TaxTMI 
TaxTMI 
2013 (1) TMI 369
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....s with reference to the transfer pricing. The Revenue ground is also on the same issue. Both the grounds of assessee and the Revenue are as under: Assessee's Ground No.2: "Transfer Pricing: The learned CIT (A) erred on facts and in law by allowing only partial relief to the adjustments made by AO in relation to transfer pricing matters. The Appellant therefore, prays that the adjustments in relation to transfer pricing matters made by the CIT (A) be deleted". Revenue's Ground: "On the facts and in the circumstances of. the case and in law, the learned CIT (A) erred in deleting the addition made by AO on the basis of working provided by the TPO where the operating margin was taken at 11.96% instead of 9.47% taken by assessee without appreciating the facts of the case. The appellant prays that the order of the CIT (A) on the above ground be set aside and that of the ITO/ACIT/DCIT be restored". 5. Briefly stated, assessee is a domestic company formed by a shareholding between Sitel Group & TATA group with 50% stake each. Assessee has provided software development services to its overseas enterprise. Assessee in the TP study used TNM method to benchmark its ALP for its t....
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....he gross revenue earned by the AEs from the contract executed with the end customers. It was the submission of assessee that the AEs retained part of the revenues varying from 0 to 26% and passed on the balance to assessee. Therefore, adjustment so proposed by the TPO does not arise. 7. The learned CIT (A) discussed these objections elaborately vide Para 3 of the order item-wise and vide Para 3.11 to 3.13 decided the issue as under: "3.11. I have perused the order of the TPO and considered all the above submissions/contentions of the Appellant. I have also perused the remand report received from the AO vide letter dated 11.06.2007 and another report dated 27.02.2008 received from TPO. At the outset, the Appellant has prayed for admission of additional evidence on the above grounds relating to transfer pricing adjustment. I have perused the additional evidence filed by the Appellant and find it appropriate to take cognizance of the same and accept it under Rule 46A, as the appellant did not have sufficient opportunity during the course of the assessment proceedings to produce the above documentary evidence. Looking at the evidence received from the AEs providing details of rev....
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....nt of Rs. 45,665,521/- (Rs. 51,122,000/- less Rs. 5,456,479/-). In view of the above the issue relating to transfer pricing adjustment (Ground No.2 to 11 is partly being allowed". 8. Assessee is objecting to the above confirmation of Rs. 54,56,479 whereas the Revenue is aggrieved on the reduction made by the CIT (A). The learned Counsel referred to the submissions made before the CIT (A) and also the orders passed by the authorities in later years wherein assessee's margin were accepted without any adjustment. On the principles of consistency it was submitted that the same approach should be made for this year also. It was one of the argument that the additions proposed cannot be exceeded the profit earned by the AE as assessee is a contact service contractor and the gross receipts are accounted by the PE. In this regard assessee's Counsel submitted a note with reference to 'having regard to" used in section and submitted that as AE made losses the addition cannot be exceeded the ultimate profits earned in the whole transactions with third parties. The learned Counsel also made detailed submission on the object of TP provisions, determination of ALPs to contend that the method/f....
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....third party software developer would never bear the idle capacity cost there is no merit on reducing the idle capacity cost while computing the margin. In this regard assessee was asked to show cause as to why the idle capacity cost should not be disallowed and the margin of comparable of 11.96% be not considered to determine the arms length price for this transaction. Assessee has only reiterated what was stated in the earlier submissions that the idle capacity is not operating cost and hence the same is excluded. The submission of assessee is not accepted because third party software developer would not bear such cost in the course of business. Moreover, no such idle capacity adjustments have been made while arriving at the margins of the comparable companies. Accordingly an adjustment is being made to this transaction on the following basis: Income 57,39,34,000 OP cost 55,82,69,000 Margin (A) 1,56,66,000 Margin on costs 2.81% Arms length margin 11.96% Arms length profit (B) 6,67,88,000 Adjustment (A-B)= 5,11,22,000 11. This indicates that assessee's TP study h....
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....eference to various propositions on the issue. Since we are of the opinion that the TP order itself was not correctly made and the CIT (A) also deviated from the norms, we are of the opinion that there is no need to consider and adjudicate on the various propositions. Since the issue is restored to AO, assessee is free to raise various objections before the TPO in the re-assessment proceedings. 14. In the result assessee's grounds as well as Revenue ground on this issue are considered allowed for statistical purposes. The matter is restored to AO for fresh consideration. 15. Ground No.3. Assessee's ground is as under: "3. Treatment of interest on term deposit receipts and miscellaneous income: Based on the facts of the case and in law, the learned CIT (A) erred in upholding the action of AO in treating interest earned on term deposit receipts and miscellaneous income as income from other sources instead of business income. The appellant therefore prays that the amount of Rs. 78,70,769 towards interests earned on term deposit receipts and Rs. 31,745 as miscellaneous income should be considered as part of net profits earned in business while computing deduction under section....
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....ibutable to". In other words, by using the expression "derived from", Parliament intended to cover sources not beyond the first degree. In the present batch of cases, the controversy which arises for determination is: whether the DEPB credit/duty drawback receipt comes within the first degree sources? According to the assessee(s), DEPB credit/duty drawback receipt reduces the value of purchases (cost neutralization), hence, it comes within first degree source as it increases the net profit proportionately. On the other hand, according to the Department, DEPB credit/duty drawback receipts do not come within first degree source as the said incentives flow from the incentive schemes enacted by the Government of India or from section 75 of the Customs Act, 1962. Hence, according to the Department, in the present cases, the first degree source is the incentive scheme/provisions of the Customs Act. In this connection, the Department places heavy reliance on the judgment of this court in Sterling Foods [1999] 237 ITR 579. Therefore, in the present cases, in which we are required to examine the eligible business of an industrial undertaking, we need to trace the source of the profits to ma....
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....hennai Special Bench of the ITAT in the case of ITO v. Sak Soft Ltd. [2009] 30 SOT 55 wherein it was held that for the purpose of applying formula under section 10B(4), the freight, telecom charges or insurance attributable to 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 learned Counsel also relied on the decision of the Hon'ble High Court in the case of CIT v. Tata Elxis Ltd, [2012] and jurisdictional High Court in the case of CIT v. Gem Plus Jewellery India Ltd. [2011] 330 ITR 175. The learned DR however, relied on the orders of AO and the CIT (A) on this issue. 21. We have considered the issue and the rival contentions. As far as definition of export turnover is concerned, AO has correctly excluded the communication line charges as per the provisions of the Act. Since the total turnover is not defined in the Act, this issue has been contested and the ITAT Chennai Special Bench in the case of Sak Sof....
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....td (supra) given in the context of section 10A with reference to freight & insurance. The decision of the Hon'ble Bombay High Court is as under: "Under sub-section (1) of section 10A of the Income-tax Act, 1961, a deduction is allowed from the total income of the assessee of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years commencing from the assessment year relevant to the previous year in which the undertaking begins manufacture or production. Sub-section (4) of section 10A provides the manner in which the profits derived from the export of articles or things or computer software shall be computed. Under sub-section (4) the proportion between the export turnover in respect of the articles or things, or, as the case may be, computer software exported, to the total turnover of the business carried over by the undertaking is applied to the profits of the business of the undertaking in computing the profits derived from export. In other words, the profits of the business of the undertaking are multiplied by the export turnover in respect of the articles, things or, as....