITA NO. 1878/M/2014 10 SR.NO. ALLEGED COMPARABLES REASON FOR REJECTION CASE LAWS 1 ACCENTIA TECHNOLOGIES LIMITED HIGH TURNOVER AND EXTRAORDINARY ACTIVITY DURING THE YEAR UNDER REVIEW. THE COMPARABLE COMPANY IS ENGAGED IN MEDICAL TRANSCRIPTION AND SOFTWARE SALES(KPO) WHICH CANNOT BE COMPARED TO THE ASSESSEE BEING AN ITES SERVICE PROVIDER. HENCE REJECTED ON THE BASIS THAT THE SAID COMPARABLE IS FUNCTIONALLY DIFFERENT AND CANNOT BE CONSIDERED TO ITES PROVIDER. SAUNAY JEWELS PVT. LTD. REPORTED IN [2010]42 SOT 4 (JURISDICATIONAL ITAT) INDO AMERICAN JEWELLERY LIMITED REPORTED IN [2010] 131 TTJ 163 (JURISDICTIONAL ITAT) LG SOFT INDIA PRIVATE LIMITED (ITA NO.1121/BAN/2011) (BANGALORE ITAT) HONBLE JURISDICTIONAL TRIBUNAL IN THE CASE OF VODAFORE INDIA SERVICES P. LTD. (FORMERLY 3GLOBAL SERVICES P. LTD) REPORTED IN [2014] 30 ITR(TRIBUNAL) 218 RAMPGREEN SOLUTIONS PVT. LTD. REPORTED IN [2015] 377 ITR 533 EQUANT SOLUTIONS INDIA (P) LTD. REPORTED IN [2016] (ITA NO.1202/DEL/2015)-DELHI TRIBUNAL. 2 3 CORAL HUB LTD(FORMERLY KNOWN AS VISHAL INFORMATION TECHNOLOGIES LTD.) EXCEL INFOWAYS LIMITED FUNCTIONALLY DIFFERENT (KPO); VERY LOW EMPLOYEE COST RATIO; AND ABNORMAL BRIGADE GLOBAL SERVICES PVT. LTD. REPORTED IN [2013] 143 ITD 59 (HYDERABAD ITAT); CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD. REPORTED IN [2013] 25 ITR(TRIBUNAL) 185 (HYDERABAD ITAT) HSBC ELECTRONIC DATA PROCESSING INDIA LIMITED (ITA NO.1624/HYD/2010) (HYDERABAD ITAT) ZAVATA INDIA PVT. LTD. REPORTED IN [2013] 25 ITR (TRIBUNAL) 504 (HYDERABAD ITAT) 4 ECLERX SERVICES LTD KPO WHICH CANNOT BE COMPARED TO BPO AND HIGH TURNOVER. RAMPGREEN SOLUTIONS PVT. LTD. REPORTED IN [2015] 377 ITR 533-DELHI TRIBUNAL GLOBAL E-BUSINESS OPERATIONS (P) LTD. REPORTED IN [2015] (ITA NO.1678/BANG/2012) BANGALORE TRIBUNAL. MAERSK GLOBAL CENTRES ITA NO. 1878/M/2014 11 (INDIA) PRIVATE LIMITED REPORTED IN [2014] 31 ITR(TRIBUNAL)1/147 ITD 83/161 TTJ 137 (SPECIAL BENCH) AVINEON INDIA PVT. LTD. REPORTED IN [2014] 29 ITR(TRIBUNAL) 404 HYDERABAD ITAT) COGNIZANT TECHNOLOGY SERVICES PRIVATE LIMITED REPORTED IN [2013] 28 ITR(TRIBUNAL) 125/151 ITD 191 (HYDERABAD ITAT) 6.2. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMI TS THAT BASED ON THE ABOVE REASONS FOR REJECTION OF THE COMPARABLE C OMPANIES IF THESE 4 COMPARABLES ARE EXCLUDED THE FINAL POSITION WOU LD BE AS UNDER: SR. NO. TPO'S COMPARABLES UPHELD BY DRP MARGIN AS COMPUTED BY TPO 1 ACCENTIA TECHNOLOGIES LTD. OUGHT TO BE EXCLUDED O N HIGH TURNOVER 2 ADITYA BIRLA MINACS WORLDWIDE LTD (FORMERLY KNOWN