Assessee’s submission in arriving at the ALP is not final, It is for TPO to examine and find out companies listed as comparables

This Appeal under Section 260­A of the Income Tax Act, 1961 (the  Act),  challenges  the order dated 15 th  January, 2014 passed by the Income  Tax  Appellate  Tribunal  (the Tribunal). The impugned order dated 15th  January,  2014  relates  to  the  Assessment  Year 2008­-09.

2. The Revenue urges the following questions of law for our consideration:

“(a) Whether on the facts and in the circumstance of the case and   in   law,   the   Tribunal    was   justified   in   excluding   two  comparables  viz.  Indowind  Energy  Ltd. and B. F. Utilities Ltd. for  determination  of Arm’s  Length Price (ALP)  of  international transaction with AEs, when these two comparables were  originally included by the assessee company   among   the comparables?

(b) Whether on the facts and in the circumstance of the case and   in   law,   the   Tribunal  was justified   in   directing   for determination  of  Arm’s  Length  Price  (ALP)   with regard to Sales of Rs.641,49,36,255/­ made  to AEs   and not  on entire  sales   of  Rs.909,91,45,631/­/?”

3./ Re Question (a):­

(a) The Respondent­Assesee is engaged in design, development and   manufacture  and  sale of Solar Modules and Systems. During the previous  year  relevant  to  subject  Assessment Year, the Respondent­ Assessee  had  reported  International  Transaction with its Associated Enterprises  (AE).  In the  Transfer  Pricing  Study  submitted by the   Respondent­Assessee   to   the   Revenue,   it   had   included   M/s. Indowind  Energy Ltd.  and  B.  F.  Utilities  Ltd.  in  the  list  of  two comparables  for the   purpose of  arriving at  Arms Length price (ALP)  in  respect  of  its transactions   entered  into  with  its  A.  E. However,   before   the   Transfer   Pricing  Officer (TPO) itself, the Respondent­Assessee  sought  to  withdraw  M/s.  Indowind Energy Ltd.  and B. F. Utilities Ltd. from the list of comparables. This, inter alia  on  the ground  of functional differences. However, the same was not  permitted  by  the  TPO and was  taken into consideration  while determining   the   ALP.  This   resulted in  a  draft  Assessment Order based  on  ALP  arrived  at  on  a  comparability  study inclusive  of  M/s. Indowind  Energy  Ltd. and B. F. Utilities Ltd.

(b) The Draft Resolution Panel (DRP) on an application made to it by the  Respondent­ Assessee   did   not   disturb   the   inclusion   of   M/s. Indowind Energy  Ltd. and  B.  F.  Utilities  Ltd.  among  the  list  of comparables to determine the ALP as reflected in the draft Assessment Order. This essentially on the ground that the Respondent ­Assessee had itself relied   upon   by   M/s.  Indowind Energy   Ltd. and B. F. Utilities Ltd. as  comparables. Therefore, it was  not  permissible  for the Assessee now to withdraw the   two companies from comparability analysis.

(c) By the impugned  order, the Tribunal  allowed the Respondent­  Assessee’s  appeal. It held that  merely because an Assessee has   included  M/s.  Indowind  Energy  Ltd.  and B. F. Utilities Ltd. in its list of  comparables  to  determine  the  ALP   would  not  by itself estop a  party from  establishing that these companies are not   comparable. The impugned order found that the two comparables  viz: M/s.  Indowind   Energy  Ltd. and B. F. Utilities  Ltd., were engaged   in  completely  different  line  of  business i.e. generation of wind energy while the Respondent­ Assessee is engaged in generation of solar energy. Thus, not functtionally comparable. In the  above view, the impugned order on the basis of Function, Assets  &  Risk  (FAR)  analysis excluded  M/s. Indowind Energy Ltd. and B. F. Utilities Ltd.  from  the  list of  final  comparables to determine the ALP.

(d) We find that the impugned order of the Tribunal holding that a party is not barred in law from withdrawing from its list of comparables,  a  company, if  the  same is found to have been included on  account  of  mistake  as  on  facts,  it is  not  comparable. The Transfer Pricing Mechanism requires comparability   analysis   to be done between like companies and controlled and un controlled transactions. This comparison has to be done between like companies  and  requires  carrying out of FAR analysis to find the same.  Moreover,  the  Assessee’s  submission in arriving at the ALP is  not final. It is for  the  TPO  to  examine  and  find  out  the  companies listed as comparables which   are,   in   fact   comparable. The impugned order has  on  FAR  analysis  found that M/s.  Indowind Energy Ltd. and  B.  F.  Utilities Ltd. are not comparable. They are in a different area  i.e. wind  energy  while the  Respondent Assessee is in the field of solar energy. (e) In  the  above  view,  question (a)  as  proposed does not give rise to any  substantial  question  of law. Thus,  not  entertained.

4. Re Question (b):­

(a) Mr. Mohanty, learned Counsel appearing for the Revenue very fairly states  that  the issue raised herein is concluded against the Revenue and in  favour  of  the  Respondent­ Assessee by the decision of this Court  in  CIT  v/s.  Tara  Jewellers  Pvt.  Ltd., 381 ITR 404.  (b) In  view  of  the  above,  the  question  as  framed  does  not  give  rise to any substantial question of law. Thus, not entertained.

5. Accordingly, Appeal dismissed. No order as to costs.

(A.S.GADKARI,J.)  (M.S.SANKLECHA,J.)