TaxTMI 
TaxTMI 
TaxTMI 
2012 (10) TMI 364
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....nsactions entered with Associated Enterprises. 3. The relevant facts are that assessee is a wholly own subsidiary of Genesys Enterprises Inc. It provides Onsite IT Consultancy Services as well as GIS. Its non-trading branch office located at Denver in USA is engaged in marketing activities for its head office. Genesys India has production facilities in Denver (Aerial film Scanning/Image processing), Bangalore (photogrammetry/Remote Sensign) and Mumbai (AMFM/GIS Mapping, IT). Broadly the services provided are as under: (i) IT Solutions. It provides technical solutions client needs like solutions for improving profitability enhanced customer relationship and running the business efficiently. It provides application development, implementation services and technical support in client/server and web based environment. (ii) Geospatial Services. It offers depth and breadth of expertise in Photogrammetry, Remote sensing, Data Conversion, and IT programming consulting. 4. The assessee filed its return of income declaring total loss of Rs. 2,92,83,328. The AO made a reference under section 92CA(1)of the Act for computation of Arms Length Price (ALP) in relation to the intern....
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....assessee's margin of Arm's Length Price of 8.85 per cent details of which are given in para 4.3 of TPO's order. Accordingly, TPO made an adjustment of Rs. 66,75,078 as per calculation made in para 4.4 of his order. 6. iv Consequently, AO while passing the assessment order made adjustment of an amount of Rs. 66,75,078 to the total income of the assessee. Being aggrieved, assessee filed appeal before the first appellate authority. 7. On behalf of assessee, it was contended that assessee has in actual practice followed CUP method in arriving at ALP even though it had in its return of income filed as well as in its submissions made before the TPO stated that it followed TNMM method. It was contended that assessee during the period 1.4.2003 to 31.3.2004, provided services to its AEs in USA and UK and similar services were provided to third parties in the same geographical region. It was contended that for determining the arm's length charge received from AE, assessee had documented the rates charged to its AE as well the rates charged to independent third parties operating in the same geographic region and availing similar services. Assessee submitted copies of certain....
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....5. 31.3.04 Maps 6.25 IT SERVICES: Sales made to: Subsidiary Third party US UK Normal projects 9,410,635 0 14,262.463 Total IT sales invoiced (incl. exchange gain/loss) 9,410,635 0 14,262,463 Production hours Total hours 12,066 0 19,462 Total No. of production hours 12,066 0 19,462 Avg.rate/hr-Rs. 780 0 733 Avg.rate/hr-$ $16.96 $0.00 $15.994 8. It was contended that assessee has not charged its AEs a rate less than that it charged to a third party for similar work type & size and more importantly in the same region. It was submitted that TPO has also not given any instance in his order where the assessee has charged its AEs a rate less than the market rate. It was also contended that assessee is carrying out same business transaction and in subsequent year, it has benchmarked its transactions by adopting CUP method and same was accepted by the TPO in respect of technical services rendered by the assessee. Relying on the decision of ITAT in the case of Asstt. CIT v. MSS India Pvt Ltd., 25 DTR 19 (Sic) , it was submitted that TNMM method is to be treated as a method o....
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....o manipulation of transaction by the AEs then such an entity cannot be penalized. Ld CIT(A) has stated that assessee has demonstrated that the losses are due to start up in the Pune Unit which is in nascent stage with large idle capacity. Moreover, there are no transactions with AEs from Pune Unit of the assessee which could have raised doubts or suspicion manipulation of price with the AEs. Ld CIT(A) has held that the ALP demonstrated by the assessee does not require any adjustment. Besides above, ld CIT(A) has stated that average margin of 13.30 per cent determined by the TPO on the entire cost incurred by the assessee which includes cost of transactions with Non-AEs as well. The AO ought to have confined himself to applying it on cost incurred on transactions with AEs and excluded the cost incurred on transaction with Non-AEs. Further, ld CIT(A) has also accepted the contention of the assessee that the difference between the average margin of assessee as declared at 8.85 per cent on cost as per TPO and average margin as determined by TPO at 13.30 per cent on cost is within 5 per cent range of ALP. Hence, ALP as adopted by the assessee should not be disturbed. 11. In view of abo....
