2015 (6) TMI 23 - AT - Income Tax

Tribunal clarifies transfer pricing methods & deductions in Tax Assessment Appeal

The Tribunal dismissed the Revenue's appeal and partially allowed the assessee's appeal in a case involving assessment under section 92CA of the Income ... TP adjustment - adjustment of ₹ 51,20,400/- to the value of international transactions by accepting the CUP method - Held that:- By applying the rate difference of ₹ 150/- per hour to the number of hours charged to AE at 34,136, the CIT(A) arrived at adjustment of ₹ 51,20,400/- as against adjustment of ₹ 73,46,647/- made by AO. We found that in assessee’s own case in A.Y.2003-04 to 2007-08 vide order dated 25-5-2012 the Tribunal had deleted the adjustment made by TPO by accepting CUP as most appropriate method. The Tribunal has also recorded a categorical finding to the effect that the TPO has not brought out any material on record to prove that the per hour rate charged by the assessee company is lower than that charged by third party in the same line of business. However, in the instant case, after recording categorical finding regarding rate difference of ₹ 150 per hour, the TP adjustment has been restricted by the CIT(A) to ₹ 51,20,400/- as against adjustment of ₹ 73,46,647/- made by TPO. Detailed finding recorded by CIT(A) at para 2 of his order has not been controverted by ld. AR by bringing any positive material on record. Accordingly, we do not find any reason to interfere in the findings recorded by the CIT(A) resulting into addition of ₹ 51,20,400/-. - Decided against assesse. Adjusting the brought forward losses against the income of section 10A unit, before deduction u/s.10A - held that:- As relying on case of Black & Veatch Consulting Pvt. Ltd [2012 (4) TMI 450 - BOMBAY HIGH COURT ] no merit in the order of lower authorities for adjusting brought forward losses against income of Section 10A unit, before deduction u/s.10A. Accordingly, the AO is directed to allow claim of deduction u/s.10A on the profit of eligible unit before adjusting the brought forward losses against the income of Section 10A unit - Decided in favour of assesse. Issues involved:Cross appeals by the assessee and Revenue against the order of CIT(A) for the assessment year 2008-09 under section 143(3) of the Income Tax Act.1. Assessment under section 92CA: The assessee challenged the assessment, claiming that the mandatory conditions to invoke jurisdiction under section 92CA did not exist, rendering the assessment bad in law.2. Transfer Pricing Adjustment: The Revenue contested the deletion of additions to the value of international transactions by CIT(A) and sought restoration of the assessing officer's order.3. Adjustment of Brought Forward Losses: The assessee argued against the adjustment of brought forward losses against the income of the Section 10A unit before deduction under section 10A.Analysis:1. Assessment under section 92CA: The AO observed that the assessee developed software sold to a USA-based company, using the Comparable Uncontrolled Price Method (CUP). The AO made a Transfer Pricing (TP) adjustment of Rs. 73,46,697, citing the failure to prove comparability with third-party transactions. The CIT(A) partially allowed relief of Rs. 22,26,247, adjusting the value based on rates charged by another provider. The Tribunal upheld the CIT(A)'s decision, noting the necessity to value international transactions correctly under the ALP.2. Transfer Pricing Adjustment: The assessee contested a TP adjustment of Rs. 51,20,400 retained by CIT(A) by rejecting adjustments to comparable uncontrolled prices. The Tribunal referenced a previous case where the CUP method was accepted, emphasizing the comparability of rates charged by the assessee with those of reputable companies. Despite the AO's adoption of the TNM method, the Tribunal found the CIT(A)'s adjustment appropriate, reducing the TP adjustment from Rs. 73,46,647 to Rs. 51,20,400 based on rate differences.3. Adjustment of Brought Forward Losses: The assessee challenged the AO's adjustment of brought forward losses against the Section 10A unit's income before deduction under section 10A. Citing a High Court decision, the Tribunal ruled in favor of the assessee, directing the AO to allow the deduction under section 10A before adjusting the losses. This decision aligned with the statutory provisions and upheld the distinction between computing profits and applying loss set-off provisions.In conclusion, the Tribunal dismissed the revenue's appeal and partially allowed the assessee's appeal, emphasizing the correct application of transfer pricing methods and the adherence to statutory provisions regarding deductions and loss adjustments. The judgment provided clarity on TP adjustments, comparability considerations, and the proper sequencing of deductions and loss set-offs in tax assessments.