Brief of the case:
In this case of Trend Micro India Pvt. Ltd. Vs. DCIT Delhi Bench of ITAT observed that whether revenue can argue against the order passed by AO in pursuance to the directions of DRP. The ITAT held that it is not permissible to argue any issue decided by AO by DR before tribunal. Only ITAT can voluntarily direct AO to reconsider the correctness of the companies in the list of comparables. ITAT held that if the AO/TPO has chosen a company as comparable, which has been directed to the excluded by the DRP, then an appeal can be filed against the assessment order on such exclusion. The power to file appeal does not extend to the selection of a company as comparable by the AO/TPO himself which has remained intact even after the direction given by the DRP.
Facts of the case:
- Assessee is primarily engaged in providing pre-sales and post-sales services, marketing and other technical services to the clients on behalf of its associated enterprise (AE), namely, Trend Taiwan. For this purpose assessee entered into support agreement which is valid for three years. The assessee also imports certain services from its AE.
- As per the Agreement, the assessee desires to provide pre-sales and after-sales services, marketing, financial and technical support services to Trend Taiwan in the specific areas of computer and network security. Further, the assessee is remunerated with the actual costs incurred plus a mark-up of 10%.
- Four international transactions were reported in Form No.3CEB which include `Rendering of services’ with the transacted value of Rs.15,34,24,161/- and ‘Services received’ with the transacted value of Rs.1,07,15,985/-.
- The AO referred the determination of the arm’s length price (ALP) of the international transactions reported by the assessee to the Transfer Pricing Officer (TPO).
- The TPO accepted other international transactions at ALP except ‘Rendering of services’.
- The assessee employed Cost plus method as the most appropriate method for demonstrating that the international transaction of `Rendering of services’ was at ALP.
- The TPO rejected the application of the Cost plus method and also the use of multiple year data. He applied the Transactional Net Margin Method (TNMM) as the most appropriate method with the use of current year data alone.
- The assessee has not challenged either the application of TNMM as the most appropriate method or the use of current year data alone.
- In so far as the transaction is concerned, the assessee had selected four companies as comparables in its transfer pricing study report. The TPO rejected all these companies and selected nine new companies as comparables.
- By applying this ALP margin of 23.25%, the TPO worked out the ALP of the international transaction of `Rendering services’ at Rs.17,14,94,190/-. That is how, he proposed transfer pricing adjustment of Rs.1,80,70,029/-.
- The assessee assailed the correctness of the draft order, containing the effect of the TPO’s order, before the Dispute Resolution Panel (DRP) who allowed certain relief.
- In the final assessment order passed by the AO, an addition of Rs.1,70,26,454/- was made on account of transfer pricing adjustment.
- Total nine companies were taken by the TPO as comparable. Initially, the assessee objected to the inclusion of five companies out of such nine, but later on, such claim was restricted to three companies.
- It was also seen that during appellate proceedings DR tried to accentuate on the functional dissimilarities of the remaining four companies out of nine held as comparable by TPO.
Contention of the revenue:
