Amit Shukla, Member (J) -
(1.) THE aforesaid appeals have been filed by the assessee against the two separate impugned final assessment orders dated 25.12.2011 for the assessment year 2008 -09 and 30.1.2014 for the assessment year 2009 -10, passed in pursuance of directions by the Dispute Resolution Panel (DRP). Since issue involved in both the these appeals are common, arising out of similar facts, therefore, were heard together and are being disposed off by this consolidated order, for the sake of convenience.
(2.) TO understand the implications of facts and issues involved, we will take up the appeal for the assessment year 2008 -09, vide which following grounds of appeal have been taken:.
"1. A) The Transfer Pricing Officer (TPO)/Assessing Officer (AO) has erred in law and on facts in making addition of Rs. 8,04,58,874/ - by adopting Indian comparables as comparables for benchmarking international transactions of provisioning of services to Tata Motors Ltd. ("TML").
B) The TPO/AO ought to have accepted benchmarking carried out by the assessee and selection of UK companies as comparables for benchmarking the international transactions of the company considering the facts of the case of the appellant.
C) The TPO/AO has erred in law and on facts in disregarding that in the previous assessment year, department has accepted and considered UK companies as comparables for the purpose of benchmarking of international transactions and hence the AO/TPO should have followed the same as there is no change in the facts of the case.
2. Without prejudice to Ground No. 1 above,:
A) The TPO/AO has erred in law and on facts in cherry picking 7 Indian companies as comparables which are functionally not comparable with the appellant.
B) The TPO/AO has erred in law and on facts in picking up companies with high margin instead of following detailed, systematic and methodical search process.
C) The learned TPO/AO has erred in law and on facts in non granting Opportunity of cross examining the comparables selected by the TPO/AO.
The learned TPO/AO has erred in law and on facts in not granting credit of TDS of Rs. 11,79,35,990/ -out of total TDS credit of Rs. 12,06,64,360.
(3.) THE learned TPO/AO has erred in law and on facts in levying interest under section 234B of the Act of Rs. 1,77,76,885.
The learned TPO/AO has erred in law and on facts in levying interest under section 234C of the Act of Rs. 10,878/ -"
3. Brief facts qua the issue relating to Transfer Pricing Adjustment of Rs. 8,04,58,878/ - are that, the assessee, Tata Motor European Technical Centre PLC (TMETC) is incorporated in the United Kingdom (UK) and is resident of UK. The assessee is having technical expertise of Automotive Industries of European Standards, and is wholly owned subsidiary of Tata Motors Ltd. (TML). The TML entered into design and engineering service agreement with the assessee for providing design, engineering, testing and validation, research and development of automobiles, including programme management for the automotive and aerospace industries. For rendering these services for the TML, the assessee sent its employees in India by deputing engineers and technical personnel at TML's factory/establishment in India. Thus, the assessee had a Service PE in India. The assessee, for rendering design and engineering services for TML during the year, had received an amount of Rs. 31,98,72,720/ - and the operating profit for the year was shown in the following manner:
In the TP study report, for the purpose of benchmarking its transaction and the margin, the main factors which were taken into account were that, the design and engineering services for automotive industries is highly Specialized services and considering the nature of automotive industries in terms of global standards, competition and growing compliance requirements towards safety and environmental norms, the parallels are not available in India. The other factors for consideration were that, as against the operation cost incurred by the PE, the major portion was towards the salary of the employees who had special skills and knowledge and were paid salary in UK only. The PE did not had any independent business in India and it does not enter into any contract with outside party in India. Considering these factors and FAR analysis which was effected by demographic and economic factors in UK, the assessee searched for UK comparables rendering similar kind of services in UK. Thus TMETC (i.e. the assessee) was taken as tested party for benchmarking the ALP. Based on FAR analysis and by adopting TNMM as the most appropriate method and PLI as OP/TC, the assessee selected four overseas comparables located in UK to benchmark the Arm Length Price of the transactions with the AE i.e. TML, which were as under:
Since, for the year 2007 the average profit margin of the comparables was arrived at 10.34%; therefore, the assessee's profit margin being at 9.28%, was stated to be at Arm's Length range.
4. The Transfer Pricing Officer (TPO) though accepted the TNMM method and the PLI employed by the assessee for determining the ALP of its international transactions, however, completely disagreed with the selection of foreign comparables based in UK, as he held that it is not tenable under the Indian Transfer Pricing Rules and provisions. His other reasoning was that, that since the PE of the assessee is located in India and carrying out its business within the Indian territory, therefore, it should be treated as business entity in India, akin to the other corporate entities doing business in India. Further assessee's direct and indirect cost are incurred in and in connection with business transactions in India and therefore, Indian comparables should be selected for benchmarking the assessee's margin. The TPO, hence selected 7 Indian comparables having average mean margin of 36.77% which are as under:
In response to the show cause notice, the assessee gave detailed submissions justifying the selection of foreign comparables, which have been incorporated by the TPO at para 8 of his order. Assessee' contention has been rejected by him in detail, as per the discussions appearing at pages 5 to 9 of the order and accordingly, he benchmarked the assessee's margin with the mean profit margin of the 7 Indian comparables and made adjustment of Rs. 8,04,58,874/ - in the following manner:;