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GE Healthcare Bio-Sciences Ltd. v/s Deputy Director of Income-tax, International Taxation-I, Chennai


Company & Directors' Information:- R G S HEALTHCARE PRIVATE LIMITED [Active] CIN = U85110PB2004PTC047381

Company & Directors' Information:- R G S HEALTHCARE PRIVATE LIMITED [Active] CIN = U85110CH2004PTC027689

Company & Directors' Information:- P. H. HEALTHCARE PRIVATE LIMITED [Active] CIN = U33110MH2010PTC208651

Company & Directors' Information:- B G P HEALTHCARE PRIVATE LIMITED [Active] CIN = U24232GJ2007PTC050417

Company & Directors' Information:- D R HEALTHCARE PRIVATE LIMITED [Active] CIN = U85110GJ2006PTC048008

Company & Directors' Information:- INTERNATIONAL HEALTHCARE LIMITED [Active] CIN = U24100AP2009PLC066011

Company & Directors' Information:- M J HEALTHCARE PRIVATE LIMITED [Active] CIN = U93090PN2008PTC132455

Company & Directors' Information:- S J HEALTHCARE PRIVATE LIMITED [Active] CIN = U85190MH2005PTC153435

Company & Directors' Information:- G J HEALTHCARE PRIVATE LIMITED [Active] CIN = U85110PB1998PTC021049

Company & Directors' Information:- I & V BIO INDIA PRIVATE LIMITED [Active] CIN = U05000TN2014PTC098614

Company & Directors' Information:- I M HEALTHCARE PRIVATE LIMITED [Active] CIN = U24232CH2010PTC032454

Company & Directors' Information:- INDIA INTERNATIONAL HEALTHCARE PRIVATE LIMITED [Strike Off] CIN = U85100DL2010PTC210495

Company & Directors' Information:- K G HEALTHCARE LIMITED [Active] CIN = U85110TZ1995PLC006402

Company & Directors' Information:- C S HEALTHCARE PRIVATE LIMITED [Active] CIN = U85110GJ2012PTC070018

Company & Directors' Information:- M M HEALTHCARE LIMITED [Active] CIN = U74899DL1988PLC034339

Company & Directors' Information:- GE HEALTHCARE PRIVATE LIMITED [Amalgamated] CIN = U00899DL2003PTC136412

Company & Directors' Information:- A L B HEALTHCARE PRIVATE LIMITED [Strike Off] CIN = U85110UP2002PTC026786

Company & Directors' Information:- S B M HEALTHCARE (INDIA) PRIVATE LIMITED [Active] CIN = U33112DL2005PTC140703

Company & Directors' Information:- S A HEALTHCARE PRIVATE LIMITED [Strike Off] CIN = U85100OR2014PTC018365

Company & Directors' Information:- AND HEALTHCARE LIMITED [Active] CIN = U51909PB2017PLC046446

Company & Directors' Information:- D. S. HEALTHCARE PRIVATE LIMITED [Active] CIN = U24232WB2007PTC115617

Company & Directors' Information:- B N HEALTHCARE PRIVATE LIMITED [Active] CIN = U15412AS2000PTC006258

Company & Directors' Information:- P AND B HEALTHCARE PRIVATE LIMITED [Strike Off] CIN = U24230GJ2013PTC075056

Company & Directors' Information:- M M D HEALTHCARE LIMITED [Active] CIN = U65921CH1996PLC017595

Company & Directors' Information:- A AND R HEALTHCARE PRIVATE LIMITED [Active] CIN = U24239DL1999PTC102404

Company & Directors' Information:- K. N. HEALTHCARE PRIVATE LIMITED [Active] CIN = U85320RJ2018PTC061003

Company & Directors' Information:- R F B HEALTHCARE PRIVATE LIMITED [Active] CIN = U85190DL2021PTC384643

Company & Directors' Information:- M S HEALTHCARE PRIVATE LIMITED [Active] CIN = U24239MH2001PTC130893

Company & Directors' Information:- G A S HEALTHCARE PRIVATE LIMITED [Active] CIN = U74999BR2018PTC038700

