TMI Blog2014 (1) TMI 1801X X X X Extracts X X X X X X X X Extracts X X X X ..... vt. Ltd. [2013 (10) TMI 747 - ITAT HYDERABAD] Arms length price is nothing but a fair price which would have been normal price. There is always a possibility of transaction between a nonresident and its associates being under valued and having regard to such tendency, a provision that income arising out of the said transaction could be computed having regard to arms length price, will not be opened to question and is within the legislative competence to effectuate the charge of taxing real income in India. Once the benefit is exhausted, the assessee would be liable for taxation in which case, the German tax rate may be more attractive. If the pricing for the exempted years is accepted without analysis there is every chance that the assessing authority might be estopped, on the doctrine of consistency, from examining the pricing for the subsequent non-exempted years. This is quite uncalled for. See M/s SAP Labs India Pvt. Limited V/s. ACIT [2010 (8) TMI 676 - ITAT, BANGALORE] - Decided against assessee. Calculation of ALP on the total turnover which includes non AE turnover - Held that:- Transfer pricing provision apply to the determination of ALP in respect of controlled tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30- 11-2006 declaring total income at nil after claiming exemption u/s 10B of the Act as an STPI unit. During scrutiny assessment proceedings, the Assessing Officer noticing that the assessee has earned revenue from international transactions exceeding ₹ 6.5 crores during the year made a reference to the TPO for determining the ALP. In the course of the proceedings before the TPO, on examining the TP document submitted along with return the TPO noticed that the assessee had selected two comparables by applying certain filters. In response to the query made, the assessee submitted further information before the TPO. The TPO further noted that during the year, the assessee has reported revenue from International transaction of rendering consultancy services to its AE at ₹ 6,35,16,889/-. It was contended by the assessee before the TPO that since the assessee was engaged in the body shopping activity and not in software development at all, no comparable companies in similar line of business were available in data bases for body shopping verticals. The assessee therefore selected comparables from ITES Sector which are engaged in medical billing data entry work for unrelated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P however rejected all the objections raised by the assessee and confirmed the draft assessment order. In terms with the direction of the DRP, the Assessing Officer passed the impugned assessment order. Being aggrieved of the aforesaid assessment order, the assessee has preferred the present appeal by raising altogether 9 grounds. 4. Grounds 1 and 9 being general in nature are not required to be adjudicated upon. 5. In ground Nos. 2 and 3, the assessee has objected to selection of TNMM as the most appropriate method as against CPM adopted by the assessee. The learned AR while arguing on the aforesaid grounds submitted before us that during the year, the assessee had made sale transactions of services to both AE and to unrelated parties. Since necessary data to bench mark and determine the ALP is available in the form of margin on services to unrelated parties the assessee adopted CPM for determining the ALP for its international transaction. The learned AR submitted that the OECD guidelines clearly lays down that a markup is measured by reference to margins computed after direct and indirect costs incurred by a supplier of property or services in a transaction. The cost plus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... method. It further transpires from the TP order as well as the order of DRP that the assessee has not seriously objected to the adoption of TNMM as the most appropriate method though of course the assessee has raised a ground before the DRP on that issue. It would be relevant to note the observation made by the DRP in this regard. Though, under the second ground of objection, the assessee states that the most appropriate method adopted by it, was Cost Plus Method(CPM), it appears from page No.12 and 13 of TPO s order that, in the assessee s TP study, the method opted for was TNMM (as an alternate method apparently approved by the assessee), which was also the method found appropriate by the TPO. Hence, there is apparently no dispute as regards method of determination of ALP. The data bases searched by the Department and the tax payer are the same i.e., Prowess/Capitaline. Therefore considering the fact that the assessee itself in the TP study has offered TNMM as an alternative method for computing the ALP, it should not have any grievance if the TPO adopts TNMM as the most appropriate method for determining the ALP. The decisions relied upon by the assessee in this regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O services. In view of a question mark on the reputation of the owner, albeit for earlier years, it would be unsafe to take their results for comparison of the profitability of the assessee. .. Accordingly, it is held that none of these cases can be taken to be comparable case. 11. The ITAT Hyderabad Bench in case of Capital IQ (India) Pvt. Ltd. ITANo.1961/Hyd/2011 following the aforesaid decision of Delhi Bench has also held that the aforesaid company cannot be treated as comparable. Respectfully following the view expressed by co-ordinate benches as aforesaid, we direct the Assessing Officer/TPO to exclude the aforesaid company from the list of comparables. Datamatics Financial Services:- 12. Objecting to the aforesaid company being treated as comparable, the learned AR submitted that the said company is functionally dissimilar to the assessee as it is into multiple businesses having presence in registrar and share transfer agency services, transaction processing services, accounting outsourcing services, call centre services, financial services, internet research services etc. It was submitted that the company has KPO and BPO operations catering into customers in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decisions of Hyderabad ITAT in the following cases: i) Javata India Pvt. Ltd. V/s. DCIT 35 Taxman. Com 423) ii) Brigade Global services Pvt Ltd. V/s. ITO (33 taxman. Com 618) 16. The learned Departmental Representative, on the other hand, submitted that the TPO having considered all aspects of the matter and selected the aforesaid company as a comparable, it should not be excluded from the comparability analysis. 17. We have heard the contentions of the parties and perused the materials on record. On a perusal of the order passed by the co-ordinate bench in the case of Javata India Pvt. Ltd. V/s. DCIT (supra), it is to be noted that the aforesaid company has been excluded as a comparable by holding as under: 16. We have heard rival submissions and perused the material on record. In case of Capital IQ Information Systems (India) Pvt. Ltd.,(supra) the co-ordinate bench after considering the objections of the assessee in respect of the aforesaid company held in the following manner:- 17. After considering the submissions of the learned Authorised Representative for the assessee, we find that the DRP, in the proceedings for the assessment year 2008-09 in assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oresaid company by contending that the company is functionally dissimilar as it is into the business of providing financial services with significant presence in portfolio management services, investment activities, project management services including financial BPO services. It was further submitted that the employee cost of the company is also very low compared to its revenue. Hence this company also cannot be treated as comparable. Ins support of such contention, tame learned AR relied upon the decision of ITAT, Hyderabad Bench in the case of Javata India Pvt. Ltd. V/s. DCIT (supra). 19. The learned Departmental Representative, on the other hand, supported the orders of the authorities below on this issue. 20. We have heard the submissions of the parties. The assessee has sought exclusion of the aforesaid company primarily on the ground of low employee cost. In case of Javata India Pvt. Ltd. V/s. DCIT (supra), the co-ordinate bench while considering the assessee s objection with regard to the aforesaid company has held under:- 20. We have considered the submissions of the parties and perused the material on record. From the information obtained u/s 133(6) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he objections of the assessee and all other materials available on record. Spanco Limited 25. Objecting to the aforesaid company, the learned AR submitted that the company cannot be treated as comparable to the assessee as it is a leading telecom and technology infrastructure company with presence in telecom systems integration. It provides telecom and technology infrastructure services to multi national company, public sector units and defense sector. In this context, the learned AR referred to the business profile of the company at page-22 of the written submissions. He therefore submitted that the company cannot be treated as comparable to the assessee which is purely body shopping company and the range of activities and process employed are different. 26. The learned Departmental Representative, on the other hand, defended the selection of the aforesaid company as comparable. 27. On a perusal of the business profile of the company, it appears that the aforesaid company provides services to complex technology, infrastructure projects, across government, power and telecom service provider. It also provides BPO services both inside and outside the country. As per the busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the business of both software solutions and product development. The company s product portfolio includes communication product with cutting age technology in the areas of voice over package, 3G/UMTC, IP multimedia subsistence , switching, routing, security, handsets and billing and OSS. It also provides technology services including IT management consulting and internet integrated services. Hence, the assessee s activity being purely body shopping, this company cannot be treated as a comparable. 32. The learned Departmental Representative, on the other hand supported the orders of the authorities below. 33. We have considered the submissions of the parties and perused the materials on record. It is the contention of the assessee that the aforesaid company is into product development. A perusal of the order passed by the TPO reveals that though the TPO considered the aforesaid company being ITES but he also admitted the fact the annual report of the company did not contain segmental information. Only on the basis of information obtained u/s 133 (6) of the Act the aforesaid company was treated as comparable. Whether the information obtained u/s 133(6) of the Act will be su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uent years has to be looked into. This fact has not been considered either by the TPO or by the DRP. In this view of the matter, we remit this issue to the file of the Assessing Officer /TPO for deciding afresh after affording a reasonable opportunity of being heard to the assessee. 37. In ground No.6, the assessee has raised the issue that there is no requirement for transfer pricing adjustment as the assessee is claiming exemption u/s 10B of the Act, hence there would be no motivation for shifting the profit. 38. We have heard rival submissions and perused the materials on record. We have also examined the decision in case of Cotton Naturals (I) (P) Ltd. V/s. DCIT (32 Taxmann.com.219) relied upon by the assessee. It is to be noted that similar issue came up for consideration before the ITAT, Hyderabad Bench in case of DCIT V/s. Hellosoft India Pvt. Ltd. (ITA 645/Hyd/09) dated 15-1-2013, the co-ordinate Bench held as under:- Our finding on the issue is though it is a fact that assessee s income is exempt u/s 10A of the Act but that does not necessarily mean that the Assessing Officer has to prove the shifting of profits by the assessee to its AE before applying Transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contention raised by the assessee is not acceptable. Accordingly, the ground raised by the assessee in its Cross Objection is dismissed. Respectfully following aforesaid decision of the ITAT, Hyderabad Bench, which is binding on us, we reject the contentions of the assessee and dismiss the ground. 39. The next issue as raised in ground No.7 relates to calculation of ALP on the total turnover of ₹ 7,38,43,652 which includes non AE turnover of ₹ 1,03,26,763/-. 40. Having heard the submissions of the parties, we are of the view that transfer pricing provision apply to the determination of ALP in respect of controlled transactions between related parties. Therefore, un-controlled transactions with third parties who have no relationship with the assessee cannot be considered for transfer pricing adjustment. We therefore direct the Assessing Officer /TPO to verify this aspect and exclude the turnover relating to non AE for determining ALP. 41. In ground No.8, the assessee has raised the issue of exclusion of VISA processing charges and relocation charges from export turnover without deducting the same from the total turnover while computing deduction u/s 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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