Tribunal rules in favor of assessee in transfer pricing dispute, deletion of income addition upheld

The Tribunal held that the arm's length price determined by the Transfer Pricing Officer did not exceed the safe harbour limit of +/-5% as per the unamended proviso to section 92C(2) of the Income-tax Act. Therefore, the addition of Rs. 75,09,415 to the assessee's income was deleted. The Tribunal allowed the appeal filed by the assessee, as the deletion of the addition made other raised issues academic.

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Issues Involved:
1. Determination of Arm's Length Price (ALP) for international transactions.
2. Application of the safe harbour provision under section 92C(2) of the Income-tax Act.
3. Retrospective applicability of the amended proviso to section 92C(2).

Detailed Analysis:

1. Determination of Arm's Length Price (ALP) for international transactions:
The assessee, a subsidiary of Policy Networks Inc., USA, engaged in developing and exporting application software, entered into international transactions amounting to Rs. 14,33,33,713. The Transfer Pricing Officer (TPO) determined the ALP at Rs. 15,08,43,128, resulting in an addition of Rs. 75,09,415 to the assessee's income. The TPO applied additional filters, rejecting all comparables except three companies (SoftPro Systems, Fortune Informatics Limited, and Sankhya Infotech) and arrived at an OP/TC percentage of 15.64%.

2. Application of the safe harbour provision under section 92C(2) of the Income-tax Act:
The assessee argued that the addition was not warranted as the difference fell within the safe harbour limit of +/-5% as per the proviso to section 92C(2). The assessee's calculation showed the difference did not exceed 5%, thus qualifying for the safe harbour protection. The assessee cited various decisions supporting the application of the safe harbour provision.

3. Retrospective applicability of the amended proviso to section 92C(2):
The Revenue contended that the safe harbour should be computed on the revenue shown by the assessee and that the amended proviso, applicable from 1-10-2009, should be applied retrospectively. The assessee argued that the proviso was a substantive provision and could not be applied retrospectively. The Tribunal examined the pre and post-amendment changes, noting that the amended proviso created new rights and liabilities and thus could not be applied retrospectively. The Tribunal relied on established principles of interpretation and previous decisions, concluding that the unamended proviso applied to the assessee's case.

Conclusion:
The Tribunal held that the difference in the arm's length price determined by the TPO and the revenue received by the assessee did not exceed the safe harbour limit of +/-5% as per the unamended proviso. Consequently, the addition of Rs. 75,09,415 was deleted. The Tribunal did not address other issues raised by the assessee, as the deletion of the addition rendered them academic. The appeal filed by the assessee was allowed.

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