TaxTMI 
TaxTMI 
2014 (4) TMI 930
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....es. Assessee placed on record various paper books containing submissions before DRP in one paper book, submissions before TPO in one paper book, draft assessment order in one paper book, annual reports of companies, which are being objected to in two paper books and list of case law relied upon in one paper book, in all, six volumes mentioning as Annexures, but, with no page numbers. The learned counsel also in the course of arguments placed various orders relied upon separately. 3. We find that additional grounds are in continuation of existing grounds about comparables and various objections raised by Assessee. Therefore, we are of the opinion that neither the grounds nor the additional grounds need to be extracted in this order. 4. We have heard the learned counsel and learned DR in detail. 5. Assessee is a company incorporated in India and provides wide range of business solutions in information technology, primarily, to its AEs, namely CES USA and its group concerns. Assessee company is in two business segments, viz., information technology services and software development services. Assessee reported the following transactions as per its 3CEB report: &....
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....are Ltd. 3. Infosys Ltd. 4. KALS Info Systems Ltd. 5. Mindtree Consulting Ltd. 6. Persistent Systems Ltd. 7. R Systems International Ltd. 8. Sasken Communications Ltd. 9. Tata Elxsi Ltd. 10. Lucid Software Ltd. 11. Media Soft Solutions Ltd. 12. RS Software India Ltd. 13. SIP Technologies & Exports Ltd. 14. Bodh Tree Consulting Ltd. 15. Accel Transmatics Ltd. 16. Synsoys Business Solutions Ltd. 17. Flextronics Software Systems Ltd. 18. Lanco Global Systems Ltd. 19. Megasoft Ltd. 20. Gate Global Solutions Ltd. The OP/OC arrived at 20.68% and applying the operating cost of Rs. 30,04,60,885/- determined the ALP at Rs. 3,69,00,316/- and made adjustment of Rs. 38,26,608/-. 5.4 The third ....
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....depending on some internal CUP available in the tax payer's cases or the external CUP adopted from other cases. 3. Sri F.M. Mohanty, one of the members of the DRP, Hyderabad, had expressed his disagreement with the decision taken. He is of the opinion that it is in appropriate to issue any directions on this matter regarding determination of ALP on loan transactions. 4. Section 144C(5) of IT Act read with sub-section [8] does not mandate the DRP to have any discretion not to issue directions on any particular issue referred to it meaning thereby that any issue referred to it meaning thereby that any issue referred to the DRP has to be disposed off as per the provisions contained in section 144C of the IT Act. While giving his dissent note, Sri F.M. Mohanty ha raised certain issues which need to be clarified for the purpose of record. The same are as under: (i) It is mentioned that DRP, Bangalore, has approved the interest rate of 14% per annum as determined by the TPO in a particular case. He referred to certain decisions of ITAT and High Court according to which the de....
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.... (Millions) Rate of interest (% over Libor) 1. Radico Kahitan US $10 1.50 2. Shiva Cement US $ 7 2.50 3. Tata Chemical US S 20 1.00 Arithmetic 1.67 In the first case, the TPO accepts that interest rate at Libor + 200 basis points is treated as arm's length in a case where loan is given to an Indian entity even though interest rates prevailing in India during the relevant time were of the order of 10 to 14% per annum. In the second case, considering that there is no significant difference between the rate of interest paid by the tax payer and the comparables, no adjustment was proposed. In both the above instances the TPO has rightly recognized the principle involved i.e. rate of interest in international transactions is benchmarked against Libor + certain basis points....
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....annum, the decision of the TPO has been upheld. (iii) it is mentioned that any direction/decision by DRP other than upholding 14% is likely to prejudice the departmental appeal pending before the ITAT in the case of M/s Reddy Laboratories Ltd. It is seen that the issues relating to transfer pricing have been in vogue for over several years. Various appeals were decided by the CIT(A) and in many cases, many issues were appealed against by the Department before the ITAT. There is no consolidated official record of such decisions which are before the ITAT. Before DRP, we have come across about 12 to 15 issues in all the cases put together. On all these issues, there are several departmental appeals pending before the ITAT for adjudication. If the order of TPO is to be accepted on all those issues DRP cannot take any decision otherwise than upholding all the decisions of the TPO even though they are found to be patently wrong. There are no such guidelines issued by the CBDT for the functioning of the DRPs. In any case, if what is suggested by Sri F.M. Mohanty is to be followed, the....