AS TRANSWORKS) 23.75% 3 CORAL HUB LTD. (FORMERLY KNOWN AS VISHAL INFORMATION TECHNOLOGIES LTD.) OUGHT TO BE EXCLUDED ON FUNCTIONALLY DIFFERENT 4 COSMIC GLOBAL LTD 48.20% 5 CROSSDOMAIN SOLUTIONS PVT. LTD. 29.40% 6 DATAMATICS GLOBAL SERVICES LTD. 17.46% 7 ECLERX SERVICES LTD. OUGHT TO BE EXCLUDED ON HIGH TURNOVER 8 EXCEL INFOWAYS LTD. OUGHT TO BE EXCLUDED ON FUNCT IONALLY DIFFERENT AND ABNORMALLY PROFITS OF 290.11% AVERAGE 29.70% APPLICANTS (OP/OC) RATIO (CONSIDERING SEGMENTAL ACCOUNTS) 27.54% TRANSFER PRICING ADJUSTMENT NIL (SINCE IT FALLS WITHIN +/- 5% TOLERANCE BAND) THEREFORE, THE LD. COUNSEL FOR THE ASSESSEE SUBMI TS THAT ON EXCLUSION OF THE ABOVE 4 COMPARABLES, THE AVERAGE M ARGIN COMES TO 29.70% AS AGAINST THE ASSESSEES OPERATING PROFIT O PERATING COST RATIO BY CONSIDERING SEGMENTAL ACCOUNTS AT 27.54% AND IN SUCH CIRCUMSTANCES SINCE IT FALLS WITHIN THE PLUS OR MIN US 5% TOLERANCE BAND THERE WOULD NOT BE ANY TRANSFER PRICING ADJUST MENT. ITA NO. 1878/M/2014 12 7. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITS THAT PROPER OPPORTUNITY WAS GIVEN BY THE TPO FOR SUBMISSION OF INFORMATION AND INFACT THE ASSESSEE HAS FURNISHED DETAILS ON 4.1.20 13 AS WAS RECORDED BY THE TPO EXCEPT FOR THE QUERY AS TO WHY THE 9 SET OF COMPARABLES SHOULD NOT BE ADOPTED FOR BENCHMARKING THE INTERNAT IONAL TRANSACTIONS. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITS THAT HE HAS NO SERIOUS OBJECTION IN SETTING ASIDE THE ASSES SMENT FOR DENOVO CONSIDERATION BY THE TPO AND THE AO. 8. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE SUBMISSIONS MADE BEFORE U S. THE ASSESSEE PROVIDES COMPUTER AIDED SOFTWARE SOLUTIONS, MAINTEN ANCE AND IMAGING SERVICES TO ITS AE WHICH PROVIDED SERVICES TO OIL AND GAS COMPANIES OPERATING IN INDIA AND WAS GRANTED PERMIS SION FOR SETTING UP 100% EOU UNDER STPI SCHEME. THE ASSESSEE WAS CAT EGORIZED AS ITES SERVICE PROVIDER. HOWEVER, DURING THE YEAR UND ER CONSIDERATION, THE ASSESSEE APPLIED FOR DEBONDING OF STPI UNIT DU E TO RECESSION. THE ASSESSEE PROVIDED THE AFORESAID SERVICES ONLY UP TO JUNE 30, 2008 DURING THE YEAR UNDER CONSIDERATION. DURING THE FIN ANCIAL YEAR ENDED MARCH 31, 2009, THE ASSESSEE HAD PROVIDED IT ENABL ED SERVICES VIZ. SOFTWARE SUPPLY AND SUPPORT / MAINTENANCE SERVICES AND IMAGING SERVICES TO ITS 'ASSOCIATED ENTERPRISES' (HEREAFTER REFERRED TO AS 'AE(S)') PARADIGM BV AND PARADIGM AUSTRALIA AGGREGA TING TO RS 3,70,55,707/. THESE SERVICES WERE PROVIDED TILL THE EXISTENCE OF THE STPI UNIT I.E. FOR 3 MONTHS UPTO JUNE 30, 2008. THE ASSESSEE