Weatherford Drilling & Production Services (India) Pvt.Ltd., Baroda V. The ACIT.,Circle-4, Baroda

ITA 828/AHD/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89648 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 07-05-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 21-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIMALENDU VERMA
• Keywords: Related party transaction; Business income; Transfer pricing; International transaction; Difference of opinion; Change of opinion
• Section: 92C; 143(3); 92D; 142(1); 234B; 10B; 92

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD , , BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ./ I.T.A. NO.828/AHD/2014 (INTL.TAXN.) ( / ASSESSMENT YEAR : 2009-10) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. BLOCK NO.74, MUKUTNAGAR, SOKHADA ROAD MANJUSAR, SAVLI, VADODARA 391 775 / VS. THE ASSTT.CIT CIRCLE-4 BARODA ' ./ ./ PAN/GIR NO. : AAACW 4068 M ( '% / APPELLANT ) .. ( &''% / RESPONDENT ) '%( / APPELLANT BY : SHRI DHANESH BAFNA, AR &''%)( / RESPONDENT BY : SHRI VIMALENDU VERMA,CIT-DR *) / DATE OF HEARING 08/05/2015 +,-.) / DATE OF PRONOUNCEMENT 30/06/2015 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE DIRECTION OF THE DISPUTE RESOLUTION PANEL, AHMEDABAD DATED 26/12/201 3 AND THE ORDER OF THE ASSESSING OFFICER PASSED U/S.143(3) R.W.S. 92CA R.W.S.144C(1) OF THE ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 2 - ACT DATED 08/03/2013 PERTAINING TO ASSESSMENT YEAR (AY) 2009-10. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEA L :- THE GROUNDS OF APPEALS TO THE PROPOSED ADJUSTMENTS OF RS. 4,63,25,722 ARE AS UNDER. ALL THE BELOW MENTIONED GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-4, BAR ODA ('THE LD. AC-') UNDER THE DIRECTIONS OF HONOURABLE DISPUTE RESOLUTION PAN EL ('HON'BLE DRP'), ERRED IN MAKING ADJUSTMENT OF RS. 4,17,26,088/- IN RELATI ON TO THE INTERNATIONAL TRANSACTION OF SALE OF GOODS TO ASSOCIATED ENTERPRI SES ('AE'). IT IS PRAYED THAT THE ADDITIONS MADE BY THE LD. AO IN RELATION TO THE INTERNATIONAL TRANSACTION OF SALE OF GOODS TO AE BE DELETED. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. AO UNDER THE DIRECTIONS OF HON'BLE DRP ERRED IN NOT ALLOWING THE BENEFIT OF 5% RANGE AS PER SECTION 92C(2) OF THE INCOME-TAX ACT, 1961 ( 'THE ACT') IN RELATION TO THE INTERNATIONAL TRANSACTION OF SALE OF GOODS TO AE. IT IS PRAYED THAT THE LD. AO BE DIRECTED TO GRANT R ANGE BENEFIT IN ACCORDANCE WITH LAW. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO UNDER THE DIRECTIONS OF HON'BLE DRP ERRED IN MAKING DISALLOWANCE OF RS. 45,99,634 UNDER SECTION 40(A)(I)/(IA) OF THE ACT WI THOUT APPRECIATING THAT TAX HAS BEEN DEDUCTED AND PAID DURING THE PREVIOUS YEAR IN QUESTION. IT IS PRAYED THAT THE CLAIM MADE BY THE APPELLANT B E ALLOWED AS PER THE FIRST PROVISIO TO SECTION 40(A)(I)/(IA) OF THE ACT. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO UNDER THE DIRECTIONS OF HON'BLE DRP ERRED IN LEVYIN G INTEREST UNDER SECTION 234B OF THE ACT. IT IS PRAYED THAT THE LEVY OF INTEREST U/S 234B OF THE ACT BE DELETED. ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 3 - THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR WITHDRAW ALL OR ANY OF THE GROUNDS OF APPEAL. 2. DURING THE COURSE OF HEARING, THE ASSESSEE ALSO FILED AN ADDITIONAL GROUND OF APPEAL WHICH READS AS UNDER:- 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED DEPUTY COMMISSIONER OF INCOME-TAX, CIRC LE2 (1)(2) BARODA, ERRED IN NOT ALLOWING AN EXPENSE AMOUNTING TO RS.13,65,460 UNDER SECTION 40(A)(I) OF THE INCOME-T AX ACT, 1961 WITHOUT APPRECIATING THAT NO TAX WAS DEDUCTIBLE AS IT WAS MERE REIMBURSEMENT OF EXPENSES. 3. BRIEFLY STATED FACTS ARE THAT IN THIS CASE A RE FERENCE U/S.92CA(1) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS TH E ACT) WAS MADE TO THE TRANSFER PRICING OFFICER BY THE DY.CIT, CIRCLE- IV, BARODA. ACCORDINGLY, THE NOTICE U/S.92CA(2) OF THE ACT WAS ISSUED TO THE ASSESSEE, THE ASSESSEE THROUGH ITS REPRESENTATIVE FILED VARIOUS DETAILS AND THE TRANSFER PRICING STUDY. THE TRANSFER PRICING O FFICER DID NOT ACCEPT THE TRANSFER PRICING STUDY AND CARRIED OUT ITS OWN TRANSFER PRICING STUDY ON THE BASIS OF THE COMPARABLES SELECTED BY THE TRA NSFER PRICING OFFICER. HE SUGGESTED THE ADJUSTMENT OF RS.3,02,66,356/- IN THE OPERATING REVENUE. AGAINST THIS, THE ASSESSEE PREFERRED AN A PPLICATION BEFORE DISPUTE RESOLUTION PANEL (DRP IN SHORT) AND DRP REJ ECTED THE CONTENTION OF THE ASSESSEE AND FURTHER ENHANCED THE ADJUSTMENT TO ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 4 - RS.4,27,26,088/-. AGAINST THIS ADJUSTMENT, THE ASS ESSEE IS IN PRESENT APPEAL BEFORE US. 4. APROPOS TO GROUND NOS.1 & 2, THE LD.COUNSEL FOR THE ASSESSEE HAS REITERATED THE SUBMISSIONS AS WERE MADE BEFORE THE DRP IN THE FORM OF APPENDIX-I, II, & III. 4.1. ON THE CONTRARY, LD.CIT-DR SUPPORTED THE ORDER OF THE DRP. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT BEFORE THE DRP, THE ASSESSEE HAD RAISED OBJECTION AND MADE SUBMISSION IN THE FORM OF APPEND IX-I, II & III. THE CONTENTS OF THE APPENDIX-I, II & III ARE REPRODUCED HEREUNDER FOR THE SAKE OF CLARITY:- APPENDIX I WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA ) PRIVATE LIMITED ASSESSMENT YEAR: 2009-10 GENERAL BACKGROUN4: *DURING THE YEAR UNDER CONSIDERATION WEATHERFORD DR ILLING & PRODUCTION SERVICES (INDIA) PRIVATE LIMITED ('WOPS') WAS A SUBSIDIARY OF WEATHE RFORD LAMB INC., A WEATHERFORD GROUP COMPANY, WHICH HELD 99.99% OF THE EQUITY CAPITAL OF THE COMPANY. WDPS OPERATES VIDE THE FOLLOWING TWO DIVISIONS: MANUFACTURING DIVISION - THIS DIVISION IS ENGAGED IN MANUFACTURING OF GAS LIFT VALVES AND PACKERS; AND ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 5 - WEATHERFORD ENGINEERED SYSTEMS SUPPORT ('WESS INDIA ') DIVISION WESS INDIA DIVISION SUPPORTS THE MAINTENANCE & DEVELOPMENT OF SOFTWARES DEVELOPED BY WEATHERFORD GROUP, WHICH ARE USED IN VARIOUS UPSTREAM OIL & GAS SEGMEN TS. * THE ASSESSEE HAD ELECTRONICALLY FILED THE RETURN OF INCOME FOR THE CAPTIONED ASSESSMENT YEAR ON SEPTEMBER 30, 2009, DECLARING TOTAL INCOME OF RS. 4,61,39,040; THE LEARNED ASSISTANT COMMISSIONER OF INCOME T AX ('LD. AO'), CIRCLE 4, BARODA, ISSUED NOTICE U/S 143(2) OF THE ACT ON AUGUST 27, 2010 AND A DETAILED QUESTIONNAIRE U/S 142(1) OF THE ACT ON JANUARY 24, 2011 & JANUARY 10, 2013 REQUIRIN G TO FURNISH THE BASIC INFORMATION FOR THE CAPTIONED ASSESSMENT YEAR. IN RESPONSE TO THE A FORESAID NOTICES, AUTHORIZED REPRESENTATIVES OF WDPS ATTENDED THE PROCEEDINGS, F URNISHED INFORMATION AND FILED SUBMISSIONS FROM TIME-TO-TIME; THE LD. AO REFERRED THE CASE TO THE LD. ADDL. COMMISSIONER OF INCOME TAX (TRANSFER PRICING OFFICER-I), AHMEDABAD; THE ADDITIONAL COMMISSIONER OF INCOME TAX AND DEPUTY COMMISSIONER OF INCOME TAX (TRANSFER PRICING OFFICER-II) ('LD. TPO') ISSUED A NOTICES U/S 92CA(2) OF THE ACT ON SEPTEMBER 21, 2011 AND ON DECEMBER 8, 2011 RESPECTI VELY REQUIRING TO PRODUCE ALL THE DOCUMENTS RELIED ON IN SUPPORT OF THE ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTIONS. IN RESPONSE TO THE CAPTIONED NOTICE I SSUED BY THE TPO, THE ASSESSEE FILED A DETAILED SUBMISSION ON DECEMBER 22, 2011 PROVIDING THE DOCUMENTS RELIED ON IN SUPPORT OF THE ARM'S LENGTH PRICE IN RELATION TO THE INTERNATI ONAL TRANSACTIONS; * A DETAILED QUESTIONNAIRE U/S 92D(3) WAS THEREAF TER ISSUED ON OCTOBER 11, 2012 IN RESPONSE TO WHICH, THE ASSESSEE FILED A DETAILED SU BMISSION ON OCTOBER 18, 2012 IN RESPONSE TO THE AFORESAID NOTICES, AUTHORIZED REPRESENTATIVE S OF THE ASSESSEE ATTENDED THE PROCEEDINGS, FURNISHED INFORMATION AND FILED SUBMISSIONS FROM TI ME-TO-TIME; * THE TPO VIDE HIS LETTER DATED DECEMBER 14, 201 2 FOR THE SAID YEAR I.E. AY 2009-10 ISSUED A SHOW CAUSE NOTICE REFLECTING A DETAILED SEARCH PR OCESS AND IDENTIFYING NEW SET OF COMPARABLES WITH AN AVERAGE MARGIN OF 28.87% OPERAT ING PROFIT/TOTAL COST ('OP/TC') AS COMPARED TO 19.31% OP/TC OF WDPS MANUFACTURING DIVI SION. THE AUTHORIZED REPRESENTATIVE SUBMITTED A DETAILED SUBMISSION ON J ANUARY 22, 2013 AND ATTENDED THE HEARING; * THE LD. TPO PROPOSED A TRANSFER PRICING ADJUST MENT AMOUNTING TO RS.3,02,66,356 VIDE HIS ORDER DATED JANUARY 24, 2013 (PLEASE REFER PAGE NOS. .35. TO 93 OF THE PAPER BOOK FOR THE SAME). FURTHER DETAILS OF THE PROPOSED ADJUSTME NT ARE PROVIDED IN TABLE 1 BELOW: TABLE 1: DISALLOWANCES /ADJUSTMENTS PROPOSED BY LD. TPO SR.NO. PARTICULARS AMOUNT AS PER BOOKS OF ARMS LENGTH PRICE PROPOSED DISALLOWANCE/ADJUSTMENT ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 6 - ACCOUNTS (RS.) DETERMINED BY THE LD.TPO AMOUNT (RS.) BY THE LD.TPO AMOUNT (RS.) 1 SALES MADE TO ASSOCIATED ENTERPRISES (AES) 34,26,77,543 37, 29,43,899 3,02,66,356 *RELYING ON THE LD. TPO'S ORDER, THE LD. AO HAS PAS SED THE DRAFT ASSESSMENT ORDER AS PROVIDED U/S 143(3) R. 92CA R.W.S. 144C(1) OF THE A CT ('DRAFT ORDER') WHICH WAS RECEIVED BY THE ASSESSEE ON MARCH 12, 2013 (PLEASE REFER PAGE N OS. 94.. TO 96 OF THE PAPER BOOK FOR THE SAME). IN THE DRAFT ORDER, APART FROM CONFIRMING TH E ADDITIONS MADE BY THE TPO, THE LD. AO HAS MADE FOLLOWING DISALLOWANCES / ADDITIONS TO THE INCOME OF FOR THE RELEVANT YEAR: TABLE 2.: DISALLOWANCES /ADDITIONS PROPOSED BY LD. AO SR.NO. PARTICULARS PROPOSED DISALLOWANCE/ADDITIONS BY THE LD.AO AMOUNT (RS.) 1. DISALLOWANCE U/S.40(A)(IA) OF THE ACT 45,99,634 II. GROUNDS OF OBJECTIONS ; THE GROUNDS OF OBJECTIONS AGAINST THE ADJUSTMENTS P ROPOSED BY THE LD, TPO/AO VIDE THE DRAFT ORDER IS REFLECTED BELOW AND THE SAME ARE WIT HOUT PREJUDICE TO EACH OTHER: * OBJECTION 1 ADJUSTMENT PROPOSED TO INTERNATI ONAL TRANSACTION OF SALE TO AES: ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD, TPO/AO HAV E ERRED IN RECOMPUTING THE ARM'S-LENGTH PRICE OF THE INTERNATIONAL TRANSACTION RELATING TO SALES TO AES AT RS. 37,29,43,899 INSTEAD OF RS. 34,26,77,543 AS DETERMINED BY WDPS, THEREBY COM PUTING A TP ADJUSTMENT OF RS. 3,02,66,356. THE ASSESSEE OBJECTS THE FOLLOWING APP ROACH OF THE LD TPO/AO, IN THIS PROCESS. A) ADOPTION OF FILTERS SUCH AS EXPORT OF 25%, RELATED PARTY FILTER OF 25% ETC. AND USAGE OF SINGLE YEAR DATA IN THE SEARCH PROCESS. B) THE INCLUSION OF TYCO SANMAR LIMITED AND EXCLUSION OF UNITED DRILLING TOOLS LIMITED AS COMPARABLES IN THE