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....p; "11. We have considered the rival submissions. A perusal of the order of the TPO clearly shows that the assessee had raised the funds by way of issuance of 0% optional convertible preferential shares. Thus it is noticed that the funds raised by the assessee company for giving the loan to India Telecom Holdings Ltd., Mauritius, which is its Associated Enterprises and which is the subsidiary company, is out of the funds of the assessee company. It is not borrowed funds. The assessee has given the loan to the Associated Enterprises in US dollars. The assessee is also receiving interest from the Associated Enterprises in Indian rupees. Once the transaction between the assessee and the Associated Enterprises is in foreign currency and the transaction is an international transaction, then the transaction would have to be looked upon by applying the commercial principles in regard to international transaction. If this is so, then the domestic prime lending rate would have no applicability and the international rate fixed being LIBOR would come into play. In the circumstances, we are of the view that it LIBOR rate which has to be considered while determining the arm's length....
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.... has advanced a loan of USD$150,000 to CES, USA @ 6% interest per annum. Another loan of USD$ 6,80,000 was converted into equity share capital on 28-02-2006 and the value of interest received upto the date of conversion was at Rs. 15,56,833/-, for which rate of interest calculated at Libor Plus 157 basis points. Since, Assessee has adopted Libor + 1.57% base points, we do not see any reason to restore the matter to the TPO as the said rate of Libor + can be considered as ALP. Accordingly, following the observations of DRP and also findings of the coordinate benches in the above cases, we allow Assessee's contentions on this issue raised in Ground Nos. 18,19 & 20. 11. As regards exclusion of communication expenses, as briefly stated above, while working out deduction u/s 10A, the AO excluded communication expenses from the export turnover. It was the contention that the said expenses should also be excluded from the total turnover. Assessee raised this issue in Ground Nos. 23 & 24. This issue is covered in favour of Assessee by the Special Bench of the ITAT in the case of ITO v. Saksoft Ltd. [2009] 30 SOT 55 (Chennai) (SB) and also the decisions of other coordinate benches in the....
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....ice Central India Pvt. Ltd. where this company is rejected as comparables to ITES. 3. Asit C. Mehta Financial Services Ltd. The learned counsel for the assessee submission is to exclude the said company from the list of comparables on the ground that this company merged with Nucleus & Gis India Ltd in Feb. 2006 and also a super normal profit making company. He relied on the following case law: 1. Bangalore ITAT order in the case of Google India Pvt. Ltd. vide 1368/Bang/2010 where this company is rejected as comparable to ITES. 2. Hyderabad ITAT order in the case of Capital IQ Information Systems (India) Ltd. (supra) vide Para 11 and 15. 3. Mumbai ITAT order in Teva India (P.) Ltd. v. Dy. CIT [2011] 44 SOT 105 (Mum.) (URO). 4. Spanco Ltd. The learned counsel for the assessee submission is to exclude the said company from the list of comparables on the ground that this company acquired Intelenet BPO Services Pvt. Ltd. in Nov. 2005 and also a super normal profit making company. He relied on the following case law: 1. Bangalore ITAT order in the case of Google Ind....
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....(India)(P.) Ltd. [2012] 135 ITD 211 (Delhi)(Trib.) 8. Apex Knowledge Solutions P. Ltd. The learned counsel for the assessee submission is to exclude the said company from the list of comparables on the ground that this company is engaged in different line of business of E-Publishing which is completely different from Assessee company's business of ITES. He relied on the decision Bangalore ITAT order in the case of Google India(P.) Ltd. (supra) where this company is rejected as comparable to ITES. 9. Transworks Information Services Ltd. The learned counsel for the assessee submission is to exclude the said company from the list of comparables on the ground that this company provides CRM services and also operates in the area of rendering business processing outsourcing services. In the case of Capital IQ information systems (India) Pvt. Ltd. (supra) Vishal Information technologies have been excluded as it was engaged in similar services of BPO. He relied on the following case law: 1. Hyderabad ITAT order in the case of Capital IQ Information Systems (India) Ltd. (supra) vide Para 21. 2. Hyderabad ITAT order in the case of Trini....
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.... engaged in the software development services. Since it is a super profit making company, cannot be considered as comparable. He relied on the following case law: 1. Hyderabad ITAT order in the case of Capital IQ Information Systems (India) Ltd. (supra). 2. Mumbai ITAT order in Teva India (P.) Ltd. (supra) Mumbai. 5. Accel Transmatics Ltd. The learned counsel for the assessee submission is to exclude the said company from the list of comparables on the ground that this is a super profit making company of 44.07% operating profit and difference in functionality and business model and major revenue for the year under consideration is due to an extraordinary event i.e. sale of IP rights in 'Prodigy', a school management system. For AY 2004-05 has a negative operative margin of (-18.73%.). He relied on the following case law: 1. Hyderabad ITAT order in the case of Capital IQ Information Systems (India) Ltd. (supra). 2. Mumbai ITAT order in Teva India (P.) Ltd. (supra) Mumbai. 6. Megasoft Ltd. The learned counsel for the assessee submission is to exclude the said co....