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2015 (11) TMI 635 - ITAT BANGALORE

2015 (11) TMI 635 - ITAT BANGALORE - TMI - Transfer pricing adjustment - CIT(A) excluded M/s. Synergy Log-in Systems Ltd and M/s. Transworld Infotech Ltd from the list of comparables selected by TPO for bench marking the value of international transactions of assessee with its AE - Held that:- Unless and until there are reliable published accounting records, which would help to cull out the result of a comparable company for a financial year comparable to that of the tested party any attempted c .....

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ent activities rendered abroad, we are of the opinion that the foreign exchange gain could have been construed only as incidental to the sales, payment to suppliers etc., We cannot therefore find any fault with the direction of the CIT (A) to consider such foreign exchange gain as operating in nature.- Decided against revenue.

Reworking of the operating margin by allocating cost on the basis of man-hours as directed by CIT(A) - Held that:- There is no dispute that assessee was billing .....

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hi High Court judgment in the case of EHPT India P. Ltd [2011 (12) TMI 49 - DELHI HIGH COURT ] - Direction of CIT (A) that apportionment of cost has to be done on man-hour basis and not on turnover basis could not be faulted with. We do not find any reason to interfere with the direction of CIT (A) in this regard. - Decided against revenue. - I.T(TP).A No.876/Bang/2013, Cross objection No.167/Bang/2015 - Dated:- 30-9-2015 - SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI. ABRAHAM P. GEORGE, A .....

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djudication. 03. Vide its grounds 2 and 3, Revenue is aggrieved with the direction of CIT (A) for exclusion of M/s. Synergy Log-in Systems Ltd and M/s. Transworld Infotech Ltd from the list of comparables selected by TPO for bench marking the value of international transactions of assessee with its AE. 04. Facts apropos are that assessee engaged in software development, messaging and marketing support activities, was rendering such services to its principal Electronics for Imaging Inc., USA. For .....

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dopted TNMM as the most appropriate method for bench marking the value of international transactions. For such TNMM he took five companies as comparables which incidentally appeared in the list provided by the assessee in its cost plus method analysis. Comparables selected were the following : 1. M/s. Motherson Sumi Infotech and Designs Ltd, 2. M/s. Synergy Log-in Systems Ltd, 3. Transworld Infotech Ltd, 4. M/s. Visu International Ltd, 5. M/s. Zigma Software Ltd Average PLI of the comparables ar .....

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omparables considered by TPO. Reason stated by CIT (A) was that the financial year of the said company did not coincide with that of the assessee. As per CIT (A), the published accounts of these two companies were for year ending 30.06.2004 and hence could not be considered as proper comparables since assessee s financial year was ending on 31.03.2004. 07. Now before us, Ld. DR submitted that the two companies, namely, M/s. Synergy Log-in Systems Ltd and M/s. Transworld Infotech Ltd, had appeare .....

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international transaction, comparison should be with an uncontrolled transaction and an uncontrolled transaction would be comparable with international transaction only if there are no differences between the transactions being compared that are likely to materially affect the prices of cost incurred or paid in or the profit arising from such transaction in the open market. Relevant Rule 10B(4) is reproduced hereunder : 10B(4) The data to be used in analysing the comparability of an uncontrolle .....

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to cull out the result of a comparable company for a financial year comparable to that of the tested party any attempted comparison would not yield correct results. In our opinion the CIT (A) was justified in directing exclusion of M/s. Synergy Log-in Systems Ltd and M/s. Transworld Infotech Ltd, since their accounting year ended on a different date, when compared to that of the assessee. We do not find any reason to interfere. Grounds 2 and 3 of the Revenue stand dismissed. 11. Vide its ground .....

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sidered to be operating in nature was as under : 82. It was submitted that while computing the operating margins of the appellant the TPO had not considered the foreign exchange gain of ₹ 29,96,409. Exchange gain or loss arose on account of factors like realisation of sales, payment to suppliers, and restatement of the values of assets and liabilities. These causes and factors were operating in nature, as per paragraph 134 on page 46 of OECD Draft Guidelines on Transactional Profit Methods .....

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ent to suppliers etc., We cannot therefore find any fault with the direction of the CIT (A) to consider such foreign exchange gain as operating in nature. Ground 4 of the Revenue stands dismissed. 15. Vide its ground 5, grievance raised by Revenue is that CIT (A) directed reworking of the operating margin by allocating cost on the basis of man-hours. 16. Facts apropos are that assessee was having both AE and non-AE segments and the indirect cost was allocated by assessee between these two segmen .....

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the TPO was not appreciative of the above contentions, CIT (A) accepted it, considering the judgment of Hon ble Delhi High Court in the case of CIT v. EHPT India P. Ltd [(2011) 16 taxmann.com 305]. 17. Now before us, Ld. DR submitted that allocation made by assessee had no scientific basis. According to him, cost could be better allocated on the basis of revenues in different segments. Assessee could not show how the method of man-hour basis was better than turnover basis for allocation of indir .....

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ost allocated on head-count basis. Reliance was once again placed on Hon ble Delhi High Court judgment in the case of EHPT India P. Ltd (supra). 19. We have perused the orders and heard the rival contentions. There is no dispute that assessee was billing its AE on cost plus basis. Such cost was arrived at by the assessee by allocating the indirect cost on the basis of manhours and direct cost directly. When the revenue of the assessee itself was based on an allocation done on man-hour basis, in .....

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the question whether the method adopted by the assessee, namely, that of apportioning the indirect expenses between the STP unit and the non-STP domestic unit on the basis of the "head-count" is an unreasonable method and if it has been followed consistently by the assessee in the past and has also been accepted by the department, should the revenue authorities be permitted to disturb the same in the years under appeal. It seems to us that the settled position in such matters is to ex .....

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he years under consideration by the departmental authorities. That it is a reasonable method and fair to both sides is indicated by the conduct of the revenue authorities in accepting it in the past. The reasonableness or fairness of the method of head-count adopted by the assessee can be said to be indicated by the fact that in the assessment year 2002-03 the assessee apportioned more common expenses to the STP unit, thereby reducing its profits and consequently reducing the claim for deduction .....

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