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TMI Blog2013 (10) TMI 766X X X X Extracts X X X X X X X X Extracts X X X X ..... red in proceeding to compute the arm's length price of the transaction relating to the reimbursement of expenses to Eaton UK without appreciating that the assessee has permanently disallowed these expenses as explained in Ground 1 above and thereby resulting in no erosion of tax base. 3. The Ld. DRP/AO erred in determining the arm's length price of the transaction relating to reimbursement of expenses to Eaton UK as Nil." 3. Facts of the case, in brief are that the assessee is engaged in providing customer support service activities including pricing analysis, technical support and application engineering services and business support services to Eaton Group of Companies outside India. The Global Support Service Centre (GSSC) owned by the assessee renders customer support services. This centre is approved under the STPI Scheme and assessee has claimed deduction u/s.10A of the I.T. Act, 1961. The assessee filed e-return for A.Y. 2007-08 on 15-11-2007 declaring total income of NIL. The same was processed u/s.143(1) and the case was selected for scrutiny for which notice was issued on 17-09-2008. Subsequently the assessee filed a revised e-return on 16-01-20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Eaton Ltd. UK with regard to expenditure incurred for setting up of the Asia Pacific Shared Services Centre (APSSC) is concerned the TPO noted that this being an international transaction should have been benchmarked but the assessee has not done the same inspite of opportunity given. He noted from the details of expenses given in the various submissions filed by the assessee from time to time that the expenses are pre-operative in nature and the assessee was unable to show that any corresponding services have been received against such payments. He, therefore, confronted the same to the assessee. It was submitted that the assessee has made payment during the year amounting to Rs. 7,42,20,575/-to M/s. Eaton Ltd. UK on account of certain pre operative expenses in connection with setting up of a new business unit, the details of which are as under : Sr. No. Nature of expenses Basis of charge Amount Rs. 1 Travelling and Conveyance Actual cost incurred 15,582,180 2 Legal and Professional Consultancy Charges Actual cost plusmark-up of 8% 1,698,004 3 IT Charges Actual cost plusmark-up of 8% 12,749,200 4 Software Implementation Costs Actual cost plusmark-up of 8% 44,1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowing the above expenses along with certain other expenses to the tune of Rs. 16,70,72,117/- the loss figure was transformed to profit. Hence the disallowance of the said expenses has not in any way made an adverse impact for the assessee. On the contrary, the assessee has taken undue advantage in this respect by claiming exemption u/s.10A and there is no need for the assessee to claim the said expenses in subsequent years. Since the assessee could not demonstrate by any evidence/document that it has received any corresponding services from its AE during the year and since the international transaction has not been benchmarked the TPO was of the opinion that the cost incurred by the AE in rendering the said services is not known. He, therefore took the value of the international transaction amounting to Rs. 7,42,20,575/-entered into with the AE on account of the above said expenses as NIL and increased the income of the assessee by the above amount for this year. 8. On the basis of the report of the TPO, the Assessing Officer passed the draft assessment order which was challenged by the assessee before the DRP. However, the DRP also rejected the contention of the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; "55.5A The new provision is intended to ensure that profits taxable in India are not understated (or losses are not overstated) by declaring lower receipts or higher outgoings than those which would have been declared by persons entering into similar transactions with unrelated parties in the same or similar circumstances. The basic intention underlying the new transfer pricing regulations is to prevent shifting out of profits by manipulating prices charged or paid in international transactions, thereby eroding the country's tax base. The new section 92 is, therefore, not intended to be applied in cases where the adoption of the arm's length price determined under the regulations would result in a decrease in the overall tax incidence in India in respect of the parties involved in the international transaction". 9.2 Referring to the decision of Hon'ble Delhi High Court in the case of Sony India (P) Ltd. v. CBDT reported in 288 ITR 52 (Delhi) he submitted that the circular issued by the CBDT is valid. He reiterated that the assessee has neither claimed the amount as an expenditure nor even capitalised the same and has not claimed depreciation on it and it is a dea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that the assessee has made payment of Rs. 7,42,20,575/- to Eaton Ltd. UK with regard to expenditure incurred on set-up of the Asia Pacific Shared Services Centre. According to the revenue the above transaction between the assessee and Eaton Ltd. UK, an associated enterprise, falls within the definition of international transaction and since the assessee could not demonstrate with evidence to the satisfaction of the AO/TPO regarding the nature of services rendered by Eaton Ltd. UK and in absence of any bench marking done by the assessee the value of such international transaction has to be taken at NIL. It is the argument of the learned counsel for the assessee that the assessee has made suo-moto disallowance of the above expenditure in the computation statement during the impugned assessment year and no benefit whatsoever has been taken by the assessee either by capitalising the same and claiming depreciation on it nor has taken benefit in subsequent years, therefore, the provisions of section 92(1) and 92C are not applicable. According to the learned counsel for the assessee there cannot be double disallowance/addition of the same amount. It is also the submission of the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Profits of the business 46,900,153 B. Export Turnover 102,223,383 Less : Telecommunication charges 2,047,054 C. Total turnover 102,223,383 Less : Telecommunication charges 2,047,054 100,176,329 D. Tax holiday under section 10A (as per the certificate attached) (A*B/C) 46,900,153 From the above, it is clear that the assessee has not claimed any benefit of deduction u/s.10A on account of disallowance of any of the expenditure disallowed forming part of Rs. 7,42,20,575/-. 14.2 We find the provisions of section 92 read as under : "92. (1) Any income arising from an international transaction shall be computed having regard to the arm's length price. Explanation.-For the removal of doubts, it is hereby clarified that the allowance for any expense or interest arising from an international transaction shall also be determined having regard to the arm's length price. (2) Where in an international transaction or specified domestic transaction, two or more associated enterprises enter into a mutual agreement or arrangement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to added the amount while computing its taxable income for the impugned assessment year and no benefit of the same has been taken either by capitalising it and claiming depreciation on it or taken benefit in subsequent years. In this view of the matter, the order of the Assessing Officer on this issue is set-aside and the grounds raised by the assessee are allowed. 15. Grounds of appeal No. 4 to 7 by the assessee are as under : "4. The Ld. DRP/AO erred in proposing a transfer pricing adjustment of Rs. 6,51,967 for international transactions pertaining to provision of business support services. 5. The Ld. DRP AO erred in not recognizing the differences in the risk profile of the appellant and the comparables and thereby erred in not making reliably accurate adjustments for such differences as required under the law for comparability analysis. 6. The Ld. DRP/AO erred in not granting the benefit of plus / minus 5 percent range as envisaged by the proviso to Section 92C(2) of the Act. 7. The Ld. DRP/ TPO erred in using data which was not available to the appellant at the time of conducting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmly affected by business and product cycles and therefore differences between dealings may reflect differences in circumstances. Therefore, it was submitted that multiple year data will improve the reliability of transfer pricing analysis. Further, the same is useful in providing information about the relevant business and product life cycles of the comparables. It was further submitted that multiple year data will help to overcome the differences in accounting standards and practices adopted by the enterprise as such differences, if any, will annul over a period of time when the period under examination is long enough. The assessee also submitted that the OP/TC margin for one of the comparables, i.e. ICRA Online Ltd. using only F.Y. 2006-07 data is 64.42% as against the corresponding margin of 16.72% as mentioned in the TP report. It was further argued that irrespective of the use of single year data, on account of the difference between the risk profile of the assessee and its comparables the risk adjustment should be granted. 17. However, the TPO was not satisfied with the explanation given by the assessee. According to him the net profit margin arising in comparable uncontrol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which includes market research and analysis on the Groups high-end markets, analyse financial reports, analysis of competitive intelligence documents, financial analysis for decisions on mergers and acquisitions, creating acquisition proposals etc in India. ETPL is remunerated on the basis of a mark-up of 8% on cost for the business support services provided to Eaton Corporation. During the year under review, ETPL has also provided customer support services to Eaton Corporation. These have been analysed in a separate report." 19.1 Referring to Page 13 of the Paper Book the learned counsel for the assessee drew the attention of the Bench to the functions performed by ETPL, the details of which are enumerated at Para 4.3.6 and 4.3.7. Referring to Page 32 of the Paper Book the learned counsel for the assessee drew the attention of the Bench regarding the determination of Arm's Length results on the basis of 4 comparable companies, the details of which are as under : Sr. No. Name of Company Data source Mark-up on Total Cost 1 Agrima Consultants International Ltd. P -2.42% 2 I D C (India) Ltd. P 13,16% 3 Crisil Ltd. P-seg 16.44% 4 ICRA Online Ltd. (Information Servi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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