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TMI Blog2013 (2) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... e-laws on which he relied upon have not become final and the matter is in appeal before the High Court." 3. In ground No.2, which is the first effective ground in this appeal, the Department has challenged the decision of the CIT(A) in not sustaining the addition made on the basis of the Arm's Length Price(ALP) determined by the Transfer Pricing Officer(TPO). The factual matrix of the case as emanate from the record are that the assessee, a private limited company, has set up a 100% export oriented unit under the software technology Park of India(STPI) at Hyderabad. The assessee is a wholly owned subsidiary of CBay Systems Ltd., USA, which is the holding company. The main object of the assessee company is to provide IT-enabled health care services to its parent company as well as to other overseas customers. The assessee commenced its trial operations in medical transcription from October, 2003. The assessee also has facility to train graduates and post graduates in medical transcription for inducting into their unit or in its associate units. For the impugned assessment year, the assessee filed return declaring its income at NIL. During the scrutiny assessment proceedings, the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts AE during the previous year. In this regard, the assessee furnished the copy of the agreement entered into with its AE and also the copies of the bills issued to the AE during the relevant period. The assessee also submitted copies of the agreements entered into by its AE with two other Indian companies viz. M/s. ELICO Ltd, M/s. Shaster Technologies P. Ltd. showing rate of 0.063 US$ per line of medical transcription during the previous year. The assessee also submitted the copies of the agreement entered into between the assessee and the three other overseas companies, i.e. Ariel Ventures LLC, USA, Medscribe USA and Medwrite USA, as per which the assessee has charged them at 0.06 US$, 0.0575 US$ and 0.05US$ per line of medical transcription during the previous year. On the basis of the price indicated in the foresaid agreement, the assessee submitted before the TPO that the rate of Rs. 0.63 US$ per line of medical transcription received by it from its AE is within the Arms Length. 4. The TPO however, did not accept the submissions of the assessee By noting that though the assessee furnished copies of the agreements entered into by its AE with M/. Shaster Technologies Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e absence of required particulars and the details of revenue generated from the medical transcription, it cannot be said that the rate of 10.05 US$ per line of medical transcription is an uncontrolled rate. So far as reliance made by the assessee with three other overseas companies, Ariel Ventures LLP, USA, Medscribe USA and Medwrite USA, the TPO noted that in the absence of annual reports and other details in respect of those companies furnished by the assessee, those companies cannot be accepted as comparables for the purposes of CUP method adopted by the assessee company. The TPO noted that in the CUP method adopted by the assessee, the data relating to rate charged per line of transcription and number of lines done were not available in public domain with respect to independent enterprises and as such the uncontrolled transaction rate per line of transcription is not available to benchmark the assessee's actual rate. The TPO referring to para 2.9 of the OECD guidelines noted that the CUP method can be applied provided none of the differences between the transactions being compared affects the price in the open market, and reasonably accurate adjustment can be made to eliminate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dding an amount of Rs. 1,70,51,255 to the income, on account of ALP difference. 6. The assessee aggrieved by such addition filed appeal before the CIT(A). In the course of hearing before the CIT(A), the assessee submitted that it has entered into international transaction with its holding company for rendering medical transcription services in terms with an agreement executed on 29.9.2003. Apart from providing services to the holding company, the assessee also provides ITES enabled health care services to other overseas customers as per the agreed terms and conditions. As per the terms of the agreement with the holding company, for the services rendered by it to the holding company, the holding company will pay consideration at the rate of 0.05 US$ per line typed. In addition to that, the assessee also gets enhanced payment depending upon the quality of service rendered. The assessee in its transfer pricing study, considering the nature of services rendered and availability of data has applied CUP method as the most appropriate method for computing the ALP for its international transactions. The assessee submitted that while computing the ALP, it has considered both internal compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding company CBay Systems Ltd USA to two other Indian companies, viz. ELICO Ltd. Hyderabad and M/s.Shaster Technology P. Ltd. Hyderabad for availing similar services from them, as have been rendered by the assessee to its AE during the financial year 2004-05. The assessee has further compared with the price charged by it to three other overseas companies, namely, Ariel Ventures LLC, USA, Medscribe USA and Medwrite USA for rendering similar services as rendered to its AE. From the documents submitted before him like the bills raised, agreements, etc. the CIT(A) found that the two Indian companies, namely, ELICO and Shaster Technologies Ltd. were also providing medical transcription services to the Cbay Systems USA at the same terms and conditions as applicable to the assessee, and at a price of 0.05 US$ per line of transcription. The CIT(A), after thoroughly examining the terms and conditions of the assessee with its AE and the AE with other companies in India, found that the international transactions relating to provision of medial transcription services made by the assessee with its AE CBay Systems USA during financial year 2004-005 are fully comparable with such transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpanies found that the services rendered by the assessee for medical transcription to those companies are similar to those rendered by it to its AE and the price charged at the rate of US$0.06 per line of medical transcription in case of Ariel Venture LLC and at the rate of US$0.05 per line in the case of other two companies, Medscribe USA and Medwrite USA are similar to the price charged by the assessee from its AE, CBay Systems USA for similar medical transcription services rendered by the assessee during the financial year 2004-05. The CIT(A), after considering the agreement by the assessee with the AE and also with the overseas companies as well as the agreements by the AE with the Indian companies, the price charged by the assessee to its AE and the price charged by the other Indian companies to the AE and also the price charged by the assessee to the other overseas customers, held that they can be considered for the purposes of comparative analysis for determining the ALP of the international transactions made by the assessee with its AE. The CIT(A), after comparing the price charged by the assessee to its AE with the price charged by the assessee to the overseas customers an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from the external comparables and therefore, the allegation that the relevant data is not submitted is without any basis. The learned Authorised Representative for the assessee referring to para 5.8 of the order of the CIT(A) submitted that all relevant materials with regard to the external as well as internal comparables were provided to the TPO. The learned Authorised Representative for the assessee ultimately submitted that when comparables in respect of uncontrolled transactions are available, the CIT(A) was justified in holding that the CUP method adopted by the assessee is correct and in accordance with the guidelines of the OECD and the IT Rules and the price charged by the assessee to its AE is within the Arms' length. 11. We have heard the rival submissions and perused the materials on record. The facts of the case have been exhaustively dealt with by the CIT(A) in his order. It is a fact on record that the assessee has adopted the CUP method for computing the Arms' Length Price for the international transaction entered into by it with its AE for the medical transcription service rendered by it to the AE. In this regard, the assessee has considered two external comparab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has submitted before the TPO that it has applied the CUP method after comparing the functions performed and the risks undertaken by each entity involved in the inter-company transactions. The TPO has brushed aside the objections of the assessee by simply observing that the assessee has not provided quantitative details with reference to the unrelated comparables. However, such finding of the TPO is again not correct, considering the fact that the assessee has furnished all the relevant information/data, requisitioned by the TPO from time to time. This fact is very much evident from para 1.1 of the order of the TPO itself. Therefore, the finding of the TPO that the assessee has not given the quantitative details is without any basis. It is a matter of fact that the assessee has submitted the agreements between the assessee and its AE as well as the agreements entered into by the AE with the other Indian companies and the agreements between the assessee and its other overseas customers. The assessee has also submitted bills raised and the prices charged for each line of medical transcription work by the assessee to its AE and by the Indian companies for the services rendered to CB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red towards communication charges is to be excluded from the export turnover, the same is also to be excluded from the total turnover for computing the exemption under S10 A of the Act. The assessing officer did not accept the contention of the assessee. The assessing officer interpreting the term 'export turnover' as defined in clause (iv) of Explanation (2) to S.10A, came to the conclusion that the communication charges amounting to Rs. 15,21,721 has to be excluded from the export turnover for working out the exemption under S.10A of the Act. 14. The assessee challenged the aforesaid action of the assessing officer in appeal before the CIT(A). In the course of hearing before the CIT(A), assessee contended that the assessing officer was not justified in deducting the communication charges from export turnover, while at the same time treating the same as part of total turnover for determining the exemption under S.10A. The CIT(A), considering the contentions of the assessee, though agreed with the view of the assessing officer that expenditure incurred towards communication charges, cannot form part of export turnover and as such communication charges have to be excluded from the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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