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2014 (11) TMI 515 - AT - Income TaxTransfer pricing adjustment - Captive software development service provided to AE Risk adjustments - Held that:- AO has allowed 0.5% risk adjustment for various differences while taking the comparability analysis which the CIT(A) increased to 1% - the order of the CIT(A) is upheld Decided against revenue. Inclusion of domestic expenditure as operating expenditure Held that:- The ledger account indicates the total amount spent under various heads is equivalent to the amount transferred to Juno Online - What is the gross expenditure incurred by assessee could not be verified. For example, under the head 'Electricity and Generator' expenses, the ledger account of power expenses indicates expenditure from 8th April, 2002 to 9th January, 2003 to the extent of ₹ 29,93,214 - The entire amount has been shown towards Juno Online recovery. Likewise, generator charges at page 80 from 11th April, 2002 to 16th January, 2003 were shown to have been paid to Sunil Service Station amounting to ₹ 78,806 and the entire amount has been shown to be recovered from Juno Online - Total generator expenses/power charges were not placed before us so as to examine whether 50% of the expenditure was only charged to Juno recoveries and not 100% - in order to examine the nature and extent of expenditure and the vouchers therein, the matter is remitted back to the AO for examination of nature of expenditure and if the expenditure was spent on behalf of Juno Online, then the expenditure not recovered from the said company has to be excluded Decided in favour of assessee. Option of +/- 5% - Held that:- There is no need to make any claim of the statutory provision - In case ALP determined after due analysis is within +/- 5% range as provided in the proviso to section 92C(2) - AO/TPO is bound to give the benefit to the assessee - There is no need to make any separate claim - Since assessee has shown ALP within the range, there is no requirement of making a claim in its T.P. study, CIT(A) erred in observing that assessee has not made the claim before the TPO - TPO/AO is directed to keep this statutory provision in mind while arriving at the addition, if any, required - this +/- 5% is not a standard deduction but if ALP so determined is within the range of this +/- 5% from assessee's margin, then the benefit as provided in proviso should be given to assessee Decided in favour of assessee. Determination of ALP Held that:- TPO mentions margin on sales of E. Star at 27.24% and margin on cost at 32.82%.- the basis for arriving at those figures are not available - operating cost was arrived at ₹ 19.04 crores and operating profit at ₹ 4.81 crores thereby, OP/OC at 25.28% - Since, there is a substantial variation between the margin computed by assessee vis-ΰ-vis computation by TPO, this aspect requires re-examination by TPO/AO - The TPO/AO should examine how the margin on cost was arrived at and give an opportunity to assessee to file its objections and then arrive at the correct margin on cost, so as to include the same in arriving at the ALP Decided in favour of assessee. Selection of comparables - M/s. Zen Technologies Ltd. Held that:- The company is not functionally comparable as the company is in manufacturing/product service and is also involved in research and development - Its employee cost was only 3% - company paid excise duty/VAT - assessee's objection that it is functionally different is to be accepted. Whatever may be the reason, CIT(A) has correctly excluded the same from the list of comparables the order of the CIT(A) is upheld Decided against revenue.
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