9911796707
TMI Blog2016 (6) TMI 1321X X X X Extracts X X X X X X X X Extracts X X X X ..... d with section 144C of the Income Tax Act, 1961 ('the Act') after considering the adjustments proposed by the Additional Commissioner of Income Tax, Transfer Pricing-l(3) ('Learned TPO') in his order passed under section 92CA(3) of the Act, on the directions of the Hon'ble Dispute Resolution Panel ('DRP') is bad in law in as much as failed to appreciate the facts involved and the applicable law thereon. 2. The Hon'ble DRP has erred in confirming the variations proposed by the Learned AO in the draft assessment order to the returned income of the appellant resulting in an addition of Rs. 1,505,082,752 to the total income of the appellant on account of adjustment in the arm's length price of the international transaction entered by the appellant with its associated enterprises. 3. That on facts and in law, the Hon'ble DRP has erred in concluding that the provisions of Section 92C (3) clause (a) to (d) of the Act are not applicable when the arm's length price is determined by the TPO. 4. That on facts and in law, Learned TPO has erred in not discharging his statutory onus to establish that the appellant's case is covered under any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian transfer pricing regulations and judicial precedence. 13. That on facts and in law, the Hon'ble DRP and Learned TPO/AO have ignored the transfer pricing regulations and judicial precedence and the orders passed by them are bad in law as they do not demonstrate the incentive for the appellant to reduce its taxable base in India. 14. That on facts and in law. the Hon'ble DRP and Learned TPO/AO have failed to apply the Proviso to section 92C of the Act and failing to allow the appellant an option for fixing the arm's length price at a variance of 5 percent from the arithmetic mean determined by him and hence erroneously adjusting the income of the appellant to the mean and making an adjustment up to the mean of comparable margins and not to the arms length margin determined by the appellant. 15. That on facts and in law, the Hon'ble DRP has erred in not passing a speaking order thus violating principles of natural justice. 16. Without prejudice to the above grounds, the Hon'ble DRP has erred in confirming the conclusions drawn by Learned AO in levying interest under section 234B of the Act while completely disregarding the provisions of the Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction under Section 10A of the Income Tax Act'1961, there was no question of any erosion of the Indian tax base; and (c) the Appellant's AE being chargeable to tax at a higher rate in the US, there was no question of shifting of any profit from a low tax paying country to a high tax paying country. The Appellant craves, to consider the above ground and the grounds raised in the appeal filed, are without prejudice to each other and craves leave to add, alter, delete or modify all or any of the above grounds of appeal." 5. During the course of hearing the ld. Counsel for the assessee reiterated the contents of the aforesaid additional grounds and submitted that although these grounds were not raised before the TPO/AO/DRP. However, these go to the route of the matter and are purely legal grounds for which no verification of facts or investigation is required because all the material relevant to these grounds is already available on the record. 6. The ld. CIT DR opposed the admission of the additional grounds by stating that these were not raised either before the AO/TPO or DRP in spite of the various opportunities given by them, therefore, these additional grounds shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee with the AEs relating to provisions of IT enabled services, Bangalore STP units, payment for assignment of personnel and payment of interest on foreign exchange loan were considered to be at Arm's Length Price. The AO framed the draft assessment order on the basis of the order of the TPO. Against the draft assessment order, the assessee raised the objection before the DRP-II, New Delhi who rejected the objections of the assessee vide order dated 30.08.2010 and directed the AO to complete the assessment inconformity with the Arm's Length Price determined by the TPO which would result in an addition of Rs. 1,50,50,52,752/-. The AO in accordance with the directions of the DRP framed the assessment at an income of Rs. 1,50,50,80,810/-. 10. Now the assessee is in appeal. The ld. Counsel for the assessee submitted that the assessee earned operating margin of 15.14% on operating cost and since the said operating margin was higher than the average arithmetic mean of the comparables worked at 12.04%, the transactions between the assessee and its AEs in respect of Software Development Services could have been considered to be at Arm's Length and no adjustment was required. A referen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee was better than the average margin of the comparables and no adjustment was required. Alternatively, it was submitted that now the annual reports of the comparables which were not available at the time of making the transfer price study, are now available which may be considered by the TPO and the matter may be restored back to the TPO/AO. 12. In his rival submissions the ld. DR strongly supported the order of the AO/TPO and further submitted that the annual reports of the comparable selected by the assessee were not available to the TPO. Therefore, he was justified in excluding those comparables. 13. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admitted fact that complete data relating to the comparable selected by the assessee was not available at the time of making the transfer price study. However, the same are now available at the public domain. We, therefore, think it appropriate to restore this issue back to the file of the TPO/AO to be decided afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee. 14. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, it is noticed that the TPO applied the residuary profit split method as most appropriate method instead of TNMM method choosen by the assessee as most appropriate method. It is also noticed that the TPO for the assessment year 2010-11 had considered the TNMM method as most appropriate method by keeping in view the Circular No. 6/2013 dated 29.06.2013 by observing in paras 2.18 to 2.20 at page no. 54 of his order as under: "2.18 The above analysis is based on the new facts available in this office and guidance available in the form of circulars and press releases by CBDT. It shows that the assessee does get categorized as a contract R and D centre with insignificant risks. It may be seen that the circular does not mandate that all the conditions need to be satisfied but it can be seen that the assessee satisfies most of the conditions and is thus a contract R and D centre. 2.19 A contract R and D centre that is involved in performing functions for its AE does have international transactions with its AE that require determination of its arm's length price. For that, there is a requirement of the Most Appropriate Method. Circular 6/2013 states that "The assessing officer o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndian Development Centre works under the direct supervision of the foreign principal or its associated enterprise which has not only the capability to control or supervise but also actually controls or supervises research or product development through its strategic decisions to perform core functions as well as monitor activities on regular basis; 4. The Indian Development Centre does not assume or has no economically significant realized risks. If a contract shows that the foreign principal is obligated to control the risk but the conduct shows that the Indian Development Centre is doing so, then the contractual terms are not the final determinant of actual activities; 5. In the case of a foreign principal being located in a country/territory widely perceived as a low or no tax jurisdiction, it will be presumed that the foreign principal is not controlling the risk. However, the Indian Development Centre may rebut this presumption to the satisfaction of the revenue authorities. Low tax jurisdiction shall mean any country or territory notified in this behalf under section 94A of the Act or any other country or territory that may be notified for the purpose of Chapter X of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10A of the Act. We order accordingly. 20. As regards to the assessment year 2010-11 is concerned, the ld. Counsel for the assessee admitted that there is no dispute relating to the application of most appropriate method. However, the additional ground relating to deduction u/s 10A of the Act was not before the TPO/AO. The said grounds are purely legal grounds and raised first time before the Tribunal, so this issue raised in the additional grounds is remanded to the file of the TPO/AO to be decided along with another assessment years under consideration. Since the issue relating to the deduction u/s 10A of the Act is restored to the file of the TPO/AO, the another issues relating to corporate matters should also be decided by the TPO/AO afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee. 21. As regards to the issues raised on the transfer pricing matters in the grounds of appeal relating to assessment year 2010-11, the contentions of both the parties were similar as were in respect of the similar grounds in another appeals relating to the other assessment years 2007-08 to 2009-10 which we have already adjudicated in former ..... X X X X Extracts X X X X X X X X Extracts X X X X
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