TATA COMMUNICATIONS TRANSFORMATION SERVICES LTD, MUMBAI V. DCIT RG 7(3), MUMBAI

ITA 643/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84236 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 10-11-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 23-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; Rectification of order; International transaction
• Section: 143(3); 234B

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL K B ENCH, MUMBAI . . , . , ! BEFORE SHRI I.P. BANSAL, JM AND RAJENDRA, AM ./ I.T.A. NO.643/MUM/2013 ( ' ' ' ' # # # # / ASSESSMENT YEAR : 2008-09 TATA COMMUNICATIONS TRANSFORMATION SERVICES LIMITED, C/O. TOWER B, 6 TH FLOOR, PLOT NO.C-21 & C-36, G BLOCK, BANDRA KURLA COMPLEX, VIDYANAGARI POST OFFICE, MUMBAI 400 020 ' ' ' ' / VS. DY. COMMISSIONER OF INCOME-TAX, RANGE NO 7(3), ROOM NO.614, 6 TH FLOOR, AAYKAR BHAVAN, MK ROAD, MUMBAI 400 020 $ ./ % ./ PAN/GIR NO. : AACCV 3189Q ( $& / APPELLANT ) .. ( '($& / RESPONDENT ) $& ) / APPELLANT BY: S/SHRI KANCHAN KAUSHAL, DHANESH BAFNA, ALIASGAR RAMPURWALA '($& * ) / RESPONDENT BY : SHRI PADMANABHAN ' * +, / DATE OF HEARING : 10/11/2014 -.# * +, / DATE OF PRONOUNCEMENT : 10/11/2014 / / O R D E R PER I.P.BANSAL,J.M: THIS IS APPEAL IS FILED BY THE ASSESSEE. IT IS DIR ECTED AGAINST ASSESSMENT ORDER DATED 12/12/2011 PASSED UNDER SECTION 143(3) R.W.S. 144C(1) OF THE INCOME TAX ACT, 1961 (THE ACT). GROUNDS OF APPEAL READ AS UNDER: ON BEING AGGRIEVED B THE ORDER DATED NOVEMBER 27. 2012 OF THE LEARNED DEPUTY COMMISSIONER OF INCOME-TAX. RANGE 7(3). MUMBAI (TH E AO) PASSED U/S 143(3) READ WITH SECTION 144C(5) OF THE INCOME TAX ACT, 1961 ( THE ACT) AS ALSO DIRECTIONS ISSUED BY THE DISPUTE RESOLUTION PANEL II, MUMBAI (DRP). PRESENT APPEAL IS BEING PREFERRED ON THE FOLLOWING GROUNDS AMONGST OTHERS W HICH, IT IS PRAYED. MAY BE CONSIDERED WITHOUT PREJUDICE TO ONE ANOTHER. ./ I.T.A. NO.643/MUM/2013 ( ' ' ' ' # # # # / ASSESSMENT YEAR : 2008-09 2 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE. AND IN LAW, THE LEARNED AO ERRED IN MAKING AN UPWARD TRANSFER PRICING ADJUSTMENT OF RS. 9.91,21.202/- TO THE INCOME OF THE APPELLANT IN RESPECT OF TELECOMMUNICATION NE TWORK M GENT SERVICES AND FINANCE AND ACCOUNTING SER ICES (REFERRED AS INTER NATIONAL TRANSACTIONS) RENDERED BY THE APPELLANT TO ITS ASSOCIATED ENTERPRISE (AE ) BY A. DISREGARDING THE INTERNAL COMPARABILITY ANALYSI S (I.E. INTERNAL TNMM) FOR DETERMINING THE ARMS LENGTH PRICE FOR THE INTERNAT IONAL TRANSACTIONS ENTERED H) THE APPELLANT WITH ITS AE; B. DISREGARDING THE APPELLANTS SEGMENTAL FINANCIAL S BASED ON HIS CONJECTURES AND SURMISES; C. CONSIDERING OPERATING MARGIN EARNED BY THE APPEL LANT AT ENTITY LEVEL (I.E. MARGIN EARNED BY THE APPELLANT FROM ITS TRANSACTIONS WITH AE AS WELL AS THIRD PARTIES) FOR THE PURPOSE OF BENCHMARKING ANALYSIS AS AGAINST