TMI Blog2018 (10) TMI 1433X X X X Extracts X X X X X X X X Extracts X X X X ..... directions of DRP in this regard and dismiss the ground of appeal No.2 raised by Revenue. Adjustment made to provision of intra-group cost - Held that:- The case of assessee before us was that theses costs had been recovered on cost plus markup from associated enterprises and hence, there is no merit in adopting the same at Nil. The Tribunal in assessment year 2009-10 had also remitted the issue back to the file of TPO. Accordingly, we remit this issue to the file of TPO/Assessing Officer to adjudicate the issue after affording reasonable opportunity of hearing to the assessee in line with directions of Tribunal in earlier years. The TPO/Assessing Officer shall also consider the plea of assessee in recovering intra-group cost at cost plus markup and decide the issue in accordance with law. - ITA No.577/PUN/2015 And ITA No.592/PUN/2015 - - - Dated:- 24-10-2018 - MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM For The Assessee : Shri Rajendra Agiwal For The Revenue : Shri Rajeev Kumar, CIT ORDER PER SUSHMA CHOWLA, JM: The cross appeals filed by Revenue and assessee are against order of ACIT, Circle-14, Pune, dated 26.02.2015 relating to ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering the fact that transfer pricing adjustments has been made on account of difference of opinion, interpretation of provisions of law, etc and not due to concealment of or furnishing of inaccurate particulars of income. 4. Erroneous levy of interest under section 234B of the Act Erred in law and on facts in levying interest under section 234B of the Act to the extent addition is made to the total income of the Appellant on account of transfer pricing adjustment without considering the fact that shortfall in advance tax resulted in view of the addition to total income, which are unanticipated in nature. 5. The issue raised in cross appeals is against transfer pricing adjustment made by Assessing Officer, part of which was deleted by Dispute Resolution Panel (DRP). 6. The appeal of Revenue is filed after delay of one day, against which the Revenue has filed an affidavit and in view of the facts and circumstances, there is merit in the plea raised by Revenue and delay of one day is thus, condoned. 7. Briefly, in the facts of the case, the assessee had furnished return of income declaring total income of ₹ 4,04,01,599/-. The return of income was pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustment of 5.5%, which was not accepted. In this regard, reliance was placed on various decisions of different Benches of Tribunal. The second aspect noted by TPO was the adjustment in connection with payment of management fees, communication / internet expenses and meeting expenses and it was observed that unless it was shown that tangible and direct benefit was derived by such payment or that the payment made commensurated with the benefit that was derived or expected to be derived, when the parties deal with each other at arm's length, he held that arm's length price of such payment for intra-group services would be treated either Nil or to the extent it is shown that the benefit actually derived from such payment. The TPO also noted that similar adjustment of ₹ 14,88,134/- was made on account of intra-group services in assessment year 2008-09 and following the same parity of reasoning, the TPO proposed an upward adjustment of ₹ 2,00,61,662/-. The assessee also raised an issue that management fees expenses may be reduced from operating cost to arrive at the PLI margins. Then applying directions of DRP in assessment year 2008-09, intra-group cost was reduced f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears 2008-09 and 2009-10. It was also pointed out that the TPO had also relied on order of DRP in assessment year 2008-09 while making adjustment on account of meeting expenses, etc. He further pointed out that the appeal filed by the Revenue is against application of higher turnover and higher assets. He stated that the issue raised in ground of appeal No.1 is against directions of DRP in holding that the concerns to be selected as between ₹ 1 crore to 300 crores and companies failing the turnover, were to be excluded. The second issue was against addition of comparables selected by the assessee, wherein it was alleged whether such new comparables could be selected. In this regard, the learned Authorized Representative for the assessee placed reliance on the decision of Pune Bench of Tribunal in M/s. Vishay Components India Pvt. Ltd. Vs DCIT in ITA No.133/PUN/2011, relating to assessment year 2006-07, order dated 16.05.2016. 11. The learned Departmental Representative for the Revenue placed reliance on the order of Assessing Officer and fairly admitted that the issues raised in assessee s appeal have been decided by Tribunal. He also relied on the orders of Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnover of ₹ 504 crores and Sasken Communication Tech Ltd., turnover of ₹ 401 crores. The DRP accepted the plea of assessee and the Assessing Officer in final assessment order had excluded above five concerns. The Revenue is in appeal against said directions of DRP. 13. The issue of selection of suitable turnover to be applied has been adjudicated in series of cases and following the same parity of reasoning, we uphold the directions of DRP in applying turnover of ₹ 1 crore to 300 crores while selecting the concerns as comparables. Accordingly, we find no merit in the ground of appeal No.1 raised by the Revenue in this regard. Hence, five concerns are to be excluded from final set of comparables. 14. The second aspect of application of transfer pricing provisions to the segment of provision of software development services by the assessee to its associated enterprises was in respect of selection of three new concerns by the assessee during TP proceedings. The TPO rejected the plea of assessee. However, the DRP directed that the said concerns i.e. Maveric Systems Ltd., Silverline Technologies Ltd. and Evoke Technologies Pvt. Ltd. should be included in final se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns should be such which is available by the due date of filing the return of income. First onus is upon the assessee to justify that the international transaction entered into by it with its associate enterprises is at arm's length price, in case it is compared with uncontrolled transactions i.e. transactions entered into by other concerns in similar circumstances. This documentation is to be compiled by the assessee by way of transfer pricing report in order to justify the arm's length price of its international transactions. 16. Under section 92C of the Act, it is provided that arm's length price in relation to international transaction shall be determined by following any of the methods prescribed therein which is the most appropriate method, having regard to the international transaction or class of transactions or class of associated persons or functioned performed by such persons or such other relevant entities as the Board may prescribe. Sub-section (2) therein provides that the most appropriate method shall be applied for determination of arm's length price in the manner as may be prescribed. Section 92C(3) of the Act reads as under:- 92C. (1).. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under section 92C of the Act to the TPO. Under section 92CA(3) of the Act, the TPO is empowered to determine the arm's length price in relation to the international transaction in accordance with sub-section (3) of section 92C of the Act. For doing so, the TPO is to serve notice upon the assessee requiring him to produce or cause to be produced, any evidence on which he may rely upon in support of computation made by him of the arm's length price in relation to international transaction. After hearing such evidence including any information or documents referred to in section 92C(3) of the Act and after considering such evidence as the TPO may require on specified date and also taking into account relevant material which he has gathered and confronted to assessee, the TPO has to pass an order in writing. Hence, under the provisions of the Act, the machinery to pass an order for determination of arm's length price of an international transaction entered into by any person is so provided. It is not only the evidences which are relied upon by the assessee in support of its computation of arm's length price of its international transaction but also any other eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailable at the time of complying with the documentation requirements and had come into public domain much later. We find no merit in the claim of the assessee that the data of companies which were not available in public domain at the time of complying with documentation requirements cannot be considered. The companies which are picked up by the TPO are functionally comparable to the assessee and the data which has been compiled by the TPO relates to assessment year 2006-07, and was confronted to the assessee and merely because the data came into public domain at a later date, the same cannot be ignored. The TPO has power to use any data which comes into his possession and Section has not provided any fetters to the collections of data on a particular date or otherwise and use of such data; in the absence of which, there could not be curtailment of powers to be exercised by the TPO for determining arm's length price of international transaction. Merely because, the financial results of a concern which were functionally similar to the assessee came into public domain on a later date, but relate to the year in which the international transaction had been undertaken, cannot be rej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered the burden of proof on the taxpayer and the Revenue authorities and had observed as under:- 132. A dispassionate study of provisions of various countries on Burden of Proof, would show, the following fundamental features: (i) That the burden to establish that international transaction is carried at ALP, is on the taxpayer who is to disclose all the relevant information and documents relating to prices charged and profit earned with related and unrelated customer. (ii) If the Assessing Officer has determined an ALP, other than the price declared by the assessee, Assessing Officer has to prove that the price determined by him is reliable and reasonable and confirms the statutory requirement unless the case is covered by situation No. (iii) below. (iii) In case of failure on the part of the taxpayer to comply with the statutory provisions, the tax authorities would have to determine the ALP. In such a situation, burden of proof on tax authorities is much reduced. 21. Thereafter, the conclusion of the Tribunal was that the taxpayer had to cooperate with the tax authorities by furnishing relevant information. Further, where the authorities were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... faults with the transfer price determined by the revenue authorities (AO/TPO), addition on account of adjustments cannot be deleted. This is because the mandate of section 92(1) is that in every case of international transaction, income has to be determined having regard to ALP. Therefore, unless ALP furnished by the taxpayer is specifically accepted, the appellate authorities on the basis of material available on record has to determine ALP itself. Subject to statutory provisions, Appellate authorities can direct lower revenue authorities to carry this exercise in accordance with law. The matter cannot be left hanging in between. ALP of international transaction has to be determined in every case. 22. The above said proposition has been laid down by the Special Bench of Bangalore Tribunal while interpreting the transfer pricing provisions and the principle laid down by the Special Bench of Tribunal is applicable to the issue before us. The learned Authorized Representative for the assessee before us has placed reliance on the ratio laid down by Hon ble Bombay High Court in Scindia Steam Navigation Co. Ltd. Vs. CIT (supra), wherein the issue was the applicability of amend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir turnover are excluded and three new concerns selected by assessee during TP proceedings are selected, then the margins shown by assessee in the provision of software development services would be at arm's length price of margins shown by comparables, even if revised PLI is adopted i.e. intra-group cost is not excluded from operating expenditure. 18. Now, we shall also address ground of appeal raised by assessee which is against adjustment made to provision of intra-group cost. The adjustment has been made by TPO by taking intra-group cost at Nil and hence, adjustment of ₹ 2,00,61,662/- was made by TPO / Assessing Officer. However, the said amount was reduced from the operating expenditure and revised operating profit as percentage of revised operating cost was determined. The DRP however, has further directed that revised PLI of assessee would further be revised in case no adjustment is to be made to the segment of provision of intra-group cost. 19. We find that similar adjustment on account of management fees, communication cost i.e. intra-group cost was made in assessment years 2008-09 and 2009-10. The case of TPO was that the assessee had not furnished evidenc ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
