TaxTMI 
TaxTMI 
TaxTMI 
2013 (7) TMI 249
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.... is engaged in the business of providing data processing and related services to its associated enterprises. AMPL is responsible for proving software access to the subscribers of the Amadeus products and computer database within the Indian sub-continent. The territory of AMPL includes India, Bangladesh and Nepal. The main activity of AMPL is to provide connectivity to host system by creation /modification/upgradation of computer programs on-line. During the P.Y. (previous year) under consideration, the assessee entered into International Transactions with "associated enterprises" (AEs) within the meaning of section 92B of the Act. The details of the said transactions were mentioned in Form No. 3CEB filed by the assessee. The case was referred to the Transfer Pricing Officer as per the provisions of section 92CA(1) of the Income-tax Act after taking statutory approval from the Commissioner of Income-tax (CIT), Delhi-1, New Delhi on October 23, 2009 wherein an adjustment of Rs. 32,92,83,589 attributable to difference in the arm' s length price of the international transactions entered by the assessee with associated enterprises has been made. Against the above order the assessee is ....
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....old it has been submitted that the Transfer Pricing Officer in this case has proposed the adjustment to the Assessing Officer vis-a-vis and international transaction not referred to him by the Assessing Officer under section 92CA(1) of the Income-tax Act. In this regard the submissions of the Revenue are as under : " During the course of hearing on January 5, 2011 before the hon' ble ' A' Bench, two questions were posed before the hon' ble Members by learned counsel for the assessee which were as follows : 1. Whether the Transfer Pricing Officer was justified to consider the issues which were beyond the terms of references made by the Assessing Officer to the Transfer Pricing Officer for the computation of the arm' s length price in relation to the international transaction under section 92C ? 2. Whether the Transfer Pricing Officer has exceeded its jurisdiction by considering the advertisement, marketing and promotion expenditure as international transaction ? It is submitted that sections 92 to 92F were substituted for section 92 by the Finance Act, 2001, with effect from April 1, 2002, under Chapter X of the Income-tax Act as ' Special provisions relating to avoidance of tax'....
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....nt and refer only certain segments to the considerations of the Transfer Pricing Officer. Therefore, when a file is referred to the Transfer Pricing Officer for the purpose of examining the matters relating to the arm' s length price, the assessing authority is referring the entire gamut of the international transaction for the consideration of the Transfer Pricing Officer. The purpose of an arm' s length price analysis itself is in the large context of anti-evasion measure. Further, these contentions were strengthened by the hon' ble ' B' Bench, Income-tax Appellate Tribunal, Bangalore in the case of Logix Micro Systems Ltd. v. Asst. CIT, Circle 11(5)-(please refer [2011] 8 ITR (Trib) 159 ; 2010-TII-50-ITAT-BANG-TP, copy of which is enclosed herewith for ready reference). In the present case, it seems that the reference was made by the Assessing Officer to the Transfer Pricing Officer with respect to the international transaction as reported by the assessee in Form No. 2CEB filed with the return which is in the nature of accountant' s report containing basic details of an international transaction entered into by the assessee during the year with the associate enterprises. During....
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....tions designed to withdraw large sums of tax-free money. (c) In J. K. Cotton Manufacturers Ltd. v. CIT [1975] 101 ITR 221 (SC), it was held that the circumstances indicated that the expenses incurred were not dictated by commercial expediency, but were inspired by profit hunting and tax avoidance motive and hence, could not be allowed as deduction. (d) In McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148, the apex court upheld the Revenue' s right to disregard a transaction and look at its substance. If it was undertaken as an anti-avoidance tool. The tax consequences of interlocking, interdependent and predetermined transactions were to be judged by reference to its substance. A series of transactions into which steps that had no commercial purpose apart from the avoidance of tax liability had been inserted, had to be ignored. Hence, the statutory provisions and the judicial decisions extracted above confer the power on the Revenue authorities to disregard the 'form' of a transaction and look into its substance to ensure that the tax base of the country does not suffer unjust erosion. The theory of substance over form has been upheld in the case of Vodafone International H....
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....g Officer, in his order has mentioned as to why he has treated these advertisement, marketing and promotion expenditure as international transaction and why the arm' s length price of these advertisement, marketing and promotion expenditure should be determined, in detail. For the sake of brevity the same is being not repeated and the order of the Transfer Pricing Officer is being relied upon. Before parting it is submitted that the learned authorised representative for the assessee has placed his reliance upon the decision of the hon' ble Delhi High Court ([2010] 328 ITR 210) and the hon' ble Supreme Court in the matter of Maruti Suzuki India Ltd. v. Addl. CIT/TPO. The relevant extracts from the judgment are produced below: 'Further, going through the impugned judgment of the High Court dated July 1, 2010 we find that the High Court has not merely set aside the original show-cause notice but it has made certain observations on the merits of the case and has given directions to the Transfer Pricing Officer, which virtually concludes the matter. In the circumstances, on that limited issue, we hereby direct the Transfer Pricing Officer, who, in the meantime, has already issued a s....