THE APPELLANTS OPERATING MARGIN FROM ITS INTERNATIONAL TRANSACTIONS: D. DISREGARDING THE APPELLANTS FUNCTIONAL ANALYSIS AND CONSIDERING ALL THE BUSINESS ACTIVITIES OF THE APPELLANT AS INFORMATION TECHNOLO GY ENABLED SERVICES (ITES): E. ADOPTING AN ENTITY LEVEL APPROACH WITHOUT APPRE CIATING THAT IT YIELDS ABSURD RESULT: F. DISREGARDING THE APPELLANTS CONTEMPORANEOUS TR ANSFER PRICING DOCUMENTATION (INCLUDING ECONOMIC ANALYSIS) WITHOUT PROVIDING APP ROPRIATE REASONING AND / CONDUCTING A FRESH COMPARABILITY ANALYSIS, WHICH IS NOT IN ACCORDANCE WITH THE INDIAN TRANSFER PRICING REGULATIONS; G. USING CURRENT YEARS FINANCIAL DATA (I.E. FINANC IAL YEAR 2007-08) OF THE COMPARABLE COMPANIES FOR BENCHMARKING THE APPELLANT S INTERNATIONAL TRANSACTIONS; AND H. DENYING THE WORKING CAPITAL ADJUSTMENT AND OTHER ECONOMIC ADJUSTMENTS TO THE APPELLANT 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LEARNED AO BE DIRECTED TO GRANT THE BENEFIT OF +/- 5% RANGE AS PE R PROVISO TO SECTION 92C(2) OF THE ACT. 3) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LEARNED AO ERRED IN GRANTING MINIMUM ALTERNATE TAX CREDIT U/S 115JAA OF THE ACT. 4) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LEARNED AO ERRED IN NOT GRANTING CREDIT OF RS. 41,112/- (RS. 38,790/- A ND RS. 2,322/-) BEING THE AMOUNT RECOVERED IN THE INTIMATION U/S. 143(1) OF THE ACT FOR ASSESSMENT YEAR 2010-11. 5) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LEARNED AO ERRED IN LEVYING INTEREST OF RS.13,964/- U/S 220(2) OF THE ACT. 6) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LEARNED AO ERRED IN COMPUTING INTEREST U/S 234B AND 234C OF THE ACT. ./ I.T.A. NO.643/MUM/2013 ( ' ' ' ' # # # # / ASSESSMENT YEAR : 2008-09 3 2. DURING THE COURSE OF HEARING LD. AR PRESSED ONLY GROUND-1 (B) TO (E) AND CONSEQUENTIAL GROUND NO.2. 3. AS PER TP REPORT FILED BY THE ASSESSEE COPY OF W HICH IS PLACED AT PAGE 35 TO 80 OF THE PAPER BOOK FOLLOWING INTERNATIONAL TRANSA CTIONS WERE REPORTED. S.NO. ASSOCIATED ENTERPRISE DESCRIPTION OF THE TRANSACTIONS AMOUNT (IN RUPEES) 1 TC NETHERLAND COMMUNICATION NETWORK OPERATIONS AND ENGINEERING SERVICES 178,082,176 2 TC NETHERLAND PROVISION OF FINANCE & ACCOUNTS FUNCTIONS (I.E. ADMINISTRATIVE SUPPORT SERVICES) 188,933,753 3 TC NETHERLAND RECOVER OF EXPENSES (RECEIVED) 10,468,737 4 TC UK REIMBURSEMENT OF EXPENSES (PAID) 11,766 ,694 5 TC UK RECOVERY OF EXPENSES (RECEIVED) 80,570 3.1 WITH REGARD TO TRANSACTIONS MENTIONED AT SL.NO. 1 & 2 THE ASSESSEE SUBMITTED THAT THESE ARE AT ARMS LENGTH ON THE BA SIS OF COMPARABILITY OF THESE TRANSACTIONS WITH NON-AE TRANSACTIONS. NON-AE TRAN SACTIONS PROFIT WAS WORKED OUT AT 6.70% AGAINST PROFIT MARGIN OF AE TRANSACTIO N WHICH WAS DESCRIBED AT 17.47%. IN THIS REGARD REFERENCE CAN BE MADE TO TH E FOLLOWING TABLE IN PARA 1.5.4 OF THE TP STUDY. DESCRIPTION SEGMENT-I- TRANSACTIONS WITH FOREIGN AES (AMOUNT IN RUPEES) SEGMENT II TRANSATIONS WITH NON AES (AMOUNT IN RUPEES) OPERATING REVENUES 367,015,929 318,296,344 OPERATING COST 312,428,394 298, 315,286 OPERATING PROFIT 54,587,535 19,981,058 OPERATING PROFIT / OPERATING COST (%) 17.47% 6. 