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Income Tax Officer, Ward 11 (3) , New Delhi Versus M/s ICC India Pvt. Ltd.,

2015 (10) TMI 1077 - ITAT DELHI

Transfer pricing adjustment - upward adjustment of Arm’s Length Price of the Internation Transaction - CIT(A) deleted the two comparables, namely, M/s Datamatics Technologies Ltd. and Infotech Enterprises Ltd. on the ground that these companies had substantial related party transactions - Held that:- The law is fairly well settled to the extent that the companies having in related party transactions more than 15% cannot be considered as comparable. But in the present case, though the CIT(A) adop .....

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red opinion that the interest of justice would be met, if the matter is restored to the file of the Assessing Officer for the verification of this issue, after affording reasonable opportunity of being heard to the assessee company. If it is found on verification that the ratio of related party transactions is more than 15%, these companies may be excluded as comparables. - Decided partly in favour of revenue for statistical purposes. - ITA No: 2630/Del/2011 - Dated:- 9-9-2015 - SMT. DIVA SINGH, .....

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s of law which is liable to be set aside. 2. On the facts and in the circumstances of the case & in law, the order of deleting the addition of ₹ 53,23,591/- on account of upward adjustment of Arm s Length Price of the Internation Transaction ignoring the facts that...... (a) The upward adjustment was made by the TPO based upon the date of Comparables. (b)The CIT(A) has simply accepted the contention of the assessee without discussing the relevant date based on M/s Datamatics Technologi .....

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rated under the provision of the Companies Act, 1956. It is engaged in the business of providing information technology enabled services to its parent company Interactive Composition Corporation (ICC). The return of income for the assessment year 2002-03 was filed on 07.01.2003 disclosing nil income. The case was selected for scrutiny assessment. Since the respondent assessee-company reported international transaction in its report in form 3CEB, a reference under Section (3) was made to Transfer .....

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nt assessee-company filed a report in Form 3CEB as required under the provisions of Section 92E of the Act. The respondent assessee-company also made a detailed analysis of international transactions. The respondent assesseecompany had adopted Cost Plus Method (CPM) as the most appropriate method for determining the arm s length price. The international transactions entered into by it are at arm s length. Due to availability of reliable data, the respondent assessee-company has made itself as th .....

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80% Fortune Informatics Ltd. -1.90% Intellivisions Software Ltd. 2.03% Oasis Infotech Ltd. 6.73% Sriven Multitech Ltd. 7.29% Neilsoft Ltd. 5.07% Eastern Software Systems Ltd. 6.29% Cummins Infotech Systems Ltd. -0.90% C S Software Enterprise Ltd. 8.74% Agenda Metmarketing Ltd. 8.93% Savvion India Ltd. 6.11% D C Elcot Software Ltd. 3.69% Average OP/TC 4.82% 5. Computation of arm s length price by the assessee Since the OP/TC ratio of the assessee as worked out by it was -2.68% as compared to 4.82 .....

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80 Difference (A-B) ₹ 53,82,342 6. The learned Transfer Pricing Officer while accepting the most appropriate method used by the respondent assessee-company for benchmarking the international transactions rejected the transfer pricing study conducted by the respondent assessee-company and chosen his own comparables, which are as follows: Name of the company Adjusted OP/TC% Ace Software Exports Ltd. 11.66% Allsec Technologies Ltd. 2.79% Datamatics technologies Ltd. 30.93% Genesys Internation .....

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entered into by the assessee with its AE is worked out as under: Total Cost of Provision of services by the assessee: ₹ 7,20,21,767/- (Adjusted total Cost of the services provided to AE as provided by the assessee increased by the financial expenses of ₹ 2,51,187/- since the margins of the comparables are on total cost basis which includes financial charges also.) Margin @ 11.85% of the above ₹ 85,32,246 Arm s length price to be charged from the AE: ₹ 8,05,53,513/- 13.1 .....

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on only the balance amount of ₹ 53,23,591/- shall be added to the income of the assessee. 7. The Assessing Officer passed the consequential final assessment order dated 21st March, 2005 after taking into consideration the order of TPO passed under section 92CA(3) of the Act. Being aggrieved by this assessment order, an appeal was filed before the CIT(A)-XX, New Delhi, who vide order dated 22nd March, 2011 deleted two comparables chosen by TPO i.e. (1) Datamatics Technologies Ltd, and (2) I .....

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ated party transactions and therefore cannot be used for determination of arms s length price of the international transaction. Hon ble ITAT has held in the case of Sony India (P.) Ltd. Vs. DCIT [2008] 114 ITD 448 (DELHI) that an entity can be taken as uncontrolled if its related party transaction do not exceed 10 to 15 per cent of total revenue. Within the above limit, transactions cannot be held to be significant to influence the profitability of comparables. After eliminating the above two co .....

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the appellant s international transaction of Export of Software/IT Services with AEs during the year to be at arm s length. Keeping in view the above, this ground of appeal of the appellant is allowed. The assesse officer is directed to make necessary modifications. Being aggrieved by the above findings of the CIT(A), the Revenue had come up with the present appeal before us. 8. The learned CIT-DR vehemently argued that the CIT(A) was not justified in deleting the two comparables chosen by the .....

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ons of Section 92 provides that income arising from international transaction is to be computed having regard to ALP. Section 92F(ii) defines arm s length price to mean a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises, in uncontrolled conditions. To compute ALP the results of the international transaction are benchmarked against comparable uncontrolled transaction. The mandate of s. 92F(ii) is that ALP shall be computed conside .....

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a Pvt. Ltd. Vs. DCIT [2008] 114 ITD 448 (Del), held that the companies having relating party transactions of not exceeding 15% can be taken as a comparable. This ratio was followed by the Coordinate Benches of the Tribunal in the following decisions: i. Customer.Com Pvt. Ltd. Vs. DCIT, [2012] 28 taxmann.com 258 (Bang.) : [2013] 140 ITD 344 (Bang.) : [2013] 21 ITR (Trib.) 514 (Bang.) ii. ITO Vs. CRM Services India (P.) Ltd. [2011] 14 taxmann.com 96 (Del) : [2011] 48 SOT 41 (Del) (URO). iii. CSR I .....

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