Company & Directors' Information:- L. J. HEALTHCARE PRIVATE LIMITED [Active] CIN = U85100HR2019PTC078493

Company & Directors' Information:- J K K BIO SCIENCES PRIVATE LIMITED [Strike Off] CIN = U24219TN2011PTC081387

Company & Directors' Information:- J. R. HEALTHCARE PRIVATE LIMITED [Active] CIN = U85191UP2013PTC054982

Company & Directors' Information:- M A P H HEALTHCARE PRIVATE LIMITED [Under Process of Striking Off] CIN = U85100WB2010PTC144870

Company & Directors' Information:- BIO 2 (INDIA) LIMITED [Active] CIN = U41000DL2012PLC243023

Company & Directors' Information:- N. C. HEALTHCARE PRIVATE LIMITED [Active] CIN = U85191DL2007PTC164437

Company & Directors' Information:- N Y HEALTHCARE PRIVATE LIMITED [Active] CIN = U24230GJ2010PTC063348

Company & Directors' Information:- H 4 HEALTHCARE PRIVATE LIMITED [Active] CIN = U15100MH2021PTC353283

Company & Directors' Information:- D. B. HEALTHCARE PRIVATE LIMITED [Active] CIN = U33205MH2014PTC253439

Company & Directors' Information:- TAXATION INDIA PRIVATE LIMITED [Strike Off] CIN = U74140DL2000PTC106716

Company & Directors' Information:- K S V HEALTHCARE PRIVATE LIMITED [Active] CIN = U85195HR2011PTC043767

Company & Directors' Information:- N M HEALTHCARE PRIVATE LIMITED [Active] CIN = U85110MH2000PTC125392

Company & Directors' Information:- T K HEALTHCARE (INDIA ) PRIVATE LIMITED [Strike Off] CIN = U85190MH2003PTC139346

Company & Directors' Information:- A R HEALTHCARE PRIVATE LIMITED [Active] CIN = U85110CH2013PTC034820

Company & Directors' Information:- I P HEALTHCARE PRIVATE LIMITED [Active] CIN = U24239DL2003PTC121211

Company & Directors' Information:- BIO 2 (INDIA) PRIVATE LIMITED [Active] CIN = U41000DL2012PTC243023

Company & Directors' Information:- A 2 Z HEALTHCARE PRIVATE LIMITED [Active] CIN = U85100DL2010PTC208860

Company & Directors' Information:- K. D. HEALTHCARE INDIA PRIVATE LIMITED [Strike Off] CIN = U85100DL2015PTC281658

Company & Directors' Information:- A P HEALTHCARE PRIVATE LIMITED [Active] CIN = U24230MH1999PTC122520

Company & Directors' Information:- K Y O S HEALTHCARE PRIVATE LIMITED [Strike Off] CIN = U51397HP2010PTC031280

Company & Directors' Information:- Z F HEALTHCARE PVT. LTD. [Active] CIN = U29295MH2006PTC164255

Company & Directors' Information:- K. B. B. K. HEALTHCARE PRIVATE LIMITED [Active] CIN = U85110RJ2013PTC041465

Company & Directors' Information:- T.H.E. HEALTHCARE COMPANY PRIVATE LIMITED [Strike Off] CIN = U33111MH2012PTC229451

Company & Directors' Information:- J S B HEALTHCARE PRIVATE LIMITED [Active] CIN = U74120MH2013PTC248848

Company & Directors' Information:- J S D HEALTHCARE PRIVATE LIMITED [Strike Off] CIN = U74120UP2011PTC046578

Company & Directors' Information:- S V T HEALTHCARE PRIVATE LIMITED [Strike Off] CIN = U85100TZ2009PTC015287

Company & Directors' Information:- A N S HEALTHCARE PRIVATE LIMITED [Active] CIN = U85100HP2011PTC031745

Company & Directors' Information:- J M HEALTHCARE PRIVATE LIMITED [Active] CIN = U24230CH2007PTC030943

Company & Directors' Information:- P R HEALTHCARE PRIVATE LIMITED. [Strike Off] CIN = U24231DL2003PTC120123

