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2015 (6) TMI 1164 - AT - Income TaxTransfer pricing - determination of arm’s length price - selection of comparable - The average mean margin of the 20 comparable companies selected by the TPO was 23.65% whereas the average mean margin of the software development services segment of the assessee was computed by the TPO at 14.07% on total cost. After granting working capital adjustment at 0.11%, the TPO computed the T.P. Adjustment of ₹ 1,23,18,582 to the ALP of international transactions entered into by the assessee in the period relevant to Assessment Year 2008-09. CIT(A) held that since the average margin of these four companies at 24.85% is higher than the average margin of comparables adopted by the TPO at 23.55%, he upheld the margin of 23.55% adopted by the TPO. Held that:- AO directed to exclude Kals Information Systems Ltd. (Seg) from the final set of comparables as it is functionally different from the assessee in the case on hand, who is only a software service provider to its AEs. Application of Related Party Transaction (‘RPT’) filter - Held that:- RPT filter should be considered at 15% of total revenues and companies having RPT in excess of 15% of total revenues are to be excluded from the list of comparables. In this view of the matter, the order of the learned CIT(A) holding that companies are not to be considered as comparables even if they have a single RPT i.e. that the RPT is in excess of 0% is hereby reversed. Power of CIT(A) for enhancement of income - Held that:- Though the CIT (Appeals) has co-terminus power with that of Assessing Officer and can enhance the assessment, however, since he has not issued any show cause notice for enhancement under Section 251(2) of the Act, he cannot reject these two companies from the set of comparables. Therefore to the extent of the rejection of these two companies from the set of comparables, the order of CIT (Appeals) is set aside and the TPO is directed to recompute the ALP after giving effect to the order of the Tribunal in respect of the comparables which are directed to be excluded from the set of comparables. Decided partly in favor of assessee.
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