TaxTMI 
TaxTMI 
2012 (3) TMI 208
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....tions for reference to be made to a transfer pricing officer were not met; (b) Based on the facts and circumstances of the case, there was neither necessity nor expediency for such reference; (c) No opportunity was provided by the ld. AO to the Appellant before referring the transfer pricing issues to the ld. TPO; 2.2 That the ld. CIT (Appeals) failed to consider and appreciate the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Income Tax Rules, 1962 for determining the arm's length price of the provision of IT enabled services. Specifically, on facts and in law the ld. AO, ld. TPO and the ld. CIT (Appeals) erred in : (a) Not accepting the primary analysis undertaken by the Appellant; (b) Not accepting that the Appellant was justified in using data pertaining to financial years 1999-2000 and 2000-01 for the comparability analysis; (c) Accepting that the ld. TPO was justified in using data that became available only after the specified date / due date; (d) Accepting that the selection of comparables by the ld. TPO was correct; (e) Accepting the ad-hoc....
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....g adjustment from Rs. 15.25 crore to Rs. 12.09 crore by using the comparability criteria, other than the criteria used during the transfer pricing proceedings, for which no opportunity for examination was provided to the TPO resulting in violation of Rule 46-A of the I. T. Rules; 2. The ld. CIT (Appeals) has erred on facts and in law in deleting the addition on account of foreign exchange fluctuation loss by relying upon the decision of the court in CIT v. Woodward Governors India Pvt. Ltd. 294 ITR 451 by ignoring the fact that the foreign exchange fluctuation loss claimed by the assessee is notional in nature and the department has not accepted the decision of the Hon'ble High Court in the case of CIT v. Woodward Governors India Pvt. Ltd. and preferred further appeal with the Hon'ble Supreme Court of India; 3. The ld. CIT (Appeals) has erred on facts and in law in allowing the netting off of interest on Income Tax refund with interest payments, ignoring the fact that there is no nexus whatsoever between interest earned on income tax refund and interest expenditure; 4. The ld. CIT (Appeals) has erred on facts and in law in directing the income tax....
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....8,66,151 CUP 5. Payment of interest. 1,14,16,145 CUP" 5. Before ld. CIT (Appeals) the assessee contested the addition of Rs. 15,25,35,626/- being adjustment towards arm's length price; Rs. 1,64,62.391/- being interest received on Income Tax refund treated as income from other sources as the same was assessable under the head "business" and, alternatively, it was claimed that interest on Income Tax refund has wrongly been taken at Rs. 1,64,62,391/- against the amount of Rs. 1,52,29,404/- which is interest computed upto 31st March, 2002; it was claimed that interest received on Income Tax refund should be considered to be income derived from exempted unit accordingly exemption under section 10-B should be granted thereon; the loss arising out of foreign exchange of Rs. 40,45,530/- should be allowed; levy of interest under section 234-B amounting to Rs. 2,35,78,623/- and Rs. 4,67,573/-under section 234-D were also challenged being too high and excessive. 6. So as it relates to T.P. issue, after considering the various submissions made by the assessee and after making the adjustment to the OP / TC of the comparables, ld. CIT (Appeals) has arrived at adjusted OP....
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....to levy of interest under section 234-B of the Act, relying upon the decision of Hon'ble Supreme Court in the case of CIT v. Anjum M. H. Ghaswala [2001] 252 ITR 1/119 Taxman 352 the levy is confirmed. However, with regard to levy of interest under section 234-D, following the decision of Special Bench of the Tribunal in the case of ITO v. Ekta Promoters (P.) Ltd. [2008] 113 ITD 719 (Delhi) it has been held by him that the same could not be charged with respect to assessment years prior to 1st June, 2003. 11. An additional ground was raised by the assessee before the ld. CIT (Appeals) regarding the allowability or otherwise of expenses incurred by the assessee of Rs. 1,91,72,777/- during the financial year 2001-02 for setting up AEGSC unit, which was set up on July 29, 2002 and these were pre-operative expenses incurred prior to setting up of AEGSC unit and it was pleaded that they are not claimed in the impugned assessment year and are shown in the balance sheet as pre-operative expenses. It has been held by the ld. CIT (Appeals) that the question of allowability of pre-operative expenses arise from the assessment order passed for the assessment year 2003-04 and the question....