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....nsidered by the Dispute Resolution Panel. No reasons unfold on which this hon' ble court is to adjudicate. It is a blatant fraud on the power conferred and hence need be set aside for de novo detailed consideration. B. As regards the two legal propositions stated above it is respectfully submitted as under : (1) Whether the Transfer Pricing Officer can propose an adjustment to the Assessing Officer vis-a-vis an ' international transaction' not referred to him by the Assessing Officer under section 92CA(1) of the Act. It is submitted that advertisement, marketing and promotion expenses were third party expenses which were not recognised by the assessee as an international transaction in the transfer pricing report submitted with the return. The Assessing Officer referred the report for adjudication of the Transfer Pricing Officer. What was not a part of the report thus was outside the jurisdiction of the Transfer Pricing Officer. As per section 92CA(1) of the Act, the Transfer Pricing Officer is required to analyse the arm' s length basis of the international transactions referred to him for examination by the Assessing Officer. Further, sub-section (2) provides that the Transfer....
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....of international transactions disclosed in its transfer pricing report. 1.2 The above facts have not been disputed by the Department (kindly refer submissions filed by the learned Commissioner of Income-tax (Departmental representative) relevant at page 2, last paragraph). However in the same paragraph it is noted by the learned Commissioner of Income-tax (Departmental representative) that " the Transfer Pricing Officer noticed that expenditure in respect of advertisement, marketing and promotion expenses incurred by the assessee were also within the realm of international transaction and he accordingly determined the arm' s length price of these expenses in his order" . The issue is not whether the advertisement, marketing and promotion expenses constitute an international transaction or not. It was whether, without prejudice, being an international transaction it could be adjudicated upon by the Transfer Pricing Officer without any reference thereof by the Assessing Officer. In fact it is admitted by the learned Commissioner of Income-tax (Departmental representative) that in the assessment year 2007-08, i.e., subsequent assessment year the Transfer Pricing Officer referred the....
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....sentative) has relied upon the case of M/s. Logix Micro Systems Ltd. v. Asst. CIT reported in [2011] 8 ITR (Trib) 159 ; 2010-TII-50-ITAT-BANG-TP. It is submitted that the said case is distinguishable for the following reasons : In this case it is held by the hon' ble Income-tax Appellate Tribunal that the outstanding receivables were generated by the assessee from its international transactions which were referred to the Transfer Pricing Officer by the Assessing Officer (Kindly refer paragraph 13 of the decision in this regard). It was not a separate international transaction. Even the submission of the assessee was that this 'aspect of delay' was not referred. Once a transaction is referred for consideration, its aspects need not be isolated and referred. Once the international transaction is referred all aspects are referred. Moreover the hon' ble court was not confronted with an argument that this was not a part of the report and never referred to the Transfer Pricing Officer nor was it mentioned that law is clear and so mentioned in the circular. The decision is not an authority for what is being made out to be hon' ble Income-tax Appellate Tribunal also overruled the objecti....
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.... the adjudication of the issue were neither cited nor considered by the hon' ble Bangalore Bench the same can be held as having passed sub silentio. 1.5 As regards the submission of the learned Commissioner of Income-tax (Departmental representative) that the provisions of Chapter X are the special provisions relating to avoidance of tax it is submitted that in the case of Aztec Software and Technology Services Ltd. v. Asst. CIT reported in [2007] 294 ITR (AT) 32 (Bang) ; 107 ITD 141 the hon' ble Special Bench of the Income-tax Appellate Tribunal has held (at page 181, paragraph 17) that avoidance of tax is not a condition precedent for invoking the provisions of section 92C/92CA and that there is no requirement of establishment of ' tax evasion' before initiation of proceedings for determination of the arm' s length price. 1.6 The learned Commissioner of Income-tax (Departmental representative) in his submissions has stated that the transfer pricing provisions require an investigation into not the form but the overall arrangement/substance of the transactions. In this regard it is reiterated that the Transfer Pricing Officer has identified advertisement, marketing and promotion ....
