2015 (10) TMI 2692
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....of provision of marketing support services is not at arm's length price and thereby confirming the addition of Rs. 1,16,26,716. The appellant prays that the addition be deleted. 2. On the facts, in law and in circumstances of the case, the AO has erred in not following the directions of the DRP with respect to rejecting a company as comparable, calculation of correct margin of certain comparables and allowing working capital adjustment. The Appellant prays that the additions made by the AO in violation of the directions of the DRP be held to be void ab initio and therefore be deleted. 3. On the facts, in law and in circumstances of the case, the TPO/AO have erred in proposing and the DRP has further erred in upholding / confirming the action of the TPO/AO in denying the (+/-) 5% standard deduction available under proviso to Section 92C(2) of the Act. The Appellant prays that the 5% standard deduction as per proviso to Section 92C(2) of the Act be granted to the Appellant. 4. On the facts, in law and in circumstances of the case, the TPO/AO have erred in proposing and the DRP has further erred in upholding/confirming the action of the TPO/AO based on the reference to ....
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.... and provision for market support services. This lis pertains to the latter category only. We find from the case file that two overseas entities namely; M/s Noveon Pharma GmbH Co. Kg & M/s. Lubrizol Luxemberg Ltd hold assessee's 74% and 26% stakes; respectively. 5. The assessee filed its return on 31-10-2007 stating income of Rs. 70,72,190/-. The Assessing Officer noticed during scrutiny its international transactions with AEs exceeding Rs. 15 crores. He made section 92CA(1) reference to the Transfer Pricing Officer ' the TPO' for ascertaining ALP thereof. 6. The assessee had provided marketing support services to its AEs worth Rs. 5,16,53,106/- in furtherance to a service agreement dated 19-10-2005 fixing rate at cost plus 5% controlled rate. The relevant method used is the Transaction Net Margin Method (the TNMM). The assessee justified its operating profits calculated @ 4.53% by including seven entities in the array of comparables i.e. M/s. Ace Software, B & K Corporation, CS Software Enterprise Ltd, Cosmic Global Ltd, Crisil Marketware Ltd, Raynolds Software Solution Ltd and Vakerangee Software Ltd. The Assessing Officer was of the view that only two of them i.e. M/s. CS Soft....
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.... TPO had wrongly taken Rs. 11.86 crores operating income with Rs. 29.10 lacs rental income. The TPO turned down the same by observing that he had taken operating income of Rs. 11.80 without any rental income component. And also that this entity was functionally comparable being engaged in ITES/BPO activities. 9. Next is the case of M/s ICRA Ltd. The assessee's plea was that this entity had entered into related party transactions. The Transfer Pricing Officer was of the opinion that this entity's related party transactions did not include any international transactions. He was further of the view that it was a functionally similar comparable. 10. The assessee thereafter opposed inclusion of M/s Indusind Information Technology by averring that it was a captive service provider not functionally similar having related party transactions during AY 2007-08. The TPO opined that the assessee was also a captive service provider in ITES/BPO alike the above stated entities and its related parties transactions were only domestic and not international. 11. The assessee further contested the TPO's action seeking to include M/s Informed Technologies Ltd. It pleaded that this entity had 15% of ....
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....-2010 accordingly recomputed assessee's ALP @ 28.06% on cost of Rs. 4,49,14,198/- coming to Rs. 1,38,65,624/- as against that declared of Rs. 22,38,908/- @ 4.53% resulting in the impugned adjustment of Rs. 1,16,26,716/-. The Assessing Officer framed draft assessment on 24-11-2010 in line with the TPO's action. The assessee petitioned before the Dispute Resolution Panel 'the DRP'. The learned panel in its direction dated 30-08-2011 accepted its arguments to a limited extent seeking exclusion of M/s. Indusind Information Technology (supra) from the array of comparables. It agreed with inclusion of rest of the ten companies (supra). The Assessing Officer accordingly framed the impugned assessment vide order under challenge making the transfer pricing adjustment under challenge. He further declined assessee's plea claiming tolerable margin of (+/-) 5% in the ALP recomputed as a standard deduction. This leaves the assessee aggrieved. 16. The assessee's first substantive argument raised in the course of hearing and written submissions challenges inclusion of five entities in the array of comparables. They are M/s C S Software Enterprise Ltd, ICRA Online Ltd, Informed Technologies India ....
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.... mainly highlight this entity employee's cost factor in justifying comparability thereof. It fails to rebut the assessee's contentions with regard to fluctuating profit margins in light of tribunal's decision. We accept assessee's plea accordingly and order exclusion of this entity M/s ICRA Ltd from the array of comparables. 18. The assessee's next argument challenges comparability of M/s Informational Technology India Pvt. Ltd. It contends that this entity is functionally different as its annual accounts in management discussion and analysis report indicate the same to be engaged in IT enabled knowledge base back office processing centre. Its case is that this entity provides services in the niche market of financial contents with its customers. Reliance is placed on definition of a KPO in Safe Habour Rules notified by the board in 2013 including financial analytics. The Revenue's pleads that no such argument was raised before the lower authorities. It highlights the fact that the assessee's case before the TPO and DRP was that co-related parties of 15% approximately falling less than the filter limit of 25%. The Revenue further quotes case law of Willis Processing Services India....
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.... in various other decisions of the tribunal. The Revenue relies upon yet another decision of the tribunal in Vodafone India Services Pvt. Ltd. vs DCIT 36 taxman.com 127 (Mum) accepting M/s Maple E-Solutions as comparables in case of ITES/BPO functions. The assessee states that this decision has not examined fraud indictment of above stated directors. We find force in this submission. A perusal of this decision reveals that the ld. co-ordinate bench has considered issue of merger and not that of the above stated indictment. We accept the assessee's arguments and hold that this entity M/s. Maple E-Solutions Ltd. is not a valid comparable. We direct the TPO to accordingly exclude this company from the array of comparables. 21. This leaves us with the assessee's last objection seeking to exclude M/s Vishal Information Technologies from the array of comparables. It refers to pages 408 and 412 of the paper book and contends that profit and loss account of this entity demonstrates data entry charges and vendor payments forming part of operating expenses in schedule 15. The latter segment is stated to be that of approximate 65% of the total cost. The assessee pleads that this entity had o....
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....ial Bench of the tribunal in (2013) 023 ITR 0608 (Del) IHG IT Services India Pvt. Ltd vs. ITO has decided the very issue in the Revenue's favour as under:- "5. We have carefully considered the arguments of both sides and perused the material placed before us. Before we proceed to consider the arguments of the parties, it would be appropriate if we narrate the history of section 92C(2) of the Income-tax Act, 1961. Section 92C(2), before the amendment by the Finance (No.2) Act, 2009, reads as under : "(2) The most appropriate method referred to in subsection (1) shall be applied, for determination of arm's length price, in the manner as may be prescribed: Provided that where more than one price is determined by the most appropriate method, the arm's length price shall be taken to be the arithmetical mean of such prices, or, at the option of the assessee, a price which may vary from the arithmetical mean by an amount not exceeding five per cent of such arithmetical mean." 6. The Finance (No. 2) Act, 2009 with effect from October 1, 2009 substituted proviso to section 92C(2) with two provisos. The position of section 92C(2) after the amendment by the Finance (No. 2) ....
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.... 1, 2009, such benefit of 5 per cent, tolerance margin was restricted to the cases where variation between the arm's length price and the price at which the international transaction has actually taken place does not exceed 5 per cent. After the above amendment, there were contrary decisions of the Income-tax Appellate Tribunal on the issue of allowability of benefit of 5 per cent, tolerance margin while determining the arm's length price in the assessment years prior to October 1, 2009. In view of the apparent contrary decisions on the subject, the present Special Bench was constituted by the hon'ble President to resolve the controversy. However, in the meanwhile/ the second proviso to section 92C has been modified by the Finance Act, 2012 with retrospective effect from April 1, 2002, which is extracted above in paragraph 7. 9. From the above the second proviso to section 92C(2), it is evident that if the variation between the arm's length price and the price at which international transaction was actually undertaken does not exceed the specified percentage, then only the price at which the international transaction has actually been undertaken shall be deemed t....
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....ppellate Tribunal, Pune Bench has followed the decision of the Income-tax Appellate Tribunal, Delhi Bench which were rendered prior to amendment of the second proviso to section 92C(2) by the Finance Act, 2012 with retrospective effect. Though the decision of the Income-tax Appellate Tribunal, Pune Bench is after coming into force of the Finance Act, 2012, but, the amendment by the Finance Act, 2012 which has retrospective effect has not been considered by the Income-tax Appellate Tribunal, Pune Bench. Therefore, in our 'Opinion, the decision of the Income-tax Appellate Tribunal, Pune Bench is per incuriam and cannot be said to be good law after the retrospective amendment to the second proviso to section 92C(2) by the Finance Act, 2012. 12. Learned counsel for the assessee has challenged the constitutional validity of retrospective amendment to second proviso to section 92C(2). However, the Income-tax Appellate Tribunal is a creation of the Income-tax Act and not a constitutional authority. It has to interpret the provisions of the Income-tax Act as it stands. It cannot adjudicate upon constitutional validity or otherwise of any provisions of the Income-tax Act. We, therefo....
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.... freight charges were nothing but merely discount availed by the Assessee and refund of insurance charges were in the nature of refund of excess amount paid to insurance company and claimed as deduction. He further submitted that the aforesaid transactions were reduction in actual expenses incurred in connection with the business of export of manufactured goods and therefore should not be reduced from the amount of profit for working out deduction u/s 10B. He further placed reliance on the Special Bench decision in the case of Maral Overseas Ltd Vs ACIT (2012) 146 TTJ (Ind) (SB) 129. The Id. D.R. on the other hand relied on the order of AO and DRP. 19. We have heard the rival submissions and perused the material on record. Before us the nature of income as submitted by the Assessee has not been controverted by Revenue. The contention of the Revenue is that the income cannot be said to be derived from the eligible undertaking and hence is not allowable. We find that before Special Bench in the case of Maral Overseas (supra) one of the question was as to whether the undertaking is eligible for deduction on export incentive received by it. The Special Bench has decided the issue by....