Company & Directors' Information:- R S M HEALTHCARE PRIVATE LIMITED [Strike Off] CIN = U24232DL2005PTC136255

Company & Directors' Information:- M H HEALTHCARE PRIVATE LIMITED [Active] CIN = U74999DL2016PTC289311

Company & Directors' Information:- N T HEALTHCARE PRIVATE LIMITED [Active] CIN = U85100DL2012PTC241304

Company & Directors' Information:- R A HEALTHCARE PRIVATE LIMITED [Strike Off] CIN = U85190DL2009PTC188221

Company & Directors' Information:- G & G HEALTHCARE PRIVATE LIMITED [Active] CIN = U51397HR2015PTC057293

Company & Directors' Information:- P D HEALTHCARE PRIVATE LIMITED [Active] CIN = U24230GJ2004PTC045131

Company & Directors' Information:- L. V. G. HEALTHCARE PRIVATE LIMITED [Active] CIN = U24233GJ2006PTC047749

Company & Directors' Information:- S H G HEALTHCARE PVT LTD [Strike Off] CIN = U85110WB1989PTC047231

    IT Appeal No. 677 of 2015 & S.P.No. 73 of 2016

    Decided On, 30 March 2016

    At, Income Tax Appellate Tribunal Chennai

    By, THE HONOURABLE MR. CHANDRA POOJARI
    By, ACCOUNTANT MEMBER & THE HONOURABLE MR. CHALLA NAGENDRA PRASAD
    By, JUDICIAL MEMBER

    For the Appellant: N. Venkatraman, Senior Counsel, V. Ubhaya Bharathi, K.R. Sekar, S.P. Chidambaram, Advocates. For the Respondent: Dr. B. Nischal, JT. CIT.



Judgment Text

Challa Nagendra Prasad, Judicial Member

1. This appeal is filed by the assessee against the order of the Dispute Resolution Panel, Chennai, dated 27.11.2014, for the assessment year 2010-11.

2. The assessee has also filed additional grounds of appeal contending that the foreign exchange gain pertaining to marketing commission segment should be considered as its operating income. The assessee in its additional grounds contends that foreign exchange gain was derived from marketing commission transaction and as such, it is directly and inextricably linked with marketing commission segment. The assessee contends that the TPO while computing the margin of the assessee considered the foreign exchange gain pertaining to marketing commission segment as non-operating income. It is the submission of the assessee that it has inadvertently omitted to raise specific alternative ground in relation to foreign exchange gain to be considered as operating income while computing the segmental margin of the assessee i.e The TPO while determining Arm's Length Price has erroneously considered the foreign exchange gain as non-operating item in nature. The ld. Sr. Counsel for the assessee submits that the above grounds do not require investigation of additional facts, they are legal grounds and therefore, he prayed that these additional legal grounds may be admitted and decided on merits.

3. The ld. DR opposed for admission of additional grounds raised by the assessee.

4. On hearing both the parties, we are of the view that the additional grounds raised by the assessee do not require investigation of additional facts and the grounds raised are purely legal grounds. Respectfully following the judgment of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383, we admit the additional grounds raised by the assessee.

5. The ld. Sr. Counsel for the assessee, by placing reliance on the decision of Hyderabad Bench of the Tribunal in the case of Capital IQ Information Systems (India)(P.) Ltd. v. Dy. CIT (International Taxation) [2013] 32 taxmann.com 21/57 SOT 14 (URO), submits that the foreign exchange gain earned by the assessee from marketing commission segment should be considered as operating income. Referring to para 27 of the Tribunal's order (supra), he submits that the issue has been considered by the Bangalore Bench of the Tribunal in the case of SAP Labs India P. Ltd and this decision was followed by the Hyderabad Bench holding that foreign exchange gain/loss has to be taken as part of the operating margin.

6. The ld. DR placed reliance on the order of the TPO in considering the foreign exchange gain as non-operating income.

7. We have heard the rival contentions, perused the orders of the lower authorities as well as the decision relied on by the assessee in the case of Capital IQ Information Systems (India) (P.) Ltd. (supra). We find that the issue has been considered by the Bangalore Bench and the Hyderabad Bench of the Tribunal. The Hyderabad Bench in the case of Capital IQ Information Systems (India) (P.) Ltd. (supra) has held in para 27 of its order as under:-

'27. We have considered the submissions of the parties in this regard. The Bangalore Bench of the Tribunal in the case of SAP Labs India P. Ltd. (supra), while considering a dispute of similar nature, observed as follows-

"The foreign exchange fluctuation gains is nothing but an integral part of the sales proceeds of an assessee carrying on export business. The Courts and Tribunals have held that foreign exchange fluctuation gains form part of the sale proceeds of exporter-assessee. The foreign exchange fluctuations income cannot be excluded from the computation of the operating margin of the assessee company……."

Following the aforesaid decision of the Bangalore Bench of the Tribunal, the Hyderabad Bench of the Tribunal held in the case of Four Soft Ltd. (supra) in the following manner-

"16. With regard to the exclusion of gain on account of foreign exchange fluctuation while computing the net margin, as claimed by the assessee, we find that the exchange fluctuation gains arise out of several factors, for instance, realisation of export proceeds at higher rate, import dues payable at lower rate. Since the gain or loss on account of exchange rate fluctuation arises in the normal course of business transaction, the same should be considered while computing the net margin for the international transactions with the associated enterprises of the assessee. Our view in this behalf is fortified by the decisions of the Bangalore Bench of the Tribunal in the case of SAP Labs India Ltd. supra and Bombay bench of the Tribunal in the case of Deutsche Bank A.G. v. D. CIT reported in 86 ITD 431……"

Respectfully following the aforesaid decisions of the Tribunal, and considering the contention of the assessee that for the assessment year 2008-09 foreign exchange fluctuation gain/loss has been considered as operating margin while computing the margin of comparable companies, we hold that even for the year under appeal also the same principle should be applied, and while computing the margin for determining the ALP for the assessment year under appeal, the foreign exchange gain/loss has to be taken as part of the operating margin. Consequently, we allow the ground of the assessee on this issue and direct the Assessing Officer to treat the foreign exchange fluctuation gain/loss as part of the operating margin of the comparable company."

8. Respectfully following the said decision, we hold that the foreign exchange gain pertaining to marketing commission segment should be considered as operating income. We direct accordingly.

9. Coming to the regular grounds of appeal, the assessee raised grounds challenging the order of the DRP (i) in rejecting comparable uncontrolled price method(CUP) for bench marking marketing support services, (ii) error in determining ALP by using net margins of Spinco, (iii) application of TNMM using external comparables, and (vi) DRP/Assessing Officer erred in not appreciating the fact that the effective rate of commission of 14.80% earned by the assessee during the year is higher than the effective commission rate of 12% considered to be appropriate by the ITAT in earlier years.

10. The ld. Sr. Counsel for the assessee submits that Ground No.2.2 and 2.5 relevant to rejection of comparable uncontrolled price method for bench marking marketing support services and on the effective rate of commission earned by the assessee during the year is higher than the effective commission rate of 12% considered to be appropriate by the ITAT, are not pressed. The ld.Sr. Counsel for the assessee submits that the only issue remains for adjudication is whether the single comparable adopted by the DRP based on which whether transfer pricing adjustment can be made or not is the question to be decided.

11. The ld. Sr. Counsel for the assessee submits that during the assessment year among other international transactions, the assessee has also entered into international transactions of marketing services with its Associated Enterprise i.e parent company/Head Office. It is submitted that Head Office had also appointed M/s Spinco Biotech Pvt. Ltd, a third party as another marketing service company in India. It is the submission of the ld. Sr. Counsel for the assessee that in the transfer pricing documentation for marketing services related to international transaction, the assessee adopted CUP method as the most appropriate method by relying on the weighted average rate of commission received by M/s Spinco. The rate of commission received by M/s Spinco was 15.7% whereas the assessee has earned commission @ 14.8%. Therefore, it is contended that the marketing services related international transaction was at ALP. The ld. Sr. Counsel for the assessee submits that in the transfer pricing assessment, the TPO held that M/s Spinco is not functionally comparable for the reason that (a) greater role of assistance and greater functions assumed by the assessee-company than M/s Spinco, (b) warranty risk/post sales services, and (c) restrictions imposed on M/s Spinco. It is submitted that based on the difference in the functional profile between the assessee and M/s Spinco, the TPO held that CUP method cannot be applied, therefore, the TPO rejected the CUP method and proceeded to adopt external TNMM as the most appropriate method. The ld. Sr. Counsel submits that based on the difference in the functional profile between assessee and M/s Spinco, the TPO held that CUP method cannot be applied for the following reasons:-

