TaxTMI 
TaxTMI 
TaxTMI 
2013 (4) TMI 700
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the cross objection. In the interest of justice, we condone the delay of 550 days in filing of the cross-objection. The application for condonation of delay is thus, allowed and the cross-objection is admitted to be heard on the merits. 2. The brief facts of the case are that the assessee is a wholly owned subsidiary of M/s. SCM Microsystem Group UK Ltd. The assessee is engaged in prototype design development and related supported activities based on technical specifications and product ideas obtained from the affiliates. It also undertakes product development of smart card and bio-metric readers. The activities of the assessee include design, development and testing of ASICs, hardware and software. It also maintains the smart card and biometric products developed by the third parties. The assessee filed its return of income for the assessment year 2005-06 on October 29, 2005 declaring its income as Rs. 12,89,760. The assessee in its return has also disclosed income of Rs. 1,61,29,367 from business and claimed the entire said amount as deduction under section 10B of the Act. The case of the assessee was selected for scrutiny and notice under section 143(2) was issued to the ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nication charges from the export turnover while computing the deduction under section 10B of the Act. The Commissioner of Income- tax (Appeals) relying on the decision of the Special Bench of the Tribunal in the case of ITO v. Sak Soft Ltd. reported as [2009] 313 ITR (AT) 353 (Chen- nai) [SB] directed that Rs. 5 lakhs being estimated telecommunication charges should be excluded from the export turnover as well as the total turnover while computing deduction under section 10B of the Act. The second ground of appeal before the Commissioner of Income-tax (Appeals) was with regard to disallowance of employees contribution to provident fund after due date. The Commissioner of Income-tax (Appeals) following the decision of the Tribunal in the case of Asst. CIT v. Atlas Cycles (Haryana) Ltd. reported as 2010-TIOL-140-ITAT-Delhi deleted the addition made by the Assessing Officer stating that even though the amount was remitted belatedly, i.e., beyond the due date but before the due date for filing of tax return of income is allowable as deduction. In respect of the third ground, i.e., transfer pricing adjustment, the Commissioner of Income-tax (Appeals) accepted the submissions of the asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d. The Departmental representative strongly relied on the order of the Transfer Pricing Officer as far as calculation of the arm's length price is concerned. 5. On the other hand, Shri R. Vijayaraghavan appearing on behalf of the assessee submitted that the Transfer Pricing Officer has erred in making addition on account of the arm's length price. Although in the service agreement cost plus method has been mentioned, there is no bar in adopting transactional net margin method, as transactional net margin method is one of the approved methods under section 92C of the Act for determining the arm's length pricing in relation to international transactions. He submitted that one of the methods provided under the mechanism is to be applied for benchmarking comparable uncontrolled transactions. One of the most appropriate methods provided under section 92C of the Act has to be applied for transfer pricing arrangement for international transactions. In the instant case, the assessee had given justification before the Transfer Pricing Officer for adopting transactional net margin method for determining the arm's length pricing with associated enterprises. Counsel for the as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ect to exclusion of telecommunication charges from export turnover while computing deduction under section 10B of the Act. The assessee has claimed an amount of Rs. 6,46,123 towards telecommunication charges. The assessee had excluded the said amount from export turnover in computation of deduction under section 10B of the Act. The assessee has conceded before the Commissioner of Income-tax (Appeals) that it is not in a position to furnish break-up of expenses incurred for domestic and exports. The Commissioner of Income- tax (Appeals) made estimation of telecommunication charges to the tune of Rs. 5 lakhs as attributable towards export of software. It is an admitted fact that the assessee is in the business of export of design, development and testing of hardware and software and it was also maintaining the smart card and bio-metric products developed by the third parties. Therefore, it must have incurred a substantial amount of expenditure towards telecommunication and internet charges. The Commissioner of Income-tax (Appeals) has made fair estimation of the same. Since the Revenue has not been able to produce any cogent evidence to controvert the findings of the Commissioner of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... or (iv)functions performed by such persons ; or (v)such other relevant factors as may be prescribed by the Board. The methods prescribed under section 92C(1) for determining arm's length price are : 1.comparable uncontrolled price method (CUP) ; 2.resale price method ; 3.cost plus method ; 4.profit split method ; and 5.transactional net margin method (TNMM) or any other method prescribed by the Board. 11. The most appropriate method has to be applied for determining arm's length price in the manner as may be prescribed in rule 10C of the Income- tax Rules. In the instant case, the assessee followed the transactional net margin method over the cost plus method for the reason : Cost plus method requires comparison of gross margins earned by the company with that of the comparable companies and to determine the gross margins of the comparable companies in a reliable manner is difficult as the accounting policies adopted by the comparable companies are not consistent and the details are not available in the public domain. An agreement between the parties cannot exclude the other approved method of determining the arm's length price as provided under the law, for t....