TaxTMI 
TaxTMI 
2010 (1) TMI 857
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....of licensing mainframe and midrange and system infrastructure software products of CA Management Inc. of USA. The assessee has set-up a Technical Support Centre in Chennai to provide support services to end users of the software products on behalf of the CA Management Inc. The business activity of the assessee company summarily can be put as under:- (i) Licensing mainframe midrange and system infrastructure software products of CA Inc; (ii) Software that can be generally deployed "Out of box" or with customer/industry specified adaptations; (iii) Development software that can allow technologies and programmes to write custom applications and create new categories of packaged applications. The Assessee-company files the return of income for the assessment year 2002-03 declaring total loss of Rs. 14,55,99,340/-. The return of income filed by the assessee was selected for scrutiny. It was seen by the Assessing officer that the assessee had certain international transactions with Associate Enterprises/concerns (AE). So far as the issue before us is concerned, it is in respect of royalty payable to CA Management Inc, USA. Assessi....
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....utor and the payments collected. This means that, in respect of invoices raised, the company should be intimating the collection position with regard to invoices. Due to this, the intimation regarding uncollected invoice was available with the licensor on monthly basis. (iii) Once the decision of write off of bad debts for the invoices raised during the current year was taken on 07.03.2002. This amount would get reflected as amount non-receivable in the monthly reports, which would be available with the licensor. If such reports were available with the licensor for the amount of invoices raised during the year and written off during the year, the licensor should not have claimed royalty on such amounts written off, in the debit note raised on 31.03.2002. (iv) From the documents filed by the company substantiating its claim of write off for the Bad Debts, it is seen that one the customer Global E-Secure vide their fetter dated 27.03.2002 addressed to the company complained regarding the non-working of the software in their environment and it contested that as per the implied condition of the agreement, the software was to work any environment. This in....
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....suffered that bad debts, as the company has suffered. (x) In view of the fact that the CA India was only acting as Distributor, the products belonged to the licensor, these were the initial years of the business of CA India, in the country, the bad debts risks were likely to be there, these facts would certainly be considered by the Independent Parties, while entering into distributor agreement and non payment of royalty, on non realisation of the proceeds would certainly be a condition in agreement entered at arm's length. In view of the above, the Arm's Length Price of Royalty corresponding to invoices raised and written off during the year is computed at NIL as against transaction value reported of Rs. 4,709,755/-." 5. Following the TPO's order, the Assessing Officer made the adjustment to the ALP to the International transactions by reducing the value of the royalty payment/payable which was of Rs. 47,09,755/-. The assessee challenged the same before the Learned CIT (A) but without success. Now, the assessee is in appeal before us. 6. We have heard the rival submissions of the parties. The Learned Counsel vehementl....
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....nner as may be prescribed:- [Provided that where more than one price is determined by the most appropriate method, the arm's length price shall be taken to be the arithmetical mean of such prices, or, at the option of the assessee, a price which may vary from the arithmetical mean by an amount not exceeding five per cent of such arithmetical mean.] (3) Where during the course of any proceeding for the assessment of income, the Assessing Officer is, on the basis of material or information or document in his possession, of the opinion that:- (a) the price charged or paid in an international transaction has not been determined in accordance with sub-sections (1) and (2); or (b) any information and document relating to an International transaction have not been kept and maintained by the assessee in accordance with the provisions contained in sub-section (1) of section 92D and the rules made in this behalf; or (c) the information or data used in computation of the arm's length price is not reliable or correct; or (d) the assessee has failed to furnish, within the specified time, any ....