EARNED REVENUE OF RS. 3,70,55,707/- FROM THE INTERNATIONAL TRANSACTION ENTERED INTO DURING THE YEAR UNDER REVIEW. THE SAID INTERNATIONAL TRANSACTION WAS BENCHMARKED USING TNMM AS THE MOST APPROPRIATE METHOD IN ITS TRANSFER PRICING DOCUMENTATION ('TP D OCUMENTATION'). ITA NO. 1878/M/2014 13 THE ASSESSEE HAD ALSO PREPARED AUDITED SEGMENTALS R ELATING TO AE TRANSACTIONS WHICH FORMED PART OF THE SAID TP DOCUM ENTATION, DISCLOSING AN OPERATING PROFIT OF RS. 80,01,270/- W HICH WORKED OUT TO 27.54% ,ON ITS OPERATING COST OF RS.2,90,54,437/- A PPLYING OPERATING PROFIT/OPERATING COST ('OP/OC') AS THE PROFIT LEVEL INDICATOR ('PU'). THE ASSESSEE IDENTIFIED A SET OF 25 COMPARABLE COM PANIES WITH ARITHMETIC MEAN OF 20.54 PERCENT AND ACCORDINGLY TH E INTERNATIONAL TRANSACTIONS ENTERED INTO BETWEEN THE ASSESSEE AND ITS AE WERE CONSIDERED TO MEET THE ARMS LENGTH TEST. THE SAID SEGMENTALS WERE SUBMITTED BEFORE THE LOWER AUTHORITIES. 9. THE LEARNED TPO AT PARA 5.1. OF HIS ORDER CONT ENDED THAT THE AUDITED ANNUAL REPORT OF THE ASSESSEE DID NOT CONT AIN ANY SEGMENTAL REPORTING AND REJECTED THE AUDITED SEGMENTAL (I.E. STPI UNIT) FILED DURING THE COURSE OF THE TRANSFER PRICING ASSESSMEN T PROCEEDINGS. HOWEVER FAILED TO APPRECIATE THE ASSESSEE HAD ALREA DY FILED SEGMENTAL ACCOUNTS AS PART OF ITS TP DOCUMENTATION. THE ADJUSTMENT, IF ANY OUGHT TO HAVE BEEN RESTRICTED TO THE INTERNA TIONAL TRANSACTIONS UNDER REVIEW. THE INTERNATIONAL TRANSACTIONS UNDER REVIEW WERE UNDERTAKEN ONLY FOR A PERIOD OF 3 MONTHS DURING THE YEAR UNDER CONSIDERATION I.E. FROM APRIL 01, 2008 TILL JUNE 30 , 2008. THE ASSESSEE CONTENDED THAT THESE TRANSACTIONS WERE A MERE ROLL OVER OF THE SAME AGREEMENT AND UNDERTAKEN BASED ON SAME TERMS AND CO NDITIONS AND AT THE SAME RATES WHICH WERE APPLICABLE FOR PRIOR Y EAR I.E. AY 2008- 09 WHEREIN THE INTERNATIONAL TRANSACTIONS WERE CONS IDERED TO BE AT ALP AND THE SEGMENTAL ACCOUNTS WERE ALSO ACCEPTED B Y THE THEN TPO. THE ADJUSTMENT SUFFERED IN PRIOR YEAR I.E. AY 2008- 09 WAS ONLY ON ACCOUNT OF REIMBURSEMENT OF EXPENSES. WE OBSERVED F ROM THE RECORDS THAT THE INTERNATIONAL TRANSACTION UNDER RE VIEW IS RS. ITA NO. 1878/M/2014 14 3,70,55,707/-, BUT THE TPO PROCEEDED TO MAKE AN UPW ARD ADJUSTMENT OF RS. 26.13 CRORES BY CONSIDERING ENTITY LEVEL AP PROACH FOR DETERMINING THE ARM'S LENGTH PRICE OF THE INTERNATI ONAL TRANSACTION AND NOT APPRECIATING THE FACT THAT UNDER TNMM METHO D, THE TRANSFER PRICING ADDITION, IF ANY, SHOULD BE RESTRICTED TO T HE INTERNATIONAL TRANSACTIONS ONLY. 10. THE LEARNED