2011 (9) TMI 634 - AT - Income Tax

Transfer pricing - computation of the net margin of the assessee for the purposes of transfer pricing - total cost of the assessee (including the cost of transactions with non-AEs) taken-bad debts/reimbursements, foreign exchange fluctuation taken into account - Held that:- Arms Length Price for the international transactions with associated enterprises should be determined considering only the operating cost (i.e. excluding bad debts/ reimbursements) allocatable to the Associated Enterprises segment and not the total cost of the assessee. Further, though exchange rate fluctuation should be considered while such computation but in present case there is no justification for any adjustment on account of foreign exchange fluctuation to the Price declared by the assessee since the assessee’s margin would fall within the Arms Length range. All other grounds raised related to software development services are disposed off. Decided in favor of assessee.

Interest on loans provided to its AEs - Held that:- The comparable, in respect of foreign currency loan in the international market, is to be LIBOR based which is internationally recognized and adopted. In view of this matter, matter is remitted back to the file of the assessing officer to verify the actual average LIBOR prevailed in the financial year relevant to the assessment year under consideration. Partly allowed in favor of assessee for statistical purpose.

Corporate guarantee provided to banks on loans taken by its subsidiary - Held that:- The corporate guarantee provided by the assessee company does not fall within the definition of international transaction. In the absence of any charging provision, the lower authorities are not correct in bringing aforesaid transaction in the TP study. Thereby no TP adjustment is required. Decided in favor of assessee.

Exclusion of communication charges and implementation expenses from the export turnover and further not reducing the same from the total turnover for the purpose of computation of benefit under section 10A of the Act - Held that:- The telecommunication charges and implementation expenses incurred by the assessee company, which has been excluded by the assessing officer from export turnover, has to be excluded from the total turnover also, while computing the admissible deduction 10A of the Act. Decided in favor of assessee.

Dis-allowance of expenditure under section 14A of the Act - Held that:- The issue is restored to the file of the assessing officer to rework the dis-allowance on reasonable basis in accordance with the ratio laid down by the aforesaid judgment. Allowed in favor of assessee for statistical purpose.