Renault India Private Limited, Sriperambudur V. DCIT, CHENNAI

ITA 361/CHNY/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8800 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 10-05-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 14-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Transfer pricing; International transaction; Capital receipt
• Section: 10B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , . !'# ! , % !& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.361/MDS/2014 ( )( / ASSESSMENT YEAR : 2009-10 M/S RENAULT INDIA PVT. LTD., NO.37 & 38, FOURTH FLOOR, ASV RAMANA TOWERS, VENKATANARAYANA ROAD, T.NAGAR, CHENNAI - 600 017. PAN : AADCR 2042 M V. THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V(3), CHENNAI - 600 034. (+,/ APPELLANT) (-.+,/ RESPONDENT) +, / 0 / APPELLANT BY : SHRI SRIRAM SESHADRI, CA -.+, / 0 / RESPONDENT BY : SMT. VIJAYALAKSHMI, CIT 1 / 2% / DATE OF HEARING : 10.05.2016 3') / 2% / DATE OF PRONOUNCEMENT : 15.07.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE ASSESSING OFFICER CONSEQUENT TO THE DIRECTION O F DISPUTE RESOLUTION PANEL FOR THE ASSESSMENT YEAR 2009-10. 2 I.T.A. NO.361/MDS/14 2. THE FIRST ISSUE ARISES FOR CONSIDERATION IS TREA TMENT OF FOREIGN EXCHANGE GAINS EARNED ON CANCELLATION OF FORWARD CO NTRACTS. 3. SHRI SRIRAM SESHADRI, THE LD. REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE-COMPANY SET U P AN AUTOMOBILE MANUFACTURING PLANT IN THE STATE OF TAMI L NADU. IN THE COURSE OF SETTING UP OF PLANT, THE ASSESSEE IMPORTE D PLANT AND MACHINERY FROM OUTSIDE INDIA, MORE PARTICULARLY FRO M JAPAN. THE ADVANCE PAYMENT MADE BY THE ASSESSEE FOR IMPORT OF PLANT AND MACHINERY WAS CLASSIFIED AS CAPITAL WORK IN PROGRE SS. TO PROTECT THE FOREIGN EXCHANGE FLUCTUATION WITH RESPECT TO IM PORT OF PLANT AND MACHINERY, THE ASSESSEE ENTERED INTO FORWARD CONTRA CTS WITH BNP PARIBAS. ACCORDING TO THE LD. REPRESENTATIVE, THE ASSESSEE TOOK EIGHT NUMBERS OF FORWARD CONTRACTS. DUE TO SUSPENS ION OF AUTOMOBILE MANUFACTURING PLANT, THE ORIGINAL FORWAR D CONTRACTS WERE CANCELLED. DUE TO CANCELLATION FOR FORWARD CONTRAC TS, THE ASSESSEE- COMPANY EARNED NET FOREIGN EXCHANGE GAIN OF ` 25,82,81,725/- WHICH WAS CLASSIFIED AS INCOME FROM OTHER SOURCES I N THE FINANCIAL STATEMENTS. THE LD. REPRESENTATIVE FURTHER SUBMITT ED THAT SINCE THE FOREIGN EXCHANGE GAIN WAS EARNED IN THE COURSE OF I MPORT OF CAPITAL ASSET, NAMELY, PLANT AND MACHINERY, THE SAME WAS CO NSIDERED AS 3 I.T.A. NO.361/MDS/14 CAPITAL RECEIPT AND NOT OFFERED FOR TAXATION. ACCO RDING TO THE LD. REPRESENTATIVE, ANY RECEIPT IN RELATION TO PURCHASE OR SALE OF CAPITAL ASSET HAS TO BE NECESSARILY CONSIDERED AS CAPITAL R ECEIPT, THEREFORE, THE GAIN IN FOREIGN EXCHANGE DUE TO CANCELLATION OF FORWARD CONTRACTS HAS TO BE TREATED AS CAPITAL RECEIPT AND NOT LIABLE FOR TAXATION. 