(a) Assessee undertakes Contract Service segment which cannot be compared with Entrepreneurial Service segment of Spinco (refer Pg 11 continuation of Para 9.1).

(b) Variable risk profile between assessee and Spinco cannot be compared under CUP method (refer Pg 14 continuation of Para 9.4)

(c) Spinco is restriced from supplying to intermediaries whereas assessee is not so restricted (refer Pg 14 Para 9.8 of TP order)

(d) Couple of decisions wherein it is held that to apply CUP method, Product/services should have close similarity (refer Pg 14 Para 9.6 & 9.7 of TP Order).

The ld. Sr. Counsel for the assessee further submits that initially the TPO selected 10 comparables but based on the reply to the show cause notice, the TPO selectively accepted assessee's reply in respect of three external comparable companies and removed them. He submits that finally the TPO selected seven comparable companies from comparables. He submits that the TPO compared the TNMM of seven comparable cases at 15.82% with that of assessee's overall margin of (-) 1.40% by considering marketing commission segment alongwith the trade and after sales segment net margins and proposed adjustment of Rs. 2.33 crores.

12. The ld. Sr. Counsel for the assessee submits that the DRP sustained the TNMM adopted by the TPO and rejected the CUP method. It is submitted that the DRP considered and held that internal TNMM is much better than external TNMM. Accordingly, DRP enhanced the assessment holding that single company M/s Spinco could be considered as a comparable company under TNMM method. He further submits that the DRP directed the TPO to apply internal TNMM using operating profit to operating cost as PLI. The ld. Sr. Counsel for the assessee submits that DRP eliminated six comparables out of seven taken by the TPO except M/s Spinco. He further submits that transfer pricing adjustment cannot be based on single comparable, therefore, the matter should go back for fresh adjudication. The ld. Sr. Counsel strongly placed reliance on the decision of Ahmedabad Bench of the Tribunal in the case of Fortune Infotech Ltd v. Asstt. CIT [2016] 66 taxmann.com 92. He submits that it is a finding of fact by the authorities below that functions performed by the assessee and the functions performed by M/s Spinco are not same. He further submits that as per the provisions of sec. 10B(2), when functions are different, the comparable ceases to be a comparable. The ld. Sr. Counsel further submits that DRP accepts that segmental financials have to be considered and there is no dispute on this. He submits that the only issue for consideration is whether one comparable or seven comparables to be considered. Placing reliance on para 11 of the decision of Ahmedabad Tribunal in the case of Fortune Infotech Ltd. (supra), the ld. Sr. counsel submits that M/s Spinco could not be considered as comparable for the reason that the TPO has given a categorical finding that the functions performed by the assessee are much more than the functions performed by M/s Spinco. Further, the TPO has also held that the risk assumed by the assessee and M/s Spinco are not the similar. DRP also having held that M/s Spinco is not functionally comparable ought not to have proceeded to consider M/s Spinco as a comparable company by adopting a different method. Therefore, it is submitted that M/s Spinco cannot be considered as a comparable company. The ld. Sr. Counsel further submits that a single comparable company will not indicate the industry/segment market trend. Therefore, for the purpose of comparability multiple companies should be considered. Further, as per TNMM the average net margin of comparable companies is compared with net margin of the tested party. This impliedly means that at least two companies should be considered as comparables for the purpose of benchmarking analysis under TNMM method.

13. The ld. Departmental Representative vehemently supports the orders of the authorities below.

14. We have heard the rival contentions and perused the orders of the authorities below. In this case, the TPO rejected the CUP method adopted by the assessee as the most appropriate method holding that there were wide difference between the assessee and M/s Spinco with reference to the functions and risk assumed. In para 9.4 of the TPO's order, it was specifically brought on record by the TPO that M/s Spinco is functionally different than the assessee-company and therefore, why it should not be compared under CUP method. Having held that M/s Spinco cannot be considered as a comparable for CUP method, the TPO holds that TNMM is the most appropriate method in the present case. The TPO selected ten comparables however, restricts finally to seven comparables to compare the margins at profit level and not at the segmental profits. The DRP accepts the rejection of CUP method and adoption of TNMM by the TPO. Further, the DRP considered M/s Spinco as the only comparable and eliminates the other comparables. The DRP holds that segmental profits should be considered. The question now before us is as to whether the single comparable and that too a comparable which was functionally dissimilar as held by the TPO can be considered for determining transfer pricing adjustment? In the case of Fortune Infotech Ltd (supra) it was held that in an indirect method like TNMM, a reasonable number of comparables is an important factor to ensure that the results are truly representative of the segment to which the tested party belongs. It was also held that when only one comparable is available for application of a particular method, this serious limitation on the availability of data, certainly relegates its appropriateness vis-z-vis other alternate methods available such as external TNMM in respect of which sufficient and essentially reliable data is available. It was held that for this reason alone, internal TNMM is certainly not the most appropriate method on the facts of the case. While holding so, the Tribunal observed as under:-

'10. We have noted that during the course of the hearing before us, learned counsel vehemently contended that, on the facts of this case, the internal transactional net margin method was wrongly rejected by the authorities below. His contention was that undoubtedly Fidelity US was an associated enterprise in an earlier accounting period but that aspect of the matter was wholly irrelevant since the prices for work done for Fidelity US were negotiated afresh after this concern ceased to an AE. Learned counsel took pains to take us through the documents in support of the facts embedded in his arguments, but, for the reasons we will set out in a short while and in our considered view, it is not really necessary to go into that aspect of the matter. When we put it to the learned counsel that when only one comparable is available so far as internal TNMM is concerned, and the reliability of this comparable is also not free from doubt, would it really be appropriate to select this method as 'most appropriate method' for determining arm's length price on the facts of this case, he quickly responded that there is no statutory bar on application of a particular method only because one comparable is available for benchmarking. He referred to judicial precedents in support of the proposition so advanced by him. That is not, however, the issue; it is not a question of statutory bar. The question is as to what is the most appropriate method on the facts of that case, and this question cannot be decided in vacuum or in an abstract or theoretical terms. It has be considered in the light of the facts of that case, in the light of availability of necessary inputs for various alternative options and in the light of other relevant factors. If in one case the Tribunal has held that even one comparable is good enough for determining the arm's length price on the basis of one of the prescribed methods, and that method is most appropriate method in a given situation, it cannot be inferred that irrespective of the method employed and de-hors the peculiarities of a fact situation, a single comparable is good enough for all the methods of determining arm's price, so as to be treated as most appropriate method for that purpose. In an indirect method like TNMM, a reasonable number of comparables is an important factor to ensure that the results are truly representative of the segment to which the tested party belongs. The situation with regard to direct methods like CUP, as long as transactions are established to be bonafide, could be slightly different. There are no yardsticks of universal application. However, the mandate of Section 92C(1), read with rule 10C, is unambiguous. A method selected for benchmarking must be a permissible method to be included in the consideration zone, but even it's presence in the consideration zone is not good enough to justify its application for benchmarking the international transactions on the facts of a particular case because such a method has to be not only a permissible method but also most appropriate method having regard to all the material factors, including availability, coverage and reliability of data necessary for application of such a method. The method selected for benchmarking must not only be a permissible method but it also be the 'most appropriate method' on the facts and circumstances of that case and vis--vis the other methods which can be applied on the facts of that case. The selection of most appropriate method is not simply deciding a question as to what is permissible and what is not permissible, because, as is elementary, everything permissible in law, as indeed in all walks of life, is not necessarily the most appropriate thing as well. It is important to bear in mind the fact that under section 92C(1), "the arm's length price in relation to an international transaction shall be determined by one of the ...(prescribed)... methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe." Rule 10C, which prescribes the relevant factors for determining the most appropriate method, as it stood at the relevant point of time, states as follows:

Rule 10 C- Most appropriate method.

