DCIT, New Delhi v. M/s. Marconi Telecommunication India Pvt. Ltd., New Delhi

ITA 5215/DEL/2010 | 2004-2005
Pronouncement Date: 10-02-2012 | Result: Allowed

Appeal Details

RSA Number 521520114 RSA 2010
Assessee PAN AACCM7096H
Bench Delhi
Appeal Number ITA 5215/DEL/2010
Duration Of Justice 1 year(s) 2 month(s) 16 day(s)
Appellant DCIT, New Delhi
Respondent M/s. Marconi Telecommunication India Pvt. Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 10-02-2012
Appeal Filed By Department
Order Result Allowed
Bench Allotted E
Tribunal Order Date 10-02-2012
Date Of Final Hearing 18-01-2012
Next Hearing Date 18-01-2012
Assessment Year 2004-2005
Appeal Filed On 24-11-2010
Judgment Text
ITA NO. 5215/DEL/2010 & CO NO. 3/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SHRI R.P. TOLANI JUDICIAL MEMBER AND SHRI SHAMIM YAHYA ACCOUNTANT MEMBER I.T.A. NO. 5215/DEL/2010 A.Y. : 2004-05 DCIT CIR. 6(1) ROOM NO. 413 CR BLDG. NEW DELHI VS. M/S MARCONI TELECOMMUNICATION INDIA PVT. LTD. B-92 HIMALAYA HOUSE 23 KASTURBA GANDHI MARG NEW DELHI 110 001 (PAN/GIR NO. : AACCM7096H) AND C.O. NO. 3/DEL/2011 (IN ITA NO. 5215/ DEL/2010) A.Y. 2004-05 M/S RSCD TELECOMMUNICATIONS INDIA VS. DY. COMMISSIO NER OF INCOME TAX PRIVATE LIMITED (FORMERLY KNOWN AS CIRCLE 6(1) ROOM NO. 413 MARCONI TELECOMMUNICATIONS INDIA CR BUILDING N EW DELHI PRIVATE LIMITED) B-92 9 TH FLOOR HIMALAYA HOUSE 23 KG MARG NEW DELHI 110 001 (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) ASSESSEE BY : SH. VIJAY IYER AND SH. MANONEET DALAL CAS DEPARTMENT BY : SH. N.K. CHAND SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY T HE ASSESSEE EMANATE OUT OF ORDER OF THE LD. COMMISSIONER OF INCO ME TAX (APPEALS) DATED 29.9.2010 AND PERTAIN TO ASSESSMENT YEAR 200 4-05. ITA NO. 5215/DEL/2010 & CO NO. 3/DEL/2011 2 2. THE ISSUES RAISED IN THE REVENUES APPEAL READ AS UNDER:- (1) THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IS ERRONEOUS AND CONTRARY TO FACTS AND LAW. (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DELETING THE ADDITION OF ` 50 27 784/- MAD E BY ASSESSING OFFICER U/S. 92CA OF THE ACT ON ACCOUNT OF TPO ADJUSTMENT. (2.1) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) HAS IGNORED THE FACT RECORDED BY THE TPO AND ALSO FACT THAT THE CALCULATION HAS BEEN CORRECTLY DONE BY THE TPO. TH E LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ALSO ERRED IN ADOPTING THE ARMS LENGTH MARGIN AT +-5% OF THE ARMS LENGTH. (3). THE APPELLANT CRAVES LEAVE TO ADD TO ALTER OR AMEND ANY GROUNDS OF THE APPEAL RAISED ABOVE AT THE TIME OF THE HEARING. 3. THE ISSUES RAISED IN THE ASSESSEES CROSS OBJECT ION READ AS UNDER:- (I) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS )-XX NEW DELHI ERRED IN NOT HOLDING THE ORDER PASSED BY THE DCIT CIRCLE 6(1) NEW DELHI AND THE ADDL. COMMISSION ER OF INCOME TAX TRANSFER PRICING OFFICER-II NEW DELHI AS BEING CONTRARY TO THE FACTS AND LAW. ITA NO. 5215/DEL/2010 & CO NO. 3/DEL/2011 3 (II) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN LAW IN NOT HOLDING THAT THE ASSESSING OFFICER DID NOT MEET THE PRECONDITIONS FOR MAKING REFERENCE TO THE TPO UN DER SECTION 92CA(1) OF THE ACT AND IN NOT PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE RESPONDENT BEFOR E REFERRING THE TRANSFER PRICING ISSUES TO THE TPO. (III) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN LAW IN NOT HOLDING THAT THE ASSESSING OFFICER DID NOT PASS A SPEAKING ORDER WITH RESPECT TO THE SUBMISSIONS MADE BY THE RESPONDENT BEFORE HIM AND MECHANICALLY ACCEPTING THE ORDER PASSED BY THE TPO. (IV) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) ERRED ON FACTS AND IN LAW IN UPHOLDING THE TPOS APPROACH OF USING DATA FOR A SINGLE YEAR (FOR F.Y. 2003-04 ONLY) INSTE AD OF MULTIPLE YEAR DATA (FOR THE PERIOD FY 2001-02 AND FY 2002- 03 AND FY 2003-04). (V) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN UPHOLDING THE TPOS APPROACH OF USING DATA WHICH NON CONTEMPORANEOUS DATA. (VI) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) FAILED TO CONSIDER THE ADJUSTED MARGIN ANALYSIS UNDERTAKEN BY THE RESPONDENT FOR DETERMINING THE ARMS LENGTH PRICE O F ITS INTERNATIONAL TRANSACTION PERTAINING TO IMPORT OF FI NISHED GOODS. (VII) THAT THE ADJUSTMENT IF ANY SHOULD BE RESTRICT ED IN PROPORTION TO THE VALUE OF THE INTERNATIONAL TRANSA CTIONS WITH ITA NO. 5215/DEL/2010 & CO NO. 3/DEL/2011 4 THE ASSOCIATED ENTERPRISE I.E. IMPORT OF FINISHED GOODS INSTEAD OF THE TOTAL VALUE OF ALL COSTS WHICH INCLU DED THE COST OF UNCONTROLLED TRANSACTIONS WITH INDEPENDENT THIRD PARTIES ALSO. (VIII) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEA LS) ERRED ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DISMIS SING THE GROUND TAKEN BY THE RESPONDENT THAT INITIATING PENA LTY PROCEEDINGS UNDER EXPLANATION 1 AND EXPLANATION 7 T O SECTION 271(1)(C) OF THE ACT AGAINST THE RESPONDENT IS BAD IN LAW. (IX) THAT THE ABOVE CROSS OBJECTIONS ARE MUTUALLY EX CLUSIVE AND WITHOUT PREJUDICE TO EACH OTHER. (X) THAT THE RESPONDENT CRAVES LEAVE TO ADD ALTER AMEND AND / OR MODIFY ANY OF THE CROSS OBJECTIONS EITHER BEF ORE OR DURING THE COURSE OF THE APPELLATE PROCEEDINGS. 4. M/S MARCONI TELECOMMUNICATION INDIA PVT. LTD. THE A SSESSEE IS PRIMARILY ENGAGED IN THE BUSINESS OF SUPPLY OF TELEC OMMUNICATIONS EQUIPMENT AND PROVIDING OF TELECOMMUNICATION SOLUTIO NS TO CUSTOMERS IN INDIA. FINANCIAL YEAR 2003-04 I.E. THE YEAR U NDER THE CONSIDERATION WAS THE SECOND YEAR OF OPERATIONS OF THE ASSESSEE. 