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....se in course of carrying on its business in India. Bright line test applied by the transfer pricing officer applying advertisement, marketing and promotion expense/sales as a base for benchmarking is not one of the five methods provided under the Transfer Pricing Regulations in India. If it is the case of the Department that transactional net margin method has been applied as the most appropriate method for the purpose of ascertaining the so called Bright Line even then it is submitted that as per rule 10B(e)(i) under transactional net margin method the benchmarking permitted is on basis of 'net profit margin' and not a particular expense limit. Expenses may be adopted as a ' relevant base' as per rule 10B(e) but the same cannot be taken as the numerator. The hon'ble Income-tax Appellate Tribunal in case of C. A. Computer Associates P. Ltd. v. Deputy CIT [2011] 8 ITR (Trib) 142 ; [2010] 37 SOT 306 (Mumbai) (copy enclosed pages 339 to 346 of the paper book relevant at page 345, paragraph 8) has held that the manner in which the arm' s length price is to be determined by any of the five methods stipulated under section 92C is provide for in rule 10B and the Transfer Pricing Office....
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....ansactional net margin method for justifying the arm' s length price of international transactions. The assessee has shown operating profit at 43.46 percent which has been worked out on the basis of operating profit/total cost in respect of the international transactions. The operating profit/total cost worked out by the learned Transfer Pricing Officer in respect to comparable companies selected by him is on the lower side. The result shown by the assessee is much higher, i.e., 8.02 percent of the comparable companies. The dispute between the assessee and the Revenue relates to the adjustment suggested by the Assessing Officer in respect of marketing expenses incurred by the assessee. According to the learned Transfer Pricing Officer the assessee had incurred more than normal sales and marketing expenses to build " aMaDEUS" brand in India which is legally owned by Amadeus Spain. The learned Transfer Pricing Officer pointed out that the assessee should have been reimbursed with an appropriate mark up on such additional marketing expenses. The Transfer Pricing Officer computed more than normal marketing expenses by comparing the advertisement, marketing and promotion (AMP expenses) ....
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....may be made at any time before sixth days prior to the date on which the period of limitation referred to in section 153, or as the case may be, in section 153B for making the order of assessment or reassessment or recomputation or fresh assessment, as the case may be, expires. (4) On receipt of the order under sub-section (3), the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92C in conformity with the arm' s length price as so determined by the Transfer Pricing Officer. (5) With a view to rectifying any mistake apparent from the record, the Transfer Pricing Officer may amend any order passed by him under sub-section (3), and the provisions of section 154, shall, so far as may be, apply accordingly. (6) Where any amendment is made by the Transfer Pricing Officer under sub-section (5), he shall send a copy of his order to the Assessing Officer who shall thereafter proceed to amend the order of assess ment in conformity with such order of the Transfer Pricing Officer. (7) The Transfer Pricing Officer may, for the purposes of determining the arm' s length price under this section, exercise all or any of the powers spe....
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....ence or absurdity, hardship or injustice, which can hardly have been intended, a construction may be put upon it which modifies the meaning of the words, and even the structure of the sentence. This may be done by departing from the rules of grammar, by giving an unusual meaning to particular words, or by rejecting them altogether, on the ground that the Legislature could not possibly have intended what its words signify, and that the modifications made are mere corrections of careless language and really given the true meaning. Where the main object and intention of a statute are clear, it must not be reduced to a nullity by the draftsman' s unskilfulness or ignorance of the law, except in a case of necessity, or the absolute intractability of the language used.' This court in Tirath Singh v. Bachittar Singh, AIR 1955 SC 830, approved and adopted the said approach. 21.2. In Shamrao V. Parulekar v. District Magistrate, Thana, AIR 1952 SC 324 this court reiterated the principle from Maxwell : (AIR page 327, para 12) '12 . . . if one construction will lead to an absurdity while another will give effect to what common sense would show was obviously intended, the construction....
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....ave been mentioned in Order 7 rule 14(4). To avoid any confusion, we direct that till the Legislature corrects the mistake, the words "plaintiff' s witnesses" , would be read as " defendant' s witnesses" in Order 7 rule 14(4). We, however, hope that the mistake would be expeditiously corrected by the Legislature.' 21.6 Justice G. P. Singh extracts four conditions that should be present to justify departure from the plain words of the statute when it is satisfied that : (1) there is clear and gross balance of anomaly ; (2)Parliament, the legislative promoters and the draftsman could not have envisaged such anomaly, could not have been prepared to accept it in the interest of a superventing legislative objective ; (3) the anomaly can be obviated without detriment to such legislative objective ; (4) the language of the statute is susceptible of the modification required to obviate the anomaly." On a bare perusal of sub-section (1) of section 92CA it reveals certain conditions, i.e., the assessee should have entered into an international transaction in any previous year. The Assessing Officer may consider it necessary and expedient to verify the arm' s length price of the int....