(1) For the purposes of sub-section (1) of section 92C, the most appropriate method shall be the method which is best suited to the facts and circumstances of each particular international transaction and which provides the most reliable measure of an arm's length price in relation to the international transaction

(2) In selecting the most appropriate method as specified in sub-rule (1), the following factors shall be taken into account, namely:-

(a) the nature and class of the international transaction;

(b) the class or classes of associated enterprises entering into the transaction and the functions performed by them taking into account assets employed or to be employed and risks assumed by such enterprises;

(c) the availability, coverage and reliability of data necessary for application of the method;

(d) the degree of comparability existing between the international transaction and the uncontrolled transaction and between the enterprises entering into such transactions;

(e) the extent to which reliable and accurate adjustments can be made to account for differences, if any, between the international transaction and the comparable uncontrolled transaction or between the enterprises entering into such transactions;

(f) the nature, extent and reliability of assumptions required to be made in application of a method

[Emphasis, by underlining, supplied by us]

11. The scheme of the transfer pricing legislation in India is thus unambiguous. There is no dispute that the selection of 'most appropriate method' is not in the unfettered discretion of the assessee and it is something which can always be subject matter of adjudication at the assessment as well as appellate stage. The TPO has a right, as indeed duty, to examine whether a particular method adopted by the assessee is indeed most appropriate method of determining arm's length price on the facts of a particular case. One of the important factors governing the decision on as to what will constitute the most appropriate method, as set out in rule 10C(1)(c) above, is "the availability, coverage and reliability of data necessary for application of the method". The availability of data, with respect to a particular method vis-a-vis other methods of determining the ALP, is thus one of the crucial factors in deciding whether that particular method of determining the ALP is "most appropriate method" of determining ALP on the facts of that case, or not. When only one comparable is available for application of a particular method, this serious limitation on the availability of data, in our considered view, certainly relegates its appropriateness vis-a-vis other alternate methods available, such as external TNMM, in respect of which sufficient, and e

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ssentially reliable, data is available. For this short reason alone, the internal TNMM is certainly not the most appropriate method on the facts of this case. That is one aspect of the matter. The other aspect of the matter is its reliability. The fact that the independent enterprise was an associated enterprise in not so distant a past, the fact that despite its becoming, in legal terms and as an offshoot of group restructuring, an independent enterprise, the assessee continues to work for this enterprise even after making huge losses, as high as 21.75% on cost, and the fact that it is a single comparable, does raise serious apprehensions about its reliability. This fact situation, coupled with the admitted position that sufficient number of external comparables for TNMM are available, does leave the internal TNMM much lower in the hierarchy of methods, particularly vis--vis external TNMM, appropriate for determining the ALP on the facts of this case. We are of the considered view that the internal TNMM, on the basis of which the assessee had done its benchmarking, was indeed not the most appropriate method on the facts of this case. For this short reason alone, and without addressing ourselves to the merits of the line of reasoning adopted by the authorities below, we approve the conclusions arrived at by the TPO and the DRP and decline to interfere in the matter. A lot of arguments have been addressed on whether the services rendered to the non AE can be compared with the services rendered to the AE, but, given our above conclusions, that aspect of the matter is wholly academic.' 15. In the present case, the authorities below having held that M/s Spinco's operations are functionally different than the assessee, in our considered view, M/s Spinco cannot be taken as a comparable. When M/s Spinco ceases to be a comparable, the TPO should look for external comparables which he has rightly adopted some of the external comparables. Therefore, following the decision of the Ahmedabad Bench of the Tribunal in the case of Fortune Infotech Ltd.(supra), we restore the matter to the file of the TPO who shall consider the external comparables and determine the ALP by taking the segmental financials after providing adequate opportunity of being heard to the assessee. 16. In the result, the appeal of the assessee is allowed for statistical purposes and the stay petition is dismissed as infructuous.
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