4. THE LD. REPRESENTATIVE FOR THE ASSESSEE FURTHER SUBMITTED THAT FORWARD CONTRACT WAS TAKEN BY THE ASSESSEE TO PROTECT THE INCREASED CAPITAL COST DUE TO FOREIGN EXCHANGE FLUC TUATION AND NOT FOR EARNING PROFIT IN THE COURSE OF ITS BUSINESS AC TIVITY. THE LD. REPRESENTATIVE FURTHER SUBMITTED THAT HAD THE PLANT AND MACHINERY WAS INSTALLED, THE GAIN ARISING OUT OF FOREIGN EXCH ANGE FLUCTUATION WOULD DEFINITELY GO TO REDUCE THE COST OF THE PLANT AND MACHINERY. THEREFORE, THE GAIN ARISING OUT OF FOREIGN EXCHANGE FLUCTUATION IS NOT LIABLE FOR TAXATION. REFERRING TO THE JUDGMENT OF APEX COURT IN CIT V. TATA LOCOMOTIVE AND ENGINEERING CO. LTD. (1966) 60 ITR 405, THE LD. REPRESENTATIVE SUBMITTED THAT THE DISPUTE RESOL UTION PANEL FAILED TO APPRECIATE THAT EVEN THOUGH NO PLANT AND MACHINERY WAS IMPORTED DUE TO CANCELLATION OF THE UNIT IN TAMIL N ADU, THE FORWARD CONTRACT WAS TAKEN IN THE COURSE OF IMPORT OF PLANT AND MACHINERY, 4 I.T.A. NO.361/MDS/14 WHICH IS A CAPITAL ASSET, HENCE, THE GAIN HAS TO BE CLASSIFIED AS CAPITAL RECEIPT, THEREFORE, THE DRP OUGHT NOT HAVE DIRECTED THE ASSESSING OFFICER TO TREAT THE GAIN ON FOREIGN EXCH ANGE FLUCTUATION AS REVENUE RECEIPT. 5. ON THE CONTRARY, SMT. VIJAYALAKSHMI, THE LD. DEP ARTMENTAL REPRESENTATIVE, SUBMITTED THAT HAD THE ASSESSEE IMP ORTED PLANT AND MACHINERY, THE GAIN DUE TO FOREIGN EXCHANGE FLU CTUATION MAY GO TO REDUCE THE COST OF THE PLANT AND MACHINERY. IN THE CASE BEFORE US, ADMITTEDLY, THE ASSESSEE HAS NOT IMPORTED ANY P LANT AND MACHINERY, THEREFORE, THERE IS NO QUESTION OF INCRE ASING OR DECREASING THE COST OF ASSET DUE TO FOREIGN EXCHANG E FLUCTUATION. ACCORDING TO THE LD. D.R., FOREIGN EXCHANGE GAIN IN FORWARD CONTRACT IS A REALITY WHICH CANNOT BE ASSOCIATED WITH ASSETS WHICH ARE NOT ACQUIRED. THE LD. D.R. FURTHER POINTED OUT THAT TH E FORWARD CONTRACT IS NOTHING BUT A TRADING ACTIVITY IN FINANCIAL PROD UCTS, THEREFORE, ACCORDING TO THE LD. D.R., THE GAIN FROM FOREIGN EX CHANGE FLUCTUATION HAS TO BE NECESSARILY TREATED AS REVENU E RECEIPT. HENCE THE SAME IS LIABLE FOR TAXATION. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, THE 5 I.T.A. NO.361/MDS/14 ASSESSEE PLACED ORDER FOR IMPORT OF PLANT AND MACHI NERY IN THE PROCESS OF SETTING UP A PLANT IN THE STATE OF TAMIL NADU. IN ORDER TO PROTECT THE ASSESSEE FROM FOREIGN EXCHANGE FLUCTUAT ION WITH REGARD TO IMPORT OF CAPITAL GOODS, NAMELY PLANT AND MACHIN ERY, FROM JAPAN, THE ASSESSEE ENTERED INTO FORWARD CONTRACT WITH BNP PARIBAS. SUBSEQUENTLY, THE ASSESSEE SUSPENDED THE SETTING UP OF PLANT IN THE STATE AND FORWARD CONTRACT WAS CONSEQUENTLY CAN CELLED. THE ASSESSEE ADMITTEDLY EARNED FOREIGN EXCHANGE GAIN TO THE EXTENT OF ` 25,82,81,725/-. THE ASSESSEE CLAIMS THE SAME AS CA PITAL RECEIPT ON THE BASIS OF THE JUDGMENT OF APEX COURT IN TATA LOCOMOTIVE AND ENGINEERING CO. LTD. (SUPRA). 7. IN THE CASE BEFORE THE APEX COURT, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF LOCOMOTIVE BOIL ERS AND LOCOMOTIVES. FOR THE PURPOSE OF MANUFACTURING ACTI VITY, THE ASSESSEE HAD TO PURCHASE PLANT AND MACHINERY FROM V ARIOUS COUNTRIES INCLUDING USA. THE ASSESSEE APPOINTED A NEW YORK COMPANY, WHICH IS SUBSIDIARY OF THE ASSESSEE, AS PU RCHASING AGENT IN USA. THEREAFTER, THE ASSESSEE FOUND IT MORE EXP ENSIVE TO BUY AMERICAN GOODS AS GOVERNMENT OF INDIA IMPOSED SOME RESTRICTIONS ON IMPORTS FROM USA. THE ASSESSEE WITH THE PERMISS ION OF 6 I.T.A. NO.361/MDS/14 RESERVE BANK OF INDIA REPATRIATED $ 49,500. THIS R ESULTED IN SURPLUS AND THE ASSESSING OFFICER ASSESSED THE SAME AS PROF IT ARISING IN THE COURSE OF BUSINESS ACTIVITY. HOWEVER, THIS TRIBUNA L FOUND THAT PART OF THE SURPLUS TO THE EXTENT OF $ 36,123 WAS FROM T RADING PROFIT. ON A REFERENCE, THE APEX COURT FOUND THAT THE SURPLUS TO THE EXTENT OF $ 36,123 WAS AN ACCRETION TO THE ASSESSEES FIXED CAP ITAL AND WAS NOT LIABLE FOR TAXATION. IN THE CASE BEFORE US ALSO, T HE ASSESSEE PLACED ORDERS FOR PURCHASE OF PLANT AND MACHINERY FROM JAP AN. SINCE THE PROPOSAL FOR SETTING UP OF PLANT WAS SUSPENDED, THE FORWARD CONTRACT TAKEN WAS CANCELLED, WHICH RESULTED IN THE NET PROF IT OF ` 25,82,81,725/-. 8. THE QUESTION ARISES FOR CONSIDERATION IS WHEN TH E ASSESSEE GAINED TO THE EXTENT OF ` 25,82,81,725/- DUE TO FOREIGN EXCHANGE FLUCTUATION, WHETHER THE SAME WOULD BE CLASSIFIED A S REVENUE RECEIPT OR CAPITAL RECEIPT? THE FACT REMAINS THAT THE FORWARD CONTRACT WAS TAKEN TO INSULATE / PROTECT THE ASSESS EE FROM THE POSSIBLE LOSS THAT MAY BE SUFFERED DUE TO FOREIGN E XCHANGE FLUCTUATION IN THE COURSE OF PURCHASING OF PLANT AN D MACHINERY. IT IS NOT IN DISPUTE THAT THE PLANT AND MACHINERY WHICH W AS PROPOSED TO BE PURCHASED FOR THE PURPOSE OF SETTING UP OF PLANT IN THE STATE OF 7 I.T.A. NO.361/MDS/14 TAMIL NADU, WHICH IS A CAPITAL ASSET. WHEN THE ASS ESSEE CANCELLED / SUSPENDED THE SETTING UP OF PLANT IN THE STATE OF TAMIL NADU AND CANCELLED THE FORWARD CONTRACT, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE LOSS OR GAIN WOULD BE RELATABLE TO THE PURCHASE OF CAPITAL ASSET, NAMELY, PLANT AND MACHINERY. THEREF ORE, THE LOSS OR GAIN AROSE TO THE ASSESSEE DUE TO CANCELLATION OF F ORWARD CONTRACT ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION HAS TO B E TREATED AS CAPITAL IN NATURE. MERELY BECAUSE THE ASSESSEE SUS PENDED THE SETTING UP OF PLANT IN TAMIL NADU AND CANCELLED FOR WARD CONTRACT, THAT CANNOT BE A REASON TO TREAT THE GAIN ARISING O N ACCOUNT OF CANCELLATION OF FORWARD CONTRACT AS REVENUE RECEIPT . SINCE THE TRANSACTION WAS RELATABLE TO ACQUISITION OF CAPITAL ASSET, NAMELY, PLANT AND MACHINERY BY WAY OF IMPORT FROM JAPAN, TH IS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE GAIN DUE TO FOREIGN EXCHANGE FLUCTUATION WOULD DEFINITELY BE ON THE CAPITAL FIEL D. THEREFORE, THIS TRIBUNAL IS UNABLE TO UPHOLD THE ORDER OF THE ASSES SING OFFICER. ACCORDINGLY, THE ORDERS OF THE ASSESSING OFFICER AR E SET ASIDE. THE ASSESSING OFFICER IS DIRECTED TO TREAT THE GAIN ARI SING OUT OF THE FOREIGN EXCHANGE FLUCTUATION ON ACCOUNT OF CANCELLA TION OF FORWARD CONTRACT AS CAPITAL RECEIPT. 8 I.T.A. NO.361/MDS/14 9. THE NEXT GROUND OF APPEAL IS WITH REGARD TO FAIL URE OF THE ASSESSING OFFICER TO GIVE CREDIT OF ADVANCE TAX TO THE EXTENT OF ` 54,61,897/-. 10. SHRI SRIRAM SESHADRI, THE LD. REPRESENTATIVE FO R THE ASSESSEE, SUBMITTED THAT THE ASSESSEE HAS PAID ADVA NCE TAX TO THE EXTENT OF ` 54,61,897/-, WHICH WAS NOT GIVEN CREDIT BY THE ASSE SSING OFFICER. 11. ON THE CONTRARY, SMT. VIJAYALAKSHMI, THE LD. DE PARTMENTAL REPRESENTATIVE, SUBMITTED THAT IF THE ASSESSEE DECL ARED INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION CORRESPONDI NG TO THE ADVANCE TAX PAID, THE ASSESSING OFFICER WOULD HAVE GIVEN THE CREDIT. HOWEVER, IT IS NOT KNOWN WHETHER THE ASSES SEE HAS DECLARED THE CORRESPONDING INCOME IN THE RETURN. IF THE RET URN DOES NOT CONTAIN THE DETAILS OF INCOME WITH REGARD TO ADVANC E TAX PAYMENT, NATURALLY THE ASSESSING OFFICER WOULD NOT GIVE THE NECESSARY CREDIT. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. WHEN THE ASSESSEE HAS PAID ADVANCE TAX TO THE EXTENT OF ` 54,61,897/-, THE SAME HAS TO BE GIVEN CREDIT WHILE COMPUTING THE TAX PAYABLE BY THE 9 I.T.A. NO.361/MDS/14 ASSESSING OFFICER. UNDER NORMAL CIRCUMSTANCES, INC OME-TAX HAS TO BE PAID ON THE ASSESSED INCOME. HOWEVER, THE INCOM E-TAX ACT PROVIDES FOR PAYMENT OF TAX ON INCOME IN ADVANCE BE FORE ASSESSMENT OF TOTAL INCOME. WHEN THE ASSESSEE PAYS THE TAX IN ADVANCE AS PER THE SCHEME OF INCOME-TAX ACT, THIS T RIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSESSING OFFICER HAS T O NECESSARILY GIVE CREDIT TO THE ADVANCE TAX PAID BY THE ASSESSEE . ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE A ND THE ISSUE OF ADVANCE TAX CREDIT TO THE EXTENT OF ` 54,61,897/- IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING O FFICER SHALL VERIFY THE DETAILS OF ADVANCE TAX PAID BY THE ASSESSEE AND THEREAFTER GIVE NECESSARY CREDIT, IF THE ADVANCE TAX WAS ACTUALLY P AID BY THE ASSESSEE. 13. THE NEXT ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO INTEREST UNDER SECTION 234C OF THE ACT. 14. SHRI SRIRAM SESHADRI, THE LD. REPRESENTATIVE FO R THE ASSESSEE, SUBMITTED THAT INTEREST UNDER SECTION 234 C OF THE ACT HAS TO BE LEVIED ON THE RETURNED INCOME AND NOT ON THE ASSESSED 10 I.T.A. NO.361/MDS/14 INCOME. IN THIS CASE, THE ASSESSING OFFICER LEVIED INTEREST ON THE ASSESSED INCOME AND NOT ON THE RETURNED INCOME. 15. ON THE CONTRARY, SMT. VIJAYALAKSHMI, THE LD. DE PARTMENTAL REPRESENTATIVE, SUBMITTED THAT SECTION 234C OF THE ACT PROVIDES FOR INTEREST FOR NON-PAYMENT OF ADVANCE TAX WITHIN THE TIME PRESCRIBED. REFERRING TO SECTION 234C OF THE ACT, THE LD. D.R. SUBMITTED THAT THE ASSESSEE HAS TO PAY THE ADVANCE TAX AS PER THE SCHE ME FRAMED IN SECTION 234C OF THE ACT. IN THE ABSENCE OF ANY PAY MENT OF ADVANCE TAX, ACCORDING TO THE LD. D.R., THE ASSESSING OFFIC ER HAS RIGHTLY LEVIED INTEREST UNDER SECTION 234C OF THE ACT. 16. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. SECTION 234C OF THE ACT PROVIDES FOR PAYMENT OF INTEREST FOR DEFERM ENT OF ADVANCE TAX. THE ASSESSEE CLAIMS BEFORE THIS TRIBUNAL THAT A SUM OF ` 54,61,897/- WAS PAID AS ADVANCE TAX, HOWEVER, THE S AME WAS NOT GIVEN CREDIT. WHILE CONSIDERING THE FAILURE OF THE ASSESSING OFFICER TO GIVE CREDIT TO THE ADVANCE TAX TO THE EXTENT OF ` 54,61,897/-, THIS TRIBUNAL FINDS THAT THE MATTER NEEDS TO BE VERIFIED AND THE CREDIT SHOULD BE GIVEN IF THE ASSESSEE PAID ADVANCE TAX. SINCE THE INTEREST IS LEVIED FOR NON-PAYMENT OF ADVANCE TAX A ND THE ASSESSEE 11 I.T.A. NO.361/MDS/14 CLAIMS THAT THE ADVANCE TAX PAID WAS NOT GIVEN CRED IT, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RECONSIDERED BY THE ASSESSING OFFICER. ACCORDINGLY , THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE IN RESPECT OF L EVY OF INTEREST UNDER SECTION 234C OF THE ACT AND THE ISSUE IS REMI TTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFIC ER SHALL RE- EXAMINE THE ISSUE AFRESH AND THEREAFTER DECIDE THE SAME IN ACCORDANCE WITH LAW AFTER GIVING A REASONABLE OPPOR TUNITY TO THE ASSESSEE. 17. THE NEXT ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO ADJUSTMENT PROPOSED BY THE DISPUTE RESOLUTION PANEL WHILE DETERMINING THE ARM'S LENGTH PRICE. 18. SHRI SRIRAM SESHADRI, THE LD. REPRESENTATIVE FO R THE ASSESSEE, SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF ENGINEERING DESIGN AND DRAWINGS OF MOTOR CARS, S PECIFICALLY CATERING TO THE INDIAN MARKET. THE DESIGN SERVICES ARE IN RELATION TO AESTHETIC LIKE OF THE MOTOR VEHICLE WHICH COVERS BO TH INTERIOR AND EXTERIOR OF THE VEHICLE. THE ASSESSEE SELECTED EIG HT COMPARABLES AND DETERMINED ARITHMETIC MEAN AT 12.13%. HOWEVER, OUT OF THE EIGHT COMPARABLES, THE TRANSFER PRICING OFFICER FOU ND SIX 12 I.T.A. NO.361/MDS/14 COMPARABLES SELECTED BY THE ASSESSEE ARE NOT SIMILA R TO THE ASSESSEE. REFERRING TO AKSHAY SOFTWARE TECHNOLOGIE S LTD., THE LD. REPRESENTATIVE SUBMITTED THAT THE TPO REJECTED THE COMPARABLE ON THE GROUND THAT AKSHAY SOFTWARE TECHNOLOGIES LTD. I S ENGAGED IN SOFTWARE TRADE PERTAINING TO FINANCIAL SERVICES. R EFERRING TO MAHINDRA CONSULTING ENGINEERS LTD., THE LD. REPRESE NTATIVE SUBMITTED THAT THE TPO FOUND THAT THIS COMPANY IS A LSO NOT SIMILAR TO ASSESSEE-COMPANY ON THE GROUND THAT MAHINDRA CON SULTING ENGINEERS LTD. PROVIDES CONSULTING SERVICES TO WATE R SUPPLY, SEWERAGE, ETC. REFERRING TO CSS TECHNERGY LTD., TH E LD. REPRESENTATIVE SUBMITTED THAT THE TPO FOUND THAT NO SEGMENTAL ANALYSIS WAS AVAILABLE. THE TPO HAS ALSO FOUND THA T CSS TECHNERGY LTD. PROVIDES ENGINEERING AND INFORMATION TECHNOLOGY SERVICES TO UTILITIES, AEROSPACE AND HEALTHCARE. S IMILARLY, TATA ELXSI LTD., VAMA INDUSTRIES LTD. AND KLG SYSTEL LTD. WERE ALSO REJECTED BY THE TPO ON THE GROUND THAT THEIR FUNCTIONS ARE N OT SIMILAR TO THAT OF THE ASSESSEE-COMPANY. THE DISPUTE RESOLUTION PA NEL, HOWEVER, CLASSIFIED THE ASSESSEES FUNCTION AS KNOWLEDGE PRO CESS OUTSOURCING. ACCORDING TO THE LD. REPRESENTATIVE, THE FUNCTION OF THE ASSESSEE IS DESIGN ENGINEERING SERVICES AND NOT KNOWLEDGE PROCESS OUTSOURCING. NONE OF THE COMPANY SELECTED BY THE TPO 13 I.T.A. NO.361/MDS/14 ARE ENGAGED IN THE BUSINESS OF PROVIDING ENGINEERIN G DESIGN SERVICE. ALL THE COMPANIES SELECTED BY THE ASSESSE E AND COMPARED BY THE TPO ARE ENGAGED IN IT ENABLED SERVICES. THE REFORE, THE COMPARISON MADE BY THE TPO WITH THAT OF THE COMPANI ES WHICH ARE NOT DOING SIMILAR FUNCTIONS, CANNOT BE A FOUNDATION FOR MAKING TRANSFER PRICING ADJUSTMENT. ACCORDING TO THE LD. REPRESENTATIVE, WITHOUT COMPARING THE COMPARABLE COMPANIES WHICH AR E PERFORMING SIMILAR FUNCTIONS, THE DRP PROCEEDED ON THE PRESUMP TION OF UTILIZATION OF MULTIPLE YEAR DATA. UNLESS AND UNTI L THE COMPARABLE COMPANIES ARE ENGAGED IN THE BUSINESS, WHICH ARE SI MILAR IN NATURE AS THAT OF ASSESSEE-COMPANY, ACCORDING TO THE LD. R EPRESENTATIVE, THE SAME CANNOT BE COMPARED WITH THAT OF THE ASSESS EE-COMPANY. 19. ON THE CONTRARY, SMT. VIJAYALAKSHMI, THE LD. DE PARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE PRICE OF INTERNA TIONAL TRANSACTION NEEDS TO BE COMPARED WITH THE PRICE OF UNCONTROLLED COMPARABLE TRANSACTION. THE LD. D.R. FURTHER SUBMITTED THAT T HE UNCONTROLLED TRANSACTION TOOK PLACE IN THE SAME FINANCIAL YEAR M AKES BETTER COMPARABLES. IF THE INTERNATIONAL TRANSACTION AND UNCONTROLLED TRANSACTION TOOK PLACED IN DIFFERENT FINANCIAL YEAR , THEN THE DIFFERENCE IN TIME PERIODS MAKES THE UNCONTROLLED T RANSACTION AS NOT 14 I.T.A. NO.361/MDS/14 COMPARABLE. REFERRING TO RULE 10B(4) OF THE INCOME -TAX RULES, 1962, THE LD. D.R. SUBMITTED THAT THE MOST APPROPRI ATE DATA TO BE USED SHALL BE THE DATA RELATING TO THE FINANCIAL YE AR IN WHICH THE TRANSACTION IS ENTERED INTO. THE TPO AS WELL AS TH E DRP HAVE ALSO REFERRED RULE 10B AND FOUND THAT SINCE NO FUNCTIONA LLY SIMILAR COMPANIES ARE AVAILABLE, THE TPO AND DRP HAVE TO NE CESSARILY CONSIDER THE MULTIPLE YEAR DATA AVAILABLE IN THE PU BLIC DOMAIN. THEREFORE, ACCORDING TO THE LD. D.R., THE DRP HAS R IGHTLY CONFIRMED THE ORDER OF THE TRANSFER PRICING OFFICER. 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF RULE 10AB OF THE INCOME- TAX RULES, 1962, WHICH READS AS FOLLOWS:- FOR THE PURPOSES OF CLAUSE (F) OF SUB-SECTION (1) OF SECTION 92C, THE OTHER METHOD FOR DETERMINATION OF TH E ARM'S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION SHALL BE ANY METHOD WHICH TAKES INTO AC COUNT THE PRICE WHICH HAS BEEN CHARGED OR PAID, OR WOULD HAVE BEEN CHARGED OR A SPECIFIED DOMESTIC TRANSACTION OR PAID, FOR THE SAME OR SIMILAR UNCONTROLLED TRANSACTION, W ITH OR BETWEEN NON-ASSOCIATED ENTERPRISES, UNDER SIMILAR CIRCUMSTANCES, CONSIDERING ALL THE RELEVANT FACTS. IN VIEW OF RULE 10AB OF INCOME-TAX RULES, 1962, IT IS OBLIGATORY ON THE PART OF THE TRANSFER PRICING OFFICER AND THE DI SPUTE RESOLUTION 15 I.T.A. NO.361/MDS/14 PANEL TO COMPARE THE TRANSACTION OF THE ASSESSEE WI TH COMPARABLE COMPANIES WHICH ARE ENGAGED ON THE SAME OR SIMILAR UNCONTROLLED TRANSACTION WITH NON-ASSOCIATE ENTERPRISES. FUNCTI ONAL SIMILARITY IS ONE OF THE RELEVANT FACTORS FOR THE PURPOSE OF COMP ARING THE ASSESSEES TRANSACTION WITH THAT OF TRANSACTION OF COMPARABLE COMPANY. IF THE TRANSACTION OF THE ASSESSEE-COMPAN Y WITH ITS ASSOCIATE ENTERPRISE IS TOTALLY DIFFERENT FROM COMP ARABLE COMPANIES, THEN THE SAME CANNOT BE COMPARED INSTANTLY FOR THE PURPOSE OF DETERMINING THE ARM'S LENGTH PRICE. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT FOR THE PURPOSE OF COMPARIN G THE COMPARABLE TRANSACTION WITH THAT OF TRANSACTION OF ASSESSEE FOR THE PURPOSE OF DETERMINATION OF ARM'S LENGTH PRICE, THE TPO AS WELL AS THE DRP HAVE TO FIND OUT THE COMPANIES WHICH ARE EN GAGED IN THE SAME OR SIMILAR FUNCTIONS. SINCE THE TPO AS WELL A S THE DRP HAVE NOT SELECTED THE COMPANIES WHICH ARE ENGAGED IN THE SAME OR SIMILAR FUNCTIONS AS THAT OF THE ASSESSEE-COMPANY, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RECONSIDERED BY THE TRANSFER PRICING OFFICER. ACCORDINGLY, THE ORDERS OF THE AUTHORITIES BELOW ARE SET ASIDE AND THE ISSUE OF TR ANSFER PRICING ADJUSTMENT IS REMITTED BACK TO THE FILE OF ASSESSIN G OFFICER. THE ASSESSING OFFICER SHALL REFER THE MATTER ONCE AGAIN TO THE TRANSFER 16 I.T.A. NO.361/MDS/14 PRICING OFFICER. THE TRANSFER PRICING OFFICER SHAL L FIND OUT THE COMPANIES WHICH ARE PERFORMING SAME OR SIMILAR FUNC TIONS AS THAT OF THE ASSESSEE-COMPANY AND THEREAFTER DECIDE THE ISSU E IN ACCORDANCE WITH LAW AFTER GIVING A REASONABLE OPPOR TUNITY TO THE ASSESSEE. IT IS OPEN TO THE ASSESSEE TO FILE OBJEC TION TO THE ORDER OF THE TRANSFER PRICING OFFICER. WHEN SUCH AN OBJECTI ON IS FILED, THE MATTER SHALL BE REFERRED TO DRP ONCE AGAIN TO DETER MINE IN ACCORDANCE WITH LAW. 21. WITH THE ABOVE OBSERVATION, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 15 TH JULY, 2016 AT CHENNAI. SD/- SD/- (. !'# ! ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 15 TH JULY, 2016. KRI. / -267 87)2 /COPY TO: 1. +, /APPELLANT 2. -.+, /RESPONDENT 3. ITO(HQRS) SECRETARY, DRP, CHENNAI 4. THE TPO-II, CHENNAI-34 5. 79 -2 /DR 6. ( : /GF.