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M/s. Infineon Technologies India Pvt. Ltd. Versus Addl. Commissioner of Income Tax, Circle 11 (3) And Dy. Commissioner of Income Tax, Bangalore

2017 (12) TMI 421 - ITAT BANGALORE

TPA - MAM Selection - comparability analysis - CUP v/s TNMM - Held that:- On a careful perusal and consideration of the TPO’s order under Section 92CA of the Act, we find that, as contended by the learned Authorised Representative, the TPO adopted CUP Method in place of TNMM adopted by the assessee without rendering any finding or reasoning as to why TNMM was rejected and CUP Method was adopted. The TPO has merely stated that TNMM is not the appropriate method and that CUP is the appropriate met .....

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on the facts and circumstances of the case as discussed from paras 4.1 to 4.8.2 of this order (supra), we deem it appropriate to set aside the orders of the authorities below and remand / restore the entire issue of TP comparability analysis to the file of the TPO/A.O. to decide the matter afresh, including the determination of the MAM and the comparable companies - I.T. (T.P) A. No.1760/Bang/2013 And I.T. (T.P) A. No.1858/Bang/2013 - Dated:- 3-11-2017 - SHRI GEORGE GEORGE K, JUDICIAL MEMBER AND .....

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ted Enterprises (AEs), filed its return of income for Assessment Year 2002-03 on 30.10.2002 declaring income of ₹ 9,08,420 after claiming deduction of ₹ 59,53,692 under Section 10B of the Income Tax Act, 1961 (in short 'the Act'). The assessee, subsequently, filed a revised return of income on 13.11.2003 wherein the income declared was ₹ 16,43,091; after claiming deduction of ₹ 1,31,84,858 under Section 10B of the Act. The case was selected for scrutiny and therea .....

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mpleted the order of assessment for Assessment Year 2002-03 under Section 143(3) of the Act vide order dt.28.3.2003 wherein the assessee's income was determined at ₹ 3,72,94,620 which included the TP Adjustment of ₹ 3,17,60,790. 2.2 Aggrieved by the order of assessment dt.28.3.2003 for Assessment Year 2002-03, the assessee preferred an appeal before the CIT (Appeals) - IV, Bangalore, who disposed off the appeal vide order dt.11.10.2013, allowing the assessee partial relief. 3. Bo .....

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Ld. Assessing Officer ( AO ) instead of providing specific guidance to reject or accept the ground of appeal of the Appellant; 3. The Learned CIT (A) has erred in rejecting the comparable companies proposed by the appellant in the Transfer Pricing report; 4. The learned CIT (A) has erred in rejecting the comparable companies identified by the appellant by way of fresh search during the appellate proceedings; 5. The learned CIT (A) has erred in rejecting the comparable companies identified by th .....

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ppellant and without analyzing whether the comparable companies are functionally comparable to the appellant. ii. adopting the comparable companies identified for M/s. Sun Microsystems India Private Limited for AY 2002-03 for determining the arm's length price of the international transactions entered into by the appellant without analyzing whether the Functions, Assets and Risks of Sun Microsystems India Private Limited are similar to that of the appellant; iii. adopting the comparable comp .....

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specifying the functionally dissimilar companies while giving directions that the functionally dissimilar companies ought to be excluded; 8. The Learned CIT (A) erred in not providing adjustments for the differences in risks undertaken by the appellant and the comparable companies; 9. The Learned CIT (A) erred in concluding that there is no necessity of providing any further adjustment after providing for working capital adjustments; 10. The Ld. CIT (A) is erred in not allowing the benefit of ra .....

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to the guidelines laid down by the Delhi Bench of the Tribunal in Actis Advisers P Ltd v Deputy Commissioner of Income Tax 20 ITR (Trib.) 138 without appreciating the fact that the directions issued are beyond the mandate of the provisions of Sec. 251(l)(a) of the IT Act which does not empower the CIT (A) to set aside the issue. 3. The Ld.CIT (A) erred in not appreciating the fact that when any filter or criteria applied by the assessee is accepted or if any filter or criteria applied by the TPO .....

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ounds that may be urged at the time of hearing of the appeal. 4.1 Before proceeding to address the grounds of appeal raised by the assessee and revenue (supra), the brief facts related to the TP issues are summarized hereunder : 4.2 The assessee company is engaged in the provision of software development services to its AEs. For the year under consideration, the assessee has reported that it has entered into the following international transactions : Sl. No. International Transaction Value (Rs.) .....

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argin for software development services was 8.63% and fall within the + / - 5% range, the assessee presumed that its international transactions in the software development services was at arm s length. 4.4 The TPO rejected the assessee's TP Study / Analysis and for the reasons given in his order under Section 92CA of the Act, adopted CUP as the MAM in place of TNMM adopted by the assessee. After adopting CUP as the MAM, the TPO adopted the average industry hourly rate as under : (i) $ 18 per .....

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cted the TPO to apply TNMM as the MAM in the case on hand, by quoting the decision of the Hon'ble Apex Court in the case of DIT (International Taxation) Vs. Morgan Stanley & Co. (292 ITR 416) (SC). Having applied TNMM as the MAM, the learned CIT (Appeals) applied the list of comparable companies adopted in the case of Sun Microsystems India P. Ltd.; for the same assessment year 2002-03. After selecting the same set of comparables as was taken in the aforesaid case (supra) to be the set o .....

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Both Revenue and the assessee are aggrieved by the findings rendered by the learned CIT (Appeals) and are in appeal before the Tribunal. 4.6.1 Before us, the learned Authorised Representative for the assessee assailed the orders of, both, the TPO and the learned CIT (Appeals). According to the learned Authorised Representative, the TPO rejected the TNMM adopted as MAM by the assessee and adopted CUP method as the MAM by merely stating that TNMM is not the appropriate method without giving any re .....

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hat it suffers from various infirmities both on principles and procedure, and in this regard contended as under : (i) At para 4.4 of the impugned order, the learned CIT (Appeals) has observed that - Adjustments made on account of the arm s length price by the tax authorities can be deleted in appeal only if the appellate authorities are satisfied and record a finding that the arm s length price submitted by the assessee is fair and reasonable. Merely by finding fault with the transfer price dete .....

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ment services while Morgan Stanley and Co. is in the business of providing IT Enabled Services (ITES). Therefore, it is contended that the learned CIT (Appeals) has erred in comparing an ITES company with that of the assessee in the case on hand, which is in the business of provision of software development services to its AE; (iii) In para 5.1 of the impugned order, the learned CIT (Appeals) states that The assessee is involved in the manufacture of computer software which is an IT Enabled Serv .....

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any FAR analysis. b) Without conducting any search process for selection of comparable companies. c) Without specifying any filters for identification of comparable companies; and d) Without even giving any valid reason of how the set of comparables selected in the case of Sun Microsystems India P. Ltd. can be applied to the assessee in the case on hand. It was contended that in view of the above it is clear that the basic and fundamental steps in carrying out a TP comparability analysis have n .....

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to the assessee. 4.6.3 The learned Authorised Representative of the assessee submitted that in view of all the above infirmities and errors pointed out in the orders of the TPO and learned CIT (Appeals), the impugned order of the learned CIT (Appeals) ought to be set aside. 4.7 The learned Departmental Representative for Revenue also assailed the impugned order of the learned CIT (Appeals) on almost similar grounds as those submitted by the assessee. According to the learned Departmental Represe .....

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ave heard the rival contentions, perused and carefully considered the material on record; including the submissions made and the orders of the authorities below. The main thrust of the arguments put forth by both sides is that the impugned order of the learned CIT (Appeals) is erroneous and therefore needs to be set aside. We find substantial merit in the contention of both the assessee and revenue in respect of the manner in which the impugned order of the learned CIT (Appeals) has been framed. .....

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have done is to mention how the facts of the cited / relied upon judicial pronouncements are similar to that of the assessee in the case on hand, to warrant such an application of the decision in those cases to the assessee's case. We find that this fundamental exercise has not been carried out. Further, as pointed out by the learned Authorised Representative of the assessee, there appear to be errors in the classification of the services rendered by the assessee while applying the judicial .....

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opportunity of being heard in the matter to both the TPO as well as the assessee. In the factual matrix of the case, as discussed above, we have no hesitation whatsoever in holding that the impugned order of the learned CIT (Appeals) suffers from errors and infirmities, both on principle and in procedure. 4.8.2 On a careful perusal and consideration of the TPO s order under Section 92CA of the Act, we find that, as contended by the learned Authorised Representative, the TPO adopted CUP Method i .....

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