FRESH SEARCH CONDUCTE D BY THE LD. TPO/AO, FOR DETAILED SUBMISSION ON THIS OBJECTION KINDLY RE FER APPENDIX II. OBJECTION 2 REJECTION OF THE TRANSFER PRICIN G DOCUMENTATION: ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. TPO/AO HAVE ERRE D IN REJECTING THE TRANSFER PRICING DOCUMENTATION OF WDPS WITHOUT GIVING ANY COGENT REA SON AND WITHOUT APPRECIATING THE ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 7 - SEARCH PROCESS AS ADOPTED BY THE ASSESSEE. THE ASSE SSEE OBJECTS THE FOLLOWING APPROACH OF THE LD. TPO/AO, IN THIS PROCESS. * THE REJECTION OF ECONOMIC ANALYSIS BY THE LD. T PO/AO. * THE LD. TPO/AO'S ACTION OF NOT CONSIDERING THE IMPOSSIBILITY OF PERFORMANCE, IN THE LIGHT OF NON-AVAILABILITY OF SINGLE YEAR DATA OF COMPARAB LES FOR THE PURPOSE OF TP DOCUMENTATION AND IN REJECTING THE USAGE OF MULTIPLE YEAR DATA BY THE ASSESSEE. THE KEY-WORD SEARCH CARRIED OUT BY LD. TPO/AO BY TO SELECT 'VALVES', 'INDUSTRIAL VALVES' AND 'OTHER VALVES'. FOR DETAILED SUBMISSION ON THIS OBJECTION KINDLY RE FER APPENDIX III. * OBJECTION 3 DISALLOWANCE U/S 4O(A)(IA): ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD. AO HAS ERRED IN PROPOSING TO DI SALLOW THE DEDUCTION CLAIMED OF RS. 45,99,634 UNDER SECTION 4O(A)(IA) OF THE ACT. IT IS PRAYED THAT THE AO BE DIRECTED TO ALLOW THE DEDUCTION CLAIMED BASED ON THE FACTS AS SUBMITTED B Y THE ASSESSEE. FOR DETAILED SUBMISSION ON THIS OBJECTION KINDLY REFER APPENDIX IV. WE CRAVE LEAVE TO ADD, ALTER AND/OR AMEND THE AFORE SAID GROUNDS OF OBJECTION AT OR BEFORE THE TIME OF HEARING. FOR WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PRIVATE LIMITED PLACE : AHMEDABAD SD/- DATE : APRIL 9, 2013 STATUS OF ASSESSEE: COMPANY APPENDIX II WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PRIVATE LIMITED ASSESSMENT YEAR: 2000-10 OBJECTION 1 : ADJUSTMENT PROPOSED TO INTERNATIONAL TRANSACTION OF SALE TO AES 1. GROUND OF OBJECTION NO.L: SALES TO AES THE LD. TPO/ AO HAS ERRED IN RECOMPUTING THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION AT RS.37,29,43,899 IN STEAD OF RS.34,26,77,543 AS DETERMINED BY THE ASSESSEE, THEREBY COMPUTING A TP ADJUSTMENT OF RS. 3,02,66,356. GROUND OF OBJECTION NO.1A; SEARCH PROCESS ADOPTED B Y THE TPO THE ASSESSEE OBJECTS THE FILTERS ADOPTED BY THE LD. TPO IN THE SEARCH PROCESS EXECUTED TO IDENTIFY COMPARABLES VIZ. EXPORT FILTER OF 25%, REL ATED PARTY FILTER OF 25% ETC. AND USAGE OF SINGLE YEAR DATA IN THE SEARCH PROCESS. ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 8 - GROUND OF OBJECTION NO.1B; CHOICE OF COMPARABLES THE ASSESSEE OBJECTS THE COMPARABLES IDENTIFIED BY THE LD. TPO/AO PRIMARILY THE INCLUSION OF TYCO SANMAR LIMITED ('TYCO SANMAR') AND EXCLUSIO N OF UNITED DRILLING TOOLS LIMITED ('UDTL') AS COMPARABLES IN THE FRESH SEARCH CONDUCT ED BY THE LD. TPO 2. FACTS AS SUBMITTED TO ASSESSING OFFICER 2.1 THE MANUFACTURING DIVISION OF WDPS IS EN GAGED IN MANUFACTURING OF GAS LIFT VALVES ('GLV) AND PACKERS MANUFACTURE, WHICH IS ESSENTIAL LY A LABOUR ASSISTED ASSEMBLY PROCESS. 2.2 THE SALES TO AES OF RS. 34,26,77,543 REPR ESENTS MORE THAN SO% OF THE REVENUE GENERATED BY THE MANUFACTURING DIVISION OF WDPS FOR THE PERIOD UNDER CONSIDERATION VIZ. FY 2008-09. THE ASSESSEE SUBSTANTIATED THE ARM'S LENGT H NATURE OF THESE TRANSACTIONS BY ADOPTING TRANSACTIONAL NET MARGIN METHOD ('TNMM') C ONSIDERING OPERATING PROFIT/ SALES ('OP/SALES') AS PROFIT LEVEL INDICATOR ('PIT). A ST RUCTURED BENCHMARKING PROCESS WAS CARRIED OUT BY THE ASSESSEE WHICH IS REFLECTED IN T HE TP STUDY REPORT, IDENTIFYING 7 COMPARABLES HAVING AVERAGE OP/SALES OF 8.85%, WHERE AS OP/SALES OF THE TESTED PARTY I.E. MANUFACTURING DIVISION OF WDPS, WAS 16.15%; 2.3 THE LD. TPO, VIDE SHOW CAUSE NOTICE DATED DECEMBER 14, 2012, REJECTED SOME OF THE FILTERS ADOPTED BY THE ASSESSEE IN ITS SEARCH PROCE SS AND CARRIED OUT A NEW SEARCH PROCESS IDENTIFYING 4 COMPARABLES HAVING AVERAGE OP/TC OF 2 8.87% CONSIDERING OP/TC AS PLI AND COMPARED IT WITH THE PLI OF THE TESTED PARTY I.E. 1 9.31% AND HENCE PROPOSED AN ADJUSTMENT TO THE INTERNATIONAL TRANSACTION OF SALES TO AES. 3. FACTS MODIFIED BY THE ASSESSING OFFICER FOLLOWING ARE THE FACTS MODIFIED BY THE AO: I. THE LD TPO/AO CONDUCTED A FRESH SEARCH TO IDENTIFY COMPARABLES WITH INAPPROPRIATE FILTERS, DISREGARDING THE SEARCH PROC ESS CARRIED OUT BY THE ASSESSEE; II. THE LD. TPO/AO DISREGARDED THE USAGE OF MULTIPLE YE AR DATA IN THE TP DOCUMENTATION OF THE ASSESSEE WITHOUT CONSIDERING T HE IMPOSSIBILITY OF PERFORMANCE FOR USAGE OF SINGLE YEAR DATA; III. THE LD. TPO/AO DISREGARDED THE PLI ADOPTED BY THE A SSESSEE IN ITS TP DOCUMENTATION WITHOUT CONSIDERING THE CHARACTERISAT ION OF THE ASSESSEE, IV. WITHOUT PREJUDICE TO THE ABOVE, THE LD, TPO/AO DISR EGARDED THE ASSESSEE'S OBSERVATIONS ON THE COMPARABLES IDENTIFIED BY HIM BASED ON THE FRESH SEARCH CONDUCTED. ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 9 - 4. DO YOU WHOLLY AGREE WITH THE MODIFICATIONS IN THE FACTS BY THE ASSESSING OFFICER. IF NOT, GIVE REASONS POINTING THE SPECIFIC FACT OR FA CTS WITH WHICH YOU DO NOT AGREE ALONG WITH THE REASONS AND DOCUMENTARY EVIDENCE, IF ANY, WE DO NOT AGREE WITH THE MODIFICATIONS HI THE FACTS BY THE LD. TPO/AO. FOLLOWING TABLE REFLECTS THE ASSESSEE'S CONTENTIONS ON THE AC TIONS OF LD. TPO/AO. TABLE 1: ASSESSEE'S CONTENTIONS ON, THE FACTS MODI FIED BY THE LD. TPO/AO SR.NO. LD.TPO/AOS ACTIONS LD.TPO/AOS CONTENTIONS ASSESSEES OBJECTION (I) THE LD.TPO/AO CONDUCTED A FRESH SEARCH TO IDENTIFY COMPARABLES WITH INAPPROPRIATE FILTERS, DISREGARDING THE SEARCH PROCESS CARRIED OUT BY THE ASSESSEE EXPORT FILTER ADOPTED BY REJECTING COMPANIES HAVING EXPORT SALES <25% OF TOTAL SALES. MANUFACTURING DIVISION OF WDPS HAS 100% EXPORT SALES DURING THE YEAR UNDER CONSIDERATION. ACCEPTING THE COMPANIES HAVING EQUALED TO OR MORE THAN 25% OF EXPORT SALES DOES NOT RESULT INTO NEAR COMPARABLES CONSIDERING ASSESSEES EXPORT SALES BEING 100%. THE INTENTION OF APPLICATION OF THE ABOVE FILTER TO IDENTIFY THE COMPARABLES, WHO ARE ENGAGED INTO SIGNIFICANT EXPORT BUSINESS AND APPLICATION OF A 25% FILTER IS NOT APPROPRIATE AS 25% DOES NOT DENOTE ANY RELEVANCE TO THE APPLICATION OF FILTER (PLEASE REFER PAGE NOS.276 TO 277 OF THE PAPER BOOK FOR THE SAME) TURNOVER FILTER ADOPTED BY REJECTING COMPANIES HAVING TURNOVER MORE THAN 350 CRORE THE DIFFERENCE IN THE LEVEL OF TURNOVER CANNOT BE THE SOLE REASON FOR REJECTION OF COMPARABLES HAVING SIMILAR FUNCTIONAL PROFILE, ESPECIALLY WHILE APPLYING THE TNMM. ACCORDINGLY, THE FUNCTIONAL PROFILE OF THE COMPARABLES HAS TO BE TAKEN INTO CONSIDERATION WHILE ACCEPTING/REJECTING ANY COMPANY. THE ANNUAL PROFITABILITY OF A COMPANY IS IMPACTED MORE BY CURRENT MARKET FORCES/FLUCTUATIONS AND SHORT-TERM VARIATIONS IN VARIABLE COSTS RATHER THAN LONG-TERM TRENDS IN ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 10 - FIXED COSTS. ACCORDINGLY, IF AN ANALYSIS OF THE REPERCUSSIONS OF ECONOMIES OF SCALE ON THE PROFITABILITY OF A COMPANY IS TO BE MADE, IT MUST BE OVER A LONG-TERM PERIOD AND NOT OVER A SINGLE YEAR (PLEASE REFER PAGE NOS.278 TO 280 OF THE PAPER BOOK FOR THE SAME) ADOPTION OF RPT REJECTING COMPANIES HAVING RELATED PARTY TRANSACTIONS MORE THAN 25% THE ASSESSEE HAD REJECTED THE COMPANIES HAVING CONTROLLED TRANSACTION MORE THAN 10% OF THEIR OPERATING REVENUE. HOWEVER, SECTION 92C OF THE ACT READ WITH RULE 10B OF THE INCOME TAX RULES, 1962 WHICH PROVIDES THAT THE COMPARABLE TRANSACTIONS ARE TO BE UNCONTROLLED FOR DETERMINING THE ARMS LENGTH PRICE, HAS REMAINED CONSTANT OVER THE YEARS. CONSIDERING THE SAME, THE ASSESSEE HAS BEEN FOLLOWING A CONSERVATIVE APPROACH OF ADOPTING 10% RPT FILTER WHILE CARRYING OUT THE SEARCH PROCESS. THERE ARE JUDICIAL PRONOUNCEMENTS SUGGESTING APPLICATION OF 25% RPT FILTER AND ALSO SUGGESTING APPLICATION OF 10% OF RPT FILTER. A MERE CHANGE OF OPINION, WHICH IS VERY SUBJECTIVE, CANNOT JEOPARDIZE THE SITUATION OF THE ASSESSEE. THE APPROACH ADOPTED BY THE ASSESSEE IS NOT UNSCIENTIFIC AND THE FACT THAT THE SAME IS CONSERVATIVE APPROACH AND HENCE CANNOT BE IGNORED. ALSO, THE ASSESSEE HAS BEEN FOLLOWING SIMILAR APPROACH ON A CONSISTENT BASIS. (PLEASE REFER PAGE NOS.281 TO 281 OF THE PAPER BOOK FOR THE SAME) (II) DISREGARDING THE USAGE OF MULTIPLE YEAR DATA BY THE ASSESSEE USAGE OF SINGLE YEAR DATA BY DISREGARDING MULTIPLE YEAR DATA WITHOUT CONSIDERING THE ASSESSEE OBJECTS THE USAGE OF SINGLE YEAR DATA BY THE LD.TPO/AO. THE ASSESSEE ALSO OBJECTS THE ACTION OF LD.TPO/AO OF DISREGARDING THE ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 11 - THE IMPOSSIBILITY OF PERFORMANCE IMPOSSIBILITY OF PERFORMANCE BECAUSE OF NON AVAILABILITY OF SINGLE YEAR DATA I.E. FY 2008-09 FOR THE PURPOSE OF TP DOCUMENTATION. (PLEASE REFER PAGE NOS.260 TO 267 OF THE PAPER BOOK FOR THE SAME) (III) DISREGARDING THE PLI CONSIDERED BY THE ASSESSEE PLI WAS TAKEN AS OP/TC THE OPERATIONS OF THE MANUFACTURING DIVISION OF WDPS ARE CHARACTERIZED AS A LICENSED MANUFACTURER, WHO TAKES RELEVANT RISKS ASSOCIATED WITH CARRYING OUT SUCH BUSINESS ACTIVITIES. (PLEASE REFER PAGE NOS.157 & 171 OF THE PAPER BOOK FOR THE RATIONALE OF CHARACTERIZATION). IDEALLY A LICENSED MANUFACTURER WILL TARGET TO EARN A RETURN ON SALES AND NOT OVER COSTS, THUS THE PLI WAS CHOSEN TO BE OP/SALES. SINCE PLI DENOTES MEASUREMENT OF THE PROFITS EARNED BY ANY ENTITY IN VIEW OF ITS FUNCTIONAL PROFILE, THE ASSESSEE IS OF THE VIEW THAT OP/SALES SHOULD BE CONSIDERED AS PLI. (PLEASE REFER PAGE NOS.271 TO 271 OF THE PAPER BOOK FOR THE SAME) (IV) DISREGARDING ASSESSEES OBSERVATIONS ON THE COMPARABLES APPLICATION OF IMPORT FILTER TWO SANMAR THE ADOPTION OF IMPORT FILTER IS AS IMPORTANT AS THE EXPORT FILTER TO IDENTIFY SUITABLE COMPARABLES. IT CAN BE OBSERVED THAT THE COMPARABLES IDENTIFIED BY THE TPO THE INTENSITY OF IMPORTS IN EACH OF THEM IS MORE THAN 35% SUBJECT TO TYCO SANMAR, IN WHICH CASE THE PROPORTION IS JUST 19.46%. THIS CLEARLY REFLECTS THAT, TYCO SANMAR DOES NOT OBSERVE SIMILAR PRICING PRESSURES ON THE COST SIDE AS THE TESTED PARTY (IMPORTS 36%) AND OTHER COMPARABLES AND HENCE SHOULD BE REJECTED I.E. SHOULD NOT BE CONSIDERED AS COMPARABLE TO BE A PART OF THE TPOS FRESH SEARCH SET; ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 12 - (PLEASE REFER SECTION TO AND REFER PAGE NOS.283 TO 283 OF THE PAPER BOOK, FOR DETAILED UNDERSTANDING ON THIS) ON ANALYSIS OF THE FINANCIAL STATEMENT OF TYCO SANMAR, IT IS OBSERVED THAT APPROXIMATELY 48% OF THE TURNOVER OF THE COMPANY IS FROM SALE OF SPARES AND OTHERS, WHICH ENABLE HIGHER RECOVERY. HENCE, THE PROFITABILITY OF TYCO SANMAR IS THUS AN OUTCOME OF SALES OF SPARES, AND NOT THE MAIN PRODUCTS. HENCE SHOULD NOT BE CONSIDERED AS COMPARABLE. (PLEASE REFER SECTION 10 AND REFER PAGE NOS.283 TO 283 OF THE PAPER BOOK, FOR DETAILED DISCUSSION ON THIS) NOT CONSIDERING UDTL AS COMPARABLE IN THE FRESH SEARCH CONDUCTED UDTL IS ENGAGED IN SUPPLYING AND MANUFACTURING VARIOUS KINDS OF OIL DRILLING TOOLS, EQUIPMENTS AND ACCESSORIES, WHICH CAN BE CONSIDERED AS COMPARABLE WITH THE PRODUCTS MANUFACTURED BY WDPS. IF 25% EXPORT FILTER IS ADOPTED TO IDENTIFY COMPARABLES FOR AN 80% AND MORE, EXPORT ORIENTED COMPANY, THE FILTER IS INCORRECT AND NOT SERVING THE REQUIRED PURPOSE. IN SUCH A SITUATION RELAXING THE FILTER TO 17% WOULD NOT BE INAPPROPRIATE TO BRING IN A GOOD COMPARABLE. (PLEASE REFER SECTION 10 AND REFER PAGE NOS.283 TO 287 OF THE PAPER BOOK FOR DETAILED DISCUSSION ON THIS) 5. LEGAL ARGUMENTS SUBMITTED TO THE ASSESSING OF FICER THE ASSESSEE WOULD LIKE TO SUBMIT THAT IT IS HI COM PLIANCE WITH THE DOCUMENTATION REQUIREMENT AS ENUNCIATED IN SECTION 920 OF THE ACT READ WITH RULE 1OD(4) OF THE RULES AND HAD MAINTAINED THE CONTEMPORANEOUS TP DOCUMENTATION FOR FY 2008-09. ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 13 - FURTHER, THE ASSESSEE WOULD LIKE TO MENTION THAT AS PER RULE IOD (4) SUPRA, THE DATA TO BE USED FOR THE PURPOSE OF UNCONTROLLED COMPARABLE ANA LYSIS SHOULD RELATE TO THE RELEVANT FY AND BE AVAILABLE AS ON THE SPECIFIED DATE. IF ANY O NE OF THESE CONDITIONS IS NOT SATISFIED, THE RELEVANT COMPARABLE OUGHT NOT TO BE INCLUDED IN THE COMPARABILITY ANALYSIS. FURTHER, PROVISO TO RULE 10B(4) STATES THAT DATA RE LATING TO A PERIOD NOT BEING MORE THAN TWO YEARS PRIOR TO SUCH FY MAY ALSO BE CONSIDERED IF SU CH DATA REVEALS FACTS WHICH COULD HAVE AN INFLUENCE ON THE DETERMINATION, OF TRANSFER PRICES IN RELATION TO THE TRANSACTIONS BEING COMPARED. IN THE INSTANT CASE, THE RELEVANT PRIOR Y EARS ARE FY 2006-07 AND FY 2007-08. 6. CASE LAWS RELIEDUPON BYIFAEASSESSEE A. STAR INDIA PVT. LTD. VS. ACIT (ITA 3585/M/200 6) B. DCITVS. INDO AMERICAN JEWELLERY PVT. LTD, (200 8) [ITA NO. 6194] (MUM). C. MENTOR GRAPHICS (NOIDA) PVT. LTD. V DY, COMMI SSIONER OF INCOME-TAX (2007) (109 ITD 101) D. SUPD OF TAXES, DHUBRI AND OTHERS (1975) (CTR ( S.C.) 172) E. SOUTH EASTERN COALFIELDS LTD. V. JOINT COMMISS IONER OF INCOME-TAX (260) (TTR 1 -1TAT) F. INCOME TAX OFFICER VS. LIC (79 ITD 278) G. ACIT VS. JINDAL IRRIGATION SYSTEMS LIMITED (56 ITD 164(HYD)) H. MAFATLAL APPAREL MFG. CO. LTD. V. DEPUTY COMMI SSIONER OF INCOME TAX (61 TTJ 323) I. HON'BLE DELHI TRIBUNAL IN THE CASE OF SONY IN DIA PVT. LTD VS. DCIT (ITA NO.1189/DEL 2005,819/DEL/2007& 820/DEL 2007) J. ITAT DELHI IN CASE OF GLOBAL LOGIC INDIA (P.) LTD. (12 TAXMAN 295) K. QUARK SYSTEMS PVT. LTD VS DCIT MOHALL, (ITA N O. 100/CHD/2009) 7. LEGAL ARGUMENTS RELIED UPON BY THE ASSESSING O FFICER A. FOR THE PURPOSE OF CONDUCTING A FRESH SEARCH R EJECTING THE APPROACH ADOPTED BY THE ASSESSES, THE LD. TPO HAS RELIED ON THE PROVISIONS OF SECTION 92C(3)(C) READ WITH SECTION 92CA WHICH PROVIDES THAT IF THE LD. TPO IS OF THE O PINION THAT THE INFORMATION OR DATA USED IN COMPUTATION OF THE ARM'S LENGTH PRICE IS NOT REL IABLE OR CORRECT, THE LD. TPO MAY PROCEED TO DETERMINE ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTIONS IN ACCORDANCE WITH SECTION 92C(1) AND 92C(2) ON THE BASIS OF SUC H MATERIAL OR INFORMATION OR DOCUMENT AVAILABLE WITH HIM. B. FOR THE USING THE CURRENT YEAR DATA (I.E. FY 2 008-09), THE LD. TPO HAS RELIED ON RULE 10B(4) OF THE RULES WHICH PROVIDES THAT THE DATA TO BE USED IN ANALYZING THE COMPARABILITY OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL T RANSACTION SHALL BE DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTI ON HAS BEEN ENTERED INTO. ACCORDINGLY, THE LD. TPO/AO HAS DISREGARDED THE USAGE OF MULTIPLE YE AR DATA BY THE ASSESSEE. ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 14 - 8. CASE, LAWS RELIED UPON BY ASSESSING OFFICER A. CHIRON BEHRING VACCINES PVT LTD(2011) (2011-TII- 30~ITATMUM-TP) B. DELOITTE CONSULTING INDIA PVT. LTD C. ITO VS CRM SERVICES INDIA (P.) LTD (14 TAXMANN 9 6) D. SKODA AUTO INDIA PVT LTD (2009)(TIOL-214-LTAT-)( PUNE) E. EGAIN COMMUNICATION PVT LTD 2008-TIOL-282-ITAT-P UNE F. SONY INDIA LTD (114 ITD 448)(DEL) G. AGNITY INDIA TECHNOLOGIES PVT LTD (2010)(LTA NO 3856/DEL/2010-IN) H. ITO VS CRM SERVICES INDIA (P.) LTD (2O11)(2011/ 14 TAXMANN.COM 96) (DELHI) I. DCIT VS INDO AMERICAN JEWELLERY LTD [2010](14 SO T 1)(MUMBAI) J. M/S PHILIPS. SOFTWARE CENTRE PVT LTD. AND MENTOR GRAPHICS PVT. LTD K. NIIT TECHNOLOGY VS, ACIT (ITA 1844) L GLOBAL LOGIC INDIA PVT. LTD. AND ADP PVT. LTD M, ACTIS ADVISERS PVT. LTD,,(2011)(ITA NO. 5277/DEL /2011) N. AMERICAN EXPRESS SERVICES INDIA LTD (2011) (ITA NO. 5585/061/2011) O. DIAGEO INDIA (13) LTD (2011)(113 TAXMANN.COM 62) P. QUARK SYSTEM VS DCIT(38 SOT 307) Q, DCIT VS BP INDIA SERVICES PVT LTD (48 SOT 253) M UM 9 ANY ADDITIONAL NEW CASE LAWS WHICH THE ASSESSEE M AY LIKE TO RELY UPON NONE 10 FACTUAL AND LEGAL ARGUMENTS AGAINS T THE ADDITION PROPOSED BV THE ASSESSING OFFICER 10.L. THE FOLLOWING PARAGRAPHS SUMMARISE THE FA CTS AND THE LEGAL ARGUMENTS TO PROVIDE A MACRO INSIGHT ON THE ISSUE ALONG WITH THE KEY ARGUM ENTS. A, WDPS OPERATES VIDE TWO DIVISIONS MANUFACTURING DIVISION AND THE WESS INDIA DIVISION B. MANUFACTURING DIVISION OF WDPS DURING THE FT 2 008-09 OBSERVED A RETURN ON SALES OF 16.15% AND BASED ON THE ECONOMIC ANALYSIS IN ITS TP DOCUMENTATION HAD IDENTIFIED 7 COMPARABLES WITH THE MEAN OF OP/SALES OF 8.85%, TO SUBSTANTIATE THE ARM'S LENGTH NATURE OF THIS INTERNATIONAL TRANSACTION. C. THE LD. TPO VIDE ORDER U/S 92CA(3) OF THE ACT ADOPTED A NEW SEARCH FOR IDENTIFYING NEW COMPARABLES AND THUS DISREGARDING THE SEARCH CARRIE D OUT BY THE ASSESSEE. D. THE SEARCH RESULTED INTO SET OF 4 COMPARABLES WITH AN OP/TC OF 28.87%. E. IN THIS PROCESS LD.TPO/AO HAS CONSIDERED DATA OF FY 2008-09 ONLY, DISREGARDING THE MULTIPLE YEAR APPROACH OF THE ASSESSEE FOR THE PURPOSE OF IDENTIF YING THE COMPARABLES; 10.2 THE ASSESSEE WOULD LIKE TO SUBMIT THAT TH E TP DOCUMENTATION HAS BEEN MAINTAINED BY THE ASSESSEE AS PER THE REQUIREMENT OF STATUTE. (PLEASE REFER PAGE NOS. 138 TO 255 OF THE PAPER BOOK FOR THE SAME). THE LD. LD. TPO/AO CONDUCTED A FRESH SEARCH TO IDEN TIFY ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 15 - COMPARABLES WITH INAPPROPRIATE FILTERS, DISREGARDIN G THE SEARCH PROCESS CARRIED OUT BY THE ASSESSEE. THE FOLLOWING PROVIDES A QUICK INSIGHT ON THE APPROACH. 10.2.1 IN APPROPRIATE SEARCH PROCESS ADOPTED BY T HE TPO L EXPORT FILTER OF 25% : - MANUFACTURING DIVISION OF WDPS BEING 100% EXPOR T ORIENTED UNIT, ACCEPTANCE OF COMPANIES HAVING EXPORT SALES T O THE TOTAL SALES RATIO OF 25% OR MORE WOULD NOT RESULT INTO IDENTIFICATION OF SUITABLE CO MPARABLE. IN PAUCITY OF COMPARABLES THE SAME MAY RATHER NOT BE APPLIED, INSTEAD OF ADOPTING AN ARBITRARY 25% EXPORT FILTER WITHOUT ANY BASIS. (PLEASE REFER PAGE NOS.276 5O 277 OF THE PAPER BOOK FOR THE SAME). II, RPT FILTER : THE ASSESSEE HAS ADOPTED A 10% RPT FILTER IN ITS SEARCH PROCESS WHERE AS THE LD. TPO/AO HAS ADOPTED 25% RPT FILTER. IT IS PE RTINENT TO NOTE THAT THERE IS NO CHANGE IN LAW TO PROVIDE ANY CONCRETE GUIDANCE ON THIS THRESH OLD. HENCE, A CONSERVATIVE APPROACH OF THE ASSESSEE TO CONSIDER 10% RPT FILTER, WHICH IS B EING CONSISTENTLY FOLLOWED CANNOT BE REJECTED, MERELY IN VIEW OF SOME JUDICIAL PRONOUNCE MENTS, WHICH ARE VERY SUBJECTIVE, CANNOT JEOPARDIZE THE SITUATION OF THE ASSESSEE. HENCE 10% RPT FILTER MAY BE PREFERRED OVER THE 25%, PREFERRED BY THE LD. TPO/AO (PLEASE REFER PAGE NOS. 281 TO 281 OF THE PAPER BOO K FOR THE SAME). III. TURNOVER FILTER: THE ECONOMIES OF SCALE IMPACT THE PROFITABILITY OF A COMPANY BY LOWERING ITS FIXED COSTS IN THE LONG RUN AND THAT T HERE IS NO MAJOR CORRELATION BETWEEN TURNOVER AND PROFITABILITY OF THE COMPARABLES. ACCO RDINGLY, APPLICATION OF TURNOVER FILTER OF RS, 350 CRORE DOES NOT HELP IN IDENTIFYING RELEVANT COMPARABLES. HENCE MAY NOT BE APPLIED. (PLEASE REFER PAGE NOS. 278 TO 280 OF THE PAPER BOO K FOR THE SAME); IV. COMPARABLES HAVING CUMIMSHING REVENUES/ PERSISTENT LOSSES: A COMPANY THAT HAS DIMINISHING REVENUES NEED NOT NECESSARILY BE A CONS ISTENT LOSS-MAKER; WHILE THE LD, TPO/AO HAS COMPLETELY DISREGARDED THE MULTIPLE YEAR DATA F OLLOWED BY THE ASSESSEE IN ARRIVING AT THE OPERATING PROFIT MARK-UP ON TOTAL COST OF THE COMPA RABLES, THE LD. TPO /AO HAS STILL OBSERVED THE TRACK RECORD OF THE COMPARABLE FOR OVE R THE PERIOD OF 3 YEARS FOR APPLYING THE SAID FILTER, WHICH IS INCORRECT. HENCE, ADOPTION OF THIS FILTER IS INCORRECT (PLEASE REFER PAGE NOS. 282 TO 282 OF THE PAPER BOOK FOR THE SAME) V.ADOPTION OF PLI: THE LD. TPO/AO HAS CONSIDERED OP'/TC AS AN APPROPRI ATE PLI WITHOUT CONSIDERING THE CHARACTERISATION OF THE ASSESSEE BE ING LICENSED MANUFACTURER WHILE ARRIVING AT THE ADJUSTMENT. SINCE PLI DENOTES MEASUREMENT OF THE PROFITS EARNED BY ANY ENTITY IN VIEW OF ITS FUNCTIONAL PROFILE, THE ASSESSEE REQUESTS LD . TPO/AO TO CONSIDER OP/SALES AS APPROPRIATE PLI. (PLEASE REFER PAGE NO. 157 AND PAGE NO. 271 TO 271 OF THE PAPER BOOK FOR THE SAME) VI. ADOPTION OF SINGLE YEAR DATA FOR THE SEARC H ; THE ACTION OF LD. TPO/AO HAS DISREGARDED THE IMPOSSIBILITY OF PERFORMANCE BECAUS E OF NON AVAILABILITY OF SINGLE YEAR DATA I.E. FY 2008-09 FOR THE PURPOSE OF TP DOCUMENTATION AND ADOPTED A SINGLE YEAR SEARCH. ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 16 - FURTHER, ERRED IN NOT APPRECIATING THE FACT THAT TH E PAST TWO YEARS CLEARLY HAVE AN IMPACT ON THE CURRENT YEAR BUSINESS PRICING APPROACH. THE SAM E ANALOGY, THE LD. TPO/AO IS ACCEPTING WITHOUT ANY QUESTIONS TO IDENTIFY THE COMPARABLES H AVING DIMINISHING REVENUES/PERSISTENT LOSSES, IN THE FILTER MENTIONED ABOVE (PLEASE REFER PAGE NOS.260 TO 267 OF THE PAPER BOOK FOR THE SAME) 10.2.2 CHOICE OF COMPARABLES I. THE LD. TPO/ AO, AFTER DISREGARDING THE BENCH MARKING APPROACH AND THE SUBMISSIONS MADE BY THE ASSESSEE, CARRIED OUT A FRESH SEARCH ID ENTIFYING A NEW SET OF COMPARABLES AS BELOW: TABLES 3: SET OF COMPARABLES IDENTIFIED BY LD. TPO /AO SR.NO. DATABASE NAME OF THE COMPANY OP/SALES 1. PROWESS GTN ENGINEERING (INDIA) LTD. 32.57% 2. PROWESS KAR MOBILES LTD. 5.27% 3. PROWESS RANE ENGINE VALVE LTD. 5.46% 4. PROWESS TYCO SANMAR LIMITED 72.22% MEAN 28.87% II. THE LD. TPO/AO ARRIVED AT A FINAL SET OF 4 CO MPANIES BY: * REJECTING ALL THE COMPARABLES SELECTED BY THE ASSESSEE IN THE TP STUDY ON THE GROUND THAT THEY ARE ENGAGED IN PUMPS INDUSTRY, EXPORT FILTER, ETC AND HENCE FUNCTIONALLY NON- COMPARABLE; AND * ADDED 4 NEW COMPANIES BY CARRYING OUT WORD SEA RCH OF 'VALVES' WITHOUT CONSIDERING 'PUMPS' INDUSTRY AND THE SUBMISSIONS MADE BY THE AS SESSEE ON BENCHMARKING PROCESS AND ON COMPARABLES AND ON COMPARABLES (PLEASE REFER PAGE NOS. 268 TO 270 OF THE PAPER BO OK FOR THE SAME) IN IDENTIFYING THE FINAL SET OF THE COMPARABLES, TH E LD. TPO/AO ERRED HI SELECTING ONE COMPARABLE AND REJECTING ONE COMPARABLE; THE DETAIL S OF BOTH THE COMPARABLES ARE GIVEN BELOW: III. ERRONEOUS SELECTION OF TYCO SANMAR LIMITED IN VIEW OF THE FOLLOWING POINTS, IT CAN. BE OBSERVE D THAT THE TPO HAS ERRED IN ADOPTING TYCO SANMAR AS A COMPARABLE IN HIS SEARCH PROCESS: IMPORT FILTER ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 17 - A. THE ADOPTION OF IMPORT FILTER IS AS IMPORTANT AS THE EXPORT FILTER TO IDENTIFY SUITABLE COMPARABLES. IN THIS PROCESS IT IS IMPORTANT TO OBS ERVE THE INTENSITY OF THE SAME ON THE TESTED PARTY. FROM THE FINANCIAL STATEMENTS OF 'WBPS, IT C AN BE OBSERVED THAT WDPS HAS IMPORTED RAW MATERIAL AND COMPONENTS TO THE EXTENT OF 36% OF TOTAL RAW MATERIAL CONSUMPTION DURING AY 2009-10; B. HENCE, IT MAY BE PRUDENT TO APPLY A FILTER OF SAY AT LEAST 35% IMPORT FILTER TO IDENTIFY SUITABLE COMPARABLES WHICH WOULD ALSO OBSERVE SIMIL AR BUSINESS DYNAMICS ON THEIR COST SIDE AS MANUFACTURING DIVISION OF WDPS. HOWEVER, THE TPO DID APPLY THE 25% IMPORT FILTER FOR CAPITALINE SEARCH, WHICH HE HAS HIGHLIGHTED IN HIS ORDER TO BE ERRONEOUSLY BEEN ADOPTED. C. IT CAN BE OBSERVED THAT THE COMPARABLES IDENTI FIED BY THE TPO THE INTENSITY OF IMPORTS HI EACH OF THEM IS MORE THAN 35% SUBJECT TO TYCO SANMAR, IN WHICH, CASE THE PROPORTION IS JUST 19.46%. THIS CLEARLY REFLECTS THAT, TYCO SANMAR DOES NOT OB SERVE SIMILAR PRICING PRESSURES ON THE COST SIDE AS THE TESTED PARTY AND OTHER COMP ARABLES AND HENCE SHOULD BE REJECTED I.E. SHOULD NOT BE CONSIDERED AS COMPARABLE TO BE A PART OF THE TPO'S FRESH SEARCH SET; D. ACCORDINGLY, WE REQUEST THE APPLICATION OF THE IMPORT FILTER FOR THE SEARCH ON PROWESS TO REJECT THE COMPANIES HAVING IMPORTS LESS THAN 35% ( CONSIDERING THE TESTED PARTY SITUATION) OR 25% CONSIDERING THE TPO'S APPROACH, TO IDENTIFY SUITABLE COMPARABLES. ABNORMAL MARGINS A. FURTHER, IT CAN ALSO BE OBSERVED THAT, IN THE FY 2008-09 TYCO SANMAR LTD, REFLECTED AND OP/TC OF 72.22% WHICH IS UNREASONABLY HIGHER THAN T HE MARKET AVERAGE. THE LD. TPO/AO HAS REJECTED THE COMPARABLES HAVING CONSISTENT LOSS IF IT IS ARISING DUE TO PECULIAR ECONOMIC CIRCUMSTANCES. THE MARGINS EARNED I.E. OP/TC MAKES THE COMPARABLE AN OUTLIER WHICH SHOULD BE REJECTED RELYING ON THE SAME ANALOGY FOR PECULIAR ECONOMIC CIRCUMSTANCES; B. ON ANALYSIS OF THE FINANCIAL STATEMENT OF TYCO SANMAR, IT IS OBSERVED THAT APPROXIMATELY 48% OF TILE TURNOVER OF THE COMPANY IS FROM SALE OF SPARES AND OTHERS. C. IT IS TO BE NOTED THAT IN THE VALVES INDUSTRY THE TIME PERIOD BETWEEN SALE OF VALVES AND COMMENCEMENT OF SALE OF SPARES BEING APPROXIMATELY 4 TO 5 YEARS. THE REPLACEMENT MARKET (SPARES) IS CHARACTERISTICALLY MORE LUCRATIVE THAN THE SALE OF VALVES AND PROVIDES THE NECESSARY IMPETUS TO A COMPANY'S BOTTOM LINE GROWTH . THIS FUTURE POTENTIAL PROMPTS COMPANIES TO OFFER LARGE DISCOUNTS TO CUSTOMERS TO OFTEN SECURE AN ORDER FOR VALVES. D. THE PROFITABILITY OF THE COMPARABLE IS THUS SK EWED BY THE PROFIT ON SALES OF SPARES. THE COMPUTATION OF SPARES PERCENTAGE OF TYCO SANMAR IS SHOWN AS UNDER; ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 18 - TABLE 4: PRODUCT PROFILE AND COMPOSITION OF SPARES DESCRIPTION AMOUNT (RS.) AMOUNT (RS.) SALES (A) 1,37,40,05,650 SAFETY VALVES 72,14,17,081 SPARES AND ACCESSORIES (B) 65,25,88,569 SPARES % (B/A) 47.50% HENCE, BY NOT APPLYING THE IMPORT FILTER AND NOT AP PRECIATING THE ABOVE INDUSTRY AVERAGE RETURNS OF TYCO SANMAR, IT CAN BE OBSERVED THAT THE LD. TPO ERRED IN SELECTING THE SAME AS A COMPARABLE TO SUBSTANTIATE THE ARM'S LENGTH NATURE OF INTERNATIONAL TRANSACTION OF SALES TO AES OF MANUFACTURING DIVISION OF WDPS. 10.3 REJECTION OF UBTL IN VIEW OF THE FOLLOWING POINTS, IT CAN BE OBSERVED THAT THE TPO HAS ERRED IN NOT ADOPTING IDTL AS A COMPARABLE IN HIS SEARCH PROCESS: I. WHILE CONDUCTING A SEARCH ON THE CAPITALINE DATABASE THE LD. TPO, REJECTED UDTL ON A PREMISE THAT IT HAD VERY LOW TURNOVER OF VALVES OUT OF THE TOTAL TURNOVER, IN SPITE OF IT HAVING SATISFIED ALL THE QUANTITATIVE NITERS APPLIED BY HI M. II. HOWEVER, BASED ON DETAILED REVIEW OF THE F INANCIAL STATEMENT OF UDTL, WE NOTICED THAT, UDTL IS ENGAGED IN SUPPLYING AND MANUFACTURING VARIOUS KINDS OF OIL DR ILLING TOOLS, EQUIPMENTS AND ACCESSORIES, WHICH CAN BE CONSIDERED AS COMPARABLE WITH THE PROD UCTS MANUFACTURED BY WDPS. IT IS IMPORTANT TO UNDERSTAND AND NOTE THAT THE METHOD ADOPTED TO SUBSTANTIATE THE ARM'S LENGTH NATURE OF INTERNATION AL TRANSACTION IS TNMM AND NOT CUP. III. IT IS PERTINENT TO NOTE THAT UDTL MANUFAC TURES AND SELLS TOOLS AND EQUIPMENTS SUCH AS DOWN HOLE TOOLS, TUBING RETRIEVABLE GLV, FAST MAKE- UP CONNECTORS, WIRE LINE WINCHES AND COMPONENTS AND SPARES FOR THE ABOVE. ALL OF THE ABO VE PRODUCTS ARE USED IN OIL AND GAS INDUSTRY DURING DRILLING PROCESS. THE PRODUCTS MANU FACTURED BY THE MANUFACTURING DIVISION OF WDPS ARE ALSO USED FOR SIMILAR PURPOSES. IV. ONCE THE ABOVE FACTS WERE BROUGHT TO THE N OTICE OF THE LD. TPO, HE SIGHTED THE EXPORT FILTER AND REJECTED THE COMPARABLE FROM HIS OWN SET I.E. DEVIATING FROM HIS OWN EARLIER APPROACH AND EXERCISE. V. IT IS MEANINGFUL TO NOT THE FOLLOWING WHILE OBSERVING THE ABOVE APPROACH OF THE LD. TPO/AO: ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 19 - A) THE LD. TPO/AO, WHILE OBSERVING THE TYCO SARANA R LTD HAS MENTIONED THAT THE IMPORT OF THE COMPANY HAVING IMPORTS AROUND 20% IS SIMILAR TO 36% OF THE IMPORT OF THE TESTED PARTY I.E. WDPS. B) EXPORT REVENUE OF MANUFACTURING DIVISION OF WD PS IS ALMOST MORE THAN 80%. THE. LD. TPO/AO WHILE APPLYING THE EXPORT FILTER HAS REDUCED THE IDEAL 100% OR 80% OR MORE EXPORT FILTER TO 25% TO IDENTIFY COMPARABLES, WHICH IS INC ORRECT. AS THE FILTER HENCE IS NOT SERVING ANY PURPOSE OF IDENTIFYING COMPARABLES FACING SIMILAR E XPORT MARKET PRESSURES. HENCE, IT WOULD BE PRUDENT NOT TO APPLY THE EXPORT FILTER RATHER TH AN ADOPTING AN ARBITRARY 25%, WITH NO BASIS. FURTHER, IN SUCH SITUATION, ADOPTION OF A CO MPARABLE WITH 17% OF EXPORT WOULD NOT BE INAPPROPRIATE TO BRING IN A GOOD COMPARABLE. C) THE LD. TPO/AO HAS SIGHTED THE ARBITRARY 25% T O REJECT A COMPARABLE, WHICH HAS 17% EXPORTS. D) IT IS MEANINGFUL TO NOTE THAT WHEN IT COMES TO INCORPORATING A GOOD COMPARABLE WHOSE EXPORT IS 17% THE DIFFERENCE (BETWEEN 25 AND 17) BE COMES MATERIAL TO REJECT THE GOOD COMPARABLE, A LARGER DIFFERENCE (19 AND 36) ON THE COST SIDE WAS NOT ; MATERIAL TO THE LD. TPO/AO, AS DISCUSSED WHILE OBSERVING TYCO SANMAR. E) THE CONTRADICTION IN THE CONTENTIONS OF THE LD . TPO/AO SUGGESTS THAT THE SELECTION/REJECTION OF THE COMPARABLES IS ERRONEOUS AND INCORRECT. THE HENCE IT CAN BE OBSERVED THAT THE LD. TPO/AO ERRED IN NOT SELECTING UDTL AS A COMPARABLE. 10.4 CLOSING REMARKS AS DISCUSSED ABOVE, AND VARIOUS ANNEXURE REFERRED T HERE IN, THE SEARCH FILTERS ADOPTED BY THE LD. TPO/AO ARE INAPPROPRIATE. HOWEVER, WITHOUT PREJUDICE TO THE ABOVE, EVEN IF TH E SEARCH CONDUCTED BY THE LD. TPO/AO IS ADOPTED AFTER APPROPRIATELY FACTORING THE DISCUSSIO N ON THE COMPARABLES I.E. TYCO SANMAR IS NOT CONSIDERED AS PART OF THE SET OF COMPARABLES ID ENTIFIED AND UDTL IS INCLUDED, THE INTERNATIONAL TRANSACTION OF SALES TO AES OF MANUFA CTURING DIVISION OF WDPS COULD BE OBSERVED TO BE AT ARM'S LENGTH, EVEN WITH THE FRESH SEARCH ON SINGLE YEAR DATA OF THE LD, TPO/AO. 10.5 CONCLUSION AND PRAYER THE ASSESSEE ACCORDINGLY PRAYS THAT THE LD. AO BE D IRECTED TO CONSIDER THE INTERNATIONAL TRANSACTION OF THE ASSESSEE TO BE AT ARM'S LENGTH F ROM AN INDIAN TP REGULATION PERSPECTIVE AND ACCORDINGLY THE PROPOSED ADJUSTMENT OF RS.3,02, 66,356 BE DELETED, IN VIEW OF THE ABOVE OBSERVATION. ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 20 - THE ASSESSEE CRAVES LEAVE TO ADD AND SUBMIT SUCH FU RTHER FACTS, STATEMENTS, DOCUMENTS AND PAPERS AS MAY BE CONSIDERED NECESSARY EITHER BEFORE OR DURING THE HEARING OF THE OBJECTIONS. APPENDIX III WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PRIVATE LIMITED ASSESSMENT YEAR 2009-10 OBJECTION 2: REJECTION OF THE TRANSFER PRICING DOC UMENTATION 1.GROUND OF OBJECTION NO.2: REJECTION OF THE TRANSFER PRICING DOCUMENTATION THE LD. TPO/ AO REJECTED THE TRANSFER PRICING DOCUM ENTATION OF THE ASSESSEE WITHOUT GIVING ANY COGENT REASON. THE LD, TPO/AO HAS ERRED IN REJECTING THE TRANSFER PRICING DOCUMENT PREPARED BY ASSESSEE BY APPLYING THE PROVI SIONS OF SEC. 92C(3)(C) READ WITH SEC. 92CA THUS BEING OF THE OPINION THAT THE DATA USED I N COMPUTATION OF THE ARMS LENGTH PRICE IS NOT RELIABLE OR CORRECT. THE ASSESSEE OBJECTS THE REJECTION OF THE TRANSFER PRICING DOCUMENT BY LD. TPO/AO ON THE BASIS OF FOLLOWING: GROUND OF OBJECTION NO.2A: REJECTION OF ECONOMIC AN ALYSIS THE ASSESSEE OBJECTS THE REJECTION OF ECONOMIC ANAL YSIS BY THE LD. TPO/AO. GROUND OF OBJECTION NO.2B; REJECTION OF USAGE OF MU LTIPLE YEAR DATA THE ASSESSEE OBJECTS TPO/AO'S ACTION OF NOT CONSIDE RING THE IMPOSSIBILITY OF PERFORMANCE, IN THE LIGHT OF NON-AVAILABILITY OF SINGLE YEAR DATA O F COMPARABLES FOR THE PURPOSE OF TP DOCUMENTATION AND IN REJECTING THE USAGE OF MULTIPL E YEAR DATA BY THE ASSESSEE. GROUND OF OBJECTION NO.2C; LIMITING THE SEARCH PRO CESS ONLY TO 'VALVES THE ASSESSEE OBJECTS THE KEY-WORD SEARCH CARRIED OU T BY LD. TPO/AO BY TO SELECT 'VALVES', 'INDUSTRIAL VALVES' AND 'OTHER VALVES'. 