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2016 (10) TMI 501 - DELHI HIGH COURT

2016 (10) TMI 501 - DELHI HIGH COURT - TM - Transfer pricing adjustment - determine the profitability of the concerned comparable - Held that:- On a comparison with the data available and made available, undoubtedly, the object of the statute is to “pull in transactions which otherwise escaped the radar of tax assessment under one head or the other. The transfer pricing methodology – shorn of its details is an attempt by each nation to locate the incidents of income which would be subjected to l .....

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ervices provided in the Comparable Uncontrolled transaction. Therefore, the nature of the transaction and the appropriate filter determines the elements that are to be considered in TNMM. Therefore, the costs, sales and assets employed wherever relevant are to be applied. From this perspective, the revenue’s contention that segmental data was available, cannot be accepted. The mere availability of proportion of the turnover allocable for software product sales per se cannot lead to an assumption .....

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AT) direction to exclude five comparables in the Arm s Length Price (ALP) of the assessee s for Assessment Year (AY) 2011-12 based on the Transfer Pricing Officer s (TPO) report/Transfer Pricing study report. 2. The assessee earlier known as Saxo IT India Private Limited is a part of the Initto Group which teamed up with Saxo Bank. It designs and develops customised software applications. Besides, it also provided technical support services during the relevant AY to some unrelated enterprises in .....

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an margin of five comparables at 17.91%. The TPO observed that the overall Profit Level Indicator (PLI), upon application of the Operating Profit to Operating Cost (OP/OC) on the assessee s Profit and Loss account was (-)15.34% whereas it has shown profit margin on international transactions at 22.63%. After considering the record, the TPO decided to add 20 comparables and according to its determination, an adjustment of ₹ 8,23,72,723/- had to be made to the income. Aggrieved, the assessee .....

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its detailed consideration of the materials, accepted the plea with respect to four comparables and directed that they should be excluded. The assessee s contention with respect to E-Infochips, Persistent Systems & Solutions Ltd., Larsen and Toubro Infotech Ltd. and Sasken Communications Technologies Ltd. were accepted. The revenue is aggrieved by these as well as exclusion of Wipro Technology Services Limited. 5. It is argued on behalf of the revenue that the rationale adopted by the ITAT .....

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e TPO was able to accurately segregate the volume of transactions allocable to software product sales as opposed to software technology services. In these circumstances, the argument about lack of segmental data could not have been a broad brush reasoning by the ITAT to reject the comparables which otherwise indicated high profit margins. It was also contended that apart from this, there is no reason worthwhile for the exclusion of Wipro Technology Services Limited on the list of comparables. 6. .....

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Tax Rules. Specific reliance is placed upon Rule 10B(1)(e) to say that cost apart from assets and sales are the relevant denominators in carrying out the TNMM exercise. In the absence of accuracy, the result could be widely off the mark. 7. As far as Wipro Technology Services Limited is concerned, it is submitted that the revenue has not articulated any ground in its appeals nor indicated precisely why the exclusion of Wipro Technology Services Limited is erroneous. The narrow question which re .....

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ly talks of TNMM, presupposes that when such method is the most appropriate, the TPO would conduct/carry out the exercise of ALP determination. It reads as follows: 10B . (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction [or a specified domestic transaction] shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely :- XXXX XXXX XXXX e) transactional net margi .....

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sactions is computed having regard to the same base; (iii) the net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction [or the specified domestic transaction] and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market; (iv) the net pro .....

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