TATA POWER SOLAR SYSTEMS LTD ( FORMERLY KNOWN AS TATA BP SOLAR INDIA LTD), BANGALORE V. DCIT 7(3), MUMBAI

ITA 6657/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75373 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2008-2009
• Appeal Filed On: 01-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AJEET KUMAR JAIN
• Assessee Lawyers: DHANESH BAFNA
• Keywords: Related party transaction; Transfer pricing; International transaction
• Section: 143(3); 133(6)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI . . , , , BEFORE SHRI P.M. JAGTAP , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEM BER ( . ) . / ITA (TP) NO. 6657 / MUM./ 2012 ( / ASSESSMENT YEAR : 20 0 8 09 ) TATA POWER SOLAR SYSTEMS LTD. (FORMERLY KNOWN AS TATA BP SOLAR INDIA LTD.) 78, ELECTRONICS CITY, PHASE I HOSUR ROAD, BANGALORE 560 100 .. / APPELLANT V/S DY . COMMISSIONER OF INCOME TAX CIRCLE 7 ( 3 ), MUMBAI .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER A AAC T4660J / ASSESSEE BY : MR. KANCHAN KAUSHAL A/W MR. ALISAGAR RAMPURWALA & MR. DHANESH BAFNA / REVENUE BY : MR. AJEET KUMAR JAIN / DATE OF HEARING 19 . 1 2 .2013 / DATE OF ORDER 15.01.2014 / ORDER , / PER AMIT SHUKLA , J.M. THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAINST THE IMPUGNED FINAL ASSESSMENT ORDER DATED 25 TH SEPTEMBER 2012, PASSED BY THE DY. COMMISSIONER OF INCOME TAX 7(3), MUMBAI, UNDER TATA POWER SOLAR SYSTEMS LTD. 2 SECTION 143(3) R/W SECT ION 144C(5) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) FOR THE ASSESSMENT YEAR 2008 09, WHICH HAS BEEN PASSED IN PURSUANCE OF THE DIRECTIONS GIVEN BY THE DRP, MUMBAI, ON THE FOLLOWING GROUNDS: 1 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNE D DEPUTY COMMISSIONER OF INCOME - TAX, RANGE - 7(3), MUMBAI ('THE AO'), ERRED IN MAKING AN ADJUSTMENT OF RS. 78,50,77,579 IN RELATION TO THE INTERNATIONAL TRANSACTION RELATING TO THE EXPORT OF CELLS AND MODULES MADE TO ASSOCIATED ENTERPRISES. IN DOING SO THE A O ERRED IN THE FOLLOWING: 1.1. CONSIDERING DATA WHICH IS NOT IN ACCORDANCE WITH RULE 10B(4) AND RULE 100(4) OF THE INCOME TAX RULES, 1962 FOR THE COMPARABLE COMPANIES; 1.2. CONSIDERING WIND ENERGY COMPANIES (INDO WIND ENERGY LTD AND BF UTILITIES LTD) IN THE COMPARABLE SET AS AGAINST THE APPELLANT'S BUSINESS OF MANUFACTURING OF SOLAR MODULES; 1.3. CONSIDERING CONSOLIDATED FINANCIAL STATEMENT IN THE CASE OF M / S. BF UTILITIES LTD INSTEAD OF CONSIDERING STANDALONE FINANCIAL STATEMENT; 1.4. REJECTING M/ S. PH OTON ENERGY LTD CITING REASONS THAT THE ACTUAL FUNCTIONS OF THE COMPANY WAS NOT ASCERTAINABLE FROM THE ANNUAL REPORT OF THE COMPANY; AND 1.5. REJECTING M/ S. RAJASTHAN ELECTRONICS AND INSTRUMENTS LTD - ELECTRONICS & SOLAR SEGMENT CITING REASONS THAT WHEN D IRECT COMPARABLES ARE AVAILABLE, SEGMENT SHOULD NOT BE ACCEPTED. THE APPELLANT PRAYS THAT THE AFORESAID ADJUSTMENT BE DELETED. 2 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AO ERRED IN MAKING AN ADJUSTMENT ON THE TOTAL TURNOVER (I.E. CONTROLLED AS WELL AS UN - CONTROLLED) INSTEAD OF APPLYING ONLY TO THE CONTROLLED TRANSACTIONS OF THE APPELLANT. 3 . THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO RESTRICT THE ADJUSTMENT TO THE CONTROLLED TRANSACTIONS OF THE APPELLANT. 4 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE AO ERRED IN MAKING AN ADJUSTMENT OF RS. 40,04,672 IN RELATION TO THE INTERNATIONAL TRANSACTION RELATING TO THE PROVISION OF SYSTEM ENGINEERING SERVICES MADE TO ASSOCIATED ENTERPRISES. IN DOING SO THE AO ERRED IN THE FOLLOWING: 4 .1. REJECTING APPELLANTS APPROACH OF AGGREGATION AND ACCORDINGLY BENCHMARKING THE SAME AS A SEPARATE TRANSACTION. TATA POWER SOLAR SYSTEMS LTD. 3 5 . THE APPELLANT PRAYS THAT THE AFORESAID ADJUSTMENT BE DELETED. 6 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE AO ERRED IN GRANTING THE CREDIT OF TAX DE DUCTED AT SOURCE ('TOS') OF ONLY RS.1 ,34,30,097/ - AS AGAINST THE CREDIT OF T D S OF RS.1 ,46,90,759 / - CLAIMED BY THE APPELLANT IN THE RETURN OF INCOME. 