70% 3.2 THE TPO DID NOT ACCEPT SUCH COMPARISON MADE BY THE ASSESSEE WITH THE FOLLOWING OBSERVATIONS. THE ASSESSEES CLAIM WAS ANALYSED AND THE FOLLOWIN G AND THE FOLLOWING DRAWBACKS WERE NOTICED: ./ I.T.A. NO.643/MUM/2013 ( ' ' ' ' # # # # / ASSESSMENT YEAR : 2008-09 4 1.THE ASSESSE DOES NOT MAINTAIN SEGMENTAL ACCOUNTS. HOWEVER. FOR THE PURPOSE OF TRANSFER PRICING, IT HAS USED UNAUDITED SEGMENTS ACCOUNTS FOR THE CALCULATION OF ITS PLI. THE BASIS FOR ALLOCATIO N OF INDIRECT EXPENSES AMONG THE AE. NON-AE AND OTHERS IS DARNED TO BE IN PROPOR TION TO THE SALES TURNOVER BUT THE ASSESSEC. FAILED TO DEMONSTRATE WHETHER THE SAME WERE VERIFIABLE. THE DIRECT EXPENSES ARE CLAIMED TO BE ON THE ACTUAL BASIS BUT IN VIEW OF THE SEGMENTAL ACCOUNTS BEING UNAUDITED THERE IS NO WAY TO DETERMINE THE ACCURACY OF SUCH ACCOUNTS. THEREFORE, THE SAME ARE REJECTED AND THE ENTITY LEVEL PLI WILL BE USED FOR DETERMINING THE ALP. 2. THE FUNCTIONS PERFORMED BY THE ASSESSEE FOR THI RD PARTY (WITH CABLE AND WIRELESS UK) FOR THE PURPOSE OF INTERNAL TNMM ARE QUITE DIFFERENT FROM THOSE IT PERFORMS FOR ITS AE. THEREFORE, THE INTERNAL TNM M IS REJECTED. 3.3 THEREAFTER BY TAKING ABOVE TRANSACTIONS TOGETHE R WHICH ARE MENTIONED AT SL.NO.1 & 2 THE TPO SELECTED 21 COMPARABLES AND ARI THMETIC MEAN OF THESE COMPARABLES WAS ARRIVED 28.57%. APPLYING THE SAME HE WORKED OUT TP ADJUSTMENT OF RS.12,76,01,546/-. 3.4 IT MAY ALSO BE MENTIONED HERE THAT DURING THE C OURSE OF HEARING BEFORE TPO THE ASSESSEE INTER-ALIA OTHER SUBMISSIONS HAS ALSO SUBMITTED TWO LETTERS WHICH ARE DATED 21/09/2011 AND 05/10/2011, COPIES OF WHIC H ARE FILED IN THE PAPER BOOK AT PAGES 150 TO 151 AND 152 TO 193 RESPECTIVEL Y. WITH THE LETTER DATED 21/09/2011 THE ASSESSEE SUBMITTED THE BASIS OF ALL OCATION OF EXPENSES AND WITH LETTER DATED 5/10/2011 THE ASSESSEE SUBMITTED THAT THE TWO TRANSACTIONS WERE SEPARATE TRANSACTIONS AND ACCORDING TO THE FUNCTION THEY REQUIRE SEPARATE EVALUATION OF ARMS LENGTH PRICE. THE NATURE OF B OTH THE TRANSACTIONS WAS SUBMITTED AS UNDER: NETWORK MANAGEMENT SERVICES: NETWORK MANAGEMENT SERVICES INCLUDE OPERATING AND M ANAGING DAY-TO-DAY OPERATION OF A TELECOM SERVICE PROVIDERS (TSP) NET WORK, SERVICES AND BUSINESS SUPPORT SYSTEMS. THE NETWORK MANAGEMENT SERVICES I NCLUDE FOLLOWING THREE BROAD CATEGORIES OF SERVICES: - NETWORK OPERATIONS THIS INVOLVES MONITORING AND M ANAGING THE TELECOMMUNICATION NETWORK. THIS INCLUDES ACTIVITIE S RELATED TO FAULT AND TRAFFIC MANAGEMENT, CUSTOMER CONFIGURATION, BUILDIN G AND NETWORK ALARMS MONITORING, ETC. - NET WORK PLANNING - THIS ACTIVITY INVOLVES DETERM INING AN APPROPRIATE ROUTING PLAN. ./ I.T.A. NO.643/MUM/2013 ( ' ' ' ' # # # # / ASSESSMENT YEAR : 2008-09 5 - SERVICE FULFILLMENT AND ASSURANCE SERVICE FULFILL MENT INVOLVES SERIES OF SUPPLY CHAIN ACTIVITIES COMPRISING OF ASSEMBLING AN D MAKING SERVICES AVAILABLE TO SUBSCRIBES OF TSP. SERVICE ASSURAN CE SERVICES INVOLVES ENSURING THAT SERVICES OFFERED BY TSP TO ITS SUBS CRIBERS MEET A PRE- DEFINED SERVICE QUALITY LEVEL. THE ABOVE MENTIONED SERVICES ARE ROUTINE IN NATURE AND ARE TYPICALLY OUTSOURCES BY TSP. TCTSL PROVIDES SUCH NETWORK MANAGEMENT SERVIC ES TO AES AS WELL AS NON- AES (I.E. THIRD PARTY). FINANCE AND ACCOUNTING SERVICES: APART FROM NET WORK MANAGEMENT SERVICES, TCTSL ALSO PROVIDES SUPPORT SERVICES FOR ADMINISTRATIVE ACTIVITIES OF AES. THESE GENERA L AND ADMINISTRATIVE SUPPORT FUNCTIONS ARE RELATED TO REVENUE ACCOUNTING, ACCOUN TS PAYABLE, VOICE AND DATA BILLING, COLLECTIONS, AND COMPILATION OF FINANCIAL STATEMENTS OF THE AE,ETC. 3.5 AS PER SEPARATE ANALYSIS OF BOTH THE TRANSACTIO NS IT WAS SUBMITTED THAT OP/TC OF THE AFOREMENTIONED TRANSACTIONS WOULD BE A S UNDER: ACTIVITIES OPERATING PROFIT/ TOTAL COSTS (OPERATING MARGIN) NETWORK MANAGEMENT SERVICES 12.32% FINANCE AND ACCOUNTING SERVICES 22.78% BASED ON THE ABOVE, THE ARITHMETIC MEAN OF COMPARAB LE COMPANIES IS 14.28% (SINGLE YEAR DATA) AS AGAINST THE OPERATING MARGIN OF 12.32% OF THE ASSESSEE FROM NETWORK MANAGEMENT SERVICES. PARTICULARS PROFIT AND LOSS ACCOUNT (AMOUNT IN INR) COMPUTATION OF ARMS LENGTH PRICE (AMOUNT IN INR) SERVICE INCOME 178,082,176 181,191,160 TOTAL COST (TC) 158,550,193 158,550,193 OPERATING PROFIT (OP) 19,531,983 22,6 40,968 OP/ TC 12.32% 14.28% ARMS LENGTH PRICE 181,191,160 TRANSACTION VALUE (TV) 178,082,176 APPLICATION OF THE RANGE-TVX1.05 186,986,285 APPLICATION OF THE RANGE TV X 0.95 169,178,067 SINCE THE ARMS LENGTH PRICE OF NETWORK MANAGEMENT SERVICES OF THE ASSESSEE IS WITHIN THE 5% RANGE OF TRANSACTION VALUE AVAILABLE AS PER PRO VISO TO SECTION 92C(2) OF THE ACT, THE INTERNATIONAL TRANSACTION VIS--VIS NETWORK MANAGEM ENT SERVICES MEETS THE ARMS LENGTH STANDARD REQUIRED UNDER THE INDIAN TRANSFER PRICING REGULATIONS. FURTHER, AS REQUESTED BY YOUR GOODSELF DURING THE P REVIOUS HEARING, THE ASSESSEE HAD CARRIED OUT A KEY SEARCH ON CAPITALINE DATABASE. THE ASSESSEE USED KEYWORD NETWORK MANAGEMENT AS SUGGESTED BY YOUR GOODSELF. HOWEVER, NONE OF THE COMPANIES ./ I.T.A. NO.643/MUM/2013 ( ' ' ' ' # # # # / ASSESSMENT YEAR : 2008-09 6 APPEARED IN THE KEYWORD SEARCH CARRIED OUT BY THE A SSESSEE. THE RESULT OF THE SEARCH CARRIED IS ATTACHED AS ANNEXURE 4. 3.6 SO FAR AS IT REGARDS TO FINANCE AND ACCOUNT SER VICES IT WAS SUBMITTED THAT ASSESSEES MARGIN FOR THIS TRANSACTION IS 22.78% WH ICH IS HIGHER THAN ARITHMETIC MEAN OF COMPARABLES AND FOLLOWING TABLE WAS DESCRIB ED TO SHOW THAT NO ADJUSTMENT WAS CALLED FOR IN THE AFOREMENTIONED INTERNATIONAL TRANSACTIONS. S.NO. NAME OF THE TRANSACTION ASSESSEES OPERATING MARGIN ARMS LENGTH MARGIN (NOTE) RESULT 1. NETWORK MANAGEMENT SERVICES 12.32% 14.28% ARMS-LENGTH USING +/-5% RANGE 2. FINANCE AND ACCOUNTS SERVICES 22.78% 22.43% / 21.52% ARMS LENGTH 3.7 HOWEVER, TPO DID NOT ACCEPT SUCH SUBMISSIONS OF THE ASSESSEE AND SUGGESTED THE ADDITION OF RS.12,76,01,546/-. 4. IN THE PROCEEDINGS BEFORE DRP THE ASSESSEE FILED SEGMENTAL AUDITED ACCOUNTS SUPPORTING ALLOCATION OF EXPENSES AS SUBMI TTED BEFORE TPO AND IT WAS CONTENDED THAT ASSESSEES MARGIN SHOULD BE CONSIDER ED TO BE AT ARMS LENGTH. HOWEVER, LD. DRP REJECTED SUCH SUBMISSIONS OF THE A SSESSEE WITH THE FOLLOWING OBSERVATIONS: 22. AS REGARDS REJECTION OF THE SEGMENTAL ACCOUNTS , THE ASSESSEE HAD NOT MAINTAINED SEGMENTAL ACCOUNTS CONTEMPORANEOUSLY. T HE BREAK UP INTO SEGMENTS WAS MADE AFTER THE BOOKS OF ACCOUNT WERE CLOSED OR THE END OF THE FINANCIAL YEAR FOR THE PURPOSE OF THE TP STUDY. THESE ARE NOT THE REFORE SEGMENTAL ACCOUNTS IN A TRUE SENSE. MOREOVER, THE ACCOUNTS WERE NOT AUDITED WHICH SIGNIFICANTLY ERODE THEIR RELIABILITY. THE TPOS REJECTION OF SUCH ACCOUNTS WAS JUSTIFIED. 4.1 SOME RELIEF WAS GIVEN BY LD. DRP AND ADDITION WAS UPHELD TO THE EXTENT OF RS.9,91,21,202/- WHICH HAS BEEN MADE BY THE AO IN A CCORDANCE WITH THE ORDER OF DRP. THE ASSESSEE IS AGGRIEVED, HENCE, HAS FILE D AFOREMENTIONED GROUNDS OF APPEAL. ./ I.T.A. NO.643/MUM/2013 ( ' ' ' ' # # # # / ASSESSMENT YEAR : 2008-09 7 5. IT WAS SUBMITTED BY LD. AR THAT THE TWO TRANSACT IONS WHICH WERE INITIALLY CONSIDERED BY THE ASSESSEE TOGETHER ON THE BASIS OF INTERNAL COMPARABLES OF NON-AE TRANSACTIONS BY THEIR FUNCTIONAL NATURE ARE DIFFERENT AND DISTINCT. TO DEMONSTRATE SO HE HAS SUBMITTED BEFORE US THE FUNCT IONAL ANALYSIS OF THESE TRANSACTIONS AS UNDER: A. COMMUNICATION NETWORK OPERATIONS AND ENGINEERING SE RVICES (NMS) -RS. 17,80,82,176. THE ACTIVITIES RENDERED UNDER THIS HEAD ARE AS FOL LOWS : I. NETWORK OPERATION RELATED - THERE ARE BROADLY T HREE SETS OF ACTIVITIES TINDER NETWORK OPERATIONS THAT AES OUTSOURCED TO TCTSL. TH ESE ARE - - CUSTOMER SUPPORT - TO PROVIDE SUPPORT TO GLOB AL CLIENTS IN TERMS OF COMPLAINT MANAGEMENT, FIRST LINE ANALYSIS, EVENT NOTIFICATION AND SERVICE MODIFICATION REQUESTS, ETC. - GLOBAL PROVISIONING - TO CATER TO POST SALES P ROVISIONING OF THE SERVICE LAYER FOR CUSTOMERS (SAY, NEW ORDERS) IN TERMS OF TOLL FREE C IRCUITS, TDM VOICE AND WIRELESS ORDERS, ETC. - NETWORK OPERATION CENTRE (NOC) - TO MONITOR AND MANAGE THE GLOBAL IP, VOICE AND TRANSPORT NETWORK FOR AES AND ITS GLOBAL CUSTOM ERS. IT INCLUDES ACTIVITIES RELATED TO FAULT AND TRAFFIC MANAGEMENT, CUSTOMER CONFIGURA TION, II. NETWORK ENGINEERING RELATED - TCTSL WOULD CARRY OUT VARIOUS ENGINEERING ACTIVITIES ON TC NETHERLANDS NETWORK OUT OF ITS FAC ILITIES. THESE ACTIVITIES INCLUDE IP/TRANSMISSION TRAFFIC ANALYSIS, VOICE TRAFFIC ROU TE MANAGEMENT / OPTIMIZATION, CAPACITY MANAGEMENT, ETC. B. PROVISION OF FINANCE AND ACCOUNTS SERVICES (F&A) RS . 