2. FACTS AS SUBMITTED TO ASSESSING OFFICER THE ASSESSEE SUBSTANTIATED THE ARM'S LENGTH NATURE OF ITS INTERNATIONAL TRANSACTION OF SALES TO AES OF THE MANUFACTURING DIVISION OF WDPS TO BE AT ARM'S LENGTH BY ADOPTING TNMM CONSIDERING OP/SALES AS PLI. A STRUCTURED BENCHMARK ING PROCESS WAS CARRIED OUT BY THE ASSESSEE WHICH IS REFLECTED IN THE TP STUDY REPORT, IDENTIFYING 7 COMPARABLES HAVING AVERAGE OP/SALES OF 8.85%, WHEREAS OP/SALES OF THE TESTED P ARTY I.E. MANUFACTURING DIVISION OF WDPS WAS,L6.15%. THE ASSESSEE HAS ALSO FILED VARIOUS SUBMISSIONS TIM E TO TIME TO SUBSTANTIATE THE ARM'S LENGTH NATURE OF ITS INTERNATIONAL TRANSACTIONS AND HAS PR ODUCED THE EVIDENCES UPON WHICH THE ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 21 - ASSESSEE HAS RELIED IN SUPPORT OF THE COMPUTATION O F ALP IN RELATION TO ITS INTERNATIONAL TRANSACTIONS. THE ASSESSEE FILED A DETAILED SUBMISS ION, IN RESPONSE TO REJECTION OF TP DOCUMENTATION BY THE LD. TPO ON JANUARY 22, 2013. ALSO, ASSESSEE FILED A LETTER TO LD. AO SHOWING FACTUAL AND LEGAL CAUSES WHY THE UPWARD ADJ USTMENT PROPOSED BY THE LD. TPO SHOULD NOT BE MADE. FACTS MODIFIED BY THE ASSESSING OFFICER THE LD, TPO/AO HAS REJECTED THE TRANSFER PRICING DO CUMENT BY TERMING THE DATA USED BY THE ASSESSEE AS NOT RELIABLE AND CORRECT ON THE BASIS O F THE FOLLOWING: I. REJECTED THE ECONOMIC ANALYSIS OF THE ASSES SEE WITHOUT GIVING ANY COGENT REASON; II. DISREGARDED THE IMPOSSIBILITY OF PERFORMANC E FOR THE USE OF SINGLE YEAR DATA OF THE COMPARABLES IN THE TP DOCUMENTATION; III. CARRIED OUT THE WORD SEARCH IN THE ELECTRON IC DATABASES TO SELECT 'VALVES, 'INDUSTRIAL VALVES', 'OTHER VALVES' LIMITING THE SEARCH ONLY TO VALVES; 4 DO YOU WHOLLY AGREE WITH THE MODIFICATIONS IN TH E FACTS BY THE ASSESSING OFFICER. IF NOT, GIVE REASONS POINTING THE SPECIFIC FACT OR FACTS WI TH WHICH YOU DO NOT AGREE ALONG WITH THE REASONS AND DOCUMENTARY EVIDENCE, IF ANY. THE ASSESSEE SUBMITTED DETAILED RESPONSE TO THE SHOW CAUSE NOTICE ISSUED BY THE LD. TPO PROVIDING ITS EXPLANATIONS AND COMMENTS AGAINST THE APPROACH ADOPTED BY THE LD. TPO VIDE SUBMISSION MADE ON JANUARY 22, 2013. TABLE 1: DISAGREEMENT WITH MODIFICATION IN FACTS B Y LD. TPO/AO SR.NO. LD.TPO/AOS ACTIONS ASSESSEES OBJECTION I. REJECTING THE ECONOMIC ANALYSIS OF THE ASSESSEE (PLEASE REFER PAGE NOS.257 TO 259 OF THE PAPER BOOK FOR THE SAME) II. DISREGARDING THE IMPOSSIBIL ITY OF PERFORMANCE FOR SINGLE YEAR DATA & USAGE OF MULTIPLE YEAR DATA (PLEASE REFER PAGE NOS.260 TO 2678 OF THE PAPER BOOK FOR THE SAME) III. CARRYING OUT WORD SEARCH IN THE ELECTRONIC DATABASES TO SELECT VALES, INDUSTRIAL VALVES, OTHER VALVES` (PLEA SE REFER PAGE NOS.268 TO 270 OF THE PAPER BOOK FOR THE SAME) 5. LEGAL ARGUMENTS SUBMITTED TO THE ASSESSING OFFI CER THE ASSESSEE WOULD LIKE TO SUBMIT THAT IT IS IN COM PLIANCE WITH THE DOCUMENTATION REQUIREMENT AS ENUNCIATED IN SECTION 92D OF THE ACT READ WITH RULE 10D(4) OF THE RULES AND HAD MAINTAINED THE CONTEMPORANEOUS TP DOCUMENTATION FOR FY 2008-09. ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 22 - FOR NOT USING THE SINGLE YEAR DATA RELATING TO FY 2 008-09, THE ASSESSEE WOULD LIKE TO MENTION THAT AS PER RULE 10D (4) SUPRA, THE DATA TO BE USED FOR THE PURPOSE OF UNCONTROLLED COMPARABLE ANALYSIS SHOULD, RELATE TO THE RELEVANT FY AND BE AVAILABLE AS ON THE SPECIFIED DATE. IF ANY ONE OF THESE CONDITIONS IS NOT SATISFI ED, THE RELEVANT COMPARABLE OUGHT NOT TO BE INCLUDED IN THE COMPARABILITY ANALYSIS. FURTHER, PROVISO TO RULE 106(4) STATES THAT DATA RE LATING TO A PERIOD NOT BEING MORE THAN TWO YEARS PRIOR TO SUCH FY MAY ALSO BE CONSIDERED IF SU CH DATA REVEALS FACTS WHICH COULD HAVE AN INFLUENCE ON THE DETERMINATION OF TRANSFER PRICES I N RELATION TO THE TRANSACTIONS BEING COMPARED. IN THE INSTANT CASE, THE RELEVANT PRIOR Y EARS ARE FY 2006-07 AND FY 2007-08. 6. CASE LAWS RELIED UPON BY THE ASSESSEE A. HON'BLE MUMBAI TRIBUNAL IN CASE OF STAR IND IA PVT. LTD. VS. ACIT (ITA 3585/M/2OO6) ('STAR INDIA CASE') B. DCIT VS INDO AMERICAN JEWELLERY PVT. LTD. [ITA NO. 6194 / MUM, 2008] C. INCOME-TAX APPELLATE TRIBUNAL (TRIBUNAL), DELH I BENCH, IN THE CASE OF MENTOR GRAPHICS (NOIDA) PVT. LTD. V DY. COMMISSIONER OF INCOME-TA X [2007] 109 ITD 101 D. PHILIPS SOFTWARE CENTRE PVT. LTD. VS ACIT (119 TTJ 721) E. SUPD OF TAXES, DHUBRI AND OTHERS (1975 CTR (S. C.) 172) F. SOUTH EASTERN COALFIELDS LTD, V. JOINT COMMISS IONER OF INCOME-TAX (260 ITR 1 - ITAT) G. INCOME TAX OFFICER VS. LIC (79 ITD 278), THE HO N'BLE TRIBUNAL H. ACIT VS. JINDAL IRRIGATION SYSTEMS LIMITED (56 I TD I64(HYD)) I MAFARLAL APPAREL MFG, CO. LTD. V. DEPUTY COMMIS SIONER OF INCOME TAX (61 TTJ 323) 7. LEGAL ARGUMENTS RELIED UPON BY THE ASSESSING OFFICER A. FOR THE PURPOSE OF USAGE OF MULTIPLE YEAR DATA BY T HE ASSESSEE, THE LD TPO HAS RELIED ON THE PROVISIONS OF SECTION 92C(3)(C) READ WITH SECTION 92CA WHICH PROVIDES THAT IF THE LD. TPO IS OF THE OPINION THAT THE INFO RMATION OR DATA USED IN COMPUTATION OF THE ARM'S LENGTH PRICE IS NOT RELIABLE OR CORREC T, THE LD. TPO MAY PROCEED TO DETERMINE ARM'S LENGTH PRICE IN RELATION TO THE INT ERNATIONAL TRANSACTIONS IN ACCORDANCE WITH SECTION 92C(1) AND 92C(2) ON THE BA SIS OF SUCH MATERIAL OR INFORMATION OR DOCUMENT AVAILABLE WITH HIM. B. FOR THE USE OF THE CURRENT YEAR DATA, THE LD. TP O HAS RELIED ON RULE 10B(4) OF THE RULES WHICH PROVIDES THAT THE DATA TO BE USED IN AN ALYSING HE COMPARABILITY OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRAN SACTION SHALL BE DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANS ACTION HAS BEEN ENTERED INTO. C. ACCORDINGLY, THE LD.TPO/AO HAS DISREGARDED THE U SAGE OF MULTIPLE YEAR DATA BY THE ASSESSEE. 8. CASE LAWS RELIED UPON BY ASSESSING OFFICER. ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 23 - A. CIT VS. BRLTLSLT: PLANTS INDIA LTD.(788 IR 44) B. AZTEE GRAPHICCS SOFTWARE & TECHNOLOGY SERVICES L TD. (2007) [294 ITR (AT) 32] C. MENTOR GRAPHICS PVT. LTD. (2007) (109 ITD 101) D. HONEYWELL LIMITED (2009) (2009-TIOL 7104-ITAT PU NE) E. CUSTOMER SERVICES INDIA PVT. LTD. (2009) (2009-T IOL0424-ITAT-DELHI) F. SCHEFENACKER MOTHERSON LTD. (2009) (2009 TIOL-37 6-ITAT-DELHI) G. PANASONIC INDIA PVT. LTD. (2010) (2010-TII-47-IT AT-DEL-TP) H. GEODIS OVERSEAS P. LTD. (2011) (2011-TII-34-ITAT -DEL-TP) I. HAWORTHINDIA PVT. LTD. 2010) (ITA NO.5341/DEL/20 10) J. TNT INDIA PVT. LTD. (2011) (2011-TII-39-ITAT-BAN G-TP) K. NGC NETWORK INDIA LTD. PVT. LTD. (2011)(2011-TII -45-ITAT-MUM-INTL) L. ADP PVT. LTD. (2011)(2011-TII-44-ITAT-HUD-TP) M. DELOITTE CONSULTING INDIA PVT. LTD., (1082 & 108 4/HYD/2010). N. ACIT VS. BIRLASOFT LTD. (47 SOT 437) O. EXXON MOBIL COMPANY INDIA (P)LTD. VS. DCIT (46 S OT 294) P. SYMENATE SOFTWARE SOLUTIONS PVT. LTD. (46 SOT 48 ) 9. ANY ADDITIONAL NEW CASE LAWS WHICH THE ASSESSEE MAY LIKE TO RELY UPON NONE. 10. FACTUAL AND LEGAL ARGUMENTS AGAINST THE ADDITION PR OPOSED BY THE ASSESSING OFFICER. OVER AND ABOVE WHAT HAS BEEN MENTIONED IN PARA 4 A ND THE SUBMISSIONS MADE TO THE LD. TPO/AO DURING THE COURSE OF ASSESSMENT, BELOW A RE THE ARGUMENTS IN A SUMMARIZED MANNER TO SUBSTANTIATE THE FACTUAL AND L EGAL ARGUMENTS AGAINST THE ADDITION PROPOSED BY THE A.O: 10.1 GROUND OF OBJECTION NO.2A REJECTON OF ECONOMIC AN ALYSIS. THE LD. TPO/AO, WITHOUT GIVING ANY SUFFICIENT AND JUSTIFIABLE REASONS, HAS REJECTED THE ECONOMIC ANALYSIS UNDERTAKEN BY THE ASSESSEE IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE RULES AND HAS UNDERTAKEN A FRESH ECONOMIC ANALYSIS FOR THE DETERMINATION OF THE ARMS LENGTH PRICE IN CONNECTI ON WITH THE IMPUGNED INTERNATIONAL TRANSACTION AND HELD THAT THE ASSESSE ES INTERNATIONAL TRANSACTION IS NOT AT ARMS LENGTH. (PLEASE REFER PAGE NOS.257 TO 259 OF THE PAPER BOOK FOR THE SAME) ADDITIONALLY THE ASSESSEE WOULD LIKE TO FURNISH TH E FOLLOWING: THE LD.TPO HAS PASSED THE ADJUSTMENT WITHOUT PROVI DING ANY COGENT REASONS AS PER SECTION 92C(3). THIS PARTICULAR SECTION SPECIFIES A LIST OF 4 CRITERIA BASED ON WHICH THE DOCUMENTATION PROVIDED BY THE ASSESSEE CAN BE R EJECTED AND THEREAFTER THE LD. TPO MAY PROCEED TO DETERMINE THE ALP. SEC. 92C (3) PROVIDES THAT (3) WHERE DURING THE COURSE OF AY PROCEEDING FOR T HE ASSESSMENT OF INCOME, THE ASSESSING OFFICER IS, ON THE BASIS OF MATERIAL OR INFORMATION OR DOCUMENT IN HIS POSSESSION OF THE OPINION THAT - ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 24 - (A) TE PRICE CHARGED OR PAID I AN INTERNATIONAL TRANSAC TION HAS NOT BEEN DETERMINED IN ACCORDANCE WITH SUB-SECTION (1) AND ( 2); (B) ANY INFORMATION AND DOCUMENT RELATING TO AN INTERNA TIONAL TRANSACTION HAVE NOT BEEN KEPT AND MAINTAINED BY TH E ASSESSEE IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SUB-SEC TION (1) OF SECTION 92D AND THE RULES MADE IN THIS BEHALF; OR (C) THE INFORMATION OR DATA USED IN COMPUTATION OF THE ARMS LENGTH PRICE IS NOT RELIABLE OR CORRECT; OR (D) THE ASSESSEE HAS FAILED TO FURNISH, WITHIN THE SPEC IFIED TIME, ANY INFORMATION OR DOCUMENT WHICH HE WAS REQUIRED TO FU RNISH BY A NOTICE ISSUED UNDER SUB-SECTION (3) OF SECTION 92D; THE ASSESSING OFFICER MAY PROCEED TO DETERMINE THE ARMS LENGTH PRICE IN RELATION TO THE SAID INTERNATIONAL TRANSACTION IN A CCORDANCE WITH SUB-SECTION (1) AND (2), ON THE BASIS OF SUCH MATERIAL OR INFOR MATION OR DOCUMENT AVAILABLE WIT HIM: PROVIDED THAT AN OPPORTUNITY SHALL BE GIVEN THE ASSESSING OF FICER BY SERVING A NOTICE CALLED UPON THE ASSESSEE TO SHOW CAUSE, ON A DATE AND TIME TO BE SPECIFIED IN THE NOTICE, WHY ARMS LENGTH PRICE SHO ULD NOT BE SO DETERMINED ON THE BASIS OF MATERIAL OR INFORMATION OR DOCUMENT IN THE POSSESSION OF THE ASSESSING OFFICER. THE LD. TPO HAS NOT BROUGHT ANY OF THE POINTS IN HI S ORDER VIZ. . ANY SHOW CAUSE TO PROVE THAT THE PRICES AT WHICH IN TERNATIONAL TRANSACTION IS UNDERTAKEN IS NOT AT ARMS LENGTH. . NON-MAINTENANCE OF ANY INFORMATION OR DOCUMENT RELA TING TO THE INTERNATIONAL TRANSACTION AS PRESCRIBED U/S. 92D(1) . INFORMATION USED TO COMPUTE THE ARMS LENGTH PRICE IS NOT CORRECT; OR . FAILURE ON PART OF THE ASSESSEE TO FURNISH ANY IN FORMATION REQUIRED UNDER SECTION 92D(3). TO SHOW THAT THE ASSESSEES TRANSFER PRICING DOCUME NT NEEDS TO BE REJECTED OR THE COMPARABLES SELECTED BY LD.TPO/AO OUGHT TO BE ACCEP TED. THE ASSESSEE DIFFERS WITH THE ACTION OF THE LD. TPO /AO IN REJECTING THE COMPARABLES OF THE ASSESSEE AS PROVIDED IN THE TP DOCUMENTATION WITHOUT PROVIDING GENUINE AND COGENT REASONS. THE ASSESSEE WOULD LIKE TO HUMBLY S TATE BEFORE THE PANEL THAT IF THE INITIAL BURDEN OF DEMONSTRATING THAT THE INTERNATIO NAL TRANSACTIONS ARE UNDERTAKEN AT ARMS LENGTH AND IF THE TAX AUTHORITIES PROPOSE ANY VARIATION THEN THE RESPONSIBILITY SHIFTS TO THE REVENUE TO DETERMINE ALP IN ACCORDANC E WITH LAW. IN VIEW OF ALL OF THE ABOVE, WE WOULD HUMBLY SUBMIT THAT EJECTION OF ECONOMIC ANALYSIS CARRIED OUT BY THE ASSESSEE IS INCORRECT. 10.2. GROUND OF OBJECTION NO.2B- REJECTION OF USAGE OF MU LTIPLE YEAR DATA. I. THE LD. TPO/AO HAS ERRED IN REJECTING THE USE OF MULTIPLE YEAR DATA USED BY THE ASSESSEE FOR THE BENCHMARKING EXERCISE IN THE T P DOCUMENTATION. THE ASSESSEE HAS TO SUBMIT THE FOLLOWING IN THIS R EGARD: ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 25 - 10.2.1 PRINCIPLE OF IMPOSSIBILITY OF PERFORMANCE II. WE WOULD SPECIFICALLY DRAW YOUR ATTENTION TO CO MPARABLES G T N ENGINEERING (INDIA) LTD. AND TYCO SANMAR BEING TWO COMPARABLES OUT OF TOTAL FOUR COMPARABLES CONSIDERED THE LD. TPO/AO. I T IS SUBMITTED IN THIS REGARD THAT THE FINANCIAL DATA OF BOTH THESE COMPAN IES WERE NOT AVAILABLE FOR CONSIDERATION ON THE DATE I.E. FEBRUARY 27, 2009 FO R CARRYING OUT BENCHMARKING PROCESS FOR TP DOCUMENTATION PURPOSE. III. CONSIDERING THE DATA FOR F.Y. 2008-09 FOR CAPT IONED COMPANIES AT THE TIME OF TP DOCUMENTATION CLEARLY FALLS WITHIN THE FRAME OF IMPOSSIBILITY OF PERFORMANCE ON THE PART OF THE ASSESSEE. HENCE, T HE LD. TPO/AO HAS ERRED IN CONSIDERING SINGLE YEAR DATA FOR THE COMPANIES. 10.2.2. MAINTENANCE OF CONTEMPORANEOUS TP DOCUMENTATION. I. WE REFER TO THE TP STUDY SUBMITTED VIDE OUR SUBM ISSION DATED DECEMBER 22, 2011. FOR THE REASONS SUMMARISED HEREUNDER, THE ASS ESSEE SUBMITS THAT THE COMPARABLE DATA RELIED UPON BY THE TP DOCUMENTATIO N IS CONTEMPORANEOUS, EXISTED BY THE LATEST DATA SPECIFIED BY THE RULES A ND IS USED IN ACCORDANCE WITH LAW. 10.2.3. COMPARABLE DATA RELIED BY THE TP STUDY IS CONTEMPOR ANEOUS I. THE ASSESSEE WOULD LIKE O SUBMIT THAT THE ASSESS EE IS IN COMPLIANCE WITH THE DOCUMENTATION REQUIREMENT AS ENUNCIATED IN SECTION 92D OF THE ACT READ WITH RULE 10D(4) OF THE RULES AND HAS MAINTAINED TH E CONTEMPORANEOUS TP DOCUMENTATION FOR F.Y. 2008-09. II. AS MOST COMMERCIAL DECISIONS ARE PRIMARILY BASE D ON HISTORICAL DATE IT IS REASONABLE TO CONCLUDE THAT THE PRIOR YEAR DATA WOU LD NECESSARILY ALWAYS REVEAL SUCH FACTS. HENCE, PRIOR YEAR DATA SHOULD BE USED WHEREVER AVAILABLE AND NOT AS AN EXCEPTION. FURTHER SUCH USE IS ESSENT IAL WHEN THE DATA OF THE RELEVANT F.Y. IS NOT AVAILABLE ON A CONTEMPORANEOUS BASIS. III. FURTHER, AS PER THE OECD GUIDELINES, VIDE PARA GRAPHS 3.76 & 3.77 IT HAS BEEN PROVIDED THAT THE USE OF PRIOR YEAR DATA, IN A DDITION TO THE INFORMATION OF THE CURRENT YEAR, IS REFLECTIVE OF THE ECONOMIC CONDITIONS AND BUSINESS CYCLES. (PLEASE REFER PAGE NOS.260 TO 267 OF THE PAPER BOOK FOR THE SAME) IN VIEW OF ALL OF THE ABOVE, WE WOULD HUMBLY SUBMI T THAT DISREGARDING USAGE OF MULTIPLE YEAR DATA IS INCORRECT. 10.3. GROUND OF OBJECTION NO.2C: LIMITING THE SEARCH PROC ESS ONLY TO VALVES THE ASSESSEE OBJECTS THE SELECTION OF COMPARABLES B Y THE LD. TPO/AO IN THE FRESH SEARCH CARRIED OUT. THE ASSESSEE WOULD LIKE T O MENTION THE FOLLOWING REASONS FOR CONSIDERING COMPARABLES OF THE FLOW CON TROL INDUSTRY (BASICALLY PUMPS AND VALVES); . PUMPS AND VALVES ARE SEGMENTS OF THE SAME MECHANICA L TOOLS INDUSTRY (FLOW CONTROL INDUSTRY); ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 26 - . FORTUNES OF PUMPS AND VALVES ARE CLOSELY INTERLIN KED TO EACH OTHER AND MANY COMPANIES MANUFACTURE BOTH PUMPS AND VALVES, IT WAS PRUDENT TO IDENTIFY COMPARABLES, WHICH WERE ENGAGED IN MANUFACTURE OF B OTH PUMPS AND VALVES; . PUMPS AND VALVES ARE INTRINSICALLY CONNECTED TO EAC H OTHER AS THEY ARE USED TOGETHER IN A WIDE SPECTRUM OF INDUSTRIES, THE BENC HMARKING ANALYSIS CARRIED OUT BY THE ASSESSEE CONSIDERED COMPANIES ENGAGED IN THE MANUFACTURE OF BOTH PUMPS AND VALVES; . MANU COMPARABLE COMPANIES SELECTED IN THE TP ANALYS IS MANUFACTURE BOTH VALVES AND OTHER ACCESSORIES OF THE FLOW CONTROL IN DUSTRY THIS AGAIN ILLUSTRATES THAT THE FORTUNES OF FLOW CONTROL INDUS TRY IS INTERLINKED; . SINCE PUMPS AND VALVES ARE BOTH REQUIRE CONCURRENT LY WHEN AN INSTALLATION/PLANT IS SET UP, THEIR DEMAND SUPPLY P ATTERNS OVERLAP. (PLEASE REFER PAGE NOS.268 TO 270 OF THE PAPER BOO K FOR THE SAME.) IN VIEW OF ALL OF THE ABOVE, WE WOULD HUMBLY SUBMI T THAT LIMITING THE SEARCH PROCESS TO VALVES IS INCORRECT. 10.4. CONCLUSION AND PRAYER. IN VIEW OF THE ABOVE, THE ASSESSEE ACCORDINGLY PRAY S THAT THE LD. A.O. BE DIRECTED TO ACCEPT THE TRANSFER PRICING DOCUMENTATI ON MAINTAINED BY THE ASSESSEE AND CONSIDER THE INTERNATIONAL TRANSACTION OF SALES TO AES BY THE WDPSS MANUFACTURING DIVISION TO BE ARMS LENGTH, F ROM AN INDIAN TP REGULATION PERSPECTIVE; THE ASSESSEE CRAVES LEAVE TO ADD AND SUBMIT SUCH FU RTHER FACTS, STATEMENTS, DOCUMENTS AND PAPERS AS MAY BE CONSIDERED NECESSARY EITHER BEFORE OR DURING THE HEARING OF THE OBJECTIONS. 5.1. HOWEVER, THE LD.DRP REJECTED THE OBJECTIONS BY OBSERVING AS UNDER:- DIRECTIONS OF THE DRP: I) THE APPLICATION OF EACH FILTER HAS RELEVANCE. I T REPRESENTS THE EFFORT MADE BY THE TPO ON THE BASIS OF STUDY OF THE TESTED PARTY, THE INTERNA TIONAL TRANSACTION, THE CONDITIONS EXISTING IN CASE OF THE INTERNATIONAL TRANSACTION, THE TESTED P ARTY, THE ECONOMY AT MACRO AND MICRO LEVEL TO IDENTIFY THOSE FEATURES WHICH ARE RELEVANT AND M UST BE IDENTIFIED IN THE COMPARABLES TOO SO THAT PROPER COMPARISON MAY BE MADE OF TESTED PARTY WITH THE UNCONTROLLED COMPARABLES AND THE MARKET PRICE OR ARM'S LENGTH PRICE OF INTERNATI ONAL TRANSACTIONS MAY BE DETERMINED. HOWEVER, IN THE LIGHT OF ARGUMENTS OF THE ASSESSEE IN RESPECT TO FILTERS GIVEN IN THE TABLE ABOVE, THIS PANEL DIRECTS AS FOLLOWS. THE TPO HAS APPLIED EXPORT FILTER REJECTING COM PANIES HAVING EXPORT SALES <25% OF TOTAL SALES. THIS PANEL AGREES WITH THE CONTENTION OF THE ASSESSEE THAT FILTER APPLIED BY THE TPO IS NOT PROPER AS IT DOES NOT INCREASE THE COMPARABILIT Y. THEREFORE, THIS PANEL FINDS THAT THE TPO INITIALLY APPLIED THE FILTER 'REJECT COMPANIES HAVI NG EXPORT SALES <75%'. BUT ON APPLICATION OF ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 27 - THIS FILTER ONLY TWO COMPANIES WERE IDENTIFIED. ON FURTHER REDUCING THE FILTER TO 50% FOUR COMPANIES WERE IDENTIFIED. SINCE THE SET WAS STILL SMALL, THE CRITERION WAS RELAXED TO 25%.USING THIS CRITERION A SET OF 20 COMPANIES WAS SELECTED. SINCE THE SET SIZE WAS NOT VERY SMALL, THIS CRITERION WAS FINALLY ADOPTED BY THE TP O. THOUGH REDUCING THE PERCENTAGE OF EXPORT LEADS TO INCREASE IN NUMBER OF COMPARABLE CO MPANIES BUT THIS PANEL HOWEVER HOLDS THE VIEW THAT BEYOND A LIMIT IF THE PERCENTAGE OF E XPORT IS REDUCED EVEN THOUGH THE NUMBER OF COMPANIES TO BE CONSIDERED WOULD INCREASE BUT THE P URPOSE WOULD BE DEFEATED. IDENTIFIED COMPANIES WOULD NOT BE COMPARABLES. THIS PANEL FIND S THAT REDUCING THE PERCENTAGE BEYOND A LIMIT IS NOT ADVISABLE. THEREFORE, THIS PANEL DIR ECTS THE TPO TO APPLY THE FILTER, 'REJECT THE COMPANIES HAVING EXPORT SALES LESS THAN 50 % OF TOT AL SALES.' OTHER FILTERS APPLIED BY THE TPO ARE CONSIDERE D PROPER. ADDITIONAL FILTER APPLIED BY THE TPO CAPTURE ECONOMICALLY SIGNIFICANT PARAMETER OF C OMPARABILITY AND HENCE, IMPROVE COMPARABILITY. II) IN SO FAR AS COMPARABLES ARE CONCERNED, THE ASS ESSEE HAS OBJECTED SELECTION OF TYCO SANMAR LTD ON THREE REASONS. THESE REASONS ARE -SALES OF SPARE S IS MORE THAN 48% OF REVENUE, IT HAS SUPER NORMAL PROFIT 71.44 PERCENT A ND THAT IT HAS RPT OF 29.10 PERCENT ON TOTAL COST INCURRED BY TYCO SANMAR. THIS PANEL HOLD S THAT SALES OF SPARES AND SUPER NORMAL PROFIT ARE NOT VALID OBJECTIONS RAISED BY THE ASSES SEE. SALE OF SPARE HAS NOT BEEN SEGREGATED IN ANY COMPARABLE AS WELL AS IN THE CASE OF ASSESSE E. FURTHER, WHAT CONSTITUTES HIGH PERCENTAGE OF SALE OF SPARES FOR THIS PURPOSE IS NO T ESTABLISHED. SUPER NORMAL PROFIT WITH DUE RESPECT TO TRIBUNAL DECISIONS REFERRED TO IS NOT CO NSIDERED COMPELLING REASON TO EXCLUDE TYCO SANMAR AS SO LONG IT QUALIFIES ON ALL THE FILTERS. IN SO FAR RPT IS CONCERNED THE TPO HAS APPLIED FILTER '25 % OF OPERATING REVENUES. THEREFO RE, RPT ON COST IS NOT CONSIDERED A VALID CRITERION TO EXCLUDE THIS COMPARABLE. THEREFORE NO DIRECTION TO EXCLUDE THIS COMPARABLE CAN BE GIVEN BY THIS PANEL. III) THE ASSESSEE HAS ALSO REQUESTED TO INCLUDE UNITED DRILLING TOOLS LTD. THE REASONS GIVEN BY THE ASSESSEE WHILE REQUESTING TO INCLUDE IT AS C OMPARABLE ARE NOT VALID REASONS. THE EXPORT PERCENTAGE OF THIS COMPANY IS ONLY 17%. IMPO RT PERCENTAGE FILTER HAS NOT BEEN APPLIED BY THE TPO AND THEREFORE, IT CANNOT BE USED AS CRIT ERION TO INCLUDE THIS COMPANY. IT HAS ALREADY BEEN CLARIFIED BY THE TPO THAT IMPORT PERCE NTAGE FILTER HAS NOT BEEN INTENDED TO BE INCLUDED. THEREFORE NO DIRECTION IS GIVEN TO THE TP O TO INCLUDE IT IN THE SET OF COMPARABLES. 3. OBJECTION 2; REJECTION OF THE TRANSFER PRICING D OCUMENTATION GROUND OF OBJECTION NO.2; REJECTION OF THE TRANSFER PRICING DOCUMENTATION THE LD. TPO/ AO REJECTED THE TRANSFER PRICING DOCUMENTATION OF THE ASSESSEE WITHOUT GIVING ANY COGENT REASON. THE LD. TPO/AO HAS, ERRED IN REJECTING THE TRANSFER PRICING DOCUMENT PREPARED BY ASSESSEE BY APPLYING THE PROVI SIONS OF SEC. 92C(3)(C) READ WITH SEC. 92CA THUS BEING OF THE OPINION THAT THE DATA USED I N COMPUTATION OF THE ARMS LENGTH PRICE IS NOT RELIABLE OR CORRECT. ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 28 - THE ASSESSEE OBJECTS THE REJECTION OF THE TRANSFER PRICING DOCUMENT BY LD. TPO/AO ON THE BASIS OF FOLLOWING: GROUND OF OBJECTION NO.2A; REJECTION OF ECONOMIC AN ALYSIS THE ASSESSEE OBJECTS THE REJECTION OF ECONOMIC ANAL YSIS BY THE LD. TPO/AO. GROUND OF OBJECTION NO.2B; REJECTION OF USAGE OF MU LTIPLE YEAR DATA THE ASSESSEE OBJECTS TPO/AO'S ACTION OF NOT CONSIDE RING THE IMPOSSIBILITY OF PERFORMANCE, IN THE LIGHT OF NON-AVAILABILITY OF SINGLE YEAR DATA O F COMPARABLES FOR THE PURPOSE OF TP DOCUMENTATION AND IN REJECTING THE USAGE OF MULTIPL E YEAR DATA BY THE ASSESSEE. GROUND OF OBJECTION NO.2C; LIMITING THE SEARCH PROC ESS ONLY TO 'VALVES' THE ASSESSEE OBJECTS THE KEY-WORD SEARCH CARRIED OU T BY LD. TPO/AO BY TO SELECT 'VALVES', 'INDUSTRIAL VALVES' AND 'OTHER VALVES'. 3.1 GROUND OF OBJECTION: REJECTION OF THE TRANS FER PRICING DOCUMENT THE ASSESSEE HAS SUBMITTED THAT THE TPO HAS REJECTE D THE TRANSFER PRICING DOCUMENTATION OF THE ASSESSEE WITHOUT GIVING ANY COGENT REASON. THE TPO HAS CONDUCTED A FRESH SEARCH AND APPLIED CERTAIN ADDITIONAL QUANTITATIVE FILTERS ON THE DATA. THE TPO HAS ERRED IN REJECTING THE TRANSFER PRICING DOCUMENT PREPARED BY ASSESSEE BY A PPLYING THE PROVISIONS OF SEC. 92C(3)( C) READ WITH SEC. 92CA THUS BEING OF THE OPINION TH AT THE DATA USED IN COMPUTATION OF THE ARMS LENGTH PRICE IS NOT RELIABLE OR CORRECT. DIRECTIONS OF THIS PANEL I) IN THIS CONNECTION, WE HAVE REFERRED TO THE TP ORDER PASSED BY THE TPO FOR AY 2009-10. WE FIND EXCEPT EXPORT PERCENTAGE FILTER ALL OTHER F ILTERS HAVE RIGHTLY BEEN APPLIED BY THE TPO. FOR EACH FILTER THE ASSESSEE HAS GIVEN THE REASON F OR APPLYING THE SAME. WE FIND THAT THERE WERE CERTAIN FLAWS IN THE TRANSFER PRICING STUDY OF THE ASSESSEE WHICH THE TPO HAS REMOVED THEM AS THE TP PROVISIONS CONTAINED IN CHAPTER X OF THE ACT AND THE RULES DO NOT PERMIT THEM. ONE SUCH CHANGE MADE BY THE TPO IN THE TP STU DY PRESENTED BY THE ASSESSEE IS USE OF MULTIYEAR DATA BY THE ASSESSEE. TPO HAS APPLIED THI S FILTER AS THE DATA USED AS PER ACT FOR COMPARISON SHOULD BE CONTEMPORANEOUS. OTHER FILTERS APPLIED BY THE ASSESSEE WERE THE BASED ON STUDY OF CONDITION EXISTING IN THIS CASE. FILTER RELATED PARTY TRANSACTIONS MORE THAN 25 PERCENT WAS USED BY THE TPO TO REJECT THOSE COMPANI ES WHICH HAS TRANSACTION MORE THAN 25 PERCENT AS THE TPO CONSIDERED THIS LIMIT AS REASONA BLE FOR IDENTIFYING UNCONTROLLED COMPARABLE COMPANIES. TPO HAS CONSIDERED THAT MORE THAN THIS LIMIT WILL VITIATE THE COMPARISON AS THE BASIC FUNDAMENTAL PRINCIPLE OF TR ANSFER PRICING STUDY IS THAT RELATED PARTIES CAN MANIPULATE THE PRICES. THOUGH THERE IS NO SACROSANCT LIMIT OF RELATED PARTY ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 29 - TRANSACTIONS AND DIFFERENT TRIBUNALS HAVE APPROVED DIFFERENT PERCENTAGE OF RPT. IN OUR VIEW APPLYING THE FILTER OF 25 PERCENT RPT IN THIS CASE IS ABSOLUTELY PROPER AND NO ALTERATION IN IT IS CALLED FOR. THE TPO HAS RIGHTLY REJECTED THE TRA NSFER PRICING ANALYSIS OF THE ASSESSEE AS THE DATA USED BY THE ASSESSEE IS NOT RELIABLE AS PER TH E PROVISIONS OF SECTION 92 C (3) (C) OF THE ACT. II) THE PURPOSE OF MAKING FRESH SEARCH BY THE TPO AFTER REJECTION OF TP STUDY OF THE ASSESSEE IS TO REFINE THE SEARCH AS MORE COMPANIES DATA IS UPLOADED BETWEEN THE PERIOD ASSESSEE CARRIED OUT THE SEARCH AND THE TPO CARRIES OUT THE SEARCH DURING TP PROCEEDINGS. IF DATA WAS NOT AVAILABLE WHEN THE ASSESSEE CARRIED ON THE STUDY IS NOT A BAR FOR THE TPO TO CARRY OUT SEARCH LATER. FURTHER, THE TPO HAS CARRIE D OUT SEARCH TO IDENTIFY BETTER COMPARABLES AND THIS IS WHAT IS REQUIRED IN TRANSFE R PRICING STUDY. THUS THE ASSESSEE AND THE TPO ARE NOT WORKING AT CROSS PURPOSES AND THEREFORE ASSESSEE SHOULD NOT HAVE ANY OBJECTION AGAINST SUCH SEARCH. CONTEMPORANEOUS DATA DOES NOT MEAN WHEN THE ASSESSEE CARRIED ON THE SEARCH. RATHER, IT MEANS DATA WHICH PERTAIN TO SAME FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTIONS HAVE TAKEN PLACE. SEEN FROM THIS PERSP ECTIVE THE DATA WHICH THE TPO USED LATER IS ALSO CONTEMPORANEOUS DATA. III) THE ASSESSEE MUST APPRECIATE THAT IF REASONABL E NUMBER OF COMPARABLES ARE AVAILABLE ON USING 'VALVES' AS KEY WORD FOR SEARCH OF COMPARABLE S THEN THERE IS NO NEED TO ENLARGE THE SEARCH CRITERION EVEN IN TNMM. THEREFORE, THIS PANE L DOES NOT CONSIDER IT NECESSARY TO INCLUDE PUMP ALSO AS KEY WORD FOR SEARCH. 3.2 THEREFORE THE GROUND OF OBJECTION ALONG WIT H ITS PARTS IS REJECTED AND NO DIRECTION TO THE AO/TPO IS GIVEN BY THIS PANEL. 5.2. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE RIVAL CONTENTIONS, FACTS OF THE PRESENT CASE AND MATERIAL AVAILABLE ON RECORD. THE UNDISPUTED FACTS REMAIN THAT THE TRANSFER PRICI NG OFFICER AS WELL AS A DRP HAVE REJECTED THE TRANSFER PRICING STUDY CONDUC TED BY THE ASSESSEE AND COMPARABLES ADOPTED FOR COMPUTING THE ARMS LEN GTH PRICE. THE TPO CARRIED OUT HIS OWN STUDY RESTRICTING THE STUDY TO A SINGLE FINANCIAL YEAR AS PER THE RULE OF 10B(4) OF THE INCOME TAX RU LES, 1962 (HEREINAFTER REFERRED TO AS THE RULES). THE TPO A LSO REJECTED THE COMPARABLES ON THE BASIS THAT THE PUMPS AND VALVES CANNOT BE COMPARED. ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 30 - HOWEVER, WHILE CONDUCTING THE TRANSFER PRICING STUD Y, THE AO COMPARED THE ASSESSEE WITH INDUSTRIES WHICH WERE ENGAGED IN THE MANUFACTURING OF VALVES. DURING THE COURSE OF HEARING, IT WAS POINT ED OUT BY THE LD.COUNSEL FOR THE ASSESSEE THAT THE VALVES THAT ARE SOUGHT TO BE COMPARED BY THE TPO ARE FUNCTIONALLY DIFFERENT, ENTIRELY A DIFFEREN T PRODUCT, ALTHOUGH IT IS NAMED AS VALVE. ALTHOUGH, IT IS TRUE THAT THE METH OD ADOPTED IS TNMM, UNDER THIS METHOD THE PRODUCT IS BROADLY COMPARED. HOWEVER, IN THE PRESENT CASE, THE TPO HAS SOUGHT TO COMPARE THE VAL VES WHICH IS A CONSUMER PRODUCT WITH THE INDUSTRIAL PRODUCT OF THE TESTED PARTY, WHICH IN OUR VIEW, WOULD NOT GIVE A TRUE PICTURE OF THE PROF IT. UNDER THESE FACTS, IT WOULD SUBSERVE THE INTEREST OF JUSTICE IF A TPO CON DUCT A FRESH STUDY COMPARING THE SAME OR SIMILAR PRODUCT, SO THAT A FA IR PICTURE OF THE PROFIT COULD BE ARRIVED IN ORDER TO ASCERTAIN WHETHER THE TP ADJUSTMENT IS REQUIRED TO BE MADE OR NOT. THEREFORE, WE HEREBY SET ASIDE THE ORDER OF THE AUTHORITIES BELOW AND RESTORE THESE ISSUES BEFO RE THE TPO FOR CONDUCTING A FRESH TRANSFER PRICE STUDY FOR THE PUR POSE OF FINDING OUT THE NATURE OF PRODUCT, ITS MARKET, GEOGRAPHICAL LOCATIO N, ETC. AS GIVEN UNDER OECD GUIDELINES REGARDING THE COMPARABILITY OF THE COMPARABLES. WHILE DOING SO, THE TPO WOULD AFFORD OPPORTUNITY TO THE A SSESSEE FOR SUBMITTING FRESH T.P. STUDY COMPARABLES. HOWEVER, IT IS MADE CLEAR THAT THE TPO WOULD RESTRICT HIS STUDY TO THE FINANCIAL Y EAR UNDER CONSIDERATION UNLESS HE FEELS THAT THERE ARE GROUNDS FOR ADOPTING THE DATA OF OTHER TWO ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 31 - YEARS AS PRESCRIBED UNDER THE RULES. HENCE, GROUND NOS.1 & 2 OF ASSESSEES APPEAL ARE PARTLY ALLOWED FOR STATISTICA L PURPOSES. 6. GROUND NO.3 IS AGAINST THE DIRECTION OF THE DRP IN RESPECT OF DISALLOWANCE OF RS.45,99,634/- MADE U/S.40(A)(I)/(I A) OF THE ACT. THE LD.COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSI ONS AS WERE MADE BEFORE THE DRP AS PER APPENDIX-IV. 6.1. ON THE CONTRARY, LD.CIT-DR SUPPORTED THE ORDER OF THE DRP ON THIS ISSUE. WE FIND THAT BEFORE THE DRP THE FOLLOWING SUBMISSIONS MADE IN THE FORM OF APPENDIX-IV, WHICH IS REPRODUCED HEREUN DER:- APPENDIX IV WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT. LTD. ASSESSMENT YEAR 2009-10. OBJECTION 3 DISALLOWANCE UNDER SECTION 40(A)(I) & 40(A)(IA) OF THE ACT. 1. GROUND OF OBJECTION 1.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, A ND IN LAW, THE AO HAS ERRED IN LAW, THE A.O. HAS ERRED IN PROPOSING TO DISALLOW TH E DEDUCTION CLAIMED OF RS.45,99,634/- UNDER SECTION 40(A)(IA)OF THE ACT. IT IS PRAYED THAT THE A.O. BE DIRECTED TO ALLOW THE DEDUCTION CLAIMED BASED ON THE FACTS AS SUBMITTED BY THE ASSESSEE. 2. FACTS AS SUBMITTED TO THE ASSESSING OFFICER. 2.1. IN THE RETURN OF INCOME FILED FOR THE ASS ESSMENT YEAR 2008-09, THE ASSESSEE DISALLOWED AN AMOUNT OF RS.45,99,634/- UNDER SECTIO N 40(A)(IA) OF THE ACT, BEING MANAGEMENT FEES AND LEGAL AND PROFESSIONAL FEES AS NO TAXES WERE DEDUCTED THEREON. THESE AMOUNTS WERE ALSO REPORTED IN THE TAX AUDIT R EPORT FOR THE ASSESSMENT YEAR 2008-09.RELEVANT EXTRACTS OF THE TAX AUDIT REPORT A S SUBMITTED BEFORE THE AO ARE ALSO ATTACHED HEREWITH(PLEASE REFER PAGE NOS.384 TO 386 OF THE PAPER BOOK FOR THE SAME.) ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 32 - 2.2 DETAILS OF THE AMOUNTS SO DISALLOWED IN THE ASSESSMENT YEAR 2008-09 ARE GIVEN HEREUNDER:- SR.NO. PARTICULARS/ NATURE OF EXPENSE AMOUNTS VOLUNTARILY DISALLOWED (RS.) TAX DEDUCTIBLE BUT NOT DEDUCTED (RS.) 1. MANAGEMENT FEES 40,04,126 4,22,736 2. LEGAL & PROFESSIONAL FEES. 5,95,508 67,471 TO TAL. 45,99,634 4,90,207 2.3. HOWEVER, THE ASSESSEE HAD SUBSEQUENTLY DEDUCTE D AND DEPOSITED ALL TAXES ON THE ABOVE REFERRED AMOUNTS DURING THE FINANCIAL YEAR 20 08-09 (RELEVANT TO ASSESSMENT YEAR 2009-10) ALONG WITH OTHER PAYMENTS FOR FINANCI AL YEAR 2008-09. DETAILS OF THE SAME ARE SHOWN IN AS SHOWN IN THE TABLE BELOW IN PA RA 2.4. 2.4. DETAILS OF THE TAXES PAID IN THE SUBSEQUENT YE AR ON THE AMOUNTS SO DISALLOWED AND DATES OF PAYMENT OF THE SAME ARE GIVEN HEREUNDER: SR. NO. PARTICULARS/NATU RE OF EXPENSE. AMOUNTS CLAIMED TAX DEDUCTED DATE OF PAYMENT CHALLAN NOS. CHALLAN AMOUNTS (RS.)(INCLUDI NG OTHER PAYMENTS FOR FINANCIAL YEAR 2008- 09 (RELEVANT TO A.Y. 2009- 10). ASSESS MENT YEAR IN WHICH EXPENSE S ARE ALLOWA BLE AND TAKEN AS SUCH 1. MANAGEMENT FEES. 40,04,126 1,11,906 SEPTEMBER 5, 2008. 80532 7,17,895 2009- 10 1,97,402 -D0- 80532 7,17,895 2009- 10 1,13,428 DECEMBER 4, 2008 80158 3,80,410 2009- 10 SUB-TOTAL. 4,22,736 2. LEGAL AND PROFESSIONAL FEES 5,95,508 67,471 MARCH 3, 2009. 80143 93,346 2009- 10 GRAND TOTAL 45,99,634 4,90,207 ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 33 - 2.5 ACCORDINGLY, THE ASSESSEE CLAIMED A DEDUCTION F OR THE EXPENSES AS SHOWN IN THE TABLE REFERRED IN PARA 2.4 ABOVE IN THE FINANCIAL YEAR IN WHICH THE TAXES HAVE BEEN DEDUCTED AND DEPOSITED IN THE GOVERNMENT TREASURY, I.E., IN THE ASSESSMENT YEAR 2009-10. THE ASSESSEE INADVERTENTLY MENTIONED THE A SSESSMENT YEAR AS A.Y. 2009-10 AND NOT AS A.Y. 2008-09, IN THE CHALLANS USED FOR D EPOSITING THE TAXES DEDUCTED ON THE ABOVE REFERRED PAYMENTS. 2.6. THE ASSESSEE ALSO SUBMITTED ALL CORROBORATING EVIDENCES IN THE FORM OF COPIES OF INVOICES, AND COPIES OF ALL RELEVANT CHALLANS EVIDE NCING PAYMENT OF TAXES MADE IN RESPECT OF THE ABOVE REFERRED AMOUNTS. COPIES OF SU BMISSIONS DATED FEBRUARY 26, AND MARCH 1, 2003 AS SUBMITTED BEFORE THE AO ARE AL SO ATTACHED ALONG WITH ALL THE RELEVANT INVOICES AND CHALLANS ARE ATTACHED HEREWIT H. (PLEASE REFER PAGE NOS.324 TO 383 OF THE PAPER BOOK FOR THE SAME). 3. FACTS, IF ANY, MODIFIED BY THE ASSESSING OFFICER. THE AO OBSERVED THAT ON VERIFICATION OF CHALLANS FU RNISHED BY THE ASSESSEE, ALL THE CHALLANS WERE FOR ASSESSMENT YEARS 2009-10 AND 2010 -11.FURTHER, THE A.O. ALSO OBSERVED THAT ALL THE TDS PAYMENTS MADE BY THE ASSE SSEE DURING THE PERIOD UNDER CONSIDERATION PERTAINS TO ASSESSMENT YEAR 2009-10 A S PER TDS CHALLANS PRODUCED BY THE ASESSEE AND THAT THE ASSESSEE HAS NOT PRODUCED ANY TDS CHALLAN SHOWING ASSESSMENT YEAR 2008-09. 4. DO YOU WHOLLY AGREE WITH THE MODIFICATIONS IN THE F ACTS BY THE ASSESSING OFFICER? IF NOT, GIVE REASONS POINTING THE SPECIFIC FACT OR FACTS WITH WHICH YOU DO NOT AGREE ALONG WITH THE REASONS AND DOCUMENTARY EVIDENCE, IF ANY. THE ASSESSEE DOES NOT AGREE WIT THE ABOVE REFERRED MODIFICATIONS IN THE FACTS BY THE A.O. THE ASSESSEE SUBMITS THAT THE TAXES DEDUCTED ON THE AMOUNTS HAVE BEEN DEDUCTED AND DEPOSITED ON THE DATES MENTIONED IN THE TABLE ATR P ARA 2.4 ABOVE. THE PAYMENTS HAVE BEEN MADE WITHIN THE FINANCIAL YEAR ENDED MARCH 31, 2009, AS RELEVANT TO ASSESSMENT YEAR 2009-10. 5. LEGAL ARGUMENTS SUBMITTED TO THE ASSESSING OFFICER. NONE. 6. CASE LAWS RELIED UPON BY THE ASSESSEE. NONE. 7. LEGAL ARGUMENTS SUBMITTED TO THE ASSESSING OFFICER. ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 34 - NONE. 8. CASE LAWS RELIED UPON BY THE ASSESSEE. NONE. 9. ANY ADDITIONAL NEW CASE LAWS WHICH THE ASSESSEE MAY LIKE TO RELY UPON. NONE. 10. FACTUAL AND LEGAL ARGUMENTS AGAINST THE ADDITION PR OPOSED BY THE ASSESSING OFFICER. 10.1. IN THE RETURN OF INCOME FILED FOR THE ASSES SMENT YEAR 2008-09, THE ASSESSEE DISALLOWED AN AMOUNT OF RS.45,99,634/- UNDER SECTIO N 40(A)(I) AND 40(A)(IA) OF THE ACT, BEING MANAGEMENT FEES AND LEGAL AND PROFESSION AL FEES AS NO TAXES WERE DEDUCTED THEREON. THESE AMOUNTS WERE ALSO REPORTED IN THE TAX AUDIT REPORT FOR THE ASSESSMENT YEAR 2008-09.RELEVANT EXTRACTS OF THE TA X AUDIT REPORT AS SUBMITTED BEFORE THE A.O. ARE ALSO ATTACHED HEREWITH. (PLEASE REFER PAGE NOS.384 TO 386 OF THE PAPER BOOK FOR THE SAME). 10.2. DETAILS OF THE AMOUNTS SO DISALLOWED IN THE ASSESSMENT YEAR 2008-09 ARE GIVEN HEREUNDER:- SR.NO. PARTICULARS/ NATURE OF EXPENSE A MOUNTS VOLUNTARILY DISALLOWED (RS.) TAX DEDUCTIBLE BUT NOT DEDUCTED (RS.) 1. MANAGEMENT FEES 40,04,126 4,22,736 2. LEGAL & PROFESSIONAL FEES. 5,95,508 67,471 TOTAL. 45,99,634 4,90,207 10.3. HOWEVER, THE ASSESSEE HAD SUBSEQUENTLY DEDUCT ED AND DEPOSITED ALL TAXES ON THE ABOVE REFERRED AMOUNTS DURING THE FINANCIAL YEAR 20 08-09 (RELEVANT TO ASSESSMENT YEAR 2009-10) ALONG WITH OTHER PAYMENTS FOR FINANCI AL YEAR 2008-09. DETAILS OF THE SAME ARE SHOWN IN THE TABLE BELOW. 10.4. DETAILS OF THE TAXES PAID IN THE SUBSEQUENT Y EARS ON THE AMOUNTS SO DISALLOWED AND DATES OF PAYMENT OF THE SAME ARE GIVEN HEREUNDER: SR. NO. PARTICULARS/NATU RE OF EXPENSE. AMOUNTS CLAIMED TAX DEDUCTED DATE OF PAYMENT CHALLAN NOS. CHALLAN AMOUNTS ASSESS MENT ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 35 - (RS.)(INCLUDI NG OTHER PAYMENTS FOR FINANCIAL YEAR 2008- 09 (RELEVANT TO A.Y. 2009- 10). YEAR IN WHICH EXPENSE S ARE ALLOWA BLE AND TAKEN AS SUCH 1. MANAGEMENT FEES. 40,04,126 1,11,906 SEPTEMBER 5, 2008. 80532 7,17,895 2009- 10 1,97,402 -D0- 80532 7,17,895 2009- 10 1,13,428 DECEMBER 4, 2008 80158 3,80,410 2009- 10 SUB-TOTAL. 4,22,736 2. LEGAL AND PROFESSIONAL FEES 5,95,508 67,471 MARCH 3, 2009. 80143 93,346 2009- 10 GRAND TOTAL 45,99,634 4,90,207 10.5. ACCORDINGLY, THE ASSESSEE CLAIMED A DEDUCTION FOR THE EXPENSES AS SHOWN IN THE TABLE REFERRED IN PARA 2.4 AND PARA 10.4 ABOVE, IN THE FI NANCIAL YEAR IN WHICH THE TAXES HAVE BEEN DEDUCTED AND DEPOSITED IN THE GOVERNMENT TREASURY, I.E., IN THE ASSESSMENT YEAR 2009-10. 10.6. THE ASSESSEE ALSO SUBMITTED ALL CORROBORATING EVIDENCES IN THE FORM OF COPIES OF INVOICES, AND COPIES OF ALL RELEVANT CHALLANS EVIDE NCING PAYMENT OF TAXES MADE IN RESPECT OF THE ABOVE REFERRED AMOUNTS. COPIES OF SU BMISSIONS DATED FEBRUARY 26, AND MARCH 1, 2013 AS SUBMITTED BEFORE THE AO ARE AL SO ATTACHED ALONG WITH ALL THE RELEVANT INVOICES AND CHALLANS ARE ATTACHED HEREWIT H (PLEASE REFER PAGE NOS.324 TO 383 OF THE PAPER BOOK FOR THE SAME). 10.7. ON PERUSAL OF THE DETAILS ABOVE, IT WOULD BE OBSERVED THAT NECESSARY TDS DEDUCTED AND DEPOSITED OF RS.4,90,207/- DURING FINANCIAL YEA R 2008-09 (RELEVANT TO A.Y. 2009-10) PERTAINS TO AMOUNTS DISALLOWED BY THE ASSE SSEE UNDER SECTION 40(A)(I) AND SECTION 40(A)(IA) OF THE ACT FOR A.Y. 2008-09. MERE INADVERTENT ERROR ON THE CHALLAN WITH RESPECT TO THE CORRECT ASSESSMENT YEAR SHOULD BE CONSIDERED AS A TYPOGRAPHICAL ERRED AND THE ASSESSEE OUGHT TO BE ALLOWED DEDUCTIO N AMOUNTING TO RS.45,99,634/- FOR THE YEAR UNDER CONSIDERATION. 10.8. CONCLUSION AND PRAYER . ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 36 - THE ASSESSEE PRAYS THAT THE A.O. BE DIRECTED TO ALL OW THE DEDUCTION CLAIMED AMOUNTING TO RS.45,99,634/- BEING EXPENSES PERTAINI NG TO ASSESSMENT YEAR 2008-09, BUT ON WHICH, TAXES HAVE BEEN DEDUCTED AND PAID FOR IN THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. THE ASSESSEE CRAVES LEAVE TO ADD, ALTER AND/OR AMEN D THE AFORESAID GROUNDS OF OBJECTION AT OR BEFORE THE TIME OF HEARING. 6.2. HOWEVER, THE DRP HAS GIVEN DIRECTION AS UNDER: - 4. OBJECTION 3 - DISALLOWANCE UNDER SECTION 40(A) (D AND 40FAVIA) OF THE ACT GROUND OF OBJECTION ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE AO HAS ERRED IN PROPOSING TO DISALLOW THE DEDUCTION CLAIMED OF RS. 45,99,634 UND ER SECTION 40(A)(IA) OF THE ACT. IT IS PRAYED THAT THE AO BE DIRECTED TO ALLOW THE DEDUCTI ON CLAIMED BASED ON THE FACTS AS SUBMITTED BY THE ASSESSEE. 4.1 IN THE RETURN OF INCOME FILED FOR THE ASSESSME NT YEAR 2008-09, THE ASSESSEE DISALLOWED AN AMOUNT OF RS. 45,99,634 UNDER SECTIONS 40(A)(I) AND 40(A)(IA) OF THE ACT, BEING MANAGEMENT FEES AND LEGAL AND PROFESSIONAL FEES AS NO TAXES WE RE DEDUCTED THEREON. THESE AMOUNTS WERE ALSO REPORTED IN THE TAX AUDIT REPORT FOR THE ASSES SMENT YEAR 2008-09. DETAILS OF THE AMOUNTS SO DISALLOWED IN THE ASSESSMENT YEAR 2008-09 ARE GI VEN HEREUNDER: SR.NO. PARTICULARS/NATURE OF EXPENSE AMOUNTS VOLUNTARILY DISALLOWED (RS.) TAX DEDUCTIBLE BUT NOT DEDUCTED(RS.) 1) MANAGEMENT FEES 40,04,126 4,22,736 2) LEGAL AND PROFESSIONAL FEES 5,95,508 67,471 TOTAL 45,99,634 4,90,207 ACCORDINGLY, THE ASSESSEE CLAIMED A DEDUCTION FOR T HE EXPENSES AS SHOWN IN THE TABLE REFERRED IN PARA 2.4 ABOVE IN THE FINANCIAL YEAR IN WHICH THE TAXES HAVE BEEN DEDUCTED AND DEPOSITED IN THE GOVERNMENT TREASURY, I.E., IN THE ASSESSMENT YEAR 2009-10. THE ASSESSEE INADVERTENTLY MENTIONED THE ASSESSMENT YEAR AS A.Y. 2009-10 AND NOT AS A.Y. 2008-09, IN THE CHALLANS USED FOR DEPOSITING THE TAXES DEDUCTED ON THE ABOVE REFERRED PAYMENTS. THE AO OBSERVED THAT ON VERIFICATION OF CHALLANS FURNISHED BY THE ASSESSEE, ALL THE CHALLANS WERE FOR ASSESSMENT YEARS 2009-10 AND 2010-11. FURTHER, THE AO ALSO OBSERVED THAT ALL THE TDS PAYMENTS MADE BY THE ASSESSEE DURING THE PERIOD UND ER CONSIDERATION PERTAINS TO ASSESSMENT YEAR 2009-10 AS PER TDS CHALLANS PRODUCED BY THE AS SESSEE AND THAT THE ASSESSEE HAS NOT PRODUCED ANY TDS CHALLAN SHOWING ASSESSMENT YEAR 20 08-09. THE ASSESSEE REQUESTS THAT THE AO BE DIRECTED TO ALLOW THE DEDUCTION CLAIMED AMOUN TING TO RS. 45,99,634 BEING EXPENSES ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 37 - PERTAINING TO ASSESSMENT YEAR 2008-09, BUT ON WHICH , TAXES HAVE BEEN DEDUCTED AND PAID FOR IN THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YE AR UNDER CONSIDERATION. DIRECTIONS OF THIS PANEL: THIS PANEL DIRECTS THE AO TO VERIFY THE CLAIM OF TH E ASSESSEE AND ALLOW THE DEDUCTION AS PER LAW. 6.3. SINCE THE DRP HAS DIRECTED THE AO TO VERIFY TH E CLAIM OF THE ASSESSEE, WE DO NOT SEE ANY REASON TO INTERFERE WIT H THE ORDER OF THE DRP, THE SAME IS HEREBY UPHELD. THUS, GROUND NO.3 OF AS SESSEES APPEAL IS REJECTED. 7. APROPOS TO ADDITIONAL GROUND RAISED BY THE ASSES SEE (REPRODUCED HEREINABOVE), THE LD.COUNSEL FOR THE ASSESSEE SUBMI TTED THAT THE AO FAILED TO APPRECIATE THE FACT THAT THE EXPENSES AMOUNTING TO RS.13,65,460/- WERE MERELY REIMBURSEMENT, THEREFORE NO TAX WAS DEDUCTIB LE. UNDER THESE FACTS, THE AO WAS NOT JUSTIFIED IN DISALLOWING THE EXPENDITURE AND MAKING THE ADDITION. 7.1. ON THE CONTRARY, THE LD.CIT-DR SUPPORTED THE O RDER OF THE ASSESSING OFFICER. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE WITH REGA RD TO THE FACT THAT LAW IS WELL SETTLED THAT IN CASE, ANY PAYMENT IS IN THE NA TURE OF REIMBURSEMENT ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 38 - OF EXPENDITURE, THEN NO TAX IS REQUIRED TO BE DEDU CTED. THEREFORE, WE ADMIT THE ADDITION GROUND OF THE ASSESSEE AND RESTO RE THE SAME TO THE FILE OF AO FOR VERIFYING WHETHER THE IMPUGNED DISALLOWAN CE IS IN THE NATURE OF REIMBURSEMENT OF EXPENDITURE. THE ASSESSEE IS D IRECTED TO PLACE THE MATERIAL EVIDENCES BEFORE THE AO TO DEMONSTRATE THA T THE IMPUGNED DISALLOWANCE IS IN THE NATURE OF REIMBURSEMENT. IN CASE, THE ASSESSEE FAILS TO DO SO, THE AO WOULD WILL BE FREE TO MAKE T HE DISALLOWANCE. THUS, THIS ADDITIONAL GROUND RAISED BY THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON TUESDAY, THE 30 TH DAY OF JUNE, 2015 AT AHMEDABAD. SD/- SD/- ( ) ( ) ( ANIL CHATURVEDI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 30/ 06 /2015 2..,.../ T.C. NAIR, SR. PS ITA NO.828/AHD/2014 (INTL.TAXN.) WEATHERFORD DRILLING & PRODUCTION SERVICES (INDIA) PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 39 - !'#$%&' &$ / COPY OF THE ORDER FORWARDED TO : 1. '% / THE APPELLANT 2. &''% / THE RESPONDENT. 3. 345 6 / CONCERNED CIT 4. 6 ( ) / THE CIT(A)-CONCERNED/DY.CIT (TPO-II)- AHMEDABAD. 5. 78& 45 , 45. , 3 / DR, ITAT, AHMEDABAD 6. 8:;<* / GUARD FILE. ! / BY ORDER, '7 & //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION ..18/19.5.15 & 26.6.15 (DICTATIO N-PAD 16+11 PAGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 18,20.5.15&26.6.15 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.30.6.15 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 30.6.15 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER