TMI Blog2016 (10) TMI 1266X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 [ 2014 (4) TMI 285 - ITAT HYDERABAD] as per segmental financials the margin in respect of transactions with AEs is 39.26% as against margin of 6.30% in respect of non AE transactions. Therefore, when segmental details have been furnished by the assessee the TPO should have considered them properly instead of rejecting them with broad and sweeping allegations. It seems, the TPO has not properly allocated the segmental expenditures. If the bad debts etc. are not related to AE transactions they cannot be considered as part of operating cost for determining ALP of the transactions with AE. Similarly, reimbursement on cost to cost basis also cannot be included in the operating cost. Since the issue in the current AY is identical to that of AY 2007-08, respectfully following the decision of the coordinate bench in that year, we remit the issue to the file of the TPO/AO to decide the issue following the directions given by the Tribunal in AY 2007-08. Addition of corporate guarantee - HELD THAT:- As decided in assessee own case since the issue in the present case is identical to the issue decided in case of Infotech Enterprises [ 2014 (1) TMI 1363 - ITAT HYDERABAD] following the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our Soft B.V. 1. US FourSoft Inc., USA 2. Netherlands Four Soft BV Netherlands 3. Germany Four Soft Germany Gmbh 4. UK Four Soft UK Ltd. FSL India has branches in the following countries: Singapore Four Soft Pte Ltd. Further FSL India indirectly controls branch in Australia through Four Soft Demark A/s B.V. and in Belgium through Four Soft UK Ltd. 3.2 Business Profile of the company: Four Soft Ltd. (FSL), the taxpayer, is an enterprise solutions company that develops innovative software products and provides IT consultancy services for the logistics and supply chain management marketplace. The group operates across the globe with development centers in India, Australia, Denmark, England, Singapore, Netherlands, Japan and United States. The group also has sales and support offices located across Asia, Australia, Europe and North America. The taxpayer company is registered under the Software Technology Parks of India Scheme and is claiming tax holiday benefit in respect of the profits earned by it from the softwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oftware development services 25,02,10,202 Payment of implementation expenses 5,70,58,238 Loan to AE 3,76,25,021 Interest accrued on loan 29,30,176 Investment into equity 40,61,26,882 Repayment of interest on loan 40,50,447 Repayment of loan 2,03,81,362 Purchase of fixed assets from AE 1,24,514 Reimbursement of expenses by AE (receipts) 7,00,16,499 Reimbursement of expenses to AE (payments) 2,09,76,202 3.6 The taxpayer has carried out the economic analysis in search for comparables. The taxpayer has used Prowess and Capitaline Plus data base in search for comparable comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. 27.23 12. Quintegra Solutions Ltd. 21.74 13. R Systems International Ltd. (seg.) 15.30 14. RS software (India) Ltd. 6.46 15. Sasken Communication Technologies Ltd. (seg.) 13.44 16. Softsol India Ltd. 42.15 17. Tata Elxsi Ltd. (seg.) 18.97 18. Thirdware Solutions Ltd. 18.01 19. Wipro Ltd. (seg.) 28.38 Arithmetic Mean 26.20 3.9 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etition before the Dispute Resolution Panel (DR) raising various objections. 4. DRP has given partial relief to the assessee as under: 4.1 The DRP has deleted the company M/s Celestial Biolabs Ltd. from the list of comparables as comparable. He directed that PLI of M/s Softsol India Ltd. and M/s Kals Infomration Systems Ltd. be taken at 25.78% and 30.92% respectively. 4.2 Considering the above findings of DRP, the AO has reduced the adjustment u/s 92CA to ₹ 9,48,05,292/-. 5. As regards the ALP of interest charged on loan transactions with AEs, the DRP observed that the assessee company adopted the methodology of LIBOR being an internationally accepted norm. It is directed that there is no requirement of any change in the interest charged by the assessee from its associated enterprises. Therefore, the transfer pricing adjustment on interest charged on loan transactions with AEs gets reduced to Nil. 6. As regards the ALP of corporate guarantees given to AEs, the DRP upheld the action of TPO with regard to determination of ALP of commission on corporate guarantee. Therefore, there is no change in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jecting the use of multiple year data and using data for the FY 2007-08 only; Eligibility under section 10A 3. Not appreciating that the Company is eligible for tax holiday benefit u/s 10A of the Act, and there is no incentive for shifting of profits; Rejection of internal comparable transactions 4. Not considering the internal uncontrolled transactions of the Appellant for determining the ALP. Information obtained under section 133(6) 5. a) Using information/ documents obtained by exercising powers u/ s 133(6) of the Act which are not available in public domain; and b) Further not providing any opportunity to Appellant to crossexamine the same. Use of additional filters 6. Inter-alia use of the following additional filters in undertaking the comparative analysis to reject comparable companies having: a) Diminishing revenue/Loss making companies; b) Different financial year-end. c) Onsite revenue in excess of 75%; Selection of companies earning abnormal high margins 7. Selection of compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Not adjusting the net margins of the comparable companies selected taking into account the functional and risk differences between the international transaction of the Appellant and the comparable companies in accordance with the provisions of Rule 10B(1)(e); Applicability of proviso to Section 92C(2) 14. Not allowing the option under the proviso to section 92C(2) of the act in limiting the adjustment at a variation of 5 percent to the arm's length price; Corporate guarantee provided to the AEs 15. a) Applying the Transfer Pricing provisions to the corporate guarantee provided to ICICI Bank in relation to the loan taken by its wholly owned subsidiary for acquisition of companies in Europe; b) Determining the ALP on the corporate guarantee @ 3.75% p.a. on the guarantee amount without undertaking any economic analysis for the same; and c) No appreciating that the acquisition was in the same business as that the Appellant and accordingly beneficial to the Appellant; Non-discrimination under India - Netherlands tax treaty 16. Discriminating its Netherlands ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y collecting the relevant information from the respective comparables u/s 133(6) of the Act. 11. Ld. DR relied on the orders of revenue authorities. 12. Considered the rival submissions and perused the material facts on record. As submitted by the ld. AR that most of the comparables adopted by TPO does not have segmental information. Without the segmental information on record, it is difficult to adopt the filter of 75% of revenue from services. We are not sure, how the TPO has adopted this filter without this basic information. Accordingly, we direct the TPO to collect information from the respective comparables and adopt this filter with the segmental information. TPO can determine the comparables by adopting the above filter. Hence, we find it appropriate to remit this matter back to the file of AO/TPO to determine the comparables afresh by adopting the above filter. The assessee may be given proper opportunity of being heard. Accordingly, grounds raised by the assessee in this regard are allowed for statistical purposes. 13. Ground Nos. 2, 3, 7 14 are not pressed at the time of hearing before us and the same are dismissed as not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c) with retrospective effect from 01/04/2002. Explanation (i)(c) to section 92B, reads as under: capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business. 25.3 A reading of the aforesaid clause from the Explanation would make it clear that the corporate guarantee provided by the assessee comes within the scope and ambit of international transaction as per the aforesaid clause. Therefore, the contention of the learned AR that the issue is covered in favour of the assessee by virtue of the order passed in assessee s own case for AY 2006-07 no longer holds good since the order passed by the coordinate bench is prior to the amendment made to provision of section 92B of the Act. It will be pertinent to mention here that this issue was also considered by the ITAT Mumbai Bench in case of Mahindra Mahindra Vs. DCIT in ITA No. 8597/Mum/2010, 54 SOT (UR) 146. The coordinate bench of this Tribunal while considering similar argument advanced ..... X X X X Extracts X X X X X X X X Extracts X X X X
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