2 . FACTS IN BRIEF : THE ASSESSEE COMPANY IS ENGAGED IN DESIGN, DEVELOPING, MANUFACTURING AND SALE OF SOLAR MODULES AND SYSTEMS. IT IS A JOINT VENTURE ENTITY BETWEEN TATA POWER COMPANY LTD. (49%) AND B.P. SOLAR HOLDINGS LTD., U.K. (51%). THE ASSESSEE, IN FORM 3CEB, HAD REPORTED FOLLOWING INTERNATIONAL TRANSACTIONS: PARTICULARS OF TRANSACTIONS NAME OF THE A.E. AMOUNT ( ` ) RECEIPTS: 16,64,892 1. PROVISION OF SERVICES BP SOLAR INTERNATIONAL INC., USA 80,51,282 BP SOLAR ESPANA, SA 5,64,634 APEX BP SOLAR, FRANCE 19,32,724 BP SOLAR PROPRIETARY LTD., AUSTRALIA 19,32,724 BP INTERNATIONAL LTD., UK 24,33,659 BP INTERNATIONAL LTD., GERMANY 1,31,024 BP (CHINA) HOLDINGS LTD. 34,416 2. EXPORT OF CELLS & MODULES BP SOLAR INTERNATIONAL INC., USA 49,63,85,146 BP SOLAR ESPANA, SA 4,96,69,19,359 APEX BP SOLAR, FRANCE 40,86,06,957 BP SOLAR PROPRIETARY LTD., AUS. 44,11,25,679 SOLAREX ELECTRIC CO. 10,18,99,114 PAYMENTS: 3. IMPORT OF RAW MATERIALS & CONSUMABLES BP SOLAR PROPRIETARY LTD., AUS. 1,34,01,66,094 TATA POWER SOLAR SYSTEMS LTD. 4 BP SOLAR ESPANA, SA 72,00,09,037 BP SOLAR INTERNATIONAL INC., USA 64,13,02,028 4. REIMBURSEME NT OF EXPENSES (PAID / PAYABLE) BP SOLAR INTERNATIONAL LLC, USA 98,82,791 BP SOLAR ESPANA, SA 5,87,365 5. PURCHASE OF FIXED ASSETS BP SOLAR PROPRIETARY LTD., AUSTRALIA 2,12,589 BP SOLAR INTERNATIONAL LLC, USA 2,32,096 BP SOLAR ESPANA, SA 4,59,08,100 3 . THE ASSESSEE, IN GROUND NO.1 AND 2, HAS DISPUTED THE ADJUSTMENT MADE WITH REGARD TO THE INTERNATIONAL TRANSACTIONS UNDERTAKEN FOR THE EXPORT OF CELLS AND MODULES TO VARIOUS A.ES. GIVEN IN SR. NO.2. UNDER THESE TRANSACTIONS, THE ASSESSEE MANUFACTURES CEL LS AND MODULES FROM THE RAW MATERIALS PURCHASED FROM THE A.E. AND EXPORT THE FINISHED PRODUCTS TO VARIOUS A.ES. T HE AGGREGATE TRANSACTIONS OF THE EXPORT WERE ` 6,41,49,36,255. FOR BENCH MARKING THE MARGIN OF THESE TRANSACTIONS, THE ASSESSEE HAD ADOPTED TRA NSACTIONAL NET MARGIN METHOD (FOR SHORT TNMM ) AS THE MOST APPROPRIATE METHOD FOR SUBSTANTIATING THE ARMS LENGTH PRICE (FOR SHORT ALP ) . THE NET MARGIN WAS SHOWN AT 6.80% ON COST. FOR THE PURPOSE OF COMPARABILITY ANALYSIS IN T.P. STUDY REPORT (IN SHORT TPR) , THE ASSESSEE HAD SELECTED SEVEN COMPARABLES , WITH THE MEAN MARGIN OF WHICH WAS ARRIVED AT 7.34% AND, HENCE, IT WAS REPORTED THAT ASSESSEES MARGIN IS AT ALP AS IT FALLS WITHIN THE TOLERANCE RANGE OF +/ 5%. DURING THE COURSE OF TRANSFER PRICING PROCE EDINGS, THE TPO NOTED THAT THE COMPUTATION OF OPERATING PROFIT AND PLI MARGIN OF THE COMPARABLES SELECTED BY THE ASSESSEE WERE NOT CORRECT. HE, THEREFORE, RE WORKED THE OPERATING PROFIT AND THE INDIVIDUAL PLI OF THE COMPARABLES AND CAME TO THE CONCLUSION T HAT THE TATA POWER SOLAR SYSTEMS LTD. 5 ARITHMETIC MEAN OF THE PLI OF THE COMPARABLES IS AT 14.13% INSTEAD OF 7.34%. THE REVISED COMPUTATION OF THE PLIS OF THE COMPARABLES SELECTED BY THE ASSESSEE WERE AS UNDER: SR. NO. NAME OF THE COMPARABLE TURNOVER ( ` IN CRORES) F.Y. 2008 09 (OP/OT) % 1. BF UTILITIES LTD. 27.65 (SEPT.08) 16.18 2. CENTRAL ELECTRONICS LTD. 161.48 4.48 3. INDO WIND ENERGY LTD. 29.89 (JUNE 08) 29.17 4. NEP[C INDIA LTD. 34.51 1.57 5. TITAN ENERGY SYSTEMS LTD. 68.88 11.61 6. UDHAYA SEMICONDUCTORS LTD. 3.56 6.27 7. W EBSOL ENERGY SYSTEMS LTD. 100.45 17.06 AVERAGE 14.13 ASSESSEES AVERAGE 6.80 4 . THEREAFTER, THE TPO NOTED THAT ONE OF THE COMPARABLES I.E., NEPC INDIA LTD., IS A LOSS MAKING COMPANY AND, HENCE, IT IS NOT AN APPROPRIATE COMPARABLE FOR BENCH MARKING THE ALP OF THE TRANSACTIONS. HE ALSO EXCLUDED UDHAYA SEMI C ONDUCTORS LTD. AS IT WAS HAVING AN EXTREMELY LOW TURNOVER OF ` 3.56 CRORES. AFTER EXCLUDING THESE TWO COMPARABLE, FIVE COMPARABLES WERE TAKEN WITH THEIR REVISED PLI, THE AVERAGE MARGIN OF WHICH CAME TO 15.70%. 5 . THE ASSESSEE, I N RESPONSE TO THE SHOW CAUSE NOTICE ISSUED BY THE TRANSFER PRICING OFFICER (FOR SHORT TPO ), SUBMITTED THAT, FIRSTLY, THE FINANCIAL DATA OF TWO OF ITS COMPARABLES TAKEN IN TPR NAMELY , INDOWIN ENERGY LTD. AND B.F. UTILITIES LTD., W ERE NOT AVAILABLE FOR THE FINANCIAL YEAR ENDING 31 ST MARCH 2008. IT WAS FURTHER POINTED OUT THAT FITSTLY, THE ASSESSEE, IN ITS TRANSFER PRICING STUDY REPORT, HAS USED THE FINANCIAL TATA POWER SOLAR SYSTEMS LTD. 6 DATA FOR THE YEAR END ING 30 TH JUNE 2007, FOR THE INDOWIN ENERGY AND FOR THE YEAR ENDING 30 TH SEPTEMBER 2007 FOR B.F. UTILITIES LTD., WHEREAS THE TPO HAS PROPOSED TO USE THE FINANCIAL RESULTS FOR THE YEAR ENDING 30 TH JUNE 2008 AND 30 TH SEPTEMBER 2008 WHICH IS NOT IN CONFORMITY WITH RULE 10B(4) OF THE INCOME TAX RULES, 1962; SECOND LY, FROM THE FINANCIAL DATA FOR B.F. UTILITY LTD. THE OPERATING MARGIN SHOULD BE TAKEN ON SEGMENTAL BASIS I.E., IT HAS TO BE CALCULATED FROM STAND ALONE FINANCIAL OF THE MANUFACTURING SEGMENT AND NOT FOR THE WHOLE ENTITY RESULT AND LASTLY, WITH REGARD TO U DHAYA SEMI CONDUCTORS LTD. AND WEBSOL ENERGY