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2016 (7) TMI 671 - ITAT DELHI

2016 (7) TMI 671 - ITAT DELHI - TMI - Transfer pricing adjustment - segmental P & L Account in relation to transaction with associated enterprises (AE) and Non-AEs - Held that:- In the present case it is noticed that the assessee requested the TPO to consider the segmental P & L Account in relation to transaction with associated enterprises (AE) and Non-AEs for the revenue of associated cost for arriving at segmental P & L vide letter dated 08.01.2015. However, the TPO did not accept the reque .....

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evant and go to the root of the matter, so these deserves to be admitted. Accordingly, the additional evidences is furnished by the assessee are admitted under Rule 29 the Income-tax (Appellate Tribunal) Rules, 1963. However, these evidences furnished by the assessee first time before this bench of the Tribunal were not available to the authorities below. We, therefore, deem it appropriate to set aside the issue under consideration to the file of the TPO to be adjudicated afresh inaccordance wit .....

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appeal by the assessee against the order dated 26/10/2015 of the AO passed u/s 143(3) / 144C of the Income Tax Act, 1961 (hereinafter referred to as the Act ). Following grounds have been raised in this appeal :- 1. That on facts and in law, the impugned order/directions passed by the Income Tax Officer, Ward - 23(1), New Delhi ("Learned AO")I Deputy Commissioner of Income Tax - Transfer Pricing Officer - 111(1 )(1), New Delhi ("Learned TPO")I Hon'ble Dispute Resolution .....

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case and in law, the Ld. TPO/AO have erred in not complying with the directions of the Hon'ble DRP while passing the impugned order. 4 That on facts of the case and in law, the DRP/TPO/AO have erred in arbitrarily rejecting the segmental accounts prepared by the Appellant for benchmarking the international transaction pertaining to provision of software consulting and support services. 5 That on facts of the case and in law, the DRP/TPO/AO have erred in rejecting the economic analysis undert .....

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Appellant. 7. Without prejudice, that on facts of the case and in law, the Ld. DRP/TPO/AO have erred in selecting comparable companies on an ad-hoc basis without conducting a detailed FAR analysis, for benchmarking the international transaction. 8 Without prejudice, that on facts of the case and in law, the Ld. DRP/TPO/AO have erred in selecting companies in the final set of alleged comparables which have different business / operating models as compared to the Appellant. 9 Without prejudice, t .....

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fer pricing documentation requirements and disregarding the Appellant's claim for use of multiple year data for computing the arm's length price. 11 Without prejudice, that on facts of the case and in law, the Ld. DRP/TPO/AO have failed to make suitable adjustments to account for differences in the capacity utilization ignoring the fact that the Appellant is in the initial years of operation and an adjustment for capacity utilization should have been allowed. 12 Without prejudice, that o .....

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transfer pricing regulations, international guidelines on transfer pricing and judicial precedence in this regard. 14. That on the facts and in the circumstances of the case, the Ld. AO has erred in initiating penalty under section 271 (1 )(c) of the Act, as a onsequences of the addition made in the impugned order passed under section 143(3) read with section 144C of the Act. 15. That on the facts and in the circumstances of the case, the Ld. AO has erred in charging interest under section 234 o .....

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arking the International Transaction instead of Cost Plus Method (CPM) adopted by the assessee and selecting the companies in final set off alleged comparables which have different benefit / operative models than the assessee and rejecting the segmental accounts prepared by the assessee for benchmarking the international transaction pertaining to provosion of Software Consulting and Support Services. 4. Facts of the case in brief are that the assessee derived income from Software Consulting and .....

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er u/s 154/92CA (3) dated 09.02.2015 worked out the adjustments of ₹ 1,39,12,291/- after taking into account the comparables as provided by the assessee and his own comparables, as well asby applying TNMM method instead of assessee s Cost Plus Method. The contention of the assessee before the TPO was that the TNMM should not be considered as the most appropriate method as the international transaction undertaken by the assessee, during the relevant assessement year with its Associated Ente .....

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bjection of the assessee is considered but not acceptable. As a matter of fact, the assessee has acknowledged that no segmental profit and loss account was prepared w.r.t services provided to the AE s and no AE s. In such a scenario, the application of cost plus method is extremely difficult as the gross profit margin is required to be charged on the direct and indirect costs identified. For application of CPM, gross profit margin of comparable entitites cannot be identified in India from the da .....

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ps 56.44% iii Evoke Technologies Pvt. Ltd. 8.11% iv E-Zest Solutions 39.98% v Infosys Ltd. 43.39% vi Larsen & Toubro Infotech Ltd. 18.40% vii LGS Global Limited 14.11% viii Persistent Systems & Solutions Ltd.(Merged) 21.51% ix Persistent Systems Ltd. 23.08% x R S Software (India) Ltd. 16.20% xi Sasken Communications Technologies Ltd. 24.33% xii Wipro Technology Services Ltd. (Merged) 54.42% xiii Celstream Technologies Ltd. Ltd. 13.20% xiv Acropetal technologies Ltd. (Seg.) 22.06% xv Mind .....

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onal transaction 37,06,450 Difference between ALP and Price charged by assessee 1,39,12,291 Difference for which adjustment is required to be made 1,39,12,291 7. The AO accordingly passed the draft assessment order by proposing an adjustment of ₹ 1,39,12,291/-. Being aggrieved the assessee filed the objection to the proposed adjustment before the DRP who did not find any merit in the objections of the assessee by observing that the TPO had dealt with the assessee s contentions in respect o .....

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d the adjustments as has been made by the TPO and made the addition of ₹ 1,39,12,291/- on account of arm s length price adjustment. 8. Being aggrieved the assessee is in appeal. The Assessee has furnished an application dated 3rd March, 2016 under Rule 29, of the Income-tax (Appellate Tribunal), Rules 1963 for admission of additional evidences stating therein as under : 4. Seven N A/S ( 7N ) is a Copenhagen Denmark based IT consulting and training company with 20 years of experience. 7N pr .....

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lting and support services 7,41,29,154 7N India Cost Plus Method 7N Reimbursement of expenses 95,002 Not Applicable Cost-to-cost 7N 6. The learned Assessing Officer ( AO ) referred the matter to Transfer Pricing Officer ( TPO ) to determine arms length price of international transaction entered into by the Appellant, Vide order dated 12 January, 2015, the TPO added ₹ 1,39,12,291/- to the total income of the Appellant as adjustment on account of the arm s length price ( ALP ) of the interna .....

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st appropriate method applied by the Appellant for benchmarking the subject transaction, by erroneously concluding that segmental data was not available with respect to the services provided by the Appellant to the AE & non-AEs. In this regard, we respectfully submit that segmental data was duly available & produced before the TPO (segmental details are produced at para 5 on page 3 of TPO s order). 8. We respectfully submit that during the proceedings before the TPO, the Appellant was as .....

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ternal CPM) should be considered by the TPO for benchmarking the subject transaction. The TPO failed to discuss the internal TNMM in his order and rejected the benchmarking analysis based on internal comparable data without giving the Appellant a proper opportunity of being heard, thereby depriving of its right to natural justice. 10. It is respectfully submitted that unaudited data was duly available with TPO while analysing the transaction; however, he had not given much wieghtage to the same. .....

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n audited by an independent Chartered Accountant. 11. The present application is being filed to seek liberty of the Tribunal to consider the aforementioned segmental data of 7N India for FY 2010-11 which has been duly audited by an independent Chartered Accountant. The audited segmental results of 7N India for AY 2011-12 is enclosed as Annexure - 2. 12. We respectfully submit that even though the TPO has rejected the internal comparability analysis of the Appellant in the TP Order, the TPO has c .....

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without passing a speaking order and upheld the approach of TPO in applying TNM Method. The DRP merely observed that TNMM gives a very pointed and straight comparison as ultimately it is the margins from a transaction that help in determination of it being at arm s length or not, therefore, the Appellant s objections were dismissed by the DRP as untenable. 14. Being aggrieved by the final assessment order dated 26 October, 2015, the Appellant preferred the present appeal before this Hon ble Tri .....

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mbai (Third Member) b) Birlasoft India Ltd. V. DCIT, 44 SOT 664, ITAT Delhi c) Sony Ericsson Mobile Coomunications India Pvt. Ltd. Vs. CIT-III [(2015) 374 ITR 118] (Del HC) d) Diageo India Private Limited vs. DCIT Mumbai (ITA Nos. 7932/Mum/2011) e) Cable & Wireless (India) Ltd. Vs. ADIT Mumbai (ITA No. 822/Mum/2013) f) Genisys Integrating System (India) Private Limited vs. DCIT Bangalore (ITA No 908/Bang/2011) g) Birla Soft (India) Limited (formerly Birlasoft Limited) vs. DCIT, New Delhi (IT .....

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is required for benchmarking the subject international transaction of 7N India with its AE & Non-AE is available, thus, internal comparable is to be preferred over External comparables. 19. It is further submitted that to do complete justice and for adjudication of Ground No. 4 to 8 of the present appeal, it is necessary to take the present additional evidence on record. 11. A prayer had been made to admit the additional evidences under rule 29 the Income Tax Appellate Tribunal Rules, 1963. .....

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tor of M/s. Seven N Consulting Private Limited, and am fully conversant with the facts of the case relating to the Assessment Year ( AY ) 2011-12 and I am thus fully competent to swear and file this affidavit. 2. That Seven N Consulting Private Limited have received on 3 March, 2016, a certificate of audit carried out by an independent Chartered Accountant of its segmental financial results for the financial year ended on 31st March, 2011. 3. That Seven N Consulting Private Limited has duly furn .....

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ken with Seven N A/S, Denmark (related party) and the unrelated parties. However during the course of Transfer Pricing Assessment the Transfer Pricing Officer had rejected the Most Appropriate Method selected by Seven N Consulting Private Limited on the ground that the segmental data was not audited. Hence, on advice in the appeal before the Hon ble Tribunal the audited segmental results have now been obtained from an independent Chartered Accountant. 12. During the course of hearing the ld. Cou .....

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rejected those comparables as the same were not audited. However, the assessee now got the financial statements audited for arriving at the segmented data by M/s S.S.Kothari Mehta & Co. therefore, these are to be considered. In his rival submissions, the Ld. DR objected the admission of the additional evidence and stated that the accounts were audited in respect of segmental results after a gap of 5 years so these are not to be admitted, particularly when the assessee did not furnish the sa .....

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