TaxTMI 
TaxTMI 
2012 (5) TMI 208
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....ssing Officer's action in invoking the provisions of section 92CA(1) of the I T Act, 1961 and referring the computation of the Arm's Length Price to the Transfer Pricing Officer. (iii) That the learned CIT(A) erred in not holding that in absence of a charging provision in the Act, addition to chargeable income cannot be made merely through a transfer pricing adjustment (difference between transaction price of the appellant and alleged arm's length price determined by the Assessing Officer/Transfer Pricing Officer). (iv) That the learned CIT(A) erred in not quashing the adjustment to the transfer price of the appellant, as made by the Assessing Officer, without application of mine, by purely relying on the order of the Transfer Pricing Officer. (v) That on the facts and in the circumstances of the case, the learned CIT(A) erred in holding that the mark-up on total cost (operating profit to total cost ratio of comparables considering Transactional Net Margin Method (TNMM) being the appropriate method) in the case of the appellant, for the purpose of determining Arm's Length Price of international transactions in provision of Research and Development Service....
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....n not allowing the benefit of +/-5% as provided in proviso to section 92C(2) of the Act while recomputing the Arm's Length Price. (xv) That the learned CIT(A) erred in upholding the charging of interest under section 234B and 234D of the Act. (xvi) That the appellant craves leave to add to and/or alter, amend, rescind or modify the grounds taken hereinabove before or at the time of hearing of this appeal. 3.1 The facts in relation to assessee's appeal are as follows:- The assessee company is a wholly owned subsidiary of the Timken Company, USA (Associated Enterprises). The assessee undertakes the following services to its Associated Enterprises:- ♦ Research and development ("R&D") services; ♦ Information Technology ("IT") support services; ♦ Corporate shared services (back office support services); ♦ Global sourcing services. For the above services, according to the assessee, it was compensated on a cost plus 5 percent basis. 3.1.1 The assessee filed return of income on 30/10/2004 declaring an income of Rs. 54,70,420/-. The assessment was completed under section 143....
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....100) 2,69,83,006 (d) ALP of the international transactions as per the books of account 2,15,07,749 (e) Adjustment to ALP under section 92CA (c-d) 54,75,257" 3.3 The detailed determination of Arm's Length Price (mark-up) by the assessee, the TPO and the CIT(A) with reference to IT support service and R&D service are as follows:- 1. IT Support Services: Determination of arm's length price (mark-up) for FY 2003-04 Particulars The Appellant The TPO The CIT(A) IT Support Services Most appropriate method Transactional Net Margin Method Profit Level Indicator (PLI Operating profit/total cost Filters Adopted (i) Prowess & Capitaline database updated until May 21, 2004 (ii) Keyword search query was applied resulting in 705 companies (iii) Rejected companies for which sufficient financial data was not available. (iv) Rejected companies for which sufficient descriptive information is not available to determine comparability. (v) Rejected companies that have been declared sick. (vi) Rejected companies that have ceased business operations or are currently inactive. (vii) ....
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....taken 16 grounds of appeal, in the course of hearing of the appeal, the learned AR submitted that the instant case is squarely covered by the order of the Tribunal in the case of Genisys Integrating Systems (India) (P.) Ltd. v. Dy. CIT (ITA No.1231/Bang./2010 dated 5th August, 2011). He confined his argument to three aspects, namely, (i) the company which is having turnover more than Rs. 1 crore but less than Rs. 200 crores only shall be taken into consideration as comparable since the assessee was having a turnover range of 20 crores; (ii) to give the standard deduction of 5% under the proviso to section 92C(2) of the Act; (iii) when companies which are loss making are excluded from the comparables then super profit making company should also be excluded. It was submitted that the above issues were deliberated in the order of the Tribunal in the case of Genisys Integrating Systems (India) (P.) Ltd. (supra) and specific directions were incorporated in the order though the case was remanded by the Tribunal to the Assessing Officer. 3.5.1 The assessee also filed a petition for admission of additional documents. The additional documents were file....