SYSTEMS LTD., IT WAS STATED THAT THEY HAVE RELATED PARTY TRANSACTIONS OF 37.44% AND 50.64% RESPECTIVELY. AFTER RAISING THESE OBJECTIONS, THE ASSESSEE CONDUCTED A FRESH SEARCH AND SUBMITTED THAT THREE MORE COMPAR ABLES ARE TO BE INCLUDED ON FAR ANALYSIS AS THEY ARE GOOD COMPARABLES. THESE COMPANIES WERE AS UNDER: NAME OF THE COMPANY OP / TC TITAN ENERGY SYSTEMS LTD. 8.93% PHOTON ENERGY SYSTEMS LTD. 7.74% RAJASTHAN ELECTRONICS & INSTRUMENTS LTD. SEGMENT ELECT RONICS AND SOLAR SEGMENT 5.15% 6 . THE TPO ACCEPTED THE ASSESSEES CONTENTION WITH REGARD TO THE EXCLUSION OF UDHAYA SEMICONDUCTORS LTD. AND WEBSOL ENERGY SYSTEMS LTD. HE ALSO ACCEPTED ONE OF THE COMPARABLES FROM THE FRESH SEARCH GIVEN BY THE ASSESSEE I.E., TITAN ENERGY SYSTEMS LTD. HOWEVER, HE REJECTED THE ASSESSEES CONTENTION TO EXCLUDE INDO WIND ENERGY LTD. AND B.F. UTILITIES LTD. ON THE GROUND THAT FIRSTLY, THE ASSESSEE ITSELF HAS CHOSEN / SELECTED THESE COMPARABLES IN ITS TRANSFER PRICING REPORT AND SEC ONDLY, IF THE DATA FOR MARCH 2008 WAS NOT AVAILABLE THEN THE DATA OF TATA POWER SOLAR SYSTEMS LTD. 7 THE COMPANY FOR THE FINANCIAL YEAR OF WHICH WAS ENDING ON 30 TH JUNE 2008, AND OTHER ON 30 TH SEPTEMBER 2008, CAN BE VERY WELL ACCEPTED , AS IT COVERS THE POSITION OF FINANCIAL RESULTS AS ON 31 ST MARCH 2008. HE ALSO CALLED FOR THE INFORMATION UNDER SECTION 133(6) FROM THESE COMPANIES, HOWEVER, TILL THE TIME OF PASSING OF THE ORDER, SUCH INFORMATION COULD NOT BE RECEIVED. IN CASE OF B.F. UTILITIES LTD., HE REJECTED THE SEGMENTAL RESULTS AFTER OBSERVING AND HOLDING AS UNDER: AS REGARDS, THE FINANCIAL RESULTS OF BF UTILITIES LTD. LTD., THE SEGMENTAL RESULTS AS ANNEXED TO ITS AUDITED ACCOUNTS FOR YEAR ENDING SEPTEMBER 30, 2008 (PAGE NO.23) IS EXAMINED. CONTRARY TO ASSESSEES CONTENTION THAT THE COMPANY HAS A REVENUE OF ` 19.77 CR FROM WINDMILL SEGMENT, AND A PBIT OF ` 7.40 CR. THUS ON A COST OF ` 12.37 CRORES THE ASSESSEE HAS EARNED A PROFIT MARGIN OF 59.82% DURING THE YEAR ENDING 30 SEPTEMBER 2008. EVEN FOR YEAR ENDING 30 SEPTEMBER 2007 THE CO MPANY HAS EARNED A MARGIN OF MORE THAN 100% IN THE WINDMILL SEGMENT. MOREOVER SINCE THE MANUFACTURING SEGMENT ALSO PERTAINS TO WIND POWER GENERATION, THE RESULTS OF THE MANUFACTURING SEGMENT WILL HAVE TO BE CLUBBED WITH THE WINDMILL SEGMENT FOR COMPUTATION OF PROFIT MARGIN. THE PROFIT MARGINS OF WINDMILL OF MANUFACTURING SEGMENTS TAKEN TOGETHER, COMES TO 24.30% AS ON 30 TH SEPT. 2007 AND 16.18% AS ON 30 TH SEPT. 2008 (OP/OC) WITH AN AVERAGE MEAN OP/OC OF 20.24% BETWEEN THESE TWO YEAR ENDING DATES. UNDER THE C IRCUMSTANCES, IN THE INTEREST OF EQUITY & OBJECTIVITY AND ALSO KEEPING IN VIEW THE APPREHENSIONS OF ASSESSEE IN USING DIFFERENT PERIODS OF FINANCIAL YEAR DATA, THE AVERAGE PROFIT MARGIN OF 20.24 % IS TAKEN FOR THE PURPOSE OF BENCHMARKING THE ALP OF THE TRAN SACTIONS. THIS IS DONE SO AS TO ADDRESS ASSESSEE'S CONCERN REGARDING 12 MONTH'S DATA. SIMILARLY, FOR INDO W IND ENERGY LTD., THE PROFIT MARGIN FOR FINANCIAL YEAR ENDING 30 TH JUNE 2007 IS 31.35% (OP / OC) AND FOR YEAR ENDING 30 TH JUNE 2008 IS 29.17% (OP/O C) WI TH AN AVERAGE MEAN OP/OC OF 30.26% BETWEEN THESE TWO YEAR - ENDING DATES ,WHICH IS BEING ADOPTED A THE MARGIN OF THE COMPANY FOR THE F.Y.2007 - 08, FOR DETERMINATION OF ALP . 7 . INSOFAR AS THE ASSESSEES SUGGESTION OF INCLUSION OF THREE NEW COMPARABLES W AS CONC ERNED, THE TPO ACCEPTED ONE COMPARABLE, THAT IS, TITAN ENERGY SYSTEMS LTD. AND IN CASE OF PHOTON ENERGY SYSTEMS LTD., HE HELD THAT FINANCIALS ARE NOT AVAILABLE IN THE PUBLIC DOMAIN . F OR RAJASTHAN ELECTRONIC AND INSTRUMENTS LTD., HE HELD THAT THE SEGMENTAL TATA POWER SOLAR SYSTEMS LTD. 8 DETAILS CANNOT BE COMPARED BECAUSE ONCE THERE ARE OTHER COMPARABLES WHICH COULD BE BENCH MARKED AT THE ENTITY LEVEL, THEN THERE IS NO REQUIREMENT FOR COMPARING ON THE BASIS OF SEGMENTAL RESULTS OF THE COMPARABLES. THUS, HE TOOK FOLLOWING FOUR COMPARABLES F ROM THE LIST OF THE COMPARABLES OF THE ASSESSEE FOR BENCH MARKING THE ALP. NAME OF THE COMPARABLE F.Y. 2007 08 (OP / OT (%) BF UTILITIES LTD. 20.24 CENTRAL ELECTRONICS LTD. 4.48 INDO WIND ENERGY LTD. 30.26 TITAN ENERGY SYSTEMS LTD. 11.61 AVERAGE 16.6 5 ASSESSEES PLI 6.80 8 . ACCORDINGLY, THE ALP OF THE TRANSACTIONS UNDER THIS SEGMENT WAS DETERMINED IN THE FOLLOWING MANNER: NET SALES 909,91,45,631 TOTAL OPERATING COST 853,25,59,179 OPERATING PROFIT 56,65,86,452 ARMS LENGTH MEAN MARGIN OF COMPARABL ES OP/OC 16.65 