TPO REJECTED THE TP DOCUMENTATION S UBMITTED BY THE ASSESSEE AND UNDERTOOK A FRESH BENCHMARKING AN D MADE AN UPWARD ADJUSTMENT OF RS.26,13,95,031/- BY DETERMINI NG THE ARM'S LENGTH MARGIN AT 69.76% VIDE ORDER DATED 16 JANUARY 2013 ('TP ORDER') ISSUED UNDER SECTION 92CA(3) OF THE INCOME- TAX ACT, 1961. THE LEARNED TPO ALSO RE-COMPUTED THE OPERATING PROF IT 1 (LOSS) OF THE ASSESSEE AT RS. (12,17,40,195/-) I.E. LOSS OF (60. 81 %) ON TOTAL COST, BY CONSIDERING ENTITY LEVEL PROFITS RATHER THAN RESTRI CTING THE ADJUSTMENT ONLY TO THE AE TRANSACTIONS THEREBY MAKING AN ADJUS TMENT OF RS. 26,13,95,031/- AT ENTITY LEVEL. IT IS WELL SETTLED THAT TRANSFER PRICING ADJUSTMENT IS WARRANTED ONLY QUA THE TRANSACTIONS W ITH AES AND NOT NON-AES. THUS, THE TPO/ AO GROSSLY ERRED IN MAKING AN ADDITION OF RS. 26,13,95,031/- WHICH IS 7 TIMES OR 705% OF THE INTERNATIONAL TRANSACTION VALUE ON ENTITY LEVEL RATHER THAN RESTR ICTING IT TO ONLY THE INTERNATIONAL TRANSACTIONS UNDER REVIEW. 11. IT IS THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE TPO HAS NOT GIVEN PROPER OPPORTUNITY AND SUFFICIENT TIME TO FURNISH NECESSARY DETAILS CALLED FOR. THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE WAS THAT A SHOW CAUSE NOTICE WAS ISSUED AT THE FAG-END OF DECEMBER, 2012 I.E. ON 21.12.2012 REQUIRING THE ASS ESSEE TO FURNISH THE DETAILS BY 3.1.2013. THE ASSESSEE FURNISHED SO ME OF THE DETAILS ITA NO. 1878/M/2014 15 ON 4.1.2013 AND APPROACHED THE TPO FOR FURNISHING F URTHER DETAILS ON 15.1.2013 BUT HOWEVER IT WAS CONTENDED THAT BY THAT TIME IT WAS INFORMED THAT TP ORDER WAS ISSUED AND THEREFORE FUR THER SUBMISSIONS WERE NOT TAKEN ON RECORD. WHAT WE NOTICED FROM THE TPOS ORDER WAS THAT THE ORDER WAS PASSED ON 16.1.2013. THE TI ME GAP BETWEEN THE ISSUE OF SHOW CAUSE NOTICE AND PASSING OF ASSE SSMENT ORDER WAS HARDLY 26 DAYS WHICH IS NOT EVEN A MONTH AND THE TP O HAS PROVIDED ONLY ONE OPPORTUNITY FOR FILING THE REQUIRED INFORM ATION IN THESE 26 DAYS WHICH IN OUR OPINION THERE IS LACK OF PROPER O PPORTUNITY AND SUFFICIENT TIME PROVIDED TO THE ASSESSEE FOR FURNIS HING REQUISITE DETAILS, PRINCIPLES OF NATURAL JUSTICE WERE NOT ADH ERED IN COMPLETING THE TRANSFER PRICING ADJUSTMENT. EVEN ON MERITS, W E FIND THAT WHEN THE ASSESSEE HAS FURNISHED SEGMENTAL REPORTS, THE T RANSFER PRICING OFFICER SHOULD NOT HAVE ADOPTED THE ENTITY LEVEL R EPORTS FOR BENCH MARKING THE INTERNATIONAL TRANSACTION. WE ARE ALSO AT LOSS TO UNDERSTAND HOW THE TRANSFER PRICING ADJUSTMENT CAN BE MADE AT RS. 26.13 CRORES WHEN THE ASSESSEE EARNED REVENUE OF RS . 