TaxTMI 
TaxTMI 
2014 (4) TMI 427
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....inancial data of the comparable companies only for the year ended 31 March, 2006 instead of multiple year data for determining the arm's length price (iii) Rejecting the following companies from the set of comparable companies: * Ace Software Exports Limited * Allsec Technologies Limited * Fortune Infotech Limited * Genesys International Corporation Limited (Consolidated -Segmental) * Mercury Outsourcing Management Limited * Nucleus Netsoft and GIS (India) Limited * Pentasoft Technologies Limited (Segmental) * Spanco Telesystems and Solutions Limited (Segmental) * Tricom India Limited * Wipro BPO Solutions Limited (iv) Carrying out the fresh search and selecting Maple eSolutions Limited as comparable company though the data was not available in the public domain at the time of preparing the transfer pricing documentation (v) Incorrectly computing the margins of Vishal Information Technologies Limited i.e. 61.81% instead of 48.03 and Maple eSolutions Limited i.e. 36.83% instead of 31.41%. 1.2 On the facts and circumstances of the case and in law, the learned AO erred in computing the adjustments to the arm's length price without considering +/- 5% variation from the me....
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....mparable companies on account of the fact that the Appellant is a captive service provider for its associated enterprises and is remunerated on a cost plus basis irrespective of the outcome of the services provided and hence undertakes no market risk, service liability risk, credit and collection risk as against comparable companies that are the full-fledged risk taking entrepreneurs." 8. The learned AR of the assessee submitted that in case it is held by the Tribunal that the determination of Arm's length price by the AO is correct, then the above additional grounds raised by the assessee should be considered and adjustment to the arm's length price should be made on account of risk adjustment and working capital adjustment. 9 On the other hand, the ld. DR vehemently objected to the admission of above additional grounds of appeal raised by the assessee on the ground that these grounds were not taken either before the AO or before the DRT and that the same would require investigation into additional facts which are not on record. 10. Ground No.1.1(i) of the appeal reads as under:- "1.1 On the facts and circumstances of the case and in law, the learned AO erred in - (i) Holding....
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....ons of the assessee. In the first ground of objection, it is stated that the company was enjoying benefit u/s 10A of the Act, there could be no reason for transfer of profit from India being non taxable profit. It was stated that there could not be any avoidance of tax to apply section 92 of the Act. Reliance was placed on Philip Software Pvt. Ltd. Vs. ACIT (119-TTJ-721)(Bangalore). Picker India Ltd. Vs. DCIT (117- TTJ-650 (Del.) & Oracle India Pvt. Ltd. Vs. DCIT (118-TTJ-812 (Del.) ..... 12. In the case of MSS India Pvt. Ltd. (2009-TIOL-416-ITATPUNE) the Hon'ble Pune Bench of the ITAT after referring to the decision of the Bangalore Division Bench in Philips case (supra), wherein it was held that 'since the basic intention behind introducing the transfer pricing provisions in the Act is to prevent shifting of profits outside India and the assessee is claiming benefit u/s 10A of the Act, the transfer pricing provisions ought not to be applied to the assessee' held that this view of the division bench was diametrically opposite to the views of 5 member Special Bench in the case of Aztec Software (supra), wherein the larger bench observed that the Legislature while introducing the....
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....ge more than particular price cannot control the arms' length price; there is no requirement to give a hearing at the stage of making reference under Section 92 CA of the Act because the decision to make a reference does not visit the assessee with any civil consequence. 15. In the case of Gharda Chemicals Ltd. Vs. DCIT (ITAT) Mumbai [2009-TIOL-790-ITAT-Mumbai] it was contended on behalf of the assessee that Transfer Pricing provisions were not applicable, as there was no reduction in the tax liability of the assessee. It was argued that the assessee had not tried to reduce any income or the incidence of tax. Rejecting the claim of the assessee, It was held that where there was an international transaction as per section 92B of the Act, computation of ALP was required to be made according to the provisions of Section 92C. The rationale behind the transfer pricing provisions is to curtail the avoidance of tax in India. It was stated that the intent and purpose of the provisions was not to ensure that there was no diminution in the tax liability of the Indian enterprise as well as its AE on a total basis. Rather the logic was to make certain that the transactions between the AEs sho....
