TMI Blog2016 (7) TMI 1689X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee in order to determine the adjustment, if any, to be made on account of international transactions. Main plea of the assessee before the authorities below was that cost allocation based on cost estimates was an accepted method for the purpose of determining the arm's length price and if the actual cost allocation results in any erosion of overall base of India, then no adjustment is required to be made to the value of international transaction. This has to be seen from the angle that where the assessee is a foreign company and is recipient of internet mail charges and desktop/laptop service charges from the Indian entities, then in cases where it is held that the assessee should have been charged higher amounts from the Indian entities, then the same would result in reduction of overall tax base of India. In such circumstances, the Indian Transfer Pricing provisions are not to be applied. DRP in assessment year 2007-08 and the AO in assessment year 2009-10 has not made any adjustment in the hands of assessee on account of internet mail service charges and desktop/laptop service charges though identical international transactions were carried out in the later years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... variation (after aggregation of under recovery and over recovery of costs) between the actual transaction value and the adjusted transaction value was less than 5%. 5. Ignoring the base erosion principle The Hon'ble CIT(A) has erred on the facts and in the circumstances of the case and in law in ignoring the principle that if the arm's length price results in reduction of overall tax base of India, no adjustment is required to the value of the international transaction as per the view endorsed in section 92(3) of the Act and not considering the relief granted by Hon'ble Dispute Resolution Panel for AY 2007-08. 6. Exclusion of internet mail in cost allocation The Hon'ble CIT(A) has erred on the facts and in the circumstances of the case and in law in not aggregating the differential results of the cost allocation of desktop/laptop and internet mail for making the transfer pricing adjustment and considering only the results of cost allocation based on actual costs for Desktop/laptop software for the purpose of computing the transfer pricing. 7. Initiation of penalty proceedings under section 271(1)(c) of the Act The Hon'ble CIT(A) ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of America? b. Whether in facts and circumstances of the case, the Tribunal was right in not disposing off the without prejudice argument considered by the Appellant that the related support services are not taxable in India as Fees for Included Services under the India-US Tax Treaty? 6. The copy of the order of the Hon'ble Bombay High Court dated 29.01.2014 admitting the aforesaid question of law has been filed on record. Further, it is a common point between both the Authorized Representatives that in assessment year 2004-05, the issue of reopening of assessment has also been admitted for adjudication and question of law framed, but the said issue does not arise in the present appeal. In view of the admission of question of law on the issue of taxability of consideration received by the assessee for facilitating grant of user rights in software to Indian entities, the assessee filed an application under section 158A(1) of the Act pointing out that identical question of law is pending before the Hon'ble Bombay High Court and the final decision on the said issue be applied, against which, the assessee would not raise any question of law before the Hon'ble Bomb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O asked the assessee to furnish the actual details of cost in respect of internet mail, desktop/laptop software, which is tabulated at page 4 of the TPO's order. The plea of the assessee before the TPO was that the cost allocation based on cost estimates was an accepted method for the purpose of determination of arm's length price. Reference was made to para 7.23 of OECD guidelines. The assessee further pointed out that the percentage variation in actual results over estimates in respect of desktop/laptop software was at global level in the hands of assessee was not material and percentage variation over cost allocation estimate was 3.8%, which was less than 5% as provided under section 92C of the Act. The last plea raised by the assessee was that where the application of arm's length price principle results in reduction of overall tax base of India, no adjustment is required to be made to the value of international transaction. The case of the assessee before the TPO was that in case of adjustments in the hands of assessee, there would be corresponding decrease in the income in the hands its associate enterprises i.e. CIL and CSSL, which were both Indian entities. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was an international transaction and hence, the transfer pricing provisions were held to be applicable. The next plea of the assessee that the assessment should be after reduction of excess recovery for internet mail and net amount of USD 44,726 should be the subject matter of adjustment, was also not accepted as the claim of aggregation of transactions was not accepted by the TPO. In view thereof, an adjustment was proposed of USD 52015 corresponding value of Rs. 22,67,333/- was directed to be made to the international transactions relating to receipt of IT charges from associate enterprises. The Assessing Officer in the order passed under section 143(3) of the Act included the said adjustment of Rs. 22,67,333/- as income of the assessee. 12. The CIT(A) after going through the order of Assessing Officer and submissions of assessee observed that the assessee has raised only irrelevant arguments which are not worth rebuttal and he confirmed the transfer pricing adjustment made by the Assessing Officer. 13. The assessee is in appeal against the aforesaid order of CIT(A). 14. The learned Authorized Representative for the assessee pointed out that where the assessee was provid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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