3.71 CRORES FROM THE INTERNATIONAL TRANSACTIONS DURING THE ASSE SSMENT YEAR UNDER CONSIDERATION FROM ITS AES. 12. THE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VS SUMIT DIAMOND (INDIA) PVT. LTD. IN INCOME TAX APPEAL NO. 1647 OF 2013 DATED 11.1.2016 OBSERVED AS UNDER: 2. THE APPELLANT HAS URGED THE FOLLOWING QUESTIONS OF LAW, FOR OUR CONSIDERATION:- (A): WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE TRIBUNAL WAS JUSTIFIED IN COMING TO THE CO NCLUSION THAT OUT OF THE TOTAL TURNOVER OF RS.117,45,35,364/- EXPORT TURNOVER ELIG IBLE AS INTERNATIONAL ITA NO. 1878/M/2014 16 TRANSACTION TO RS.89.92 CRORES ONLY, REST, RS.27.52 CRORES BEING DOMESTIC TRANSACTION WAS OUTSIDE THE SCOPE OF EXAMINATION OF ALP? (B): WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE TRIBUNAL WAS JUSTIFIED IN COMING TO THE CO NCLUSION THAT AO/TPO WERE NOT JUSTIFIED IN EXCLUDING GAIN ON FOREIGN EXCHANGE FLUCTUATION FROM THE TOTAL REVENUES FOR THE PURPOSE OF COMPUTING OP/OC? 3 REGARDING QUESTION(A):- (A) THE RESPONDENT ASSESSEE IS ENGAGED IN THE BUSIN ESS OF TRADING IN DIAMONDS INCLUDING EXPORTS. IN THE SUBJECT ASSESSME NT YEAR, THE RESPONDENT ASSESSEE HAD INTERNATIONAL TRANSACTIONS WITH ITS AS SOCIATED ENTERPRISES(AE) IN U. S. A. THIS RESULTED IN THE ASSESSING OFFICER MAK ING A REFERENCE TO THE TRANSFER PRICING OFFICER(TPO) TO ASCERTAIN THE CORR ECT ARM LENGTH PRICE(ALP) OF THE TRANSACTIONS. (B) THE TPO ENHANCED THE CONSIDERATION IN RESPECT O F ITS INTERNATIONAL TRANSACTION TO ARRIVE AT THE ALP ON OPERATING MARGI N AT 7.32%. THE ASSESSING OFFICER PASSED FINAL ASSESSMENT ORDER IN ACCORDANCE WITH THE FINDINGS OF THE TPO FOR THE SUBJECT ASSESSMENT YEAR. (C) BEING AGGRIEVED, THE RESPONDENT ASSESSEE CARRIE D THE ISSUE IN APPEAL TO THE TRIBUNAL. THE TRIBUNAL, BY THE IMPUGN ED ORDER, HELD THAT EVEN IF THE OPERATING MARGIN AT 7.32% ARRIVED AT BY THE TPO IS ACCEPTABLE, THE SAME HAS TO BE LOADED ONLY IN RESPECT OF THE INTERNATION AL TRANSACTION SEGMENT(EXPORTS) ONLY ENTERED INTO BY THE RESPONDEN T ASSESSEE WITH ITS A. E.. IN THE LIGHT OF THE ABOVE, THE TRIBUNAL RESTORED TH E ISSUE TO THE ASSESSING OFFICER TO COMPUTE THE ALP ON INTERNATIONAL TRANSAC TIONS ONLY AND NOT DISTURB TRANSACTIONS WITH NON AE'S . (D) THE GRIEVANCE OF THE REVENUE BEFORE US IS THAT THE TRIBUNAL COULD NOT HAVE RESTRICTED THE APPLICATION OF THE ALP ONLY TO INTERNATIONAL TRANSACTION ENTERED INTO BY THE RESPONDENT ASSESSEE WITH ITS A.E.. HOWEVER, THE AFORESAID GRIEVANCE OF THE REVENUE IS NO LONGER RES INTEGRA, AS