ARMS LENGTH PROFIT 142,06,71,103 ARMS LENGTH PRICE OF SALES (116.65% OF TOTAL OC) 995,32,30,282 DIFFERENCE BEING SHORTFALL IN SALES 85,40,84,651 95% OF ALP OF SALES 945,55,68,768 TRANSFER PRICING ADJUSTMENT 85,40,84,651 9 . THE DRP, BY AN LARGE, REJECTED THE ASSESSEES CONTENTION, HOWEVER, WITH REGARD TO THE YEAR OF FINANCIAL DATA OF INDO WIND ENERGY TATA POWER SOLAR SYSTEMS LTD. 9 LTD. AND B.F. UTILITIES LTD., THE DRP HELD THAT BY TAKING AVERAGE OF TWO YEARS FALLING IN THE FINANCIAL YEAR 2007 08, IS CORRECT AND IN CAS E OF INDO WIND ENERGY LTD., FOR WHICH FINANCIAL YEAR FOR THE YEAR ENDING 30 TH JUNE 2007 AND 30 TH JUNE 2008 IS AVAILABLE THEN THE WEIGHTED AVERAGE OF THE TWO YEARS SHOULD BE TAKEN BY GIVING TH AND TH WEIGHTEGE RESPECTIVELY , BASED ON THE NUMBER OF MONTHS F ALLING IN THE FINANCIAL YEAR 2007 08. THE DRP ALSO DIRECTED THE ASSESSING OFFICER TO CORRECT THE MARGIN OF TITAN ENERGY LTD. @ 8.93% INSTEAD OF 11.61% AS TAKEN BY THE TPO AS THERE WAS SOME COMPUTATIONAL MISTAKE. THUS, AFTER THE DIRECTION OF THE DRP, THE TR ANSFER PRICING ADJUSTMENT OF ` 78,50,77,579 WAS FINALLY MADE BY THE ASSESSING OFFICER. 10 . BEFORE US, THE LEARNED COUNSEL, MR. KANCHAN KAUSHAL, ON BEHALF OF THE ASSESSEE, SUBMITTED THAT EVEN THOUGH THE ASSESSEE IN ITS TRANSFER PRICING STUDY REPORT HAS SELECTE D TWO COMPARABLES NAMELY , INDO WIND ENERGY LTD. AND B.F. UTILITIES LTD. , H OWEVER, THESE COMPARABLES WERE TAKEN ON THE BASIS OF DATA OF THREE FINANCIAL YEARS WHICH IS NOT PERMISSIBLE UNDER THE LAW. EVEN THE APPROACH OF THE TPO AND THE DRP FOR TAKING THE FIN ANCIALS FOR JUNE AND SEPTEMBER 2008 IS NOT CORRECT AS IT IS NOT IN CONFORMITY WITH THE PROVISIONS OF RULE 10B(4). MOREOVER, AS PER VARIOUS DECISIONS OF THE TRIBUNAL, THE FINANCIAL YEAR DATA FOR 31 ST MARCH ALONE SHOULD BE TAKEN. ONCE THE FINANCIAL RESULT FO R THE 31 ST MARCH 2008 OF THESE COMPARABLES ARE NOT AVAILABLE, THE N THE SAME SHOULD BE EXCLUDED FROM THE LIST. APART FROM THAT, HE SUBMITTED THAT AT THE FUNCTIONAL LEVEL ALSO, THESE COMPANIES ARE ENTIRELY DIFFERENT FROM THE ASSESSEE. THESE COMPANIES ARE INT O BUSINESS OF GENERATION OF WIND ENERGY WHEREAS THE ASSESSEE IS MANUFACTURING THE PARTS WHICH ARE USED IN THE GENERATION OF SOLAR ENERGY. THESE TWO FUNCTIONS ARE ENTIRELY DIFFERENT. HE SUBMITTED THAT EVEN BEFORE THE TPO THE ASSESSEE TATA POWER SOLAR SYSTEMS LTD. 10 HAD MADE VERY ELABORA TE SUBMISSIONS SHOWING THE FUNCTIONAL DIFFERENCES BETWEEN THE ASSESSEES MANUFACTURING BUSINESS AND BETWEEN THESE TWO COMPANIES WHO WERE PURELY INTO WIND ENERGY GENERATION. THESE SUBMISSIONS ARE GIVEN IN THE PAPER BOOK FROM PAGE 118 TO 123. THE TPO OR THE DRP HAS NOT GIVEN ANY ADVERSE COMMENT OR REJECTED THE ASSESSEES SUBMISSIONS WHICH WAS BASED ON THE FUNCTIONAL DIFFERENCE S BUT HAVE ONLY INCLUDED THESE COMPARABLES ON THE GROUND THAT T HEY WERE INCLUDED BY THE ASSESSEE IN ITS TPR . HE SUBMITTED THAT THE INCL USIONS / E XCLUSIONS OF THE COMPARABLES HAVE TO BE BASED ON FAR ANALYSIS , AND NOT ON THE GROUND THAT THE ASSESSEE HAD SELECTED THE COMPARABLE INITIALLY WHICH HAS BEEN SUBSEQUENTLY DEMONSTRATED THAT SUCH AN INCLUSION WERE NOT CORRECT ON VARIOUS COUNTS . THE T PO HIMSELF HAS EXCLUDED SOME OF THE COMPARABLES CHOSEN BY THE ASSESSEE AFTER ACCEPTING THE ASSESSEES OBJECTIONS AND, THEREFORE, SUCH A SELECTIVE APPROACH BY THE TPO CANNOT BE HELD TO BE JUSTIFIABLE. HE FURTHER BROUGHT TO OUR NOTICE THAT IN THE ASSESSMENT YEAR 2009 10, THE TPO HAD ISSUED A SHOW CAUSE NOTICE WHEREIN THESE TWO COMPARABLES WERE PROPOSED TO BE INCLUDED. HOWEVER, AFTER ENTERTAINING THE ASSESSEES DETAIL OBJECTION S FOR EXCLUSION BASED ON FUNCTIONAL DIFFERENCE, THE TPO HAS EXCLUDED THESE COMPARABL ES FROM THE COMPARABLE LISTED. THUS, WHEN THESE COMPARABLES HAVE BEEN EXCLUDED IN THE SUBSEQUENT YEAR BASED ON FAR ANALYSIS, THEN THE SAME CANNOT BE HELD TO BE INCLUDED IN THIS YEAR. 11 . AS REGARDS THE B.F. UTILITIES LTD., HE SUBMITTED THAT THIS COMPANY IS A HOLDING COMPANY OF VARIOUS SUBMISSIONS AND THEY ARE INTO VARIOUS KIND S OF MANUFACTURING. THE REVENUES OF ALL THE SUBSIDIARY AND ASSOCIATES ARE CONSOLIDATED AND DO NOT GIVE PROPER RESULT OF THE SEGMENTS. HE ALSO POINTED OUT THAT THERE WERE CERTAIN NON OPERA TING TATA POWER SOLAR SYSTEMS LTD. 11 INCOME WHICH HAS ARISEN FROM THE SALE OF CERTIFICATES COMMISSION REJECTION UNITS WHICH NEEDS TO BE EXCLUDED. LASTLY, ON STAND ALONE BASIS, THE REVENUE OF B.F. UTILITIES LTD. UNDER THE SEGMENT OF WIND ENERGY IS ONLY 2%. THEREFORE, ON THESE GROUNDS ALSO , B.F. UTILITIES LTD. CANNOT BE INCLUDED AS COMPARABLE. 