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....p; From To 1 Annexure A : Annual report of I-Power Solutions India Ltd. for FY 2003-04. 13 37 2 Annexure B : Computation of mark up on cost for I-Power Solutions India Ltd. 38 38 3 Annexure D : Annual report of VMF Soft Tech Ltd. for FY 2003-04 44 73 4 Annexure E : Computation of bad debts as a percentage of revenue in the case of VMF Soft Tech Ltd. 74 74 5 Annexure F : Annual report of Infosys Technologies Ltd. for FY 2003-04 75 211 6 Annexure H : Annual report of Mahindra Consulting Ltd. for FY 2003-04 214 298 7 Annexure I : Annual report of Cherrysoft Technologies Ltd. for FY 2003-04 300 321 8 Annexure J : Annual report of Vimta Labs Ltd. for FY 2003-04 322 365 Since these documents are necessary for the disposal of the appeal before the Hon'ble Tribunal, it is humbly prayed before the Hon'ble Tribunal to consider these documents and an opportunity shall be provided to the appellant to present its arguments in relation to the above comparables, before disposing the matter". ....
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....ompanies, which are selected as comparables in the transfer pricing adjustment (software development service segment) would be rejected. According to the learned AR, adopting the turnover filter between 1 crore to 200 crores, the following companies selected by the CIT(A) would be rejected:- ♦ I-Power Solutions India Ltd. ♦ Igate Global Solutions Ltd. (Mascot Systems) ♦ Infosys Technologies Ltd. ♦ Larsen and Toubro Infotech Ltd. ♦ Satyam Computer Services Ltd. ♦ VMF Soft Tech Ltd. 3.7.2 The issue of standard deduction of 5% as provided under the proviso to section 92A(2) before making adjustment for price is squarely covered by various orders of the Tribunal namely, Genisys Integrating Systems (India) Pvt. Ltd. case (supra), Sap Labs India (P.) Ltd. v. Asstt. CIT [2011] 44 SOT 156/[2010] 8 taxmann.com 207 (Bang.), Philips Software Centre (P.) Ltd. v. Asstt. CIT [2008] 26 SOT 226 (Bang.) and Asstt. CIT v. MSS India (P.) Ltd. [2009] 32 SOT 132 (Pune). 3.7.3 The assessee has filed a petition for admission of additional documents. As per the provisio....
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.... paras No, 30, 31 33, 48, 52 read as under: "30. It is a settled position that production of additional evidence at the appellate stage is not a matter of right to litigating public and allowing of production of additional evidence is in the discretion of the Tribunal. The said discretion, however, is to be exercised judicially and not arbitrarily. As held by Hon'ble Madhya Pradesh High Court in the case of CIT v. Kum. Satya Setia [1983] 143 ITR 486, it is within the discretion of the appellate authority to allow production of additional evidence if the said authority requires any document to enable it to pass orders or for any other substantial cause. The Tribunal is the final fact finding body under the scheme of the Income Tax Act, 1961 and powers, therefore, have necessarily to be exercised by it for deciding the questions of fact. While exercising its powers, if the Tribunal is of the opinion that additional evidence is material in the interest of justice for deciding a particular issue, its discretion cannot be interfered with unless it has been exercised on non existing or imaginary grounds. In the case or Mahavir Singh (supra) cited by the Ld. Counsel for the assessee it....
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....l Commissioner Taxation AIR 1976 S.C. 1053. 31. As per rule 29 of the Appellate Tribunal Rules, 1963, the Tribunal has the power to allow additional evidence not only if it requires such evidence "to enable it to pronounce judgment" but also "for any other substantial cause". There may be cases where even though the Tribunal finds that it is able to pronounce Judgment on the stage of record as it is and so it cannot strictly say that it requires additional evidence to enable it to pronounce judgment it still considers that in the interest of justice, something which remains obscure, should be filed up so that it can pronounce the judgment in a more satisfactory manner. Such requirement of the Tribunal is likely to arise ordinarily when some inherent lacuna or defect becomes apparent upon its appreciation of the evidence. The power of the Tribunal to admit addition evidence in support of the claim in appeal is discretionary and no fetters can be imposed on the exercise of such power. However, as held by Hon'ble Allahabad High Court in the case of Ram Prasad Sharma v. CIT [1979] 119 ITR 867 and by the Hon'ble Andhra Pradesh High Court in the case of A. K. Babu Khan v. CWT [1976] 1....
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....ence before relying on the same. In the case of Charbhai Biri Works v. Asstt CIT [2003] 87 ITO 189, cited by the Ld. Counsel for the assessee, it was held by the Pune Bench of ITAT in it Third Member decision that when the documents which were not available before the Assessing Officer were produced before the Tribunal for the first time and the same were admitted as additional evidence being material to be restored to the file of the Assessing Officer to verify correctness and authenticity of such documents and to adjudicate the matter afresh after providing adequate opportunity to the assessee of being heard. 48. As already noted, the additional evidence would be relevant to consider and decide the case already made out by the Revenue and it is, therefore not a case of tendering of fresh evidence by the department to support a new point or to make out a new case. According to us, the additional evidence filed by the revenue is quite relevant for the purpose of deciding the issue before us and the same, therefore, can be admitted as per rule 29 of Appellate Tribunal Rules, 1963 as held by Hon'ble Madras High Court in the case of RSS Shanmugam Pi1lai & Sons (supra). The said add....
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.... the directions given hereinabove." 3.7-7 In view of the above, the impugned order of the ld. CIT(Appeals) is set aside and the issue is remanded back to the file of the AO for fresh adjudication in accordance with law, after providing due and reasonable opportunity of being heard to the assessee. As stated earlier, the Assessing Officer shall consider whether the issue that is raised in the instant case is covered by the dictum laid down by the Tribunal in the case of Genisys Integrating Systems (India) (P.) Ltd. (supra). It is ordered accordingly. 3.7-8 In the result, the appeal filed by the assessee is allowed for statistical purposes. ITA No.983/Bang/2008 (Revenue's appeal) 4. The effective grounds raised by the revenue reads as follows:- (2) The learned CIT(A) has erred in law and on facts in directing the Assessing Officer to exclude the expenses incurred in foreign currency from the total turnover for the purpose of computing deduction under section 10A. (3) The learned CIT(A) has erred in holding that the expenses incurred for purchase of software are revenue in nature without considering the fact that the software is giving enduring benefit to the assesse....
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....ide India, or expenses if any incurred in foreign exchange, in providing the technical services outside India should not be included. However, the word total turnover is not defined for the purpose of this section. It is because of this omission to define 'total turnover', the word 'total turnover' falls for interpretation by this Court; ........In section 10A, not only the word 'total turnover' is not defined, there is no clue regarding what is to be excluded while arriving at the total turnover. However, while interpreting the provisions of section 80HHC, the courts have laid down various principles, which are independent of the statutory provisions. There should be uniformity in the ingredients of both the numerator and the denominator of the formula, since otherwise it would produce anomalies or absurd results. Section 10A is a beneficial section which intends to provide incentives to promote exports. In the case of combined business of an assessee, having export business and domestic business, the legislature intended to have a formula to ascertain the profits from export business by apportioning the total profits of the business on the basis of turnovers. Apportionment of ....
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....lating deduction u/s 10A of the Act. The relevant finding of the Hon'ble Mumbai High Court reads as follows:- "The total turnover of the business carried on by the undertaking would consist of the turnover from export and the turnover from local sales. The export turnover constitutes the numerator in the formula prescribed by sub-section (4). Export turnover also forms a constituent element of the denominator in as much as the export turnover is a part of the total turnover. The export turnover, in the numerator must have the same meaning as the export turnover which is constituent element of the total turnover in the denominator. The legislature has provided a definition of the expression "export turnover" in Expln.2 to s.10A which the expression is defined to mean the consideration in respect of export by the undertaking of articles, things or computer software received in or brought into India by the assessee in convertible foreign exchange but so as not to include inter alia freight, telecommunication charges or insurance attributable to the delivery of the articles, things or software outside India. Therefore in computing the export turnover the legislature has made a speci....
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....er software and claimed deduction u/s 10B of the Act. In completing the assessment u/s 143(3) of the Act, the AO reduced the expenditure incurred in foreign exchange in providing the technical services outside India, from the export turnover without corresponding reduction from total turnover, thereby reducing the deduction claimed by the assessment u/s 10B of the Act. 4.8 In light of the above facts, the Special Bench held as under:- "For the above reasons, we hold that for the purpose of applying the formula under sub-section (4) of section 10B, the freight, telecom charges or insurance attributable to the delivery of articles or things or computer software outside India or the expenses, if any, incurred in foreign exchange in providing the technical services outside India are to be excluded both from the export turnover and from the total turnover, which are the numerator and the denominator respectively in the formula. The appeals filed by the department are thus dismissed". 4.9 In the light of the above judgements of the Hon'ble High Courts and the order of the Special Bench, we are of the view that the CIT(A) is justified in directing the Assessing Officer to exclude....