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In
Symantec
Transactional Method
Net
Margin is
the use of data relating to other than the financial year in which the international transaction has been entered into; being not more than two years prior to such financial year does not mean that one can insist on the use of multiyear data but it has a limited role only when the data of earlier years reveal facts
software Solutions Pvt Ltd vs. ACIT (ITAT Mumbai) case The assessees appeal raised the issues whether (i) the TPO could consider of
(TNMM)
adopted, the comparison has to be made between the net margin realised from the
operation of the uncontrolled parties transaction and net margin assessee international derived on by the
financial
information
comparables not available at the time of TP study, (ii) multi-year comparables data could of be
similar transactions.
The comparison should be between the net margins on transaction basis and not at enterprise level;
considered, (iii) a turnover filter had to be applied for identification of comparable companies, (iv) an
which could have influenced on determination of the TP in relation to the transaction being compared. As the
adjustment for difference in functional and risk profile of comparable companies vis-vis of the assessee had to be made and (v) the amendment of +/-5% variation law was retrospective. HELD by the Tribunal:
(ii) U/s 92CA(3), the TPO is entitled to consider material in public domain which, though not available to the assessee at the time of the TP study, is relevant for the financial year;
assessee has not made out a case that taking the data for only the current financial year will not present the correct and fair financial result of the comparables, the claim for multi-year data cannot be entertained;
(iii) Ordinarily only the data (i) The burden of proving that the transactions with the AE is at arms length is on the assessee. If the pertaining to the financial year of the transaction can be considered. The proviso to Rule 10B (4) which permits (iv) While in principle, an of comparables abnormal turnover having difference and
distorted
operating profits have to be excluded for determining the ALP, the claim that as the assessee revenue is about Rs. 20 crores, comparables
turnover and low margin are necessity competitive survive. of the highly to low
assessee has not brought on record how such functional difference and risk has
market Similarly,
having more than 50 crores and less than 5 crores of turnover should be excluded is not acceptable because no specific fact has been
quantified data. Further, the +/-5% adjustment as the 2nd Proviso to s. 92C is intended to adjust for such differences;
competitive
market
condition. Therefore, unless and until it is brought on record that the turnover of such comparables has undue influence on the margins, it is not the general rule to exclude the same that too when the comparables are selected by the assessee itself;
brought on record to show that due to the difference in turnover the comparables
(vi)
The
argument
amendment by FA 2009 w.e.f. 1.10.2009 to the 2nd Provio to s. 92C with regard to the +/5% variation from the
principle practice
arithmetic mean of the ALP (v) The argument that an adjustment should be made for difference in function and risk level is not the is clarificatory and and so
competitive
condition, one can survive and sustain only by keeping low margin but high high
procedural
turnover.
Thus,
acceptable
because
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