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.... in UK. It was informed by the ld.AR that in UK the assessee would suffer tax @ 30%, hence there was no logic to shift the profit. At that juncture, ld. CIT DR Mr. V.K. Gupta has referred Aztech Software & Technology Services Ltd. (supra) reported as ( 109 TTJ 892 ) ( 107 ITD 141 )(Bang)(SB) for a legal proposition that any adjustment on account of transfer pricing would not qualify for the special benefit prescribed u/s.10A of I.T. Act. Ld. AR has opposed and pleaded that once the transaction was ALP transaction, then there was no requirement of any adjustment and hence there was no requirement of rejection of benefit of section 10A of I.T. Act. This argument has force because by applying a very common logic no business man will shift the profits from a country where such profits are exempt or having lower incidence of tax. Rather Revenue was unable to answer the question that why at all this assessee has shifted its business profit to UK where rate of tax is said to be 30% as against NIL rate of tax in India. Naturally, the decision of Moser Bear India Ltd. (supra), Global Vantedge (P.) Ltd. (supra), andAsstt. CIT v. Mss India (P.) Ltd. [2009] 32 SOT 132 (Pune) are worth for refe....
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....base. The new section 92 is, therefore, not intended to be applied in cases where the adoption of the arm's length price determined under the regulations would result in a decrease in the overall tax incidence in India in respect of the parties involved in the international transactions. " 19. The ld. DR supported the orders of the lower authorities. 20. After hearing the rival submissions and perusing the materials available on record, we find that the assessee is engaged in offshore business process outsourcing service provider whereby it renders data support services (hereinafter referred to a "BPO Services"). It is not in dispute that the assessee's entire income derived from the above business is exempt u/s 10A of the Income-tax Act. During the year the assessee claimed to have earned income of Rs.2,24,24,801/- as derived from the said business and claimed exemption u/s 10A. Apart from this, the assessee also earned interest and other income of Rs.32,61,593/- and after claiming deduction under Chapter VI-A, total income was disclosed at Rs.35,31,098/-. 21. During the assessment as the assessee had international transaction with its associated enterprise, the matter was refe....
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....e arranged in such a way that the ultimate tax payable in India is artificially reduced. 25. Before us, the ld. AR of the assessee made similar arguments as were made before the TPO and DRP. The ld. AR contended that DRP was not correct in observing that the decision of the Tribunal in the case of Philips Software Centre (P.) Ltd. (supra) was stayed by the Hon'ble Karnataka High Court. 26. He further contended that DRP itself admitted that the object of provisions of transfer pricing was to ensure that no tax base in India is eroded because of international transactions with AE. In view of this the DRP should have accepted the assessee's contention that in the instant case as the entire income derived by the assessee from the business is exempt u/s 10A and therefore provisions of transfer pricing should not be invoked by assuming that any arrangement was made by the assessee so as to erode any tax base in India. 27. The ld. AR of the assessee also relied upon paragraph 55.5 of the CBDT Circular No.14 of 2001, dated 09.11.2001, wherein the object behind the insertion of the provisions of Transfer Pricing in the Act was explained. 28. On the other hand, the ld. DR supported the o....
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....d not prove the motive of shifting of profits outside India for making a transfer pricing adjustment. The assessee had generally argued that one of the factors driving any motive for shifting profits would be the difference in the tax rate in India and the tax rate applicable to the AE in the overseas jurisdiction. In the instant case, since the assessee was availing the benefit under s.10A of the Act, it would be devoid of logic to argue that the assessee had manipulated prices (and shifted profits) to an overseas jurisdiction for the purpose of avoiding tax in India." 31. Thus, we find from the above explanation of the CBDT and the decision of the Tribunal that the provisions of the Transfer Pricing were introduced in the Statute to ensure that due to any arrangement made by the assessee with its AE in the course of an international transaction income taxable in India is not reduced for any reason. Further in a case where the income derived from an international transaction is exempt from tax in India because of provisions of Section 10A, then it cannot be held that because of an arrangement between the assessee and its AE any income taxable in India had been under reported. 32....
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....the lower authorities the assessee has not reported any excess exempt income from its international transactions with AE. On the other hand as per the opinion of the lower authorities in the instant case exempt income declared by the assessee when benchmarked with the ALP determined in accordance with the provisions of Transfer Pricing, the assessee has declared lesser exempt income and thereby no taxable base in India was eroded. Therefore, in our considered opinion no adjustment with the exempt income of the assessee was required to be made as per provisions contained in Chapter X of the Act. 39. Before parting with this issue, we would like to observe that the decision in the case of Gharada Chemicals V. DCIT, 2009-TIOL-790-ITATMumbai, relied upon by the DRP is not applicable for deciding the issue with which we are confronted with because in that case it was not the claim of the assessee that the income derived by it in the international transaction with its AE was exempt from tax under the provisions of the Income-tax Act. Thus, the Tribunal in that case was not confronted with the issue as to how the provisions of Transfer Pricing should be applied in a case where internatio....