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....action price is to be accepted and no adjustment is required to be made. Since the difference in the Arm's length margin as determined by the TPO and the actual transaction price does not exceed five per cent, we hold that no adjustment is required to be made as it is within 5 per cent range of ALP. Therefore, order of ld CIT(A) to delete the said adjustment is to be confirmed on this very ground and, accordingly, we do not go into other aspects as rest of the issues become academic. Hence, we uphold the order of ld CIT(A) and reject grounds of appeal taken by department. 16. Now, we take up appeal filed by department for assessment year 2005-06 being I.T.A. No.3334/M/2010. 17. The department in its appeal has disputed the order of ld CIT(A) to delete the addition of Rs. 4,66,29,104 made on account of adjustment made by the AO/TPO under section 92CA of the Act. 18. The assessee filed return of income for assessment year 2005-06 declaring loss of Rs. 86,39,503. The AO made reference to TPO u/s.92CA(1) of the Act. In response to notice issued u/s.92CA(2) of the Act, assessee submitted details of international transactions with AEs during the relevant financial year 2004-05 as ....
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....PO stated that an activity employs a number of persons of different rank. The hourly rate of a senior executive/a senior technician may be much higher than that of a junior clerk/worker Therefore, for proper cup analysis you need to match such activities where the proportion of the services rendered by similar ranked people are matching. An average hourly rate mixing the higher and the lower rates cannot justify the benchmarking under CUP. 19(ii). For benchmarking under TNMM method, assessee has taken the following comparables: Ace Software Exports Ltd Central Mine Planning and Design Institute Ltd. Nucleus Netsoft and GIS India Ltd. Scan Point Graphics Ltd and Zigma Software Ltd. 19(iii). However, TPO has not accepted said comparables and stated that on perusal of PLI, it is observed that assessee has taken multiple year data for working the PLI. The only contemporaneous data, i.e. data relating to 2004-05 should have been considered. Previous year data can be considered only if they have been used as a basis for price fixation at the time of giving the quotation, which is not the case of the assessee. TPO has also stated that assessee has considered the comparison on an en....
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....tified in not considering CUP method adopted by the assessee and instead wrongly used TNMM for benchmarking the transactions with AEs. It was contended that assessee provided services to its AEs in USA and UK and similar services were provided to Third Parties in the same geographical region. The assessee for determining arm's length charge received from AEs, documented the rates charged to its AEs as well as the rate charged to independent Third Parties operating in the same geographical region and availing similar services. Assessee submitted certain invoices to substantiate its above submission, which are tabulated by ld CIT(A) at page 5 of the impugned order as under: A.Y. 2005-06 DETAILS OF COMPARATIVE SERVICES & RATES Sr.No. Invoice Date Type of Services Rate charged per unit (in USD) A E NON-AE UK USA UK USA 1 30-Jun-04 Maps $9.52 2 31-Jul~04 Maps $9.52 3 31-Aug-04 Maps $9.52 4 30-Sep-04 Maps $9.52 5 30-Apr~04 Maps $2.50 6 30-Apr-04 Maps &n....
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....r of ld CIT(A) which reads as under: "8.2. In the case of "ACIT v. MSS India Pvt. Ltd." reported in 25 DTR (19)' the Hon'ble ITAT has held that on a conceptual note the TNMM method is to be treated as a method of last resort and is to be pressed into service only when the "standard methods" which are also termed as "traditional methods" (i.e CUP method, Resale Price Method, Cost Plus method) cannot1 be reasonably applied. The Bench has further held that in a situation in which the Assessee has followed one of the standard methods of determining ALP, such a method cannot be discarded in preference over transactional profit methods (i.e TNMM and Profit Split Method) unless the revenue authorities are able to demonstrate the fallacies in application of standard methods. In any event any preference of one method over the other method must be justified by the TPO on the basis of cogent material sound reasoning. The Hon'ble ITAT has observed that the only factor which has prevailed on the TPO in rejecting the method adopted, or canvassed, by the Assessee is the fact that the Assessee has incurred loss in the relevant previous year, but, such a consideration is wholly irrelev....
