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TMI Blog2025 (2) TMI 546X X X X Extracts X X X X X X X X Extracts X X X X ..... r pricing adjustment (hereafter TP adjustment). The said TP adjustment was in two parts. One that related to the international transactions between Hewitt Associates (India) Private Limited (hereafter the Assessee) and Associated Enterprises (AEs) in the US (hereafter US Transactions) and the TP adjustment in respect of international transactions other than US Transactions (hereafter Non-US Transactions). Whilst the TP adjustment relating to US Transactions was determined at Rs. 41,79,89,294/-, the TP adjustment in regard to Non-US Transactions were determined at Rs. 2,26,48,798/-. The US Transactions were subject to the Mutual Agreement Procedure (hereafter MAP) between the competent authorities of US and India under Article 27 of the India-US Double Taxation Avoidance Agreement (hereafter the Indo-US DTAA). The dispute is, thus, confined to the TP adjustment relating to Non-US Transactions, which was determined at Rs. 2,26,48,798/-. 3. The learned ITAT accepted the Revenue's contention and remanded the matter to the Transfer Pricing Officer (hereafter TPO) to determine the TP adjustment relating to Non-US Transactions on the same framework as adopted for determining the TP adjus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 144C (5) of the Act and based on the said directions, the AO passed the final assessment order under Section 144C/143 (3) of the Act on 24.08.2012. 11. The Assessee appealed the said decision before the learned ITAT, which was disposed of by the impugned order. During the course of the appellate proceedings, the Assessee invoked the MAP as included under Article 27 of the Indo-US DTAA for resolving the transfer pricing dispute for the relevant AY pertaining to US Transactions by making an application in accordance with Rule 44G of the Income Tax Rules, 1962 (hereafter the Rules). The competent authority of India as well as the competent authority of the USA agreed upon a framework to resolve the transfer pricing case relating to IT services and IT enabled services for the assessment years (AYs) 2006-07 to 2010-11. The said Agreement was arrived at on 15.01.2015/16.01.2015. 12. It is also material to note that the Assessee [then known as Hewitt Associates (India) Private Limited] merged with AON Consulting Private Limited (the appellant in the present appeal) under the Scheme of Amalgamation, which was approved by this court by an order dated 25.01.2017. 13. On 21.12.2017 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... base) had yielded a set of sixteen comparable entities with the mean profit level indicator (PLI) as 13.06%. The Assessee's PLI (profit over cost) worked out to 15.69%. Thus, the Assessee claimed that the transactions were on the arm's length basis. 18. The TPO did not accept the said analysis and held that it had several defects. The TPO, inter alia, faulted the Assessee in not applying the apposite filters and rejecting certain filters on the ground that they were functionally different. Additionally, the TPO found that the data used by the Assessee did not pertain to the financial year in which the international transactions were entered into and therefore the analysis was not compliant with Rule 10B (4) of the Rules. Accordingly, the TPO rejected the economic analysis. However, the TPO accepted TNMM as the most appropriate method for determining the ALP. 19. The TPO, thereafter, proceeded to select a set of filters, which were materially different from those selected by the Assessee, and applying the said filters rejected some of the comparable entities selected by the Assessee. The TPO also selected certain other comparables. The arithmetic mean PLI of the comparable entitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ite to use the framework agreed by competent authorities of the US and India under the MAP in terms of Article 27 of the Indo-US DTAA, for deciding transfer pricing issues that are not covered under the said framework. 25. The concept of MAP is evolved for resolving a dispute regarding double taxation by a consensual procedure, within the framework of the Double Taxation Avoidance Agreements. In cases where a taxpayer finds that the taxation is not in accordance with the Double Taxation Avoidance Agreement, it is entitled to apply for resolution by MAP. Article 27 of the Indo-US DTAA, which provides for resolutions by a Mutual Agreement Procedure (MAP), is set out below: "ARTICLE 27 - Mutual agreement procedure - 1. Where a person considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with the provisions of this Convention, he may, irrespective of the remedies provided by the domestic law of those States, present his case to the competent authority of the Contracting State of which he is a resident or national. This case must be presented within three years of the date of receipt of notice of the action whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified by Circular No.F.No.500/09/2016-APA-I dated10.06.2022 (hereafter the CBDT Circular). The relevant extract of the same is set out below: "Mutual Agreement Procedure (MAP) I. Mutual Agreement Procedure (MAP) is an alternate tax dispute resolution mechanism available to the taxpayers under the DTAAs for resolving disputes giving rise to double taxation or taxation not in accordance with DTAAs. MAP can help in relieving double taxation either fully or partially. Almost all DTAAs entered into by India have the MAP Article and it provides an additional dispute resolution mechanism to taxpayers in addition to those available under the domestic laws of India. A taxpayer can request for assistance under MAP regardless of the remedies provided under the Indian domestic law. MAP enables the CAs of India to engage with the CAs of other treaty partners and is a process which facilitates discussions and negotiations between both treaty partners as they endeavour to resolve international tax disputes, which are not in accordance with the relevant DTAAs. At present, India has two CAs for MAP cases and they are senior officers in Department of Revenue, Ministry of Finance (Joint Secreta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s out the MAP Process. The same is reproduced below: "IV. The MAP Process Once a MAP application is accepted by the CA of India having jurisdiction over the case, she shall intimate the CA of the relevant treaty partner about such acceptance through a written communication (notification or invocation letter). In such written communication, she would also briefly indicate why she feels that the action of the tax authorities of the treaty partner results or will result in taxation not in accordance with the relevant DTAA. She would also request the CA of the treaty partner to provide her written position (position paper) on the order/action of the tax authorities of her country. If a MAP application is found to be not acceptable by the CA of India having jurisdiction over the case, she shall write to the CA of the relevant treaty partner informing her about the reasons for which the MAP application cannot be accepted and request the latter to send her views/comments on the same (notification and bilateral consultation). Once the CAs of both treaty partners have exchanged views and come to a common understanding, the decision on the MAP application shall be communicated by the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, and non-resolution of the dispute would result in taxation not in accordance with the relevant DTAAs; and * The CAs of all the participating countries or specified territories agree to negotiating a multilateral MAP." 32. It is clear from the above that MAP is a resolution process by competent authorities of contracting states by negotiations and consensus. 33. In a case of a transfer pricing adjustment, an assessee may not be aggrieved by an upward revision if the overall taxation between the assessee and its AE is acceptable to it. A multi-national group may accept a situation where an upward TP adjustment by a taxing authority of one country has a corresponding mitigating effect on the taxable revenue of its constituent entity in the other contracting state. It may do so even though it considers the same to be incorrect as the adverse effect in one jurisdiction may even out in another. However, this would not justify a TP adjustment in respect of transactions which are disputed and not subjected to MAP. 34. It is important to note that MAP procedure is based on an agreement between the competent authorities of the contracting states, which is accepted by the Assessee. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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