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.....1.09 millions) was too insignificant to qualify as a meaningful comparable in comparison to the transactions entered by the assessee with its Associate Enterprises amounting to Rs. 1293.14 millions and also that the services rendered by the assessee to Tong Yang was to facilitate the transaction after the transfer of business only till the new owner could make alternate arrangements. The TPO also rejected the secondary analysis of the assessee on the ground that the financial data for 1999-2000 and 2000-01 was applied. TPO made fresh search by applying the following filters :- "(i) Turnover < 5 crores; (ii) Net Fixed Assets / Sales > 150 per cent; (iii) Depreciation / Total Cost > 15 per cent." 13.3 Using the above filters, Ld. TPO has searched out 9 comparables out of which further three companies were rejected on the ground that they were having significant related party transactions (RPT) and the resultant six companies were identified as under :- 1. Ace Software Exports Ltd. 2. Allsec Technologies Ltd. 3. Genesys International Corpn. Ltd. 4. Karvy Consultants Ltd. 5. Max Healthscribe Ltd. 6. MC....
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....ccount of risk was also to be given. So as it relates to benefit of plus minus 5 per cent range Ld. CIT (A) has held that difference of plus minus 5 per cent is not in the nature of standard deduction. After making discussion, the ld. CIT (Appeals) has held that : (i) current year data was to be used for comparable analysis; (ii) the filters used by the TPO are correct; & (iii) Karvy Consultants Ltd. was to be rejected as comparable as the turnover of the medical transaction significant was less than Rs. 5 crores and thus does not meet the criteria laid down by the TPO and in this manner un-adjusted OP / TC and adjusted OP / TC of remaining 5 comparables was computed by the ld. CIT (Appeals) as has been reproduced in para 6 of this order. 16. After narrating the facts it is the case of the ld. AR that according to the three filters adopted by TPO the case of Genesys International Corporation Ltd. will not fall and Genesys International Corporation Ltd. has to be excluded on the basis of criteria adopted by the TPO. In this regard he referred to para Nos. 7.1 and 7.3 of the TPO's order. In para No. 7.1 the TPO has described the three filters and in para No. 7.3 the acceptable....
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....limit of + 5%. He submitted that if Genesys is excluded the mean margin of remaining four comparables will be 8.91% against margin of the assessee of 5.56% as computed by the TPO. The difference will be less than 5%. He has submitted the chart which is as follows:- "American Express (India) Private Limited [AEIPL] Appeals Nos. 1338 Del/2009 & 1512/Del 2009 for AY 2002-03 Comparable Companies selected by TPO after applying three filters. Margins as per TPO Margins computed by CIT (A) Ace Software Export Ltd. 19.15 14.50 Allsec Technologies Ltd. 10.04 13.91 Genesys International Corpn. Ltd. -- -- Karvy Consultants Ltd. 9.39 -- MCS Ltd. 2.38 8.21 Max Healthscribe Ltd. 3.58 9.38 Average Margins of Comparables. 8.91 11.50 Assessee Margin 5.56 6.30 Range after benefit of 92C (2) (considering operating margin of 5.56 per cent of AEIPL. 3.47 5.95 Range after benefit of 92-C (2) (considering operating margin of 6.30 per cent of AEIPL. 3.49 5.93 Note 1 : Genesys International Corporation Ltd. did not meet the filter of Depreciation / Total Cost > 15 ....
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.... 1,293,143,177 1,090,270 1,294,233,447 P 2 of CIT's Order. 1,294,233,447 Provision for Doubtful Advances Written Back. 158,131 158,131 Excess provision Written back 5,169,736 5,169,736 Miscellaneous Income 234,749 234,749 Operating Income 1,298,705,793 1,090,270 1,299,796,063 1,294,233,447 Total Cost 1,225,037,134 1,038,352 1,226,075,486 P 17 of TPO's Order. 1,226,075,486 Less: Financial charges. 3,280,560 3,280,560 Operating Cost 1,221,756,574 1,038,352 1,222,794,926 P 43 of CIT's Order. Profit 76,949,219 51,918 77,001,137 P 43 of CIT's Order. 68,157,961 AEIPL Margin. 6.30 per cent. 5.00 per cent. 6.30 per cent. 5.56 per cent. "M/s. American Express (I) Pvt. Ltd. A.Y. 2002-03 Calculation of adjustment Total cost of provision of services by the as....
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.... seen from the table reproduced in para 17 that learned CIT (A) has re-computed the margins of comparables as the margin of Ace Software Export Ltd. has been reduced to 14.50 from 19.15 computed by TPO and in other cases i.e., in the case of Allsec Technologies Ltd., the margin re-computed by CIT (A) is 13.91% against the margin computed by TPO at 10.04. However, in the case of MCS Ltd. the margin computed by CIT (A) is 8.21% against 2.38% computed by the TPO and in the case of Max Healthscribe Ltd., the margin computed by CIT (A) is 9.38% against 3.58% computed by TPO. It is in this manner the average mean margin of comparables has been enhanced from the average mean margin taken in respect of these parties at 11.50% against mean margin computed as per calculations of TPO of 8.78%. Similarly, learned CIT (A) also has enhanced the margin of the assessee to 6.30% against margin of the assessee computed by TPO at 5.56%. Not going into the question that whether or not CIT (A) could do so, but one thing is clear that wherever the issue goes against the assessee, the CIT (A) was required to give notice to the assessee of his intention to do so as the same will result in the enhancement ....
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.... Court in the case of Woodward Governor India (P.) Ltd. (supra). This ground raised by the Revenue suggest that the deletion has been only on the ground that Department has not accepted the order of Hon'ble Delhi High Court and has filed appeal with Hon'ble Supreme Court. Now Hon'ble Supreme Court has upheld the order of the Hon'ble Delhi High Court in the decision cited as CIT v. Woodward Governor India (P.) Ltd. [2009] 312 ITR 254/179 Taxman 326 (SC). Therefore, we find no force in this ground of the Revenue and the same is dismissed. 23.1 In ground Nos. 3 to 5 the Revenue has agitated the decision of the ld. CIT (Appeals) vide which it has been held that interest upto 31st March, 2002 i.e. a sum of Rs. 1,52,29,404/- received on Income tax refund should be netted off against interest payment of Rs. 1,85,09,964/-. This has so been held by the ld. CIT (Appeals) according to para 21.1 of his order. It was the claim of the assessee before the assessing officer that interest earned on Income tax refund of Rs. 1,52,29,404/- should be netted against interest paid. The assessee was required to show cause as to why such claim of the assessee should not be rejected. In r....
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.... case for assessment year 2001-02 in I. T. Appeal Nos. 117, 118, 119 (Del) of 2004 vide order dated 29th September, 2006 in which it was held as under :- "We have considered the rival submissions. The Special Bench of the Tribunal observed that where the expenditure which has direct nexus for earning interest income, it should be deducted from gross interest received. Similar view has been adopted by ITAT, Mumbai in the case of Renaissance Jewellery (supra) relied dupon by the ld. counsel for the assessee. The deposits were made out of business finds of the assessee which were temporarily available. Thus the interest receipt has direct nexus with interest payment. Hence, in view of the aforesaid decisions, since interest income is less than interest expenses no part of the same is to be excluded while computing profits of business eligible for deduction under section 10-B of the Act." 23.5 Alternatively, it was claimed that interest earned by the assessee during the year on Income tax refund amounting to Rs. 1,52,29,404/- is inextricably linked to the hundred per cent EOU of the assessee, therefore, eligible for deduction under section 10-B of the Act. Therefore, it is ....
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....essee before the ld. CIT (Appeals) was that the demand was raised in respect of income assessed for assessment year 1996-97 on which subsequently relief was granted and refund was received in 2002-03. Therefore, in assessment year 1996-97 there was no issue regarding the netting of interest. The netting of interest is only related to assessment year 2000-01. The relevant observations of the Tribunal have already been reproduced. The order of the Tribunal in assessee's case for assessment year 2000-01 does not relate to issue regarding interest earned by the assessee on Income Tax refund. Copy of the said decision has been filed in the assessee's paper-book at pages No. 101 to 120 (Paper Book Part "A"). This issue has been dealt with by the Tribunal in para Nos. 25 to 29. It will be relevant to reproduce below :- "25. The next ground of appeal for assessment year 2000-01 is against denying deduction under section 10-B in relation to interest received of Rs. 5,13,288/-. 26. The AO noted that the assessee had borrowing from banks for the purpose of business and paid a sum of Rs. 55,60,348/- as interest during the year. In the profit and loss account ....
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....s, since interest income is less than interest expenses no part of the same is to be excluded while computing profits of business eligible for deduction under section 10-B of the Act." 25. As it can be seen from the afore-mentioned observations of the Tribunal, the issue did not relate to interest earned by the assessee on Income tax refund, but it related to the interest earned on short term deposits and while recording the facts Tribunal has observed that the deposits were made from the business funds of the assessee which were temporary available. Therefore, it was held that interest received had direct nexus with the interest payments. Therefore, in our considered opinion, the said decision cannot be relied upon to consider the issue regarding set off of interest received by the assessee on Income tax refund with the interest paid by the assessee on its over-draft facilities. The interest received from Department on Income Tax refund will stand entirely on a different footing as the payment of tax, if any, is not made by the assessee with an intention to earn interest but to discharge tax liability. It cannot have any connection with the business of the assessee as earning o....