Verifone India Sales Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 607/DEL/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6371 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 21-05-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 03-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PEEYUSH JAIN ORDE ORDE ORDE
• Assessee Lawyers: MANONEET DALAL; HIMANSHU S SINHA
• Keywords: Transfer pricing; International transaction
• Section: 143(3)

Judgement Text

ITA NOS. 5829/DEL/2010 & 607/DEL/2014 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I NEW DELHI BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NOS. 5829/DEL/2010 & 607/DEL/2014 A.YRS. : 2006-07 & 2009-10 M/S VERIFONE SALES INDIA PRIVATE LIMITED, (FORMERLY KNOWN AS LIPMAN ELECTRONICS INDIA P LTD.) 1 ST FLOOR, B-1, SECTOR-4, NOIDA 201 301 (PAN: AABCL1063E) VS. INCOME TAX OFFICER, WARD 17(2), NEW DELHI (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) ASSESSEE BY : S H. HIMANSHU S. SINHA, ADV. & SH. MANONEET DALAL, ADV. DEPARTMENT BY : SH. PEEYUSH JAIN, CIT(DR) ORDE ORDE ORDE ORDER R R R PER PER PER PER SHRI SHAMIM YAHYA : AM SHRI SHAMIM YAHYA : AM SHRI SHAMIM YAHYA : AM SHRI SHAMIM YAHYA : AM THESE ARE THE APPEALS BY THE ASSESSEE AGAINST THE R ESPECTIVE ORDERS OF THE ASSESSING OFFICER PASSED U/S. 143(3) OF THE I.T. ACT READ WITH SECTION 144C FOR THE ASSTT. YEARS 2006-07 & 20 09-10. ITA NO. 5829/DEL/2010 ITA NO. 5829/DEL/2010 ITA NO. 5829/DEL/2010 ITA NO. 5829/DEL/2010 2. THE GROUNDS PRESSED IN THIS APPEAL BY THE ASSESS EE READ AS UNDER:- 1(A). WHILE THE LD. TPO ERRED IN TOTALLY IGNORING THE WORKING CAPITAL ADJUSTMENT DESPITE THE DETAILS ITA NOS. 5829/DEL/2010 & 607/DEL/2014 2 HAVING BEEN MADE AVAILABLE TO HIM, THE DRP ERRED IN REJECTING WORKING CAPITAL ADJUSTMENT ON INCORRECT, IRRELEVANT AND BASELESS CALCULATIONS IN RESPECT OF COMPARABLE COMPANIES. 1(B). THE LD. DRP HAS ERRED IN REJECTING WORKING CAPITAL ADJUSTMENT ON IRRELEVANT FIGURATIVE BASIS WITHOUT PROPER APPLICATION OF MIND. 2. THE LD. DRP/TPO HAS ERRED IN LAW AND ON FACTS OF THE CASE IN NOT CONSIDERING ACI INFOCOM LTD. AS A COMPARABLE COMPANY. 3. THE BRIEF FACTS OF THE CASE ARE THAT VERIFONE IND IA WAS INCORPORATED ON AUGUST 18, 2005 IS ESSENTIALLY ENGA GED IN THE DISTRIBUTION AND MARKETING OF HI-TECH PRODUCTS MANUF ACTURED BY VERIFONE GROUP COMPANIES VIZ. POS TERMINALS, INTEGRATE D TERMINALS, ATMS, ELECTRONIC CASH REGISTERS AND OTHER PRODUCTS. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE IMPORTED FINISHED GOODS AND SPARES FROM ITS ASSOCIATED ENTERPRISES (AES) FOR RESALE IN THE DOMESTIC MARKET. THE FOLLOWING INTERNATIONAL TRANSACTIONS WITH ITS A ES WERE REPORTED IN FORM 3CEB FILED WITH THE RETURN OF INCOME. DESCRIPTION OF INTERNATIONAL TRANSACTION DESCRIPTION OF INTERNATIONAL TRANSACTION DESCRIPTION OF INTERNATIONAL TRANSACTION DESCRIPTION OF INTERNATIONAL TRANSACTION VALUE IN INR VALUE IN INR VALUE IN INR VALUE IN INR PURCHASE OF FINISHED GOODS AND SPARES 60,120,186 FOR DETERMINING THE ARMS LENGTH PRICE (ALP) OF THE I NTERNATIONAL TRANSACTION, THE ASSESSEE ADOPTED TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD WITH THE PROFIT LEVEL INDICATOR (PLI) AS OPERATING PROFIT / OPERATING SALES. THE AS SESSEE SELECTED 9 COMPARABLE COMPANIES ON THE BASIS OF A SEARCH CARRIED ON BY IT HAVING ITA NOS. 5829/DEL/2010 & 607/DEL/2014 3 A MEAN OP/SALES OF 1.22% VIS-A-VIS THE ASSESSEE WHI CH EARNED OP/SALES OF 3.49%. IT WAS THUS CONCLUDED THAT THE IN TERNATIONAL TRANSACTIONS OF THE ASSESSEE WERE AT ARMS LENGTH. DURING THE COURSE OF TRANSFER PRICING ASSESSMENT PR OCEEDINGS, THE LD. TPO ACCEPTED TNMM AS THE MOST APPROPRIATE METHOD AND ALSO ACCEPTED THE PLI AS OP/SALES. HOWEVER, THE LD. TPO D ISAGREED WITH THE COMPARABILITY ANALYSIS CONDUCTED BY THE ASSESSEE AND REJECTED 5 COMPARABLES OUT OF THE TOTAL 9 COMPANIES SELECTED BY THE COMPANY. FURTHER, THE LD. TPO MODIFIED THE MARGINS OF KANIKA IN FRASTRUCTURE BASED ON THE SEGMENTAL ACCOUNTS. THEREFORE, THE LD. TPO ACCEPTED ONLY 4 COMPANIES AS COMPARABLES FOR THE TP ANALYSIS, W HICH SHOWED A MEAN OP/SALES OF 9.48% RESULTING IN A TP ADJUSTMENT OF INR 37,81,265. THE TPO SELECTED FOLLOWING COMPARABLES AND CALCULATED MEAN MARGINS AS FOLLOWS:- NAME OF COMPARABLE COMPANY NAME OF COMPARABLE COMPANY NAME OF COMPARABLE COMPANY NAME OF COMPARABLE COMPANY OP/SALES OP/SALES OP/SALES OP/SALES BARTRONICS INDIA LTD. 22.39% COMPUAGE INFOCOM LTD. 1.93% KANIKA INFRASTRUCTURE AND POWER LTD. 6.10% KILBURN OFFICE AUTOMATION 7.51% ARITHMETIC MEAN ARITHMETIC MEAN ARITHMETIC MEAN ARITHMETIC MEAN 9.48% 9.48% 9.48% 9.48% 4. IN THE PROCEEDINGS BEFORE THE DRP, THE DRP UPHELD THE FINDING OF THE TPO. 5. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEA L BEFORE US. ITA NOS. 5829/DEL/2010 & 607/DEL/2014 4 6. GROUND GROUND GROUND GROUND N NN NO. 1: O. 1: O. 1: O. 1:- -- - THE FIRST GRIEVANCE OF THE ASSESSEE IS THAT ASSESS EE HAS NOT BEEN GRANTED WORKING CAPITAL ADJUSTMENT. IN THIS REGARD , LD. COUNSEL OF THE ASSESSEE HAS SUBMITTED THAT THE TPO HAS REFUSED TO PR OVIDE THE WORKING CAPITAL ADJUSTMENT ON THE GROUND THAT THE AS SESSEE HAD FAILED TO PROVIDE THE DETAILS OF WORKING IN THIS REGARD. IN THIS REGARD, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT TPO FAILED TO CONSIDER THAT THE ASSESSEE HAD SUBMITTED BEFORE THE LD. TPO VIDE ITS WR ITTEN SUBMISSION DATED 21.7.2009, THE WORKING CAPITAL ADJUSTMENT AS PER OECD APPROVED METHOD. DETAILED JUSTIFICATION AND WORKING WE RE FURNISHED. HOWEVER, THE TPO DISREGARDED THE SAME AND ERRONEOUSL Y OBSERVED IN PARA 7.2 OF HIS ORDER THAT THE ASSESSEE HAD FAILED TO PROVIDE THE REQUISITE DETAILS AND WORKING IN THIS REGARD. BEFORE THE DRP, THE ASSESSEE REITERATED ITS POSITIO N. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT DRP IN ITS ORDE R COMPLETELY MISDIRECTED ITSELF BY REJECTING THE RIGHTFUL CLAIM OF THE ASSESSEE BY CARRYING OUT A ONE SIDED ANALYSIS OF THE COMPARABLES WITHOUT ANY REGARD TO THE ASSESSEE. THAT IT ALSO CITED IRREL EVANT FACTS TO ARRIVE AT THIS ERRONEOUS CONCLUSIONS. THAT THE LD. DRPS REASO NING IS PROVIDED AT PAGE 2, PARA 3 OF ITS ORDER. FOR INSTANCE, IN RESP ECT OF ONE OF THE COMPARABLES, NAMELY BARTRONICS INDIA, THE LD. DRP HE LD THAT WORKING CAPITAL ADJUSTMENT COULD NOT BE GRANTED BECAUSE ITS ACCOUNTS PAYABLE STOOD AT RS. 4.22 CRORE AGAINST OPERATING INCOME OF RS. 29.13 CRORE. FURTHER THE LD. DRP OBSERVED THAT BARTRONICS INDIAS INTEREST BURDEN WAS RS. .76 CRORE AND THAT IT HAD SUBSTANTIAL RESER VE OF RS. 53.82 CRORE. THE LD. DRP FAILED TO TAKE COGNIZANCE OF THE FACT TH AT FOR WORKING OUT ADJUSTMENT ON ACCOUNT PAYABLE, A COMPARISON OF RATIO OF ACCOUNT ITA NOS. 5829/DEL/2010 & 607/DEL/2014 5 PAYABLE TO SALES HAS TO BE MADE BETWEEN THE ASSES SEE AND THE COMPARABLE. THAT AS EVIDENT FROM THE WORKING SUBMIT TED BEFORE THE LD. TPO AT PAGE 67 OF THE PAPER BOOK THIS RATIO IN R ESPECT OF THE ASSESSEE WORKED OUT TO BE 99.28% AS AGAINST 14.49% FOR BARTRONICS INDIA. THAT THIS DIFFERENCE OF 84.80% BEING MATERI AL, AN ADJUSTMENT WAS WARRANTED UNDER RULE 10B(1)(E)(III). THAT THE FACTS RELATING TO INTEREST BURDEN AND RESERVES OF THE COMPARABLE ARE COMPLETELY EXTRANEOUS TO THE CALCULATION OF WORKING CAPITAL AD JUSTMENT ON ACCOUNT OF DIFFERENCE IN ACCOUNT PAYABLE POSITION. THAT TH E REQUIREMENT TO PROVIDE FOR WORKING CAPITAL ADJUSTMENT IS NO LONGER RES-INTEGRA AND HAS BEEN SETTLED BY WAY OF SEVERAL JUDICIAL PRONOUNCEMEN TS. 7. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE R ECORDS ON THIS ISSUE. WE NOTE THAT ASSESSEE HAS CLAIMED BEFORE THE TPO REGARDING WORKING CAPITAL ADJUSTMENT, BUT THE SAME HAS BEEN DE NIED BY THE TPO ON THE GROUND THAT ASSESSEE FAILED TO PROVIDE THE D ETAILS AND WORKING IN THIS REGARD. HOWEVER, WE NOTE THAT AS PER THE S UBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE AS ABOVE. AO HAS DISREGARD ED THE SUBMISSIONS OF THE ASSESSEE IN THIS REGARD. THE DR P ALSO CONSIDERED THE WORKING CAPITAL ADJUSTMENT ONLY WITH RESPECT TO THE COMPARABLES SUBMITTED BY THE ASSESSEE. IT DID NOT ANALYSE THE S AME WITH RESPECT TO THE DATA OF THE ASSESSEE COMPANY. IN LIGHT OF THE ABOVE, IN OUR CONSIDERED OPINION, INTEREST OF JUSTICE WILL BE SE RVED IF THE MATTER IS REMITTED TO THE FILE OF THE TPO TO CONSIDER THE ISSU E OF WORKING CAPITAL ADJUSTMENT AS CLAIMED BY THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. ITA NOS. 5829/DEL/2010 & 607/DEL/2014 6 8. GROUND NO. 2 GROUND NO. 2 GROUND NO. 2 GROUND NO. 2 IN THIS GROUND ASSESSEE HAS AGITATED THAT DRP/TPO H AS ERRED IN IN LAW AND ON FACTS OF THE CASE IN NOT CONSIDERING ACI INFOCOM LTD. AS A COMPARABLE COMPANY. 8.1 THE TPO HAS REJECTED THE ABOVE COMPARABLE ON THE GROUND THAT THE SAID COMPANY OVER THE PERIOD OF 9 YEARS FROM 2000 -2008 HAS REGISTERED LOSSES IN ALL THE YEARS EXCEPT, 2001 AND 2004. THE COMPANYS NETWORTH IS ALSO ERODING YEAR BY YEAR. THA T, HENCE, THE COMPANY RESULTS ARE AN ABERRATION TO CONCLUDE THE C OMPARABILITY OF THE INDUSTRY. IN THIS REGARD, ASSESSEE HAS RESPON DED THAT SINCE THE DEPARTMENT WAS ONLY USING SINGLE YEAR DATA THE CONSID ERATION OF PAST YEARS DATA IS NOT APPROPRIATE. IT WAS ALSO SUBMITTE D THAT REFERRING TO THE ANNUAL ACCOUNTS OF THE COMPANY THAT IT HAS DISPO SED OFF ALL PLANT AND MACHINERY AND SUBSTANTIAL LAND AND BUILDINGS AN D WAS CONTINUING AS A TRADING CONCERN. HOWEVER, THE ABOVE SUBMISS IONS WERE NOT ACCEPTED BY THE TPO. HE HELD THAT THERE WAS NO DOUBT THAT THE NET WORTH OF THIS COMPANY IS ERODING. TPO FURTHER OBSER VED THAT THE FACT THAT IT HAS SOLD ALL ITS PLANT AND MACHINERY DENOTE S THAT IT WAS ENGAGED IN OTHER BUSINESS LINE WHICH IS NOT DEFINED. TRADI NG IS ONE OF THE LINES OF BUSINESS BUT IS INTRINSICALLY MIXED WITH OTHERS. THAT EVEN IT IS PRESUMED WITHOUT CONCEDING THAT THE PAST YEARS DATA SHALL NOT BE USED, THE DATA IN THIS CASE GIVES A FAIR INDICATION THAT THE COMPANY IS NOT OPERATING IN NORMAL BUSINESS CONDITIONS AND HEN CE IT CANNOT BE A COGENT COMPARABLE. 8.2 THE DRP IN THIS REGARD UPHELD THE ORDER OF THE A O. 8.3 NOW THE ASSESSEE IS IN APPEAL BEFORE US IN THIS REGARD. ITA NOS. 5829/DEL/2010 & 607/DEL/2014 7 8.4 LD. COUNSEL OF THE ASSESSEE REITERATED THE S UBMISSIONS SUBMITTED BEFORE THE ABOVE AUTHORITIES. HE CLAIM ED THAT UNDER RULE 10B(4) ORDINARILY ONLY CURRENT YEAR DATA CAN BE US ED UNLESS THE RELEVANCE OF PRIOR YEAR DATA CAN BE SHOWN AND EVEN IN SUCH CASE DATA PERTAINING TO TWO PRIOR YEARS CAN BE USED AND NOT BEYOND. AS REGARDS THE SALE OF PLANT AND MACHINERY, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT PLANT AND MACHINERY SOLD DURING THE YEAR PERTAI NED ONLY TO MANUFACTURING SEGMENT. THAT THE ASSESSEE IS A DISTRI BUTOR AND SALE OF MANUFACTURING ASSETS DOES NOT IMPACT THE DISTRIBUTIO N MARGIN OF THE COMPARABLE. IN THIS REGARD, LD. COUNSEL OF THE AS SESSEE REFERRED TO THE ANNUAL REPORT OF THE COMPANY. 9. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. UPON CAREFUL CONSIDERATION, WE FIND THAT THE TPO AND DRP A RE CORRECT IN OBSERVING THAT THE NET WORTH OF THE COMPANY IS ERODI NG THE DATA OF THE PAST YEARS OF THE ASSESSEE CONSISTENTLY MAKING LOSSE S CERTAINLY POINT OUT THE ABNORMAL WORKING CONDITIONS AND HENCE, THIS COMPANY CANNOT BE TAKEN AS COGENT COMPARABLE. THE FACT THAT ASSES SEE HAS SOLD ITS PLANT AND MACHINERY AND SUBSTANTIAL LAND AND BUILDIN GS ALSO INDICATE THAT ASSESSEE IS NOT OPERATING ANY NORMAL CIRCUMSTANC ES. LD. COUNSEL OF THE ASSESSEE HAS CLAIMED THAT MANUFACTURING DIVI SION WAS SOLD OFF, BUT THE TRADING DIVISION CONTINUES TO FUNCTION. H OWEVER, WE NOTE THAT NO SEGMENTAL DATA HAS BEEN PROVIDED FOR CONSI DERATION IN THIS REGARD. IN OUR CONSIDERED OPINION, THERE IS NO INFI RMITY IN THE ORDERS OF THE AUTHORITIES BELOW IN REJECTING THIS COMPARABLE. 10. IN THE RESULT, THIS APPEAL BY THE ASSESSEE STAN DS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NOS. 5829/DEL/2010 & 607/DEL/2014 8 ITA NO. 607/DEL/201 ITA NO. 607/DEL/201 ITA NO. 607/DEL/201 ITA NO. 607/DEL/2014 44 4 (A.Y. 2009 (A.Y. 2009 (A.Y. 2009 (A.Y. 2009- -- -10) 10) 10) 10) 11. THE ONLY GROUND PRESSED IN THIS APPEAL READ AS UNDER:- 1. THE LD. AO/LD. TPO AND LD. DRP ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE IN DETERMINING THE ARMS LENGTH ADJUSTMENT TO THE APPELLANTS INTERNATIONAL TRANSACTION FROM AES, THEREBY IN THE ENHANCEMENT OF RETURNED INCOME OF THE APPELLANT BY RS. 36,584,195. 2. THAT THE REFERENCE MADE BY THE LD. AO SUFFERS FRO M JURISDICTIONAL ERROR AS THE LD. AO HAS NOT RECORDED ANY REASONS IN THE ASSESSMENT ORDER BASED ON WHICH HE REACHED THE CONCLUSION THAT IT WAS EXPEDIENT AND NECESSARY TO REFER THE MATTER TO THE LD. TPO FOR COMPUTATION OF THE ARMS LENGTH PRICE (ALP), AS IS REQUIRED UNDER SECTION 92CA(1) OF THE ACT. 12. AS REGARDS GROUND NO. 2 ABOVE, LD. COUNSEL OF T HE ASSESSEE FAIRLY CONCEDED THAT THIS ISSUE IS COVERED AGAINST THE ASS ESSEE BY THE DECISION OF THE TRIBUNAL IN AZTEC SOFTWARE 249 ITR (AT) 32. HENCE, THIS GROUND RAISED BY THE ASSESSEE STANDS DISMISSED. 13. THE ASSESSEE HAS ALSO FILED THE ADDITIONAL GROU ND THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE TPO/DRP HAS ERRED IN UPHOLDING THE ERRONEOUS APPROACH OF THE AO/TPO OF DENYING THE ECONOMIC ADJUSTMENT FOR THE DIFFERENCE IN WORKING CAP ITAL OF THE APPELLANT VIS A VIS THE COMPARABLE COMPANIES.. 14. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS ON THIS ISSUE. UPON CAREFUL CONSIDERATION, WE ADMIT T HE AFORESAID ADDITIONAL GROUND. WE FIND THAT IN ITA NO. 5829/DEL /2010 FOR ASSTT. ITA NOS. 5829/DEL/2010 & 607/DEL/2014 9 YEAR 2006-07 ABOVE WE HAVE ALREADY CONSIDERED THE I SSUE AND REMITTED THE MATTER TO THE FILE OF THE TPO FOR FRESH CONSIDERATION. SINCE FACTS ARE IDENTICAL WE REMIT THIS ISSUE ALSO TO THE FILE OF THE TPO WITH SIMILAR DIRECTIONS. 15. AS REGARDS MAIN GRIEVANCE OF THE ASSESSEE LD. C OUNSEL OF THE ASSESSEE SUBMITTED THAT THE ONLY MATTER HE IS PRESSIN G FOR ADJUDICATION PERTAINS TO THE DETERMINATION OF ALP BY THE TPO BY RE JECTING THE COMPARABLES SUBMITTED BY THE ASSESSEE. 16. IN THIS CASE FOR DETERMINING THE ARMS LENGTH PR ICE (ALP) OF THE INTERNATIONAL TRANSACTION, THE ASSESSEE ADOPTED TRA NSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD WITH THE PROFIT LEVEL INDICATOR (PLI) AS OPERATING PROFIT / TOTAL O PERATING COST. THE ASSESSEE SELECTED 10 COMPARABLE COMPANIES ON THE BASI S OF A SEARCH CARRIED ON BY IT HAVING A MEAN OP/TOTAL OPERATING C OST OF 7.01% VIS A VIS THE ASSESSEE WHICH EARNED OP/TOTAL COST OF 7.60 %. IT WAS THUS CONCLUDED THAT THE INTERNATIONAL TRANSACTION OF THE ASSESSEE ARE AT ARMS LENGTH. DURING THE COURSE OF TRANSFER PRICING ASSESSMENT PRO CEEDINGS, THE TPO SELECTED TNMM AS THE MOST APPROPRIATE METHOD A ND USED THE PLI AS OP/SALES. THE TPO DISAGREED WITH THE COMPARABIL ITY ANALYSIS CONDUCTED BY THE ASSESSEE AND REJECTED 8 COMPANIES O UT OF THE TOTAL 10 COMPANIES SELECTED BY THE COMPANY. THEREFORE, THE TPO ACCEPTED ONLY 2 COMPANIES AS COMPARABLES FOR THE TP ANALYSIS, WHICH INDICATED A MEAN OP/SALES OF 22.49% RESULTING IN A TP ADJUSTM ENT OF INR 36,584,195. THE TPO SELECTED FOLLOWING COMPARABLES AND CALCULATED MEAN MARGINS AS FOLLOWS:- ITA NOS. 5829/DEL/2010 & 607/DEL/2014 10 NAME OF COMPARABLE COMPANY NAME OF COMPARABLE COMPANY NAME OF COMPARABLE COMPANY NAME OF COMPARABLE COMPANY OP/SALES OP/SALES OP/SALES OP/SALES BARTRONICS INDIA LTD. 29.00% KILBURN OFFICE AUTOMATION LIMITED 15.98% ARITHMETIC MEAN ARITHMETIC MEAN ARITHMETIC MEAN ARITHMETIC MEAN 22.49 22.49 22.49 22.49% %% % 17. THE ABOVE COMPUTATION BY THE TPO WAS UPHELD BY TH E DRP WHICH REJECTED THE ASSESSEES SUBMISSIONS IN THIS REGARD. 18. IN THIS REGARD, LD. COUNSEL OF THE ASSESSEE SUB MITTED BEFORE US THAT THE TPO HAS CHOSEN HIGH MARGIN COMPANIES AND THE SAME INDICATED HIS INTENTIONS TO MAKE A TRANSFER PRICING ADJUSTMENT FOR THE BUSINESS OPERATIONS OF THE ASSESSEE FOR ITS GROUP C OMPANIES. THEREFORE, THE ASSESSEE WOULD LIKE TO EMPHASIZE THA T THE TPO HAS RESORTED TO CHERRY PICKING OF COMPARABLES BASED ON MA RGINS IRRESPECTIVE OF DISPARITY IN FUNCTIONAL PROFILE. THAT DURING THE PROCEEDINGS BEFORE THE DRP, DETAILE D SUBMISSIONS ON THE ABOVE POINTS WERE FILED. THE DRP PROVIDED ONLY A SINGLE OPPORTUNITY OF PERSONAL REPRESENTATION WHERE ALL OF THE ABOVE POINTS WERE PRESENTED, ALBEIT BRIEFLY, AS THE DRP WAS OPERATING ON A TIME CONSTRAINT. THAT THE DRP WITHOUT CONSIDERING TH E FACTS AND MERITS OF THE CSE, UPHELD THE FINDINGS OF THE TPO. THAT IN THIS REGARD, IT IS IMPERATIVE TO NOTE THAT THE ORDER PASSED BY THE DRP WA S NOT A SPEAKING ORDER AS WHILE READING THE DRP ORDER IT IS A PPARENT THAT THE DRP HAS NOT PROVIDED COMPREHENSIVE / APPROPRIATE REAS ON FOR ITS DISAGREEMENT WITH THE ARGUMENTS PROVIDED BY VERIFO NE INDIA ON THE FUNCTIONAL COMPARABILITY OF THE COMPANIES SELECTED BY THE TPO. ITA NOS. 5829/DEL/2010 & 607/DEL/2014 11 19. LD. DR ON THE OTHER HAND RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. HOWEVER, HE FAIRLY CONCEDED THAT THE MATTER NEEDS TO BE SET ASIDE TO THE FILE OF THE TPO FOR FRESH CON SIDERATION. 20. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AN D PERUSED THE RECORDS. WE NOTE THAT TPO HAS REJECTED 8 OUT OF THE 10 COMPARABLES SUBMITTED BY THE ASSESSEE. THE TPO HAS MENTIONED IN SHOW CAUSE NOTICE HIS OBSERVATIONS ON THE LACK OF COMPARABILIT Y OF 8 COMPARABLES. HOWEVER, ASSESSEES SUBMISSIONS AND OBJECTIONS IN TH IS REGARD HAS NOT BEEN BROUGHT IN TPOS ORDER. TPO HAS ONLY MENTIONE D THAT HE HAS CONSIDERED THE ASSESSEES OBJECTIONS AND SUBMISSIONS AND THEREAFTER TPO HAS AGAIN REPRODUCED HIS ORIGINAL OBSERVATIONS ME NTIONED IN THE SHOW CAUSE NOTICE. THE DRP AGAINST ASSESSEES OBJ ECTIONS HAS LACONICALLY UPHELD THE ORDER OF THE TPO. IN THIS REGARD, ASSESSEES GRIEVANCE IS ALSO THAT DRP HAS NOT GIVEN PROPER OPPO RTUNITY TO THE ASSESSEE BEING HEARD. ASSESSEE HAS CLAIMED THAT PR IYA LTD. AND SAVEX COMPUTER LTD. WHICH HAS BEEN REJECTED THIS YEA R WERE EARLIER APPROVED BY THE DRP IN EARLIER YEARS. IN LIGHT OF THE AFORESAID FACTS, IN OUR CONSIDERED OPINION, INTEREST OF JUSTICE WILL BE SERVED IF THE MATTER IS REMITTED TO THE FILE OF THE TPO. THE TPO IS DIRECTE D TO EXAMINE THE ISSUE OF COMPARABILITY OF THE COMPARABLES REJECTED BY HIM, IN LIGHT OF THE SUBMISSIONS OF THE ASSESSEE. THE TPO IS DIRECTED TO PASS A SPEAKING ORDER IN THIS REGARD. NEEDLESS TO ADD THAT THE ASSESSEE ITA NOS. 5829/DEL/2010 & 607/DEL/2014 12 SHOULD BE GRANTED ADEQUATE OPPORTUNITY OF BEING HEA RD. IN THE RESULT, THIS APPEAL BY THE ASSESSEE STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 21. IN THE RESULT, BOTH THE APPEALS BY THE ASSESS EE STAND PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 23/5/2014. SD/- SD/- [ [[ [R.P. R.P. R.P. R.P. TOLANI TOLANI TOLANI TOLANI] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE:- 23/5/2014 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES