Centillium India Ltd. v. Dy. CIT

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The Tax Publishers2013 TaxPub(DT) 0223 (Bang-Trib) : (2012) 020 ITR (Trib) 0069 INCOME TAX ACT, 1961 --Transfer pricing--Computation of ALP Selection of comparables--Assessee was engaged in the business of providing software development service of its associated enterprise in USA during the relevant assessment year assessee had international transactional transactions with associated enterprises to the extent of Rs. 27 crores. The TPO determined arm's length price (ALP) at Rs. 29.9 crores instead of Rs. 27.07 crores resulting in as adjustment to the extent of Rs/ 2.83 crores. The TPO had rejected comparable identified by the assessee and also TPO adopted certain filters. *Held:* While selling and applying comparable companies an opportunity of hearing would be given by the TPO and as the turnover of the assessee was in the range of Rs. 30 crores therefore, the companies, which has turnover of Rs. 1 crores to 200 crores alone should be taken into consideration or the purpose of marking transfer pricing study. Assessee is also allowed standard deduction of 5 per cent. Under sub-sections (3) and (7) of section 92CA, the Transfer Pricing Officer is entrusted with all the powers under clauses (a) to (d) of sub-section (1) of section 131 or sub-section (6) of section 133 to call for and gather any information as may be required. When the Transfer Pricing Officer is making the search for a relevant comparable, he can issue notices to the parties whom he considers as relevant to gather requisite information and on being satisfied with regard to relevancy of the material which can be used against the assessee only then the assessee has to be given an opportunity of presenting its objections, if any. Thus, the Transfer Pricing Officer need not inform the assessee about the process used by him for issuing the notices under section 133(6) nor is he under any obligation to furnish the entire information to the assessee. [Para ] However, the principles of natural justice requires that when any information is sought to be used against the appellant, the appellant has to be given a reasonable opportunity of hearing on that material. In the present case, the Transfer Pricing Officer had furnished all the information to the appellant in the form of compact disc and the appellant, after perusing the same, had submitted a detailed submissions with its objections for taking various companies as comparables. It was another matter, if the Transfer Pricing Officer had not considered the objections of the appellant judiciously. In such a case, it would be an error of judgment, but, not violation of principles of natural justice. The objections of the appellant were that certain companies have been taken into consideration by the Transfer Pricing Officer as comparables without affording the appellant an opportunity of furnishing its objections, if any, and also with regard to certain other companies, it had sought opportunity to cross-examine them, but, it has been observed that no such an opportunity has been extended to the appellant. [Para 17] The appellant and also as to how the entire revenue of the appellant has been taken into consideration in spite of there being income from unrelated party transactions also. All these objections have been detailed in its written submission which has also been incorporated in this order in a summarized manner. It has been observed that the Transfer Pricing Officer had not considered those objections while determining the arm's length price. Further, it was also the stand of the appellant that it should be given a standard deduction of 5 per cent, as provided under the proviso to section 92C(2) before making adjustments for the transfer price. [Para 18] In the instant case, the turnover of the company is in the range of Rs. 30 crores, therefore, the companies, which have turnover of Rs. 1 crore to Rs. 200 crores alone should be taken into consideration for the purpose of making transfer pricing study. [Para 22] In these circumstances, this issue requires to be remitted back to the file of the Transfer Pricing Officer for fresh consideration with the following directions : (i) the operating revenue and the operating cost of the transactions relating to associated enterprises alone shall be considered ; (ii) comparables having turnover of more than Rs. 1 crore, but, less than Rs. 200 crores only shall be taken into consideration ; (iii) all the information relating to comparables which were sought to be used against the appellant shall be furnished to the appellant; (iv) to consider the objections of the appellant that relate to additional comparables sought to be adopted by the Transfer Pricing Officer and to pass a detailed order ; and (v) to give the standard deduction of 5 per cent, under the proviso to section 92C(2). [Para 23] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 0223 (Bang-Trib) : (2012) 020 ITR (Trib) 0069

INCOME TAX ACT, 1961

--Transfer pricing--Computation of ALP Selection of comparables--Assessee was engaged in the business of providing software development service of its associated enterprise in USA during the relevant assessment year assessee had international transactional transactions with associated enterprises to the extent of Rs. 27 crores. The TPO determined arm's length price (ALP) at Rs. 29.9 crores instead of Rs. 27.07 crores resulting in as adjustment to the extent of Rs/ 2.83 crores. The TPO had rejected comparable identified by the assessee and also TPO adopted certain filters. Held: While selling and applying comparable companies an opportunity of hearing would be given by the TPO and as the turnover of the assessee was in the range of Rs. 30 crores therefore, the companies, which has turnover of Rs. 1 crores to 200 crores alone should be taken into consideration or the purpose of marking transfer pricing study. Assessee is also allowed standard deduction of 5 per cent.

Under sub-sections (3) and (7) of section 92CA, the Transfer Pricing Officer is entrusted with all the powers under clauses (a) to (d) of sub-section (1) of section 131 or sub-section (6) of section 133 to call for and gather any information as may be required. When the Transfer Pricing Officer is making the search for a relevant comparable, he can issue notices to the parties whom he considers as relevant to gather requisite information and on being satisfied with regard to relevancy of the material which can be used against the assessee only then the assessee has to be given an opportunity of presenting its objections, if any. Thus, the Transfer Pricing Officer need not inform the assessee about the process used by him for issuing the notices under section 133(6) nor is he under any obligation to furnish the entire information to the assessee. [Para ] However, the principles of natural justice requires that when any information is sought to be used against the appellant, the appellant has to be given a reasonable opportunity of hearing on that material. In the present case, the Transfer Pricing Officer had furnished all the information to the appellant in the form of compact disc and the appellant, after perusing the same, had submitted a detailed submissions with its objections for taking various companies as comparables. It was another matter, if the Transfer Pricing Officer had not considered the objections of the appellant judiciously. In such a case, it would be an error of judgment, but, not violation of principles of natural justice. The objections of the appellant were that certain companies have been taken into consideration by the Transfer Pricing Officer as comparables without affording the appellant an opportunity of furnishing its objections, if any, and also with regard to certain other companies, it had sought opportunity to cross-examine them, but, it has been observed that no such an opportunity has been extended to the appellant. [Para 17] The appellant and also as to how the entire revenue of the appellant has been taken into consideration in spite of there being income from unrelated party transactions also. All these objections have been detailed in its written submission which has also been incorporated in this order in a summarized manner. It has been observed that the Transfer Pricing Officer had not considered those objections while determining the arm's length price. Further, it was also the stand of the appellant that it should be given a standard deduction of 5 per cent, as provided under the proviso to section 92C(2) before making adjustments for the transfer price. [Para 18] In the instant case, the turnover of the company is in the range of Rs. 30 crores, therefore, the companies, which have turnover of Rs. 1 crore to Rs. 200 crores alone should be taken into consideration for the purpose of making transfer pricing study. [Para 22] In these circumstances, this issue requires to be remitted back to the file of the Transfer Pricing Officer for fresh consideration with the following directions : (i) the operating revenue and the operating cost of the transactions relating to associated enterprises alone shall be considered ; (ii) comparables having turnover of more than Rs. 1 crore, but, less than Rs. 200 crores only shall be taken into consideration ; (iii) all the information relating to comparables which were sought to be used against the appellant shall be furnished to the appellant; (iv) to consider the objections of the appellant that relate to additional comparables sought to be adopted by the Transfer Pricing Officer and to pass a detailed order ; and (v) to give the standard deduction of 5 per cent, under the proviso to section 92C(2). [Para 23]