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....pply CUP method & to achieve comparability, it requires that market in which independent and AEs operate should not have any difference. Ld D.R. submitted that the economic circumstances are necessary to be considered to determine the market comparability and same include geographical location, size of the markets, extent of competition in the markets. He submitted that all the relevant facts is a factual question. Ld D.R. submitted that ld CIT(A) has merely applied the decision of ITAT in the case of MSS India (P.) Ltd. (supra) to follow CUP method without considering as to whether the market in which assessee had transactions with the Third party are in the same region or not. He submitted that assessee provided services in other region apart from UK and USA, which ld CIT(A) failed to consider. Ld D.R. also referred the decision of ITAT in the case of M/s. Intervet India (P.) Ltd. v. Asstt. CIT, [IT Appeal No. 2845 & 185 (Mum.) of 2006, dated 31-3-2010] and also the decision of ITAT in the case of Asstt. CIT v. Dufon Laboratories, [IT Appeal No. 1899 (Mum.) of 2009, dated 20-03-2010] and submitted that while applying CUP method, adjustment relating to economic and market conditio....
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....d hereinabove in para 20. We observe that assessee charged higher rate from its AEs that what it charged from third party. The department has also not brought any evidence on record to controvert the submissions of assessee that the services rendered to the AEs and third parties are of similar type and operate in the same geographical region. Ld D.R. contended that while working out the ALP, the geographic market is one of the economic circumstances that has to be considered while considering comparability. In this regard, ld D.R. also placed the decision of ITAT in the case of M/s. Intervet India Pvt Ltd (supra) and also the decision of ITAT in the case of Dufon Laboratories (supra). We agree with ld D.R. that the geographical consideration have to be kept in mind while considering the rates and to determine the ALP while applying CUP method. We observe that in the case before us, assessee has submitted before the TPO as well as before the authorities below that AEs as well as third party are located in the same region and availing similar services and the department has not brought any evidence on record to controvert the same contention of assessee. Therefore, above contention o....
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....AO vide para 12 of the impugned order, which reads as under: "(12) I have perused the assessment order and the written submission of the appellant. The AO has addressed this issue at length in its order between pages 2 to 12 of the order. He has also taken. into account the history of the legislation so far it applies to section. 10A as well as rules of interpretation. The appellant has wrongly set off the loss incurred in the Pune unit from the surplus income after deduction u/s. 10A from the Mumbai and Bangalore units as well as income from other sources against the scheme of the Act. 12.1 The provisions of section 10A are placed under Chapter III which only relates to :- (a) Income which do not, form part of total income. (b) The word 'such 'refer to the profits and against of the undertaking which is engaged in the export of articles or things or computer software (c) The word 'an' which qualifies the word 'undertaking' means that it refers to a single undertaking. (d) The provision of section 10A do not form part of the sections mentioned in section 29. " 31. Hence, assessee is in further appeal before the Tribunal. 32. L....
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....i Computer Systems Ltd. (supra) by following the decision of Hon'ble Jurisdictional High Court in the case of Hindustan Unilever Ltd. (supra) has held that while computing the income, assessee was entitled to set off of loss sustained by section 10A eligible unit against the normal business income. We also observe that Hon'ble Jurisdictional High Court recently by its order dated 9.4.2012 (supra) while considering the issue as to whether the brought forward unabsorbed depreciation and losses of the unit the income which is not eligible for deduction under section 10A of the Act could be set off against current profit of the eligible unit for computing deduction u/s.10A of the Act, held vide para 3 as under: "Section 10A is a provision which is in the nature of a deduction and not an exemption. This was emphasized in a judgment of a Division Bench of this Court while construing the provisions of section 10B in Hindustan Unilever Ltd. v. Deputy Commissioner of Income Tax . The submission of the Revenue placed its reliance on the literal reading of section 10A under which a deduction of such profits and gains as are derived by an undertaking from the export of articles or thi....