12 . COMING TO THE INCLUSION OF TWO COMPARABLES BY THE TPO FROM THE FRESH SEARCH I.E., PHO TON ENERGY SYSTEMS LTD. AND RAJASTHAN ELECTRONICS AND INSTRUMENTS LTD. (SEGMENTAL) , THE LEARNED COUNSEL SUBMITTED THAT THESE COMPANIES ARE FUNCTIONALLY COMPARABLE TO THE ASSESSEE AND THE TPO HAS REJECTED ON THE GROUND THAT THE FINANCIAL DATA WAS NOT AVAILABLE IN THE PUBLIC DOMAIN AND SEGMENTAL RESULTS DO NOT GIVE CLEAR PROFILE. HOWEVER, THESE DATA WERE DULY AVAILABLE AND WERE FILED BEFORE THE DRP AND THE SAME HAVE ALSO BEEN PLACED IN THE PAPER BOOK. HE SUBMITTED THAT THE PHO TON ENERGY SYSTEM LTD. HAS BEEN ACCEPTED TO BE FUNCTIONALLY COMPARABLE IN THE ASSESSMENT YEAR 2009 10 BY THE TPO HIMSELF , T HEREFORE, THE SAME SHOU LD BE INCLUDED IN THE COMPARABLE LIST. REGARDING RAJASTHAN ELECTRONICS AND INSTRUMENTS LTD., HE SUBMITTED THAT THE SEGMENTAL RESULTS DISCLOSE THE OPERATING PROFIT OF 5.15% ON SIMILAR FUNCTIONS. THEREFORE, THE SEGMENTAL RESULTS SHOULD BE ACCEPTED. HE DREW O UR ATTENTION TO THE SEGMENTAL RESULTS OF THIS COMPANY. THUS, HE SUBMITTED THAT INDO WIND ENERGY LTD. AND B.F. UTILITIES LTD. SHOULD BE EXCLUDED AND PH OTON ENERGY SYSTEMS LTD. AND RAJASTHAN ELECTRONICS AND INSTRUMENTS LTD. SHOULD BE INCLUDED IN THE FINAL LI ST OF COMPARABLES. 13 . PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE, MR. AJ I T JAIN, SUBMITTED THAT THE ASSESSEE SHOULD NOT BE ALLOWED FOR CHERRY PICKING AS IN THE INITIAL TRANSFER PRICING REPORT, IT HAS INCLUDED THESE TWO TATA POWER SOLAR SYSTEMS LTD. 12 COMPANIES NAMELY , INDO WIND EN ERGY LTD. AND B.F. UTILITIES LTD. ON THE BASIS OF FAR ANALYSIS. ONCE THE OPERATING MARGIN WAS NOT SUITABLE DUE TO FINANCIAL DATA OF 2008, THE ASSESSEE IS PLEADING THAT THE SAME SHOULD BE EXCLUDED. THIS SHOULD NOT BE PERMITTED. HE RELIED UPON THE DECISION O F THE TRIBUNAL, MUMBAI BENCHES, IN KANSAI NEROLAC, ITA NO.3858/MUM./2006, WHEREIN THE TRIBUNAL HAS HELD THAT THE ASSESSEE CANNOT ALLOW TO BACK TRACK ITS OWN COMPARABLES WITHOUT ANY COGENT REASONS. REGARDING FUNCTIONAL COMPARABILITY, HE RELIED UPON THE ORDE R OF THE TPO / DRP. 14 . ON THE ISSUE OF DIFFERENT FINANCIAL YEAR, HE SUBMITTED THAT THE APPROACH OF THE DRP IN TAKING WEIGHTED AVERAGE OF TWO FINANCIAL CLOSING IS FULLY CORRECT AS ONCE THE DATA FOR 31 ST MARCH 2008 IS NOT AVAILABLE, THEN THE APPROXIMATE DATA A VAILABLE FOR THE ENTIRE YEAR SHOULD BE TAKEN INTO CONSIDERATION. ON THIS ISSUE ALSO, HE STRONGLY RELIED UPON THE OBSERVATIONS AND FINDINGS OF THE DRP. REGARDING THE INCLUSION AND EXCLUSION OF THE COMPARABLE AS AFORESAID BY THE TPO IN THE SUBSEQUENT YEAR, H E SUBMITTED THAT EVERY YEAR IS DIFFERENT AND THE ANALYSIS HAS TO BE DONE ON THE BASIS OF DATA AVAILABLE FOR THE CURRENT FINANCIAL YEAR. REGARDING RAJASTHAN ELECTRONICS AND INSTRUMENTS LTD., HE SUBMITTED THAT THE SEGMENTAL RESULTS AS PLACED BY THE ASSESSEE IN THE PAPER BOOK DOES NOT PROVIDE THE PROPER WORKING OF THE MARGIN AND THE ALLOCATION OF THE EXPENSES, THEREFORE, THE SAME SHOULD NOT BE INCLUDED. THUS, HE STRONGLY RELIED UPON THE REASONING GIVEN BY THE TPO / DRP FOR THE EXCLUSION AND INCLUSION OF THE CO MPANIES AS DISCUSSED ABOVE. 15 . WE HAVE HEARD THE RIVAL CONTENTION S , PERUSED THE RELEVANT FINDINGS OF THE DRP AND THE TPO AUTHORITIES BELOW AND THE MATERIAL TATA POWER SOLAR SYSTEMS LTD. 13 AVAILABLE ON RECORD. THE ONLY DISPUTE FOR OUR ADJUDICATION IS WITH REGARD TO THE EXCLUSION OF TWO COM P ANIES , NAMELY , INDO WIND ENERGY LTD. AND B.F. UTILITIES LTD. AND INCLUSION OF TWO COMPARABLES VIZ. PHOTON ENERGY SYSTEMS LTD. AND RAJASTHAN ELECTRONICS AND INSTRUMENTS LTD. (SEGMENTAL). THE TPO HAS INCLUDED THESE TWO COMPARABLES (INDO WIND ENERGY LTD. AND B.F. UTILITIES LTD.) , MAINLY , ON THE GROUND THAT THESE COMPARABLES HAVE BEEN CHOSEN BY THE ASSESSEE ITSELF IN THE TRANSFER PRICING STUDY REPORT. UNDER THE TRANSFER PRICING MECHA NISM, A COMPARABILITY ANALYSIS HA S TO BE UNDERTAKEN FOR COMPARING THE CONTROL TRANSACTIONS WITH AN UNCONTROLLED TRANSACTION. THIS IS ACHIEVED BY IDENTIFYING POTENTIAL COMPARABLES HAVING SIMILAR FUNCTIONS THAT CAN STAND THE TEST OF FAR ANALYSIS (I.E., FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED). THE ASSESSEE IS REQUIRED T O IDENTIFY THE COMPARABLES AFTER CARRYING OUT PROPER SEARCH AND UNDERTAKING FAR ANALYSIS. HOWEVER, IF THE SAME HAS NOT BEEN DONE PROPERLY THEN IT HAS TO STAND THE SCRUTINY OF THE TAXING AUTHORITIES. IF, ON A DEEP EXAMINATION , IT IS FOUND THAT THE COMPARABL ES CHOSEN BY THE ASSESSEE DO NOT STAND THE TEST OF FAR ANALYSIS , REQUIREMENT OF THE STATUTORY PROVISIONS AND CORRECT SELECTION OF MOST APPROPRIATE METHODS, THE SAME CAN BE REJECTED. AT THE SAME TIME, IF D URING THE COURSE OF TRANSFER PRICING PROCEEDINGS, IF THE ASSESSEE POINT S OUT THE COGENT REASONS AND GIVES PROPER ANALYSIS AS TO WHY THE COMPARABLES CHOSEN BY IT WERE NOT CORRECT, IT CANNOT BE SAID THAT THE ASSESSEE IS OUT RIGHTLY PRECLUDED FROM RAISING SUCH OBJECTIONS. THE ULTIMATE AIM OF THE TRANSFER PRICI NG PROVISIONS IS TO DETERMINE THE APPROPRIATE ALP , WHICH CAN BE DONE ONLY BY BENCH MARKING WITH THE PROPER COMPARABLES BASED ON FAR ANALYSIS AND UNDER THE PRESCRIBED METHODS. IF IN THE COURSE OF THE PROCEEDINGS, IT IS FOUND THAT CER TAIN COMPARABLES DO NOT STAND THE TEST OF FUNCTIONAL ANALYSIS OR FOR SOME OTHER REASONS, THEN TATA POWER SOLAR SYSTEMS LTD. 14 THE SAME SHOULD BE EXCLUDED AND WE DO NOT FIND ANY REASON THAT THEY SHOULD TO BE INCLUDED SIMPLY BECAUSE THE ASSESSEE HAD INCLUDED THE SAME INITIALLY. IF THE COGENT REASONS HAVE BEEN GIV EN BY THE ASSESSEE FOR EXCLUDING THE SAME, THE SAME SHOULD BE CONSIDERED. THE INITIAL ONUS OR DUTY IS CAST UPON THE ASSESSEE TO CARRY OUT THE SELECTION OF PROPER COMPARABLES BASED ON FAR ANALYSIS AND BY ADOPTING SUITABLE TRANSFER PRICING METHOD AND THEN AN ALYSE ITS TRANSACTION TO SHOW THE CORRECT ARMS LENGTH RESULT. THEREAFTER, IT IS AXIOMATIC THAT THE TAXING AUTHORITIES / TPO, SHOULD SCRUTINIZE THE ASSESSEES REPORT ON ARMS LENGTH RESULT AND THE ENTIRE PROCESS OF ARRIVING AT THE ALP , WHETHER THEY ARE BA SED ON TRANSFER PRICING PRINCIPLES AND STATUTORY PROVISIONS OR NOT. IF HE HIMSELF FOUNDS SOME IRREGULARITY OR MISTAKE IN ANY OF THE PROCESS OR TH E STEPS UNDERTAKEN, THEN HE IS B OUND TO CORRECT IN ACCORDANCE WITH THE SETTLED PRINCIPLES AND LAW. IF THE ASSES SEE POINTS OUT SOME MISTAKE OR ANY IRREGULARITY IN THE ARMS LENGTH RESULT, THEN IT IS INCUMBENT UPON THE TPO TO EXAMINE AND CONSIDER THE SAME AND IF THE ASSESSEES CONTENTIONS ARE FOUND TO BE CORRECT OR TENABLE, THEN HE HAS TO ACCEPT THE SAME. THERE CANNO T BE ESTOPPEL AGAINST CORRECT PROCEDURE OF LAW AND PRINCIPLES SOLELY ON ACCOUNT OF ACQUIESCENCE OR MISTAKE OF THE ASSESSEE. T HE TPO IS REQUIRED UNDER LAW TO ANALYZE EVERY COMPARABLES AND THEN ONLY DETERMINE THE CORRECT ALP BASED ON PROPER COMPARABILITY ANALYS IS. THUS, WE DO NOT FIND ANY MERIT IN THE CONTENTION OF THE REVENUE THAT SIMPLY BECAUSE THE ASSESSEE HAS INCLUDED THESE TWO COMPANIES THEN THE ASSESSEE IS DEBA RRED FROM OBJECTING TO THE SAME, IF THERE ARE STRONG AND COGENT REASONS. 16 . FROM THE MATERIAL PLACE D ON RECORD BEFORE US, IT IS SEEN THAT THE INDO WIND ENERGY LTD. AND B.F. UTILITIES LTD. ARE ENGAGED IN THE BUSINESS OF GENERATION OF WIND ENERGY LTD. , WHEREAS THE ASSESSEE IS TATA POWER SOLAR SYSTEMS LTD. 15 ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF SOLAR CELLS, PHOTO VOLTAIC MO DULES AND SYSTEMS WHICH ARE USED FOR SOLAR ENERGY. THE ASSESSEE IS NOT INTO GENERATION OF ENERGY. THESE TWO FUNCTIONS ARE FUNCTIONALLY DIFFERENT. THE ASSESSEE BEFORE THE TPO / DRP HAS PLACED THE KEY FUNCTIONAL DIFFERENCE BETWEEN THE FUNCTIONS CARRIED OUT B Y THE ASSESSEE AND THE FUNCTIONS REQUIRED FOR GENERATION OF WIND ENERGY. THESE HAVE NOT BEEN REBUTTED EITHER BY THE TPO OR BY THE DRP BUT HAVE BEEN REJECTED MAINLY ON THE GROUND THAT THE ASSESSEE HAS INCLUDED THE SAME INITIALLY IN ITS TRANSFER PRICING STUD Y REPORT. IT IS ALSO SEEN FROM THE RECORD THAT IN THE SUBSEQUENT YEAR, THE TPO HAS SPECIFICALLY ISSUED A SHOW CAUSE NOTICE FOR INCLUSION OF THESE TWO COMPANIES, HOWEVER, ON THE ASSESSEES OBJECTION BASED ON FUNCTIONAL DIFFERENCE, THE TPO HAS EXCLUDED THESE TWO COMPANIES. ONCE THESE TWO COMPANIES HAVE NOT BEEN FOUND FUNCTIONALLY NON COMPARABLE IN THE SUBSEQUENT YEAR, THEN WE DO NOT FIND ANY REASON TO INCLUDE THE SAME SIMPLY ON THE BASIS OF ASSESSEES INCLUSION IN THE TRANSFER PRICING STUDY REPORT. THUS, FOR THE REASONS GIVEN ABOVE, WE DO NOT FIND ANY MERITS IN INCLUDING THESE TWO COMPANIES IN THE LIST OF COMPARABLES. ACCORDINGLY, INDO WIND ENERGY LTD. AND B.F. UTILITIES LTD., ARE TO BE EXCLUDED FROM THE LIST OF FINAL COMPARABLE S . 17 . REGARDING OTHER SUBMISSIONS OF THE ASSESSEE ON THE SEGMENTAL DIFFERENCE O F THE COMPANY , B.F. UTILITIES LTD. AND THE DATA FOR THE FINANCIAL YEAR ENDING 30 TH JUNE 2008 AND 30 TH SEPTEMBER 2008 ARE NOT TAKEN INTO CONSIDERATION IN VIEW OF OUR ABOVE FINDINGS. 18 . NOW COMING TO THE INCLUSION O F PH OTON ENERGY SYSTEMS LTD., IT IS SEEN THAT THE SAID COMPANY IS ENGAGED IN THE MANUFACTURING OF SOLAR PHOTOVOLTAIC MODULES WHICH IS DIRECTLY COMPARABLE TO THE PRODUCTS TATA POWER SOLAR SYSTEMS LTD. 16 MANUFACTURED BY THE ASSESSEE COMPANY AND, HENCE, IT IS A DIRECT FUNCTIONALLY COMPARABL E. MOREOVER, THIS COMPANY HAS ALSO BEEN INCLUDED AS COMPARABLE BY THE TPO IN THE ASSESSMENT YEAR 2009 10 BASED ON FUNCTIONAL SIMILARITY AND OTHER FACTORS. T HE FINANCIAL DATA FOR THE CURRENT FINANCIAL YEAR I.E., 2007 08 IS ALSO AVAILABLE WHICH WERE PLACED B EFORE THE DRP AND HAS ALSO BEEN PLACED IN THE PAPER BOOK. THESE FINANCIAL DATA SHOW THAT THE REVENUE OF THESE COMPANIES ARE MAINLY FROM PRODUCTION AND SALE OF SOLAR PHOTOVOLTAIC MODULES . THUS, THIS COMPANY IS GOOD COMPARABLE AND IS TO BE INCLUDED IN THE CO MPARABLE LIST FOR THE BENCHMARKING THE TRANSACTIONS. 19 . AS REGARDS RAJASTHAN ELECTRONIC AND INSTRUMENTS LTD. (SEGMENTAL), IT IS SEEN FROM THE SEGMENTAL RESULTS ( WHICH HAS BEEN PLACED IN THE PAPER BOOK AT PAGE 384 ) , THAT IT IS VERY DIFFICULT TO WORK OUT THE E XACT MARGIN ON OP/TC AND ALSO THE WORKING OF THE OPERATING EXPENSES WITH REGARD TO THE SAID SEGMENT. IN THE ABSENCE OF PROPER SEGMENTAL DETAILS FOR THE WORKING OF THE MARGIN AND THE OPERATING EXPENSES, WE DO NOT FIND ANY REASON TO INCLUDE THE SAME AS COMPA RABLE IN THIS YEAR. THUS, THE ASSESSEES CONTENTION OF INCLUSION OF SUCH COMPARABLE IS HEREBY REJECTED. 20 . IN VIEW OF THE AFORESAID DISCUSSION, FINALLY, FOLLOWING COMPANIES ARE TO BE INCLUDED IN THE LIST OF COMPARABLES. I ) CENTRAL ELECTRONICS LTD. , AS CHOSEN B Y THE ASSESSEE AND ACCEPTED BY THE TPO; II ) TITAN ENERGY SYSTEMS LTD . (SELECTED BY THE ASSESSEE IN FRESH SEARCH AND ACCEPTED BY THE TPO); AND III ) PH OTON ENERGY SYSTEMS LTD ., WHICH IS TO BE INCLUDED AS PER THE DISCUSSION MADE ABOVE. TATA POWER SOLAR SYSTEMS LTD. 17 21 . A NOTHER VERY IMPORTANT ASPECT WHICH HAS BEEN ARGUED BEFORE US IS THAT THE TPO HAS BENCH MARKED THE TRANSACTION ON THE ENTIRE SALES OF ` 9,09,91,45,631 INSTEAD OF SALE TRANSACTIONS WITH THE A.E. OF ` 6,41,49,36,255. THE LEARNED COUNSEL HAD SUBMITTED THAT IN VIEW OF CATENA OF DECISIONS RENDERED BY THE TRIBUNAL (FEW OF THEM WERE FILED BEFORE US ALSO), THE ALP IS TO BE DETERMINED ON INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE A.E. AND NOT ON THE ENTIRE SALES / TURNOVER. WE AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL THAT THE ALP HAS TO BE DETERMINED ON THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE AND NOT IN RELATION TO THE ASSESSEES ENTIRE SALES OR TURNOVER. THUS, THE TPO IS DIRECTED TO DETERMINE THE ALP ONLY WITH REGARD TO SALES MADE TO THE A.E. I.E., ` 6,41,49,36,255 A ND NOT ON THE ENTIRE SALES. 22 . ACCORDINGLY, THE TPO IS DIRECTED TO LOOK INTO THE OPERATING MARGIN OF THE FINALLY SELECTED THREE COMPARABLES AS AFORESAID AND BENCH MARK THE SAME WITH THE ASSESSEES PLI OF 6.80% TO DETERMINE THE ALP. CONSEQUENTLY, GROUND NO.1 AND 2 RAISED BY THE ASSESSEE ARE TREATED AS PARTLY ALLOWED. 23 . GROUND NO.3, RELATES TO TRANSFER PRICING ADJUSTMENT OF ` 40,04,672, IN RELATION TO THE I.T. RELATED TO PROVISIONS OF SYSTEM ENGINEERING SERVICES (SESI) MADE TO THE A.E. 24 . THE TOTAL TRANSACTION UN DERTAKEN BY THE ASSESSEE UNDER THIS CATEGORY IS APPROXIMATELY ` 1.48 CRORES. THE ASSESSEE HAS AGGREGATED THE TRANSACTIONS UNDER THE CATEGORY OF PROVISIONS OF ENGINEERING SERVICES WITH THE REMAINING TRANSACTIONS AT THE ENTITY LEVEL FOR THE PURPOSE OF BENCH MARKING THE I.T. THEREFORE, THE ASSESSEE HAD NOT SEPARATELY BENCH MARKED THIS TRANSACTIONS. THE EXPENDITURE INCURRED TATA POWER SOLAR SYSTEMS LTD. 18 BY THE SESI WHICH IS ENGINEERING SERVICES DIVISION RENDERING ENGINEERING SERVICES TO THE GROUP COMPANIES ACROSS THE WORLD, ARE MARKED UP BY 7.5% AND CHARGED TO THE A.E. TO WHOM THE SERVICES HAVE BEEN RENDERED BY THE ASSESSEE. THE TPO HELD THAT THE SESI IS A DIFFERENT DIVISION AND SEPARATE FROM SOLAR CELL MANUFACTURING DIVISION AND, THEREFORE, THE SAME CANNOT BE LINKED TO THE MANUFACTURING SEG MENT FOR THE PURPOSE OF BENCH MARKING THE ALP. TO BENCH MARK THE SAME, T HE TPO SELEC TED FOLLOWING SEVEN COMPARABLES WITH OPERATING MARGINS: SL.NO. COMPANY NAME OP / TC 1. MAHINDRA CONSULTING ENGINEERS LTD. 28.96% 2. ALPHAGEO (INDIA) LTD. 41.58% 3. ST UP CONSULTANTS PVT. LTD. 36.72% 4. SEMAC LTD. 49.65% 5. MITCON CONSULTANCY SERICES LTD. 41.21% 6. KIRLOSKAR CONSULTANTS LTD. 21.29% 7. COMPUTRONICS FINANCIAL 38.02% MEAN 36.77% 25 . THE ASSESSEE, IN RESPONSE TO THE SHOW CAUSE NOTICE, OBJECTED TO THE AF ORESAID COMPARABLES WHICH HAS BEEN DEALT BY THE TPO IN PARA 4.8. WHICH THE TPO HAS REJECTED AND HELD THAT OUT OF SEVEN COMPANIES, SIX ARE FUNCTIONALLY COMPARABLE AND AFTER TAKING THE MEAN MARGIN OF SIX COMPARABLES , COMPUTED AT 36.56% DETERMINED THE ALP AT ` 40,04,672 IN THE FOLLOWING MANNER: TATA POWER SOLAR SYSTEMS LTD. 19 RECEIPT FOR THE PROVISIONS OF SERVICES TO THE A.E. 1,48,12,631 COST PLUS MARGIN EARNED BY THE TAXPAYER 7.5% COST OF SERVICES 1,37,79,191 ARMS LENGTH MARGIN 36,56 PROFIT EARNED BY THE TAXPAYER 10,33,439 ARMS LE NGTH PROFIT 50,37,672 DIFFERENCE 40,04,233 ARMS LENGTH VALUE OF PROVISION OF SERVICES 1,88,16,864 TRANSFER PRICING ADJUSTMENT 40,04,672 26 . BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT THE ASSESSEE HAS NOT BENCH MARKED SEPARATELY THE PROVISIONS OF SERV ICES AS THE ASSESSEES CONTENTIONS HAVE BEEN THAT IT IS DIRECTLY RELATED TO MANUFACTURING FUNCTIONS AND IS INCIDENTAL TO COMPANYS MAIN ACTIVITIES AND, HENCE, THE SAME TRANSACTIONS PERTAIN TO MANUFACTURING ACTIVITIES. WITHOUT PREJUDICE, HE SUBMITTED THAT T HE TPO HAS NOT GIVEN ANY CRITERIA FOR THE SEARCH PROCESS AND HOW HE HAS IDENTIFIED THESE COMPANIES WHICH CAN BE SAID TO BE FUNCTIONALLY COMPARABLE WITH THIS SEGMENT. THE TPO HAS ALSO NOT PROPERLY CONSIDERED THE ASSESSEES OBJECTION WHICH WAS GIVEN BEFORE H IM IN DETAIL. THE ASSESSEE HAS ALSO SUBMITTED ITS OWN COMPARABLES WHICH HAS NOT BEEN COMMENTED UPON BY THE TPO. IF THIS SEGMENT IS TO BE BENCH MARKED, THEN PRO PER OPPORTUNITY SHOULD BE GIVEN TO THE ASSESSEE. 27 . THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITT ED THAT IF THE SEGMENTAL TRANSACTIONS CAN BE SEPARATELY BENCH MARKED, THE SAME SHOULD BE DONE AS IT WILL GIVE THE PROPER ALP OF THE TRANSACTION. HE AGREED THAT THE TPO HAS NOT GIVEN ANY COMMENT ON THE ASSESSEES TATA POWER SOLAR SYSTEMS LTD. 20 COMPARABLES AND THE MATTER CAN BE RESTORED B ACK FOR FRESH ADJUDICATION. 28 . WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AS WELL AS THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE HAS NOT SEPARATELY BENCH MARKED THE ENGINEERING SERVICES WHICH ARE BEING CARRIED OUT B Y A SEPARATE DIVISION. EVEN WHILE SELECTING THE COMPARABLES FOR MANUFACTURING SEGMENT, THE ASSESSEE HAS NOT TAKEN INTO CONSIDERATION THE SERVICES RENDERED TO ITS A.E. , T HEREFORE, SUCH A SEGMENT HAS TO BE SEPARATELY BENCH MARKED. FROM THE RECORD, IT IS SEEN THAT THE TPO HAS NOT GIVEN ANY CRITERIA FOR THE SEARCH OF HIS COMPARABLES AND HAS NOT EXAMINED THE COMPARABLES SUBMITTED BY THE ASSESSEE. THE ASSESSEE SHOULD BE GIVEN PROPER OPPORTUNITY TO EXPLAIN ITS CASE AS TO HOW THESE TRANSACTIONS CAN BE BENCH MARKED FOR PROPER DETERMINATION OF THE ALP. ACCORDINGLY, WE ARE OF THE CONSIDERED OPINION THAT THIS MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER / TPO TO ADJUDICATE THIS ISSUE AFRESH AND IN ACCORDANCE WITH THE PROVISIONS OF LAW AND AFTER PR OVIDING DUE AND EFFECTIVE OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS, GROUND NO,3 RAISED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 29 . THE ASSESSEE, IN GROUND NO.4, HAS REQUESTED FOR GRANTING CREDIT OF TAX DEDUCTED AT SOURCE WHICH HAS NOT BEEN DONE BY THE ASSESSING OFFICER. 30 . THE LEARNED COUNSEL SUBMITTED THAT THE A .O. HAS GIVEN CREDIT OF TDS OF ` 1,34,30,097, AS AGAINST THE CREDIT OF TDS OF 1,46,90,759. 31 . IN VIEW OF THE SUBMISSIONS OF EITHER PARTY, WE DIRECT THE ASSESSING OFFICER TO LOOK INTO THE ASSESSEES CONTENTION AND AFTER TATA POWER SOLAR SYSTEMS LTD. 21 VERIFYING THE RECORDS, ALLOW THE CREDIT OF TDS IN ACCORDANCE WITH THE PROCEDURE BEING FOLLOWED IN THIS REGARD . ACCORDINGLY, GROUND NO.4 RAISED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 32 . 33 . IN THE RESULT, ASSESSEES APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 15 TH JANUARY 2014 ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH JANUARY 2014 SD / - . . P.M. JAGTAP ACCOUNTANT MEMBER SD / - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 15 TH JANUARY 2014 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSE E ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI