TMI Blog2020 (6) TMI 817X X X X Extracts X X X X X X X X Extracts X X X X ..... in the APA entered into between the taxpayer and the CBDT though for the roll back years and subsequent years, application of most appropriate transfer pricing method and arm s length price of these transactions have already been agreed upon between the taxpayer and CBDT and there is no change in the FAR and nature of international transactions entered into during the year under consideration vis- -vis earlier years and subsequent years, principle laid down in the APA for benchmarking the international transactions in question shall have a guidance value. Moreso these days, it is endevour of the Union of India to stop avoidable litigations and this case falls in the category of cases where litigation can be minimized. As brought on record by the taxpayer the consolidated margin (OP/OC) for the year under assessment as 19.26% as against ALP agreed upon between the parties to the appeal under APA at 16.60%. So, we are of the considered view that transfer pricing adjustment made by the AO/TPO/CIT(A) by applying Transfer Pricing principles is not sustainable, hence ordered to be deleted subject to the verification of computation of margin made by the taxpayer as per APA referred. - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in determining the arm's length adjustment to the Appellant's international transactions from Associated Enterprises ( AEs ) and thereby resulting in the enhancement of returned income of the Appellant. 4. The Ld. AO/ TPO/ CIT(A) erred on facts and in law in the assessment of the arm's length price of the Appellant's international transactions with associated enterprises for its IT enabled Services ( ITeS ) segment in the following manner: 4.1. The Ld. AO/Ld. TPO/Ld. CIT(A) erred in rejecting the quantitative filters selected by the Appellant in the TP documentation/ fresh search by applying few additional/ modified quantitative filters which lacked valid and cogent reasoning 4.2. That on facts and circumstances of the case and in law, the Ld. AO/ CIT(A)/ TPO have erred in rejecting the transfer pricing study of the Appellant and using arbitrary filters 4.3. That on the facts and circumstances of the case and in law, the Ld. AO/ CIT(A)/ TPO have erred, in arbitrarily rejecting certain functionally comparable companies identified by the Appellant on a subjective basis, inter alia, using unreasonable comparability criteria. 4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 33,64,00,315. 2. The Ld. TPO/ AO/ CIT(A) erred on facts and circumstances of the case in determining the arm's length adjustment to the Appellant's international transactions from Associated Enterprises ( AEs ) and thereby resulting in the enhancement of returned income of the Appellant. 3. The Ld. AO/ TPO/ CIT(A) erred on facts and in law in the assessment of the arm's length price of the Appellant's international transactions with associated enterprises for its Software Development Services ( SDS ) segment in the following manner: 3.1. The Ld. AO/Ld. TPO/Ld. CIT(A) erred in rejecting the quantitative filters selected by the Appellant in the TP documentation/ fresh search by applying few additional/ modified quantitative filters which lacked valid and cogent reasoning 3.2. That on facts and circumstances of the case and in law, the Ld. AO/ CIT(A)/ TPO have erred in rejecting the transfer pricing study of the Appellant and using arbitrary filters 3.3. That on the facts and circumstances of the case and in law, the Ld. AO/ CIT(A)/ TPO have erred, in arbitrarily rejecting certain functionally comparable companies identified by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings under section 271 (1)(c) of the Act. 3. Appellant, DCIT, Circle 11 (1), New Delhi by filing the present appeals sought to set aside the impugned orders both dated 12.10.2018 passed by the ld. Commissioner of Income-tax (Appeals)-43, New Delhi challenging the orders passed by the ld. TPO/AO qua the assessment year 2010-11 on the grounds inter alia that :- ITA NO.3087/DEL/2019 1. The Ld. Commissioner of Income-tax (Appeals) erred in law and on the facts of the case in deleting the addition of Rs.4,30,50,8768/- made by the AO on account of ALP adjustment of international transactions from Associated Enterprises. ITA NO.579/DEL/2019 1. The Ld. Commissioner of Income-tax (Appeals) erred in law and on the facts of the case in deleting the addition of Rs.4,30,50,8768/- made by the AO on account of ALP adjustment of international transactions from Associated Enterprises. 4. At the very outset, the ld. DR for the Revenue submitted that there is a delay of 70 days in ITA No.3087/Del/2019 filed by the Revenue in filing the appeal before the Tribunal and sought to condone the delay. Keeping in view the reasonable cause given in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, finally selected 13 comparables with average of 27.55% and computed the margin of the taxpayer at 9.75% and consequently proposed adjustment at Rs.547,40,801/-. 8. In order to benchmark the international transactions qua ITES, the taxpayer again applied TNMM with OP/OC as the PLI as MAM chosen 10 comparables and computed margin at 13.94% as against taxpayer s own margin of 15.64% and found its transactions at arm s length. However, ld. TPO after applying various filters accepted the method of TNMM with OP/OC as PLI adopted by the taxpayer chosen 9 comparables with margin of 32.07% and computed the margin of the taxpayer at 18.57% and thereby proposed the adjustment at Rs.17,80,96,798/-. 9. Ld. TPO also proposed adjustment on account of interest to be received by the taxpayer on loan advanced to the AE @ 14.88% per annum at Rs.7,85,01,217/-. 10. The taxpayer carried the matter before the ld. CIT (A) by way of filing the appeal who has partly allowed the same by making exclusion of five comparables and thereby reduced the adjustment from Rs.17,80,96,798/- to Rs.14,93,29,567/- in the SDC segment and reduced the adjustment from Rs.54,74,08,012/- to Rs.4,04,57,154/- by rejec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to international transactions with its AE despite the fact that there is no change in the FAR of the taxpayer in the relevant year vis- -vis years covered under APA. 17. Undisputedly, the taxpayer has entered into APA dated August 29, 2016 with CBDT, available at pages 17 to 56 of the paper book volume 1. Terms of Agreement and covered transactions of APA read as under :- 2. The term of the Agreement The Agreement shall apply to consecutive five years commencing from Previous Year 2014-15 to Previous Year 2018-19(relevant to Assessment Years 2015-16 to 2019-20). The Agreement shall also apply to consecutive four rollback years commencing from Previous Year 2010-11 to Previous Year 2013-14 (relevant to Assessment Years 2011-12 to 2014-15) {hereinafter referred to as Rollback Years }. 3. Covered Transaction The international transactions of Provision of Software Development Services including debtors/receivables, Provision of IT-Enabled Services including debtors/receivables, Reimbursement of ESPP and ESOP/RSUs paid/payable and Reimbursement of expenses between the Applicant and its AEs, as described in Appendix I, shall be the covered trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,56,43,92,305 2,28,25,23,758 2,28,25,23,758 Add : Non Operating Income 2,75,61,058 2,75,61,058 9,71,13,873 Interest Income on FD 6,51,88,748 6,51,88,748 Interest Income on Loans 14,56,140 14,56,140 Profit on Sale of Assets 29,07,927 29,07,927 Interest on Tax refund Total Income 71,81,31,453 1,56,43,92,305 2,37,96,37,631 2,37,96,37,631 Expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43,93,83,381 21. Ld. DR for the Revenue without disputing the fact that there is no change in the FAR of the taxpayer in the year under assessment vis- -vis years covered under APA and has also not disputed the consolidated margin of 19.26% computed by the taxpayer as per terms of the APA agreement, extracted in the preceding para, contended that since APA has been entered into between the taxpayer of the CBDT for specific years, the same cannot be applied to the years under assessment. The ld. DR further contended that ALP rate agreed upon in the APA for earlier and subsequent years cannot overrule the statutory determination of ALP made by the TPO as per method prescribed under the law. 22. We are of the considered view that contention raised by the ld. DR is not tenable for the reason that when undisputedly there is no change in the FAR of the taxpayer in the year under assessment vis- -vis years covered under APA and consolidated margin (OP/OC) computed as per APA at 19.26% is much more than the consolidated margin agreed upon between the taxpayer and the CBDT for the years cov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direct the Department to pass an order giving effect u/s.92 CD (5) of the Act in the A.Y. 2010-11 2011-12. Whereas for A.Y.2008-09 and A.Y.2009-10, we observe that the principles laid down in the APA for benchmarking/ comparability analysis in respect of the international transactions shall have a guidance value since there is no change in the said Assessment Years in the nature of the international transactions, functional, Asset and Risk ('FAR') profile of the assessee and the AEs. We direct accordingly. 26. So, in view of what has been discussed above and following the orders (supra) passed by the coordinate Bench of the Tribunal, we are of the considered view that when in the APA entered into between the taxpayer and the CBDT though for the roll back years and subsequent years, application of most appropriate transfer pricing method and arm s length price of these transactions have already been agreed upon between the taxpayer and CBDT and there is no change in the FAR and nature of international transactions entered into during the year under consideration vis- -vis earlier years and subsequent years, principle laid down in the APA for benchmarking the interna ..... X X X X Extracts X X X X X X X X Extracts X X X X
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