THIS COURT HAS IN CIT V/S M/S TARA JEWELS EXPORTS PVT LTD (INC OME TAX APPEAL NO.1814 OF 2013) DECIDED ON 5TH OCTOBER, 2015 AND CIT V/S T HYSSEN KRUPP INDUSTRIES INDIA PVT LTD (INCOME TAX APPEAL NO.2201 OF 2013) D ECIDED ON 2ND DECEMBER, 2015), HAS TAKEN A VIEW THAT THE ALP ADJU STMENT ARRIVED AT IS ONLY TO BE RESTRICTED TO THE INTERNATIONAL TRANSACTION E NTERED INTO BY THE RESPONDENT AND COULD NOT APPLY TO TRANSACTIONS ENTERED INTO WI TH NON-A.E. THIS IS FOR THE REASON THAT IN TERMS OF CHAPTER-X OF THE ACT THE MA NDATE IS TO REDETERMINE THE CONSIDERATION ONLY WITH REGARD TO INTERNATIONAL TRA NSACTION WITH A. E. 13. IN THE CASE OF CIT VS M/S. TARA JEWELS EXPORTS PVT. LTD IN INCOME TAX APPEAL NO. 1814 OF 2013 DATED 5.10.2015, THE JURISDICTIONAL HIGH COURT HELD AS UNDER: ITA NO. 1878/M/2014 17 5. ON APPEAL, THE TRIBUNAL BY THE IMPUGNED ORDER RECORDED THE FACT THAT THE ONLY GRIEVANCE OF THE RESPONDENT-ASSESSEE BEFORE IT WAS THE APPLICATION O F THE MARGIN OF 4.79% COMPUTED BY THE TPO UNDER THE TMM ACROSS ALL ITS SALES AND NOT RESTRICTED ONLY TO TH E INTERNATIONAL TRANSACTIONS ENTERED INTO BY IT WITH ITS AE. THE TRIBUNAL BY THE IMPUGNED ORDER HELD THAT THE EN TIRE EXERCISE OF DETERMINING THE ALP IS DONE IN ACCORDAN CE WITH CHAPTER X OF THE ACT AND IN PARTICULAR TO SEC. 92A AND 92B OF THE ACT REQUIRE THE TRANSFER PRICING ADJUSTMENT TO BE DONE ONLY IN RESPECT OF THE TRANSACTION ENTERED INT O BETWEEN THE RESPONDENT-ASSESSEE WITH ITS AES AND N OT WITH THE NON-AES. IN THE ABOVE CIRCUMSTANCES, THE TRIBU NAL SET ASIDE THE ORDER OF THE ASSESSING OFFICER/TPO AND DI RECTED THE ASSESSING OFFICER TO COMPUTE THE ALP BY ENHANCI NG THE CONSIDERATION BY 4.79% ONLY IN RESPECT OF THE INTER NATIONAL TRANSACTIONS ENTERED INTO BETWEEN THE RESPONDENT-AS SESSEE WITH ITS AES ONLY. 6. THE QUESTION AS PROPOSED BY THE REVENUE DOES NOT SEEMS TO ARISE FROM THE IMPUGNED ORDER OF THE TRIBU NAL NOR IS THE METHOD OF DETERMINATION OF ALP ON APPLIC ATION OF TNM ARRIVING AT THE MARGIN OF 4.79% IS DISPUTED BEFORE TRIBUNAL OR BEFORE US. WE ARE UNABLE TO UNDERSTAND THE GRIEVANCE OF THE REVENUE AS FORMULATED IN THE PROPO SED QUESTION. THE RESPONDENT-ASSESSEE HAS NOT CHALLENG ED THE APPLICATION OF TNMM AND ARRIVING AT THE MARGIN OF 4 .79% ARRIVED AT BY THE TPO TO DETERMINE ALP. THE GRIEVA NCE OF THE RESPONDENT-ASSESSEE BEFORE THE TRIBUNAL IS ONLY WITH THE MARGIN OF 4.79% BEING APPLIED IN RESPECT OF ALL ITS SALES AND NOT RESTRICTED TO THE INTERNATIONAL TRANS ACTIONS ENTERED INTO BY THE RESPONDENT-ASSESSEE WITH ITS A ES. IT IS EVIDENT FROM THE PROVISIONS OF CHAPTER X OF THE ACT THAT THE ADJUSTMENT WHICH HAS TO BE DONE TO ARRIVE AT ALP IS ONLY IN RESPECT OF THE TRANSACTION WITH ITS AES. THUS NO FAULT CAN BE FOUND WITH THE ORDER OF THE TRIBUNAL. 