TMI Blog2012 (8) TMI 326X X X X Extracts X X X X X X X X Extracts X X X X ..... correct. Further, TPO finally chose 33 uncontrolled comparable cases on the basis of their revenues from IT/ITES and the companies in fact are those which appear to be exclusively engaged in rendering IT/ITES. It is manifest that the service fee charged by the assessee from international transactions with its AEs is more than the ALP determined by applying the PLI as found out by the TPO and hence no addition/adjustment is called for. We, therefore, order for the deletion of addition - Decided in favor of assessee - ITA No.9032/Mum/2010 - - - Dated:- 20-6-2012 - Shri R.S.Syal, AM And Shri Vivek Varma, JJ. Appellant by : Shri Percy Pardiwala Ms.Aarti Sathe Respondent by : Shri Ajeet Kumar Jain O R D E R Per R.S. Syal, AM : This appeal by the assessee is directed against the order passed by the DCIT u/s 143(3) read with section 144C(13) of the Income-tax Act, 1961 (hereinafter called the Rs.Act ) on 07.10.2010 in relation to the assessment year 2006-07. 2. The major issue in this appeal is against the confirmation of addition of Rs.8,86,68,683 on account of transfer pricing adjustment u/s 92CA(3) of the Act. Briefly stated the facts of the case are tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... average for computing PLI of Operating profit/Total cost of comparable companies, which was not in accordance with rule 10D(4). In his opinion, the requirement was to adopt the relevant year s financials alone. During the course of proceedings before the TPO, it was stated on behalf of the assessee that even going by the internal comparables, it earned OP / TC margin of 16.77% from its AEs, which was higher than its OP / TP margin of 10.80% from its non-AEs, warranting no adjustment. The assessee also furnished its updated margin of comparable companies on the basis of Transfer Pricing report for financial year 2005-2006 alone at 17.36%. The TPO observed that the price charged by the assessee for providing IT / ITES was not determined in accordance with the provisions of section 92C(1) and (2). He noticed that the type of services offered to AEs were not the same as those offered to non-AEs and hence the comparison of margins between AEs and non-AEs was irrelevant. The assessee was specifically asked to clarify whether all the services rendered by it were in the nature of software development or in the nature of ITES. The assessee submitted that its service to AEs as well as non- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , making addition of Rs.8.86 crore u/s 92CA(3). When the matter came up before the Dispute Resolution Panel (hereinafter called Rs.DRP ), the assessee raised various objections. Not convinced with the assessee s submissions / objections, the DRP vide its order dated 28.09.2010 confirmed the adjustment of Rs.8.86 crore. The A.O. in his final order passed on 07.10.2010, made the addition for Rs.8.86 crore accordingly. The assessee is aggrieved against this addition made by the AO in his order passed u/s 143(3) r.w.s. 144C(13). 5. We have heard the rival submissions and perused the relevant material on record. From the facts recorded above it is discernible that the assessee entered into international transactions with its AEs and also non-AEs. It earned revenue totaling Rs.105.41 crore from IT / ITES split into two parts viz. Rs.31.59 crore from AEs and Rs.73.81 crore from non-AEs. From Table-A above, reproduced from the TPO s order, it can be seen that the assessee incurred total cost of Rs.93.68 crore, the detail of which is available on page 147 of the paper book. The total cost in relation to international transactions with the AEs comes to Rs.27.06 crore as against with the no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in total, which again comprises of 16.77% from its international transactions with AEs and 10.80% from the transactions with non-AEs. That is how the TPO considered the transactions both with AEs and Non-AEs for the purpose of recommending adjustment of Rs..8.86 crore. 7. It is axiomatic that the transfer pricing adjustment can be made only with reference to the international transactions with the AEs and not non-AEs. Special provisions relating to the computation of income from international transactions were introduced through sections 92 to 92F by the Finance Act, 2001 with a view to provide a statutory frame work which can lead to the computation of reasonable profits and taxes in India in case of international transactions between enterprises of a multi-national group. The object of these provisions is to ensure that the transactions between two AEs are not arranged in such a manner so as to reduce the incidence of tax due in India. Such object is achieved by determining ALP as per the relevant provisions of the Act, which is then compared with the price at which international transactions are actually entered into and recorded in the books of account. The difference between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t total cost at 12.53% in aggregate and 16.77% on international transactions with AEs and 10.80% on transactions with non-AEs, was not available before the TPO. He also raised another objection by arguing that the final list of 33 comparable cases drawn by the TPO comprised of two sets of comparable cases, viz., one set of entity level cases and the other set of segment level cases. He argued that the profit margin of 21.99% was determined by the TPO by considering not only the revenues from IT/ITES in relation to some of these comparable companies but also from the figures of entity in relation to other comparable cases. It was accentuated that there was a dire need to restore the matter to the file of TPO for a fresh determination of PLI by considering only those comparable cases which involve IT/ITES, thereby excluding the non-ITES revenues from the other set of comparables. 10. We are not convinced with the submissions put forth on behalf of the Revenue. Insofar as the first contention, regarding non-availability of statement showing separate profit margins from transactions with AEs and non-AEs before the authorities below, is concerned, it is found that the TPO has taken no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opted in respect of IT/ITES segment alone. It can be observed from the earlier parts of the TPO s order that he confined himself only to IT/ITES for the purposes of bench marking. In such a case, there could have been no question of the TPO embarking upon the figures in relation to non-IT/ITES segments of some of the comparable cases as chosen by him. Apart from making a general statement that the TPO also considered the figures from non-IT/ITES segments in some of the comparable cases, no material has been placed on record to substantiate this argument. If the ld. DR was confident of his viewpoint canvassed by him, then he should have brought on record the figures of some of such companies to demonstrate that the TPO committed mistake, which warranted fresh appraisal. We, therefore, do not find any force in the submission advanced by the learned Departmental Representative on this issue. 12. From the above Table-B, it is manifest that the service fee charged by the assessee from international transactions with its AEs is more than the ALP determined by applying the PLI as found out by the TPO and hence no addition/adjustment is called for. It is imperative to note that the above ..... X X X X Extracts X X X X X X X X Extracts X X X X
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