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2013 (9) TMI 1173 - ITAT DELHI

2013 (9) TMI 1173 - ITAT DELHI - TMI - ITA No.5365/DEL/ 2010 - Dated:- 27-9-2013 - SHRI U. B. S. BEDI, JUDICIAL MEMBER And SHRI T. S. KAPOOR, ACCOUNTANT MEMBER ASSESSEE BY : Sh. Sachit Jolly,Sh. Roohina Dua, & Ms. Madhavi Swaroop.Adv. REVENUE BY :Sh. Sameer Sharma. Sr, DR ORDER PER T. S. KAPOOR, AM This is an appeal filed by the assessee which is directed against the order of Assessing Officer dated 28.10.2010 passed in pursuance of directions of Dispute Resolution Panel (DRP) u/s 144c(13) o .....

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prise, the income arising from such transaction in view of the provisions of section 92C had to be computed having regard to arm s length price. Section 92CA prescribes various methods such as comparable uncontrolled pricing (CPU). Re-sale pricing method, cost plus method, profit split method and transactional net margin method etc. The Assessing Officer during the assessment proceedings referred the issue of determination of arm s length price to the Transfer Pricing Officer (TPO). The TPO, the .....

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.36%. The assessee chosen itself as the tested party and contended that PLI earned by assessee was at 14.76% and, therefore, it was submitted that transaction with associate enterprises was at arm s length price. In the TPO order the Transfer Pricing Officer has drawn an adverse inference with respect to the selection of comparables and, therefore, he selected two comparables for comparison of margins earned by them viz-a-viz assessee. For determining the arm s length price of international tran .....

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price, the Assessing Officer further disallowed an amount of ₹ 1,96,290/- on account of difference in depreciation of computer peripherals claimed by the assessee. The assessee had claimed depreciation @ 60% whereas Assessing Officer allowed the depreciation applicable to office equipments and disallowed the remaining amount. 3. Aggrieved with the order, the assessee is in appeal before us. The assessee in its appeal has effectively taken three grounds of appeal and each ground has been su .....

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ubmitted that he had no objection with regard to rejection of its comparables and inclusion of new comparables and his only grievance was that risk adjustment with respect to the working capital was not allowed by Assessing Officer. He invited our attention to order of TPO placed at paper book page 192. The Ld. AR submitted that the mean of two comparables taken by TPO was 23.64% and whereas the margin of the assessee was declared at 14.81%. He further submitted that the assessee was a risk free .....

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use 3 of clause C of Rule 10B and it was submitted that the net profit margin earned by comparables in uncontrolled transactions has to be adjusted to take out effect of difference in working capital requirements of comparables viz-a-viz assessee. Our attention was invited to page 395 to 396 of paper book wherein a note relating to working capital adjustment requirement to be made in the case of assessee was placed. Our attention was also invited to page 7 of paper book where relevant page of OE .....

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9.88% because of the fact that assessee used to receive advance payment and, therefore, working capital requirements were quite less as compared to comparables and, therefore, the margin earned by assessee was lower than the comparables. It was contended that if effect of working capital adjustment is given to the assessee, the margin declared by assessee will be comparable with the comparables. Further it was contended that since assessee was captive provider of services to its parent company, .....

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on the case of Demag Cranes and Components India (Pvt.) Ltd. Vs. DCIT reported in 144 TTJ 320 and we were taken to paper book page 323 wherein relevant findings of the Tribunal were placed. 6. Reliance was also placed on the following case laws: 1) Mentor Graphics (Noida) (Pvt.) Ltd. Vs. DCIT reported in 109 ITD 101. In view of the above judicial pronouncements it was contended that adjustment on account of working capital was necessary to make the resuls of comparables more comparables with the .....

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iance in this respect was placed on the following case laws: 1) M/s Intellinet Technologies India Pvt. Ltd. Vs. ITO reported in ITA No.1237 (Bang.)/ 2010 decided by A Bench of Bangalore of Tribunal. 2) DCIT Vs. M/s Hellosoft India Pvt. Ltd. reported in ITA NO.645/Hyd/2009 decided by Hyderabad Bench of Tribunal. 8. Relying upon second ground, it was contended that it was a covered matter by the decisions of CIT vs. BSES Rajdhani Powers Ltd. reported in ITA NO. 1266/2010 and DCIT Vs. Datacraft Ind .....

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olding company and, therefore, whatever risk its holding company was taking were also fully applicable to the assessee company. Continuing his arguments the Ld. Departmental Representative submitted that there were different risk on account of human error, social risk etc. and when business is diversified and business is obtained from various clients risk is reduced comparably as there are more clients so failure or non obtaining of work from one or two may not significantly alter the prospects .....

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ded that if at all working capital adjustment was needed and advances received by assessee were not from Indian Banks but was obtained from cheaper sources from outside India therefore, Indian PLR should not be used to ascertain interest rates for calculation of working capital adjustment. 10. Reliance in this respect was placed on the following case laws: 1) GE India Technology Centre (Pvt.) Ltd. (Bangalore) vs. DCIT reported in ITA NO.789 2) ST Microelectronics (Pvt.) Ltd. vs. CIT reported in .....

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therefore only Indian PLR can be used. As regards the contention of Ld. Departmental Representative that +, -5% as provided in the Act was sufficient to take care of difference in comparables the Ld. AR submitted that it was not correct as there is rule 10B which provides for elimination of differences in comparables and argued that interpretation which renders the rules redundant should not be taken. 12. We have heard the rival parties and have gone through the material placed on record. Groun .....

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t receivable and account payable. Rule 10(2) (d) also provides that the comparability has to be judged with respect to various factors including the market conditions, geographical conditions, cost of labour and capital in the market. Accounts receivable/ payable effect the cost of working capital. A company which has a substantial amount blocked with the debtors for a long period cannot be fully comparable to the case which is able to recover the debt promptly. The plea of the AR that the asses .....

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