TaxTMI 
TaxTMI 
2011 (5) TMI 222
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....ified in excluding miscellaneous income while computing the deduction under section 10A of the Act. 3. In the course of hearing of this appeal, the learned counsel for the assessee pointed out that identical issue has been decided against the assessee by the Tribunal vide order dated 17-12-2009 passed by the ITAT, Delhi Bench 'C' pertaining to the assessment years 2003-04 and 2004-05 in ITA Nos.2763 & 2764/Del/2009 along with ITA Nos. 1432 & 2321/Del/2009. The learned DR has also submitted so. 4. We have gone through the aforesaid Tribunal's order and find that this issue was decided against the assessee in the light of the decision of Hon'ble Supreme Court in the case of Liberty India v. CIT [2009] 317 ITR 218/183 Taxman 349. The learned CIT(A) in the current assessment year has decided this issue in the light of the order of Tribunal for the earlier year where the reliance on the decision of Hon'ble Supreme Court in the case of Liberty India (supra) was placed. 5. Respectfully following the Tribunal's order in the earlier year's order, we decide this issue against the assessee by upholding the order of the learned CIT(A). Thus, the grounds raised by the assessee are reje....
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.... overseas entity provides market support services and the assessee provides back office support service. In the transfer pricing report submitted by the assessee, the assessee stated that since the correct tested party i.e. AE of the assessee, earned less than its comparables, the international transactions undertaken by the assessee with it's AE were at arm's length. 12. After analyzing the international transactions, business profile and relationship between the assessee and GVI in details, the TPO did not accept GVI as the tested party for the application of TNMM. The TPO after having considered the assessee's method and comparables selected by him selected OP/TC as a PLI for the bench marking of the international transaction entered into by the assessee. The TPO then computed the arm's length price at Para 8 on page 23 of his order as under:- TC of assessee = Rs.58,85,00,000 Arm's Length revenue = Rs.122.21% *58,85,00,000 Rs.71,92,05,850 Book value of revenue = Rs.59,55,00,000 Difference of arm's length revenue and book value of international transactions = Rs.12,37,05,850 Arm's length value of international transactions Rs.57,41,44,73....
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.... the tax legislation shall become infructuous. The taxpayer should be the one determining the same, however, it should be subject to scrutiny by the tax administration so that any profit shifting methodology being adopted by the assessee can be rejected. However, with this power, also comes the responsibility of being judicious and thus, the AO/TPO have to exercise their authority in accordance the Transfer Pricing Regulations. 19. I am though in agreement with the contention of the appellant that 'FAR analysis' forms the basic foundation on which the ALP is determined and its importance just cannot be overemphasized. 20. The appellant has been provided full opportunity during the course of appellate proceedings before me, to present the facts of the case, including FAR analysis and on consideration of same the ALP has been determined in subsequent paras." Having observed so, the learned CIT(A) decided this issue against the assessee for statistical purposes. 17. Regarding issue No.3 whether ALP of international transaction between the assessee and its AE can exceed a total amount of revenue earned from clients by the assessee and its associate enterprises together, the....
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....s in the current year the ALP has to be restricted to Rs. 60,32,18,954 (Rs. 611,783,929 x 98.6%)." 18. While deciding the aforesaid issue No.3, the learned CIT(A) has held that the same issue was decided in favour of the assessee in the assessment year 2003-04 by the CIT(A) which was confirmed by the Tribunal and since there was no consequent change in facts of the current year, the CIT(A) held that 1.40% of the revenue to be retained by the associate enterprises is adequate to compensate it for its marketing activities and the assessee is entitled to 98.6% of the amount earned by associated enterprises from independent clients. The learned CIT(A) therefore, restricted the ALP to Rs. 60,32,18,954 being 98.6% of the total revenue of Rs. 61,17,83,929. 19. On issue No. 4, the learned CIT(A)'s order is as under :- "28. I have carefully gone through the various contentions and submission made by the appellant. Though there is merit in the appellant's argument that there is no tax benefit being obtained by the appellant though shifting of profits, it cannot be the only basis to accept appellant's contentions in this regard. It is well understood that one associated enterprise ca....
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....t was also made by the TPO while determining ALP in the case of the appellant for the A.Y. 2003-04. The contention of the appellant regarding allowance of working capital adjustment has also been accepted by the CIT(A) in AY 2004-05 and has been upheld by ITAT, thus, in the current year as well the claim of the appellant needs to be accepted and a suitable adjustment is called for. The detailed computation of Working Capital adjustment to be made to the four comparables is given at Annexure 1." While deciding issue No.4, the learned CIT(A) has relied upon his order passed in assessment years 2003-04 and 2004-05 which was upheld by the Income-tax Appellate Tribunal. 20. After deciding the aforesaid 4 issues in the manner as indicated above, the learned CIT(A) recomputed the ALP as under :- "Re-computation of ALP 33. To summarize, the ALP determined by the AO/ TPO needs to be recomputed in view of matters adjudicated above. Therefore, the ALP is recomputed after making the following adjustments: 1. The four comparables chosen by the TPO for determining the ALP are found appropriate. 2. A suitable working capital adjustment has been made to adjust the operating margi....
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....the TPO in relation to availability of the benefit of the proviso to section 92C(2) was that the difference between the ALP determined and value of international transaction is more than 5% of the ALP so determined. As in view of ALP determined hereinbefore the difference (Rs. 29,074,219) between the ALP determined (603,218,954) and value of transaction declared (Rs. 574,144,735) does not exceeds 5% of the ALP (30,160,948). Therefore, adjustment of 5% is allowable to the appellant under proviso to section 92C(2) of the Act and it is held that the appellant is transacting with its associated enterprise at arm's length price and the additions made by the AO/TPO are deleted. Thus, this ground is adjudicated in favour of the appellant." 22. From the aforesaid finding of the learned CIT(A), it is clear that the learned CIT(A) has given a benefit of +5% to the assessee inasmuch as the difference of Rs. 2,90,74,219 between the ALP determined by him at Rs. 60,32,18,954 and the value of transactions declared by the assessee at Rs. 57,41,44,735 did not exceed 5% of the ALP determined by him. 23. Now, the department is in appeal before us. 24. In the course of hearing of this appe....
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....ontrolled entity would have responded to a business situation and whether the assessee responded in a similar manner in a controlled situation. l Any independent Indian enterprise entering into a transaction with a foreign enterprise for providing similar services would have negotiated for highest amount of profit for itself and would not have bothered about the profit/loss of the foreign enterprise. l At what price the services were ultimately sold to the third party is on no consequence while determining ALP for the enterprise under examination. l The only question that needs to be answered is, whether the assessee acted at an arm's length while dealing with the A.E. l Therefore, the proposition of the CIT(A) and accepted by the Hon'ble Tribunal that "the proportion of sharing between the entities and not the absolute amount of revenue" is the subject matter of transfer pricing, with utmost respect, is an incorrect proposition. It is the absolute amount of revenue earned by the assessee that is the subject matter of transfer pricing provisions and what needs to be examined is whether that was earn....