4.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THE FOLLOWING INTERNATIONAL TRANSA CTIONS ENTERED INTO BY THE ASSESSEE DURING THE FY 2003-04 AS REPORTED IN FO RM 3CEB ENCLOSED WITH THE RETURN OF INCOME. ITA NO. 5215/DEL/2010 & CO NO. 3/DEL/2011 5 THE BRIEF ANALYSIS OF THE INTERNATIONAL TRANSACTIO NS UNDERTAKEN BY THE ASSESSEE COMPANY WITH ITS ASSOCIATED ENTERPRISE S (AES) DURING THE FY 2003-04 AND TRANSFER PRICING METHODOLOGY ADOPTED WAS AS FOLLOWS: S.NO. NAME OF TRANSACTIONS VALUE OF TRANSACTIONS (IN RUPEES) METHOD USED 1. IMPORT OF FINISHED GOODS 85 893 802 TNMM 2. RECEIPT OF TECHNICAL SERVICES 77 945 TNMM 3. PROVISION OF MAN POWER HIRING AND OTHER SERVICES 27 778 191 TNMM 4.2 A REFERENCE WAS MADE BY THE ASSESSING OFFICER U NDER SECTION 92CA(1) OF THE ACT TO THE TPO FOR COMPUTATION OF ARMS LENGTH PRICE IN RESPECT OF THE ABOVE MENTIONED TRANSACTIONS. THE TPO ACCEPTED THE TRANSACTIONS AT S. NO. 2 AND 3 OF THE ABOVE TABLE T O BE AT ARMS LENGTH. HOWEVER IN RESPECT OF THE ITEM AT S.NO. 1 NAMELY IMPORT OF FINISHED GOODS. THE APPELLANT USED THE ADJUSTED PR OFIT COMPUTED IN RELATION TO THE SALES AFFECTED AS THE APPROPRIATE PL I. FOR SELECTING THE ADJUSTED PROFIT AS AN APPROPRIATE PLI THE ASSESSEE H AS STATED THE FOLLOWING REASONS:- - THE FUNCTION OF THE TESTED PARTY IS SIMILAR TO VAL UE ADDED TRADER. - THE COMPARABLES CHOSEN THOUGH DOES NOT DEAL WITH S IMILAR ITEM BUT WE HAVE RETAINED THE COMPANIES ON THE BASIS OF SIMILARITY IN FUNCTIONS AND RISKS BASED ON THE VARIOUS RATIO A NALYSIS. ITA NO. 5215/DEL/2010 & CO NO. 3/DEL/2011 6 - THE ASSESSEE INCURRED UNUSUAL HIGH OPERATING EXP ENDITURE IN COMPARISON TO COMPARABLES; THE REASON FOR THIS CAN BE ATTRIBUTED TO THE FEW INITIAL YEARS OF BUSINESS OPERATIONS. THE TPO HOWEVER WAS NOT SATISFIED WITH THE PROFIT L EVEL INDICATOR (PLI) SELECTED BY THE ASSESSEE IN ITS TRANSFER PR ICING DOCUMENTATION AS ACCORDING TO HIM WHEN TNMM METHOD IS USED THE BA RE READING OF THE PROVISION OF CLAUSE (E) OF SUB-RULE 1 OF RULE 1 0B OF THE INCOME TAX RULES MAKES IT ABUNDANTLY CLEAR THAT WHILE COMPUTING THE APPROPRIATE PLI THE CHOICE IS WITH REGARD TO THE SELECTION OF APPROPRIATE BASE AMONG THE VARIOUS BASES PROVIDED IN THE SAID RULE I. E. COSTS INCURRED OR SALE AFFECTED OR ASSETS EMPLOYED OR ANY OTHER NUME RATOR THAN THE NET OPERATING MARGIN IN COMPUTING THE PLI. AS U NDER TNMM IT IS NOT OPEN TO THE ASSESSEE TO CHOOSE GROSS PROFIT MARGIN AND IGNORE THE NET PROFIT MARGIN. THEREFORE THE TPO COMPUTED THE MARGINS OF THE COMPARABLE COMPANIES USING OPERATING PROFIT BY OPERAT ING REVENUE AS THE PLI. THUS AFTER SELECTING OPERATING PROFIT TO THE OPERA TING INCOME AS THE PLI IT WAS FOUND BY THE TPO THAT THE PROFITS O F THE COMPARABLE COMPANIES WAS 8.47% AS AGAINST THAT OF THE ASSESS EE 12.18% AND ACCORDINGLY TPO/ASSESSING OFFICER MADE AN ADJUSTMENT OF ` 50 27 784/- TO THE INTERNATIONAL TRANSACTION. 5. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) NOTED THE ASSESSEES GRIEVANCE AND MADE OU T THE FOLLOWING AS ISSUES FOR CONSIDERATION:- ITA NO. 5215/DEL/2010 & CO NO. 3/DEL/2011 7 (I) WHETHER THE REFERENCE MADE BY THE ASSESSING OFF ICER TO THE TPO MECHANICALLY IS BAD IN LAW MAKING THE TPOS ORDER VOID-AB-INITIO. (II) WHETHER THE MECHANICAL ACCEPTANCE OF TPOS RECOMMENDATION BY THE ASSESSING OFFICER MAKES THE ASSESSMENT ORDER BAD IN LAW. (III) WHETHER OPERATING PROFIT BY SALES IS THE COR RECT PLI AS DETERMINED BY THE TPO. (IV) WHETHER DUE CONSIDERATION SHOULD BE GIVEN FOR HEAVY START UP COSTS INCURRED BY THE ASSESSEE AS AGAINST COMPARA BLES AND ADJUSTMENTS TO ACCOUNT FOR THE SAME. (V) USE OF MULTIPLE YEAR DATA VS. SINGLE YEAR. (VI) WHETHER THE ASSESSEE IS ENTITLED TO BENEFIT O F +-5% RANGE MENTIONED IN PROVISO 92C(2) OF THE ACT WHILE COMPUTIN G THE ARMS LENGTH PRICE. 6. LD. COMMISSIONER OF INCOME TAX (APPEALS) DECIDED T HE ISSUES (I) (II) (III) & (V) IN FAVOUR OF THE REVENUE. 6.1 AS REGARDS ISSUE THAT DUE CONSIDERATION SHOU LD BE GIVEN FOR HEAVY START UP COSTS INCURRED BY THE ASSESSEE AS AG AINST COMPARABLES AND ADJUSTMENTS TO ACCOUNT FOR THE SAME LD. COMMISSIONER OF INCOME TAX (APPEALS) FOUND THAT THREE MAJOR EXPENSES I.E. TRAVELLING AND CONVEYANCE LEGAL AND PROFESSIONAL CHARGES AND COMMUNICATION EXPENSES ACCOUNTED FOR 50% OF ADMINISTRATIVE AND OTHER EXPENSES. ASSESSEE WAS FUR THER ASKED TO ITA NO. 5215/DEL/2010 & CO NO. 3/DEL/2011 8 FURNISH THE DETAILS OF THESE EXPENSES. LD. COMMIS SIONER OF INCOME TAX (APPEALS) HELD AS UNDER:- AS REGARDS THE ASSESSEES PLEA THAT HE WAS A NEW E NTRANT AND THERE WERE HEAVY START UP COSTS AND THERE WAS OVE RALL DECLINE IN PROFITS IN TELECOMMUNICATION INDUSTRY WHICH HAS RESU LTED IN INCURRING LOSSES BY THE ASSESSEE VIS-A-VIS OTHER CO MPARABLE IS CONCERNED AND THEREFORE SUITABLE ADJUSTMENT IS WARRA NTED IT IS STATED THAT THE TAXPAYER AND THE COMPARABLES SELECTE D BY THE ASSESSEE ARE OPERATING THE SAME ECONOMIC ENVIRONMENT AND IF THE OVERALL INDUSTRY IS FACING THE DOWNTREND THEN M ARGINS OF ALL THE COMPARABLES WITHIN THE INDUSTRY ARE EFFECT AND T HEREFORE NO SEPARATE ADJUSTMENT CAN BE GIVEN TO THE ASSESSEE. WITH REGARD TO ADJUSTMENT ON ACCOUNT OF START UP CO STS IS CONCERNED I HAVE GONE THROUGH THE ASSESSEE SUBMISSI ONS AND I AGREE THAT REASONABLE ADJUSTMENTS CAN BE MADE TO ELIMINATE THE MATERIAL EFFECTS IN VIEW OF THE PROVISIONS OF RULE 10B(3) W HICH STATES AS UNDER:- RULE 10B(3) AN UNCONTROLLED TRANSACTION SHALL BE COMPARABLE TO AN INTERNATIONAL TRANSACTION IF - (I) NONE OF THE DIFFERENCES IF ANY BETWEEN THE TRANSACTIONS BEING COMPARED OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS ARE LIKELY TO MATERIALLY AFFECT THE PRICE OR COST CHARG ED OR PAID IN OR THE PROFIT ARISING FROM SUCH TRANSACTIONS IN THE OPEN MARKET; OR ITA NO. 5215/DEL/2010 & CO NO. 3/DEL/2011 9 (II) REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO ELIMINATE THE MATERIAL EFFECTS OF SUCH DIFFERENCES. AS THE ASSESSEE IS IN THE SECOND YEAR (INITIAL YEAR S) OF OPERATIONS WHEREAS THE COMPARABLES USED IN COMPARABILITY ANALYSI S WERE ESTABLISHED PLAYER HENCE IN VIEW OF THE PROVISION OF RULE 10B(3) THE ASSESSEE IS ENTITLED TO SOME ADJUSTMENTS ON ACCOUNT OF STARTUP COSTS. ACCORDINGLY ON GOING THROUGH THE FINANCIALS THE AS SESSEE WAS ASKED TO GIVE THE DETAILS OF THE EXPENSES INCURRED ON ACCO UNT OF TRAVELING AND CONVEYANCE LEGAL AND PROFESSIONAL CHARGES AND COMM UNICATION EXPENSES SO AS TO FIND OUT THE EXPENSES OF EXTRAOR DINARY NATURE INCURRED BY THEM VIS-A-VIS THE COMPARABLE COMPANIES. THUS AFTER ANALYZING THE INFORMATION SUBMITTED ABOV E AND KEEPING IN VIEW THE CAT THAT IT IS THE ONLY THE SE COND YEAR OF OPERATIONS OF THE ASSESSEE 30 PER CENT OF TRAVELLI NG AND CONVEYANCE LEGAL AND PROFESSIONAL CHARGES AND COMMUNICATION E XPENSES ARE BEING TREATED AS EXTRA ORDINARY EXPENSES AND ACCOR DINGLY I HOLD THAT IT SHOULD BE EXCLUDED WHILE COMPUTED THE OPERATING MA RGIN OF THE ASSESSEE. 6.2 LD. COMMISSIONER OF INCOME TAX (APPEALS) COMPUTED THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS AS U NDER:- ITA NO. 5215/DEL/2010 & CO NO. 3/DEL/2011 10 DETERMINATION OF ARMS LENGTH PRICE OF THE INTERNAT IONAL TRANSACTION. BASED ON THE ABOVE THE COMPUTATION OF THE ADJUSTME NT IS GIVEN BELOW:- PARTICULARS AMOUNT (IN RS.) TOTAL SALES (A) 13 56 34 497 OPERATING PROFIT AT ARMS LENGTH (B) - 1 14 88 241 OPERATING PROFIT OF APPELLANT (C) - 1 65 16 025 TRANSFER PRICING ADJUSTMENT (AS PROPOSED BY THE TPO) 50 27 784 EXPENDITURE INCURRED ON : COMMUNICATION 23 59 540 TRAVELLING AND CONVEYANCE 1 10 31 167 LEGAL AND PROFESSIONAL 28 36 159 TOTAL = 1 62 26 866 30 PERCENT ADJUSTMENT (AS DISCUSSED ABOVE (D) 48 68 060 REVISED OPERATING PROFIT OF APPELLANT (E) = (C) (D) - 1 16 47 965 DIFFERENCE BETWEEN ARMS LENGTH MARGIN AND ACTUAL MARGIN (F) = (D) (B) 1 59 723 VALUE OF INTERNATIONAL TRANSACTION 8 58 93 802 ARMS LENGTH VALUE OF INTERNATIONAL TRANSACTION 8 57 34 079 + 5% OF ARMSS LENGTH PRICE 9 00 20 783 SINCE THE TRANSFER PRICE CHARGED TO THE ASSESSEE B Y THE AES FALL WITHIN THE +-5% RANGE I HOLD THE ASSESSEES INTERN ATIONAL TRANSACTIONS WITH AES DURING THE YEAR AT ARMS LENGTH. 7. AGAINST THE ABOVE ORDER THE REVENUE HAS FILED ITS APPEAL AND ASSESSEE HAS FILED ITS CROSS OBJECTION. ITA NO. 5215/DEL/2010 & CO NO. 3/DEL/2011 11 8. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE R ECORDS. 9. LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THE OBJE CTIONS IN THIS REGARD AS UNDER:- AT THE OUTSET IT IS SUBMITTED THAT LD CIT (A) ASKED THE ASSESSEE TO FILE DETAILS OF EXPENSES INCURRED ON ACCOUNT OF TRAVELING AND CONVEYANCE PROFESSIONAL CHARGES AND COMMUNICATION. T HE LD CIT (A) THUS FAILED TO FOLLOW RULES OF NATURE JUSTICE AS THERE WAS APPARENT VIOLATION OF RULE 46A OF IT RULES 1963 IN AS MUCH AS NO OPPORTUNITY WAS GIVEN TO THE TPO/AO IN THIS REGARD. WITHOUT PREJUDICE IT IS SUBMITTED THAT THE ORDER O F CIT (A) IS NON SPEAKING AS IT DOES NOT GIVE REASONS FOR MAKING ADJUS TMENT TO THE OPERATING RESULTS OF TESTED PARTY (I.E. ASSESSE E). IT IS ALSO NOT CLEAR HOW SHE ARRIVED AT THE CONCLUSION THAT 30% OF EXPENSES WERE EXTRAORDINARY AND REQUIRED ADJUSTMENT. THERE AR E NO OBSERVATORIES IN THE ORDER OF LD CIT (A) AS TO HOW SHE WAS CONVINCED ABOUT THE ARGUMENT OF THE ASSESSEE AND A S TO WHAT WAS CONTAINED IN THE DETAIL OR SUBMISSIONS WHICH PER SUADED HER TO DECIDE THE ISSUE SUCH A MANNER(4SCC594). FURTHER WITHOUT PREJUDICE TO THE SUBMISSION MAD ABO VE THE ORDER OF CIT (A) DOSE NOT DEAL WITH THE CONTENTIONS OF THE TPO IN HIS ORDER. A REFERENCE IS MADE TO PARA 5.4. (TPO) STATES THAT THE ASSESSEE IS TRYING TO CREATE CONFUSION BY SUGGESTIN G THAT THE ADJUSTMENT HAS TO BE CARRIED OUT TO ITS ACCOUNTS OF RATHER THAN ADJUSTING THE ACCOUNTS OF COMPARABLES ITA NO. 5215/DEL/2010 & CO NO. 3/DEL/2011 12 THIS CONTENTION IS LEGALLY TENABLE AS PER INTERPRET ATION OF RULE 10 B(3) AS ALSO BY JUDICIAL DECISIONS. A PERUSAL OF TH E RULE 10 B (3) AS ALSO UPHELD BY JUDICIAL DECISIONS (PARA 8.5 OF CI T (A) A PERSONAL OF RULE 10(B) (3) WOULD SHOW THAT IT OPENS WITH THE PHRASE AN UNCONTROLLED TRANSACTION SHALL BE COMPARABLE . FURTHER THERE ARE TWO CLAUSES (I) & (II). THE CLAUSE (I) DEALS WITH W HAT ARE TO BE CONSIDERED AS COMPARABLES. THE CLAUSE (II) USES THE PHRASE REASONABLE ACCURATE ADJUSTMENTS .. A PLAIN & COMBI NED READING WOULD SUGGEST THAT UNCONTROLLED TRANSACTION S (OR COMPARABLE SELECTED) SHOULD BE SUCH THAT THERE EXIST NO MATERIAL DIFFERENCE. IN OTHER WORDS IF THERE ARE MATERIAL DI FFERENCE EXISTING BETWEEN THE COMPARABLES AND TESTED PARTY THAN IT WOU LD BE GOOD IF COMPARABLE ARE REJECTED. FURTHER IF THERE ARE DI FFERENCES THEN ONLY REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO ELIMINATE DIFFERENCE. IT IS SUBMITTED THAT THE RULE TALKS OF C OMPARABLE AND DOSE NOT INTEND TO GIVE ROOM FOR ADJUSTMENTS TO THE ASSESSEE OR TESTED PARTY . IT IS ALSO SUBMITTED THAT AT CONCEPTUAL LEVEL THE TESTED PARTY IS THE ONE WHICH HAS LEAST COMPLEX FUNC TIONS AND ABOUT WHICH RELIABLE DATA IS AVAILABLE. IT IS NOT D ISPUTED THAT ASSESSEE COMPANY HAS CHOSEN ITSELF AS TESTED PARTY I N TP STUDY/ DOCUMENTATION. THERE IS NO DISPUTE WITH THE ASSES SEE. THE ABOVE STAND IS SUPPORTED BY FOLLOWING DECISIONS OF ITAT. 1. HAWORTH (INDIA) PVT. LTD 2011-TII-64-ITAT-DEL-TP PARA 83-86 OF ITAT ORDER ITA NO. 5341/D/2010 A.Y . 2006-07 (PAGE-59) PAGE 5 OF HEAD NOTES PARA 3. 2. GLOBAL VENDTAGE 37 3737 37- -- -SOL SOL SOL SOL- -- -I II I PARA 14 PARA 5.4.4 OF CIT (A) IS 2010-TIOL-24-ITA PART OF PARA 14 QUOTED ITA NO. 5215/DEL/2010 & CO NO. 3/DEL/2011 13 WHEREIN IT WAS HOLD NO ADJUSTMENT TO BE MA DE TO TESTED PARTY. 3. GEODIS OVERSEAS 2010 2010 2010 2010- -- -TII TIITII TII- -- -35 3535 35- -- -DEL DEL DEL DEL- -- -TP TPTP TP PARA 16-18 OF ITAT ORDER 45-SOT-375 IT HAS ALSO SUBMITTED THAT ASSESSEE COMPANY HAD NOT CLAIMED ANY ADJUSTMENT ON ACCOUNT OF SPECIFIED EXPEN SE IN THE TRANSFER PRICING STUDY OR DOCUMENTATION PREPARED UNDE R RULE 10D R.W. SECTION 92D OF IT ACT. THE ASSESSEE HAS NOT STATED AS TO WHAT WAS REASONS OF INCURRING HUGE EXPENDITURE VIS-A-VIS OTHER COMPARAB LE. IT IS POSSIBLE THAT ASSESSEE COMPANY MAY HAVE OBTAINED SOME OTHER ADVANTAGE OF SAVINGS UNDER OTHER HEAD. AS SUCH DETA ILS IN RESPECT OF OTHER COMPARABLES ARE NOT GIVEN/ PROVIDED FURTHE R COMMENTS CAN NOT BE MADE. IT IS ALSO SUBMITTED THAT IT WAS AS SESSEE WHICH SELECTED COMPARABLES ON ITS OWN IN THE T.P. DOCUMENTAT ION AND HAS NOT QUALIFIED FOR MALARIAL DIFFERENCE VIS-A-VIS COMPARABLE. IT IS FURTHER SUBMITTED THAT MARCONI IS AN INTERN ATIONAL NAME/BRAND AND ESTABLISHED PLAYERS IN GLOBAL MARKET THEREFORE SUCH AN ADJUSTMENT IS OTHERWISE NOT WARRANTED. IT I S ALSO SUBMITTED THAT THE METHOD SELECTED BY THE ASSESSEE AND ACCEPTED BY THE DEPARTMENT IS TNMM (I.E.) TRANSACTI ONAL NET MARGIN METHOD) WHICH BY ITS NAME SUGGESTS THAT COMPARI SON IS TO BE MADE AT NET MARGIN LEVEL. IT IS ALSO SUBMITTED THA T THIS METHOD IS MORE TOLERANT TO DIFFERENCES VIS-A-VIS OTHER METH OD AND THEREFORE DOES NOT REQUIRE ADJUSTMENTS IN PRINCIPLE S. THIS ASPECT ITA NO. 5215/DEL/2010 & CO NO. 3/DEL/2011 14 OF TOLERANCE HAS ALSO BEEN RECOGNIZED BY THE OECD IN ITS GUIDELINES. -THE ASSESSEE HAS NOT SHOWN EXPENDITURE TO BE EXTRA ORDINARY IN ITS ACCOUNTS. IT IS SUBMITTED THAT DATA FOR EFFECTING REASONABLE A CCURATE ADJUSTMENTS DOES NOT APPEAR TO BE AVAILABLE IN THIS CASE. AS REGARDS ADJUSTMENT MADE BY THE CIT(A) IT IS ALSO SU BMITTED THAT SHE HAS OVERLOOKED THAT COMPARABLE COMPANIES AR E INDIAN COMPANIES WORKING IN INDIA. ON THE OTHER HAND THE AS SESSEE IS SUBSIDIARY OF MULTINATIONAL GROUP AND IS NORMAL COUR SE OF BUSINESS WAS REQUIRED TO MAKE HIGHER EXPENDITURE IN THESE HEADS OF TRAVELING/COMMUNICATION ETC. THIS THEREFORE WA S SUPPOSED TO BE FACTORED INTO THE WORKINGS OF THE ASSESSEE OPERA TING IN INDIA. FURTHER THIS COST IS LIKELY TO BE OFF-SET BY SAVINGS IN OTHER COSTS OR BETTER REVENUE THROUGH PRESENCE OF BIG NAME (INTANG IBLES). THEREFORE IT IS SUBMITTED THAT ORDER OF LD. CIT(A) SUFFERS FROM AFORESAID INFIRMITIES AND DESERVES TO BE SET ASIDE. THE ORDER OF TPO DESERVES TO BE UPHELD. 10. LD. COUNSEL OF THE ASSESSEE ON THE OTHER HAND S UPPORTED THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. ITA NO. 5215/DEL/2010 & CO NO. 3/DEL/2011 15 11. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. WE FIND COGENCY IN THE SUBMISSIONS OF THE L D. DEPARTMENTAL REPRESENTATIVE. LD. COMMISSIONER OF INCOME TAX (APP EALS) HAS ASKED THE ASSESSEE TO FILE THE DETAILS OF EXPENDITURE INC URRED ON ACCOUNT TRAVELLING AND CONVEYANCE AND PROFESSIONAL AND COMMU NICATION. IN THIS REGARD LD. COMMISSIONER OF INCOME TAX (APPEALS) THUS FAILED TO FOLLOW RULES OF NATURAL JUSTICE AS THERE WAS APPAR ENT VIOLATION OF RULE 46A IN AS MUCH AS NO OPPORTUNITY WAS PROVIDED TO THE TPO IN THIS REGARD. WE FURTHER AGREE WITH THE LD. COUNSEL OF THE ASSESSEE THAT THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IS NON-SPEAKING ORDER AS IT DOES NOT GIVE REASONS FOR MAKING ADJUST MENT TO THE OPERATING RESULTS OF TESTED PARTY I.E. ASSESSEE. IT IS ALSO NOT CLEAR HOW SHE ARRIVED AT THE CONCLUSION THAT 30% OF EXPENSES WERE EXTRAORDINARY AND REQUIRED ADJUSTMENT. IT IS ALSO NOTED THAT ASS ESSEE COMPANY HAD NOT CLAIMED ANY ADJUSTMENT ON ACCOUNT OF SPECIFIED E XPENSE IN THE TRANSFER PRICING STUDY OR DOCUMENTATION PREPARED UN DER RULE 10D READ WITH SECTION 92D OF THE ACT. IN THESE CIRCUMSTA NCES IN THE BACKGROUND OF THE AFORESAID DISCUSSION IN OUR CONS IDERED OPINION THE MATTER NEEDS TO BE REMITTED TO THE FILE OF THE LD. CO MMISSIONER OF INCOME TAX (APPEALS) TO CONSIDER THE ISSUE AFRESH AFTER GIVING ADEQUATE OPPORTUNITY TO THE TPO OF BEING HEARD. B OTH THE COUNSEL ITA NO. 5215/DEL/2010 & CO NO. 3/DEL/2011 16 FAIRLY AGREED TO THIS PROPOSITION. ACCORDINGLY THE MATTER STANDS REMITTED TO THE FILE OF THE LD. COMMISSIONER OF INCOM E TAX (APPEALS). 12. IN THE RESULT THE REVENUES APPEAL AS WELL AS ASSESSEES CROSS OBJECTION STAND ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 10/2/2012. SD/- SD/- [ [[ [R.P. TOLANI] R.P. TOLANI] R.P. TOLANI] R.P. TOLANI] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE:- 10/2/2012 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR ITAT TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT DELHI BENCHES