18,89,33,753. IT PROVIDES SUPPORT SERVICES FOR SPECIAL ADMINISTRATI VE ACTIVITIES OF AES. THESE GENERAL AND ADMINISTRATIVE SUPPORT FUNCTIONS RELATES TO FOL LOWING FIELDS. - DECLARATION & SETTLEMENT; - REVENUE ACCOUNTING; - ACCOUNTS PAYABLE; - VOICE AND DATA BILLING; - REVENUE ASSURANCE, MEDIATION DEVISE AND FRAUD MA NAGEMENT; ./ I.T.A. NO.643/MUM/2013 ( ' ' ' ' # # # # / ASSESSMENT YEAR : 2008-09 8 - SECS AND RATE MONITORING; - VTS 1 DISPUTE; - CASH APPLICATIONS; - COLLECTIONS; - GA CONSOLIDATION; - NETWORK EXPENSES; - FP & A; AND - FINANCIAL SYSTEMS. 5.1 IT WAS SUBMITTED THAT SUCH SUBMISSION WAS NOT O NLY MADE BEFORE TPO BUT ALSO BEFORE LD. DRP. HE SUBMITTED THAT TPO REJECTE D SUCH SUBMISSION OF THE ASSESSEE ON THE GROUND THAT TO SUPPORT SEGMENTAL RE SULTS ASSESSEE DID NOT SUBMIT AUDITED SEGMENTAL ACCOUNTS AND WHEN ASSESSE E GOT AUDITED SEGMENTAL RESULTS AND SUBMITTED THE SAME BEFORE LD. DRP, LD. DRP ALSO REJECTED SUCH SUBMISSION OF THE ASSESSEE. LD. AR SUBMITTED THAT THE TPO AS WELL AS LD. DRP HAS COMMITTED AN ERROR IN NOT ACCEPTING SUCH SUBMIS SIONS OF THE ASSESSEE AND WITHOUT VERIFYING THE SEGMENTAL RESULTS SUCH SUBMI SSION HAS BEEN REJECTED. 5.2 IT WAS FURTHER SUBMITTED BY LD. AR THAT SO FAR AS IT RELATES TO ASSESSEES TRANSACTION REGARDING COMMUNICATION NETWORK OPERATI ON AND ENGINEERING SERVICES, IN SUBSEQUENT TWO YEARS I.E. FOR A.Y 2009 -10 AND 2010-11, THE TPO HAS ACCEPTED THE COMPUTATION OF ALP AND IF THE SAME BA SIS IS ADOPTED FOR THE YEAR UNDER CONSIDERATION THEN THERE WOULD BE NO TP ADJUS TMENT. LD. AR SUBMITTED THAT IT IS NOT OPEN TO THE REVENUE TO REJECT SEGMEN TAL WORKING PREPARED BY THE ASSESSEE WITHOUT POINTING OUT ANY ERROR THEREIN. I N A CASE WHERE SEGMENTAL ACCOUNTS ARE SUBMITTED BY THE ASSESSEE AND THOSE AR E REJECTED THEN TPO/DRP SHOULD PROVIDE PLAUSIBLE REASON FOR DOING SO AND FO R THIS PURPOSE LD. AR RELIED UPON FOLLOWING DECISIONS: - 3I INFOTECH LIMITED VS. ITO ( ITA NO.21/MDS/201 3) - HONEYWELL ELECTRICAL DEVISES & SYSTEM S INDIA LTD., VS. ACIT (ITA NO.2152/MDS/2011) - LUMMUS TECHNOLOGY HEAT TRANSFER BV VS. DCIT (ITA NO.6227/DEL/2012) ./ I.T.A. NO.643/MUM/2013 ( ' ' ' ' # # # # / ASSESSMENT YEAR : 2008-09 9 5.3 IT WAS SUBMITTED THAT IN THE PRESENT CASE NEITH ER TPO NOR THE DRP HAVE POINTED OUT ANY ERROR IN THE SEGMENTAL AUDITED ACCO UNTS SUBMITTED BY THE ASSESSEE EXCEPT STATING THAT THE DETAILS ARE NOT V ERIFIABLE WHICH IS CONTRARY TO THE LEGAL PROPOSITION LAID DOWN IN AFOREMENTIONED DECIS IONS. IT WAS FURTHER SUBMITTED BY LD. AR THAT IN THIS VIEW OF THE SITUA TION, IT WOULD MEET THE INTEREST OF JUSTICE IF THE MATTER IS RESTORED BACK TO THE FI LE OF TPO/DRP WITH A DIRECTION TO VERIFY AND EXAMINE THE SEGMENTAL ACCOUNTS SUBMITTE D BY THE ASSESSEE AND ALSO TO DETERMINE THE NATURE OF THE TRANSACTIONS WHICH F UNCTIONALLY ARE DIFFERENT FROM EACH OTHER AND BY TAKING RESULTS OF SEGMENTAL ACCOU NTS A FRESH COMPARISON SHOULD BE MADE ON THE BASIS OF SEGMENTAL ACTIVITIES . THUS, IT WAS PLEADED BY LD. AR THAT AN APPROPRIATE RELIEF MAY BE PROVIDED TO THE ASSESSEE. 6. ON THE OTHER HAND, LD. DR SUPPORTED THE ORDER P ASSED BY TPO AS WELL AS BY LD. DRP. HE SUBMITTED THAT BEFORE TPO ASSESSEE DID NOT SUBMIT AUDITED SEGMENTAL ACCOUNT, THEREFORE, TPO WAS RIGHT IN REJE CTING SUCH SUBMISSION OF THE ASSESSEE. LD. DR ALSO SUBMITTED THAT LD. DRP ALSO DID NOT COMMIT ANY ERROR IN REJECTING THE SUBMISSIONS OF THE ASSESSEE FOR TH E REASONS STATED IN THE ORDER OF LD. DRP. 7. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED IN THE LIGHT OF MATERIAL PLACED BEFORE U S. THOUGH IN THE TP STUDY ASSESSEE HAD CONSOLIDATED TWO TRANSACTIONS TOGETHER AND COMPARED THE SAME WITH NON-AE TRANSACTIONS AND AFTER CONSIDERING SO T HE TRANSACTION WAS STATED TO BE AT ARMS LENGTH. THE TPO DID NOT ACCEPT SUCH SUB MISSION OF THE ASSESSEE. THEREFORE, DURING THE COURSE OF HEARING BEFORE TPO THE ASSESSEE SUBMITTED SEGMENTAL RESULTS OF BOTH THE TRANSACTIONS. THOSE WERE NOT ADMITTED BY LD. TPO ON THE GROUND THAT ASSESSEE DOES NOT MAINTAIN SEGME NTAL ACCOUNTS AND HAS USED UNAUDITED SEGMENTAL ACCOUNTS FOR THE CALCULATION OF ITS PLI. THE TPO DOUBTED THE BASIS FOR ALLOCATION OF INDIRECT EXPENSES AMON G AE, NON-AE AND OTHERS AND THUS, HE DID NOT ACCEPT THE SUBMISSION OF THE ASSES SEE REGARDING SEGMENTAL RESULTS. IN ORDER TO OVERCOME SUCH OBSERVATIONS OF THE TPO ON THE BASIS OF ./ I.T.A. NO.643/MUM/2013 ( ' ' ' ' # # # # / ASSESSMENT YEAR : 2008-09 10 WHICH CLAIM OF THE ASSESSEE WAS REJECTED THE ASSESS EE OBTAINED SEGMENTAL AUDITED RESULTS WHICH WERE FIELD BEFORE LD. DRP. LD. DRP ALSO REJECTED THE SAME ON THE GROUND THAT ASSESSEE DID NOT MAINTAIN SEGMEN TAL ACCOUNTS CONTEMPORANEOUSLY. THE BREAK-UP INTO SEGMENTS WAS MADE AFTER THE BOOKS OF ACCOUNTS WERE CLOSED OR AFTER THE END OF THE FINAN CIAL YEAR FOR THE PURPOSE OF THE TP STUDY. IN OUR OPINION THE SEGMENTWISE ACCOUNT SUBMITTED BY THE ASSESSEE COULD NOT BE REJECTED UNLESS ANY DEFECT WAS POINTED OUT IN THE SEGMENTAL RESULTS SHOWN BY THE ASSESSEE. MOREOVER, THE ACTIVITIES RE LATING TO BOTH THESE TRANSACTIONS ARE DIFFERENT ACTIVITIES AS IS OBSERV ED FROM THE FUNCTIONAL ANALYSIS DESCRIBED IN THE ABOVE PART OF THIS ORDER AS ONE TR ANSACTION IS RELATING TO COMMUNICATION NET WORK OPERATION AND ENGINEERING SE RVICES AND OTHER TRANSACTION RELATES TO PROVISION OF FINANCE AND AC COUNTS SERVICES, THEREFORE, THESE TRANACTIONS ARE TO BE EVALUATED SEPARATELY FOR DET ERMINATION OF ALP. IF THE CLAIM OF THE ASSESSEE IS TO BE REJECTED THEN REVENUE AU THORITIES ARE BOUND TO EXPLAIN THAT WHY SUCH CLAIM OF THE ASSESSEE IS REQUIRED TO BE REJECTED. NO SUCH REASON HAS BEEN GIVEN EXCEPT STATING THAT EITHER THE SEGME NTAL RESULTS ARE UNAUDITED OR THEY HAVE BEEN PREPARED LATER ON OR FOR THE PURPOSE OF TP STUDY. TAKING INTO ACCOUNT THESE FACTS AND SUBMISSIONS WHICH ARE SUPP ORTED BY THE CASE LAWS RELIED UPON BY LD. AR, WE ARE OF THE OPINION THAT IT WOULD MEET THE INTEREST OF JUSTICE IF THE MATTER IS RESTORED BACK TO THE FILE OF AO/TPO WITH A DIRECTION TO RE- DETERMINE THE ALP OF THESE INTERNATIONAL TRANSACTIO N SEPARATELY AFTER VERIFYING THE SEGMENTAL RESULTS OF THE ASSESSEE. NEEDLESS TO OBSERVE THAT IN THE WHOLE PROCESS OF RE-DETERMINATION OF ALP WITH REGARD TO IMPUGNED TRANSACTIONS, THE ASSESSEE WILL BE PROVIDED WITH REASONABLE OPPORTUN ITY OF HEARING AND PLACING EVIDENCE ON RECORD TO SUPPORT ITS CASE. WITH THESE DIRECTIONS THE ISSUES CONTESTED BEFORE US IN GROUND NO.1(B) TO (E) ARE R ESTORED TO THE FILE OF AO/TPO. SINCE, OTHER GROUNDS IN GROUND NO.1 WERE NOT PRESSE D, THEY ARE DISMISSED BEING NOT PRESSED. 8. APROPOS GROUND NO.2, WE MAY MENTION THAT AFTER R E-DETERMINATION OF ALP OF THE IMPUGNED INTERNATIONAL TRANSACTION IN THE M ANNER DESCRIBED ABOVE, LD. AO/TPO WILL GIVE APPROPRIATE RELIEF AS PER PROVISO TO SECTION 92C(2) AS IT IS ./ I.T.A. NO.643/MUM/2013 ( ' ' ' ' # # # # / ASSESSMENT YEAR : 2008-09 11 APPLICABLE FOR THE YEAR UNDER CONSIDERATION AFTER G IVING THE ASSESSEE A REASONABLE OPPORTUNITY OF HEARING. THIS GROUND IS ALSO CONSID ERED TO BE ALLOWED FOR STATISTICAL PURPOSES. 9. APROPOS GROUND NO.3,4, 5 & 6 IT MAY BE MENTIONED HERE THAT DURING THE COURSE OF HEARING IT WAS OBSERVED BY THE BENCH THA T SINCE NEITHER AO NOR LD. CIT(A) HAVE SPECIFICALLY DISCUSSED THESE ISSUES, TH E ASSESSEE CAN SEEK THESE RELIEF BY FILING APPLICATION FOR RECTIFICATION OF MISTAKE S BEFORE A.O, WHO WILL GIVE THE REQUIRED RELIEF AS PER STATUTORY PROVISIONS. LD. A R FAIRLY AGREED FOR THE SAME, THEREFORE, NO SPECIFIC ARGUMENTS WERE SUBMITTED IN REGARD TO THESE GROUNDS. IN THIS VIEW OF THE SITUATION, THESE GROUNDS HAVE BECO ME INFRUCTUOUS. 9. IN THE RESULT, FOR STATISTICAL PURPOSES THE APPE AL FILED BY THE ASSESSEE IS TREATED TO BE PARTLY ALLOWED IN THE MANNER AFORESA ID. ORDER PRONOUNCED IN THE OPEN COURT ON 10/11/201 4 . / * -.# 0 1'2 10/11//2014 . * 3 SD/- SD/- (RAJENDRA) . . (I.P.BANSAL) /ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; 1' DATED 10/11/2014 / / / / * ** * '+4 '+4 '+4 '+4 54#+ 54#+ 54#+ 54#+ / COPY OF THE ORDER FORWARDED TO : 1. $& / THE APPELLANT 2. '($& / THE RESPONDENT. 3. 6 ( ) / THE CIT(A)- 4. 6 / CIT 5. 473 '+' , , / DR, ITAT, MUMBAI 6. 38 9 / GUARD FILE. /' /' /' /' / BY ORDER, (4+ '+ //TRUE COPY// : :: : / ; ; ; ; (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI