TMI Blog2018 (7) TMI 1415X X X X Extracts X X X X X X X X Extracts X X X X ..... of law in the present appeal in view of our aforesaid judgment extracted above and therefore there is no merit in the present appeal of the Revenue. - Decided against revenue - I.T.A. No. 49/2009 - - - Dated:- 10-7-2018 - MR. VINEET KOTHARI AND MRS. S. SUJATHA, JJ. For The Appellants : Mr K. V. Aravind, Advocate For The Respondent : Mr. Farrokh Irani and Mr. T. Suryanarayana, Advocate JUDGMENT 1. The Appellants - Revenue have filed this appeal raising purported substantial questions of law arising from the Order of the learned Income Tax Appellate Tribunal Bangalore Bench B , Annexure A dated 26/09/2008 in ITA.No.218(BNG)/2008 for AY 2003-04 (Philips Software Centre Private Ltd., v. Asst. Commissioner of Income Tax). 2. The appellants - Revenue have suggested nine substantial questions of law which are quoted below for ready reference: - (1) Whether the Tribunal was correct in holding that the transfer pricing provisions cannot be invoked and applied in the case where the provisions of Section 10A of the Act, is availed of by the assessee, particularly when the language of the statue is plain and unambiguous? (2) Whether the Tribunal was corr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of law for consideration of this Court:- 34. Whether the Tribunal was correct in holding that the transfer pricing provisions cannot be invoked and applied in the case where the provisions of Section 10A of the Act, is availed of by the assessee, particularly when the language of the statue is plain and unambiguous? 35. Whether the Tribunal was correct in holding that the tax payer was justified in using earlier year data in comparability analysis though it is mandatory as per Rule 10B(4) to use the current year's data and also that the data available in the public databases latest by the specified data should alone be used and the TOP cannot use data becoming available subsequent to the specified date? 36. Whether the Tribunal was correct in holding that the proviso to section 92C(2) of the Act provides for a standard deduction of 5% in all the TP cases? 37. Whether the Tribunal was correct in allowing a flat comparability adjustment of 11.72% (6.46% working capital adjustment + 5.25% risk adjustment) ignoring all important issues like the quality of adjustment data, purpose and reliability of the adjustment 35. performed to be considered before makin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciency. Further, the order passed with the intention of making a higher transfer pricing adjustment. (viii) For the purpose of comparability, companies with even a single rupee of transactions with associated enterprises cannot be considered as comparables. (ix) Adjustment needs to be made to the margins of the comparables to eliminate differences on account of different functions, assets and risks. More specifically, adjustment needs to be made for: (a) Differences in risk profile. (b) Difference in working capital position. (c) Differences in accounting policies. (x) The TPO has grossly erred in 'normalising' the profits of super profit companies. Such companies should have been excluded from the list of comparables. (xi) The proviso to section 92C(2) of the Act provides a standard deduction of 5% to the taxpayers. The only condition for availing this benefit is that is subject to the option of the taxpayer. (xii) The decision of the Tribunal in the case of Mentor Graphics (supra) and E-gain Communication (supra) are squarely applicable to the assessee's case. Some of the relevant common facts relating to the assessee before us and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pment services to its Associated enterprises. (Para 31 On page 23 of the order) Engaged in rendering captive Contract software development Services to its associated Enterprises. 2. E-gain was insulated from all Business and operational risks (Para18 on page 10 of the order) Philips Software bears Nominal business and Operational risk. 3. Net profit margin of E-gain Communication was 5.16% (Para 4 on page 2 of the order) Net profit margin of Philips Software is 5.91% (xiii) Based on the issues raised and discussed, it should be concluded that the transactions of the assessee with its associated enterprises satisfy the arm's length test, and that the order of the TPO is bad in law and on facts. (xiv) Without prejudice to the submission of the assessee that the comparables selected by the TPO should not be considered for the purpose of comparability analysis, the assessee has prepared a working carrying out an accept/reject test on the comparables of the TP Study as well as the companies selected by the TPO as comparables. Even on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be dismissed. 57. We make it clear that the same yardsticks and parameters will have to be applied, even if such appeals are filed by the Assessees, because, there may be cases where the Tribunal giving its own reasons and findings has found certain comparables to be good comparables to arrive at an 'Arm's Length Price' in the case of the assessees with which the assessees may not be satisfied and have filed such appeals before this Court. Therefore we clarify that mere dissatisfaction with the findings of facts arrived at by the learned Tribunal is not at all a sufficient reason to invoke Section 260-A of the Act before this Court. 58. The appeals filed by the Revenue are therefore dismissed with no order as to costs. 6. The point pressed by the learned counsel for the Revenue, Mr. Aravind K.V. before us today is that the learned Tribunal in the afore-quoted para.5.71(i) has made an observation that where the assessee claiming the benefit under Section 10-A of the Act, being a newly established Undertaking in Free Trade Zone is claiming deduction under that provision then, the provisions of Chapter X regarding Transfer Pricing ought not to have been ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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