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AMD Research & Development Center India Private Ltd. Versus Deputy Commissioner of Income Tax,

2015 (6) TMI 349 - ITAT HYDERABAD

Transfer pricing adjustment - reimbursements of expenses by the Appellant to its holding company/associated enterprise ('AE') was against a service which was never received (i.e. in other words a sham transaction/colorable devise to shift cash/profits outside India) - Held that:- Reimbursement of engineering expenses and software license expenses made by assessee-company to ATI Canada was for the benefit derived by the company and is not a case of payment of extra profit/cash to the AE. Vide tha .....

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008-09 i.e., relevant for AY.2009-10 before us, the order of the ITAT indicate the software expenses at NIL and engineering expenses at ₹ 10,76,77,131/-. However, the orders of TPO as considered in this impugned order indicate that amount was at ₹ 17,88,20,166/-. Even though in principle, we agree with the findings of the ITAT with reference to the nature of services being rendered by the said company, we, however, direct the Assessing Officer to examine the amounts involved and reco .....

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ination of ALP, we are of the opinion that this issue has to be restored to the file of DRP for fresh adjudication. - Decided in favour of assesse for statistical purposes. - I.T.A. No. 86/HYD/2014 - Dated:- 4-3-2015 - Shri B. Ramakotaiah, ACCOUNTANT And Smt. Asha Vijayaraghavan JJ. For the Appellant : Shri Raghunathan S. AR For the Respondent : Smt G.Aparna Rao, DR ORDER Per B. Ramakotaiah, A.M. : This is an appeal by assessee preferred against the order of the Assessing Officer passed u/s.143( .....

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s of the case and in law, the Hon'ble Dispute Resolution Panel ('DRP') erred in upholding the action of the Learned Transfer Pricing Officer ('Ld.TPO')/Ld.AO in making a transfer pricing adjustment/addition of ₹ 17,88,20,166/- under section 92CA(3) of the Act. 2.1 That on the facts and circumstances of the case and in law, the Hon'ble DRP/Ld. TPO/Ld. AO erred in not undertaking an independent verification but simply relying on the order dated 28 January 2013 passed .....

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ble DRP/Ld.TPO/Ld.AO erred in not giving credence to the findings in the Order of the Commissioner of Customs, Central Excise and Service tax dated 23 July 2012 in this regard. 2.3 That on the facts and circumstances of the case and in law, the Hon'ble DRP/Ld.TPO/Ld.AO erred in not demonstrating the tax benefit the Appellant derived by such alleged sham arrangement while holding the reimbursement of ₹ 17,88,20,166/- as sham arrangement to repatriate cash/profits to its AE. 2.4 That on .....

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ting the submissions made by the Appellant, have erred in not following the decisions of the Hon'ble Jurisdictional Income Tax Appellate Tribunal laying down the jurisdictional power of a TPO under section 92CA of the Act. 3 On the facts and in the circumstances of the case and in law, the Ld.TPO erred in arriving at ₹ 12,12,82,509/- as an alternate TP adjustment to the international transaction of providing Information Technology/software development ('IT') service! to its AE .....

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law by arbitrarily accepting companies without considering the turnover and size of the Appellant and comparables. 3.4 The Ld. TPO erred in law and on facts in not allowing appropriate adjustments under Rule 1OB to account for, inter alia, differences, with regard to (a) risk adjustment; and (b) depreciation adjustment [i.e. not considering '(profits before depreciation, interest and tax) / (total operating cost excluding depreciation)' as Profit Level Indicator ('PLI') under Tr .....

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I Canada') and works on cost plus mark up arrangement. For the year under consideration, the company filed its return of income on 30-09-2009 disclosing total taxable income of ₹ 96,35,115/. Since assessee has international transactions with its Associated Enterprises [AE], the matter was referred to the Transfer Pricing Officer [TPO], who passed an order u/s.92CA(3) of the Act on 29-01-2013, recommending adjustment of ₹ 17,88,20,166/-. The same was incorporated by the Assessing .....

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rties in this regard. 5. During the assessment year relevant to financial year, assesseecompany made certain remittances to ATI Canada which inter alia includes reimbursement of expenses towards engineering services paid by ATI Canada on behalf of assessee to one M/s. Soctronics India Pvt. Ltd., and towards software license payments on cost to cost basis. Concurrently, there were separate proceedings u/s.195 r.w.s. 201(1) of the Income Tax Act for AYs.2007-08 to 2010-11 initiated by ADIT, (IT)-I .....

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Arm's Length Price [ALP] of the said expenses reimbursed at NIL and proposed an adjustment of ₹ 17,88,20,166/-. 6. The TPO also analysed the assessee's international transactions with AE to an extent of ₹ 98,25,47,908/-. Assessee maintained documentation in terms of Section 92 and for the purpose of bench marking, the international transactions in the nature of provision of IT services, assessee has used Transaction Net Margin Method [TNMM] as the most appropriate method wit .....

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on and arrived at arm's length margin at 23.79% and proposed to make a transfer pricing adjustment amounting to ₹ 11,43,67,597/-. Since assessee made objections with reference to various companies, in the final order the TPO proposed 17 companies whose margin was arrived at 22.03% and proposed alternate adjustment of ₹ 12,12,82,059/-. Since, reimbursement of expending of ₹ 17,88,20,166/- was disallowed and by that reason assessee's ALP has increased, TPO did not make an .....

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,059/- adjusted on account of provision of software services will stand. 7. DRP has confirmed the disallowance on reimbursement expenditure, therefore, it did not adjudicate the working of ALP and the objections on comparables. 8. In the course of present proceedings, it was fairly admitted by the parties before us that the issue of services being rendered by M/s. Soctronics India Pvt. Ltd., for which expenditure was reimbursed was considered by the ITAT vide its order dt.22-10-2014 in ITA Nos.6 .....

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, ground No.2 raised before us on the issue of disallowance of entire reimbursement of expenditure is to be held in favour of assessee. 9. However, we notice from the orders of the authorities and from the order of ITAT that for the Financial Year 2008-09 i.e., relevant for AY.2009-10 before us, the order of the ITAT indicate the software expenses at NIL and engineering expenses at ₹ 10,76,77,131/-. However, the orders of TPO as considered in this impugned order indicate that amount was at .....

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, the disallowance of entire amount does not arise. Ground No.2 is considered allowed accordingly. 11. Now, coming to the issue of ALP adjustment of ₹ 12,12,82,059/-, even though assessee has objected to the inclusion of various comparables, not giving adjustment on account of difference in depreciation policy and other objections with reference to determination of ALP, we are of the opinion that this issue has to be restored to the file of DRP for fresh adjudication. As briefly stated, th .....

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