14. WHEN THE ASSESSEE HAS FURNISHED SEGMENTAL PROFI TS, THE ENTITY LEVEL PROFITS CANNOT BE CONSIDERED FOR BENCH MARKIN G INTERNATIONAL TRANSACTIONS IN VIEW OF THE JURISDICTIONAL HIGH COU RT DECISION. ITA NO. 1878/M/2014 18 THEREFORE, RESPECTFULLY FOLLOWING THE SAID DECISION S, WE HOLD THAT THE ALP OF THE ASSESSEE SHOULD BE DETERMINED ONLY ON TH E INTERNATIONAL TRANSACTIONS AND NOT ON THE ENTIRE TRANSACTIONS AT ENTITY LEVEL. WE ALSO FIND FROM VARIOUS DECISIONS THAT THE FOUR COMP ARABLES SELECTED BY THE TPO OUT OF 9 HAVE BEEN REJECTED FOR VARIOUS REASONS LIKE HIGH TURNOVER, FUNCTIONALLY DIFFERENT, ABNORMAL PROFITS ETC. TAKING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT THIS MATTER HAS TO GO BACK TO THE TPO FOR DENOVO ADJUDI CATION IN VIEW OF THE FACT THAT NO PROPER OPPORTUNITY WAS GIVEN BY TH E TPO. THEREFORE, WE DIRECT THE TPO TO COMPLETE THE DENOVO ASSESSMENT S KEEPING IN VIEW THE DECISIONS OF THE JURISDICTIONAL HIGH COURT AND VARIOUS OTHER TRIBUNALS IN REJECTING VARIOUS COMPARABLES SELECTED BY THE TPO AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO TH E ASSESSEE. 15. COMING TO THE DOMESTIC ISSUES THE ASSESSEE IS C HALLENGING THE ORDER OF THE DRP IN SUSTAINING THE UPWARD ADJUSTMEN T OF RS. 82,84,696/- ON ACCOUNT OF INVOICES RAISED ON ONGC WITHOUT APPRECIATING THAT THE SAME WERE PENDING ACCEPTANCE/ APPROVAL BY ONGC. 15.1. IT IS THE CONTENTION OF THE ASSESSEE THAT ASS ESSEE HAD RECEIVED THE ACCEPTANCE/APPROVAL BY ONGC IN THE SUBSEQUENT Y EAR I.E. ASSESSMENT YEAR 2010-11 AND ASSESSEE RECOGNIZED THE SAID AMOUNT AS ITS REVENUE AND HAS BEEN OFFERED TO TAX ACCORDIN GLY. THEREFORE, IT WAS THE SUBMISSION THAT SINCE THIS AMOUNT IS ALREAD Y OFFERED TO TAX IN THE ASSESSMENT YEAR 2010-11, THE SAME SHOULD NOT BE TAXED IN THE ASSESSMENT YEAR 2009-10. THEREFORE, THE LD. COUNSE L FOR THE ASSESSEE SUBMITS THAT THE MATTER MAY BE RESTORED TO THE ASSESSING OFFICER FOR FRESH ADJUDICATION. ITA NO. 1878/M/2014 19 15.2. THE LD. DEPARTMENTAL REPRESENTATIVE HAS NO SE RIOUS OBJECTION IN SETTING ASIDE THE SAME TO THE ASSESSING OFFICER. 15.3. ON HEARING BOTH THE PARTIES, WE HOLD THAT THE ASSESSING OFFICER SHOULD EXAMINE THIS MATTER AFRESH IN THE LIGHT OF T HE SUBMISSION THAT THE SAID AMOUNT HAS ALREADY BEEN TAXED IN THE ASSES SMENT YEAR 2010-11. THEREFORE, WE RESTORE THIS ISSUE TO THE FI LE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION. WE MAKE IT CLEAR T HAT THIS AMOUNT SHOULD BE TAXED EITHER IN THE ASSESSMENT YEAR 2010- 11 OR IN THE ASSESSMENT YEAR 2009-10 BUT NOT IN BOTH ASSESSMENT YEARS SINCE IT AMOUNTS TO DOUBLE TAXATION. THE ASSESSING OFFICER SHALL CONSIDER AND DECIDE ACCORDINGLY. 16. THE LAST ISSUE IN THE APPEAL OF THE ASSESSEE IS IN RESPECT OF THE ADDITION MADE ON ACCOUNT OF REMISSION OF LIABILITY. 16.1. IT IS THE SUBMISSION OF THE ASSESSEE THAT THE SAID REMISSION OF LIABILITY WAS TAXED IN THE ASSESSMENT YEAR 2008-09 ALSO BY THE ASSESSING OFFICER AND THE MATTER UNDER APPEAL. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ASSESSEE HAS CORRECTL Y OFFERED THIS REMISSION OF LIABILITY DURING THE CURRENT ASSESSME NT YEAR TO TAX. THEREFORE, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT SINCE THIS AMOUNT WAS ALREADY TAXED IN THE ASSESSMENT YEAR 20 08-09 WHICH IS UNDER APPEAL, THE DECISION WHETHER TO BE TAXED IN T HE ASSESSMENT YEAR 2009-10 SHOULD BE TAKEN BASED ON THE OUTCOME O F THE DECISION FOR THE ASSESSMENT YEAR 2008-09. THEREFORE, HE SUB MITS THAT THE MATTER MAY BE RESTORED TO THE FILE OF THE ASSESSING OFFICER. ITA NO. 1878/M/2014 20 16.2. THE LD. DEPARTMENTAL REPRESENTATIVE HAS NO SE RIOUS OBJECTION FOR RESTORING THIS ISSUE TO THE FILE OF THE ASSESSI NG OFFICER. 16.3. CONSIDERING THE SUBMISSIONS OF BOTH THE PARTI ES, WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WHO SHALL PASS NECESSARY ORDER KEEPING IN VIEW OF THE FACT THAT THIS AMOUNT WAS ALREADY TAXED IN THE ASSESSMENT YEAR 2008-09 AGAINST WHICH APPEAL IS PENDING AND IF ASSESSEE SUCCEEDS IN ASSESSMENT YEAR 2008-09, TH E ASSESSING OFFICER SHALL TAX THIS AMOUNT IN ASSESSMENT YEAR 20 09-10 AS OFFERED BY THE ASSESSEE HIMSELF. IN CASE, IF THE ASSESSEE FAILS IN THE ASSESSMENT YEAR 2008-09, THE ASSESSING OFFICER SHAL L NOT MAKE ADDITION OF THIS AMOUNT IN THE CURRENT ASSESSMENT Y EAR I.E. 2009-10. THUS WE RESTORE THIS MATTER TO THE FILE OF THE ASSE SSING OFFICER WITH A DIRECTION TO PASS CONSEQUENTIAL ORDERS ACCORDINGLY. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH JULY, 2016. SD/- SD/- (RAJENDRA) (C.N. PRASAD ) ' / ACCOUNTANT MEMBER $ %' /JUDICIAL MEMBER MUMBAI; (' DATED 13 TH JULY, 2016 . % . ./ RJ , SR. PS ITA NO. 1878/M/2014 21 !'#$#! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ) ( ) / THE CIT(A)- 4. ) / CIT 5. *+ ,%%-. , -.! , / DR, ITAT, MUMBAI 6. , /01 / GUARD FILE. / BY ORDER, *% //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI