INCOME TAX ACT, 1961

--Transfer pricing--Computation of ALPComparable and information required by TPO under section 133(6)--The assessee company was engaged in the business of backend computer research and development activity. During the assessment proceedings under section 143(3), the assessing officer observed that the assessee had international transaction exceeding Rs.15 crores. In view of the same with the prior approval of the CIT he made a reference to the TPO to determine the Arms' Length Price ALP for the transaction as per the provisions of section 92CA. TPO however did not accept the analysis conducted by the assessee and he conducted a fresh economic analysis. According to assessee the TPO obtained information which was not available in public domain from some of the companies by exercising his powers vested under section 133(6) and used the same for comparing with the net margin of the assessee. The TPO after providing the working capital adjustment of 1.23%, arrived at the net margin at 19.45% on operating cost. The difference in the net margin arrived at by the assessee and by the TPO was on account of various differences. Held: The information acquired by the TPO under section 133(6) was no doubt provided to the assessee. However, the assessee was not allowed to rebut the said information by way of any evidences. In view of the same, justice would be done if the issue of dealing with the objections of the assessee regarding the comparables adopted by the TPO is remitted back to the file of the assessing officer with a direction to follow the guidelines issued by this Tribunal in the case of Genesis Integrating System India Pvt. Ltd.. The copy of the order of the Tribunal in the case of Genesis Integrating System India Pvt. Ltd. shall be appended to this order as part of this order.

The basic objection of the assessee is that the TPO has rejected the filters adopted by the assessee and has adopted untenable filters for arriving at the comparables and in his detailed submission before the TPO as well as the Tribunal, the assessee has brought out the various factors that would justify the adoption of comparables by the assessee. He has also brought out the distinguishing factors relating to the comparables adopted by the TPO to demonstrate as to how they cannot be compared with the assessee. According to him, the TPO has rejected the loss making companies as comparables but has adopted super-profit making companies as comparables. He further submitted that some of the companies are not only into services but are also product companies and without taking the bifurcated profit margins of the respective units, the TPO has arrived at the net margin of 19.23% which is very excessive. He submitted if the super profit making companies are excluded from the comparables and if the ±5% deduction is given to the assessee, the ALP adopted by the assessee would fall within the said margins and the adjustments made by the TPO would have to be deleted. The DR however, strongly supported the orders of the TPO and the DRP and submitted that both the TPO as well as the DRP have exhaustively dealt with the issues in their orders and have also dealt with the objections of the assessee in detail and, therefore, the ALP adjustment made by the TPO and as confirmed by the DRP is justifiable and needs no interference. [Para 15 & 16] The TPO has given his reasons for adopting these companies as comparables on the basis of the data obtained by him on account of notices issued under section 133(6). However, the assessee has brought various differences which will have to be taken into account while considering these companies as comparables. The information acquired by the TPO under section 133(6) was no doubt provided to the assessee. However, the assessee was not allowed to rebut the said information by way of any evidences. In view of the same, justice would be done if the issue of dealing with the objections of the assessee regarding the comparables adopted by the TPO is remitted back to the file of the assessing officer with a direction to follow the guidelines issued by this Tribunal in the case of Genesis Integrating System India P. Ltd. The copy of the order of the Tribunal in the case Genesis Integrating System India P. Ltd. shall be appended to this order as part of this order.