TaxTMI 
TaxTMI 
2015 (6) TMI 962
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....th analysis. In its analysis, the assessee identified four entities as comparable and reached at a conclusion that average margins of these four entities comes to 4.04% while the assessee has earned Operating Profit (OP) margin of 27.05% and claimed that the transactions with AEs were at ALP. The Assessing Officer/TPO rejected the ALP computed by the assessee. The TPO/Assessing Officer used the single year data for the financial year 2007-08 and also introduced to include two companies as comparables, one Brescon Corporate Advisors Ltd. and another Keynote Corporate Services Ltd., for the purposes of determining the ALP. The assessee filed the objections before the DRP on the issues of using single year data for making the TP adjustments, introduction of two new companies as comparables, sustaining the selection of Khandwala Securities Ltd. as comparable by ignoring the exceptional profits earned by it, considering the reimbursement of expenses as a part of the operating expenses and corresponding reimbursement as a part of operating revenue for determining ALP and not providing adjustment of +/- 5% by Proviso to section 92C(2) of the Income-tax Act, 1961. These objections were con....
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....AO / TPO have erred in introducing and DRP in upholding 2 new companies as comparables while determining the ALP. 6. The Ld. AO / TPO / DRP have erred in sustaining the selection of Khandwala Securities Limited as comparable and ignoring the exceptional profits earned by it during the Financial Year 2007-08. 7. The Ld. AO / TPO / DRP has erred in considering the reimbursable expenses and the corresponding reimbursements as part of operating expenses and operating income, respectively, of the appellant while determining the ALP. 8. The Ld. AO / TPO / DRP have erred in not allowing the benefit of +/- 5% as provided by proviso to section 92C(2) of the Act." 4. While pleading on behalf of the assessee the ld. AR submitted that the assessee has determined the ALP after careful consideration of relevant factors as the assessee was fully conversant with various commercial realities surrounding assessee's business and a comprehensive internal analysis of the function performed, assets deployed and risk undertaken was carried out. The revenue authorities have rejected this analysis without any reason. He further submitted that the revenue authorities were not justified in using ....
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....htly used the current year data. He further submitted that this proposition has been upheld by various decisions of ITAT including the cases of Aztech Softeare Technology - 294 ITR (AT)(32)(Bang.)(SB) and Honeywell Ltd. - 2009-TIOL-104-ITAT-Pune. Similar view has also been held in the case of the Mentor Graphics (Noida) Pvt. Ltd. vs. DCIT - [2007] 109 ITD 101 (Delhi) and many other cases. On the issue of extreme results comparables in the cases of Brescon Corporate Advisors Ltd., Keynote Corporate Services Ltd. and Khandwala Securities Ltd., the ld. DR submitted that there is no such law which provides that high margins comparables should be rejected. Ld. DR submitted that the law provides for an average that is mean of the comparables. If the high profit and less profit comparables are removed then it will give the result of medium rather than mean and it will go against the law. Therefore, high loss making company as well as high profit making company cannot be rejected or taken out of the comparables. He further submitted that the law provides for working out the average and by this variations are iron out. Ld. DR submits that law also provides +/- 5% margin to take care of such....
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....d the reimbursement should be routed through the profit & loss account. 7. We have heard both the sides on all the issues with regard to the transfer pricing. The issue raised regarding the determining the ALP on the basis of current year datas and not considering to prior two financial years 2005-06 and 200607, we hold that in order to determine the arms length price in relation to international transaction, it has to be compared with uncontrolled and unrelated transactions by using the data relating the financial year in which year the international transaction has been entered into. It has been stipulated under rule 10B(4) read with Rule 10D(4) of Income-tax Rules, that contemporaneous information and document should be considered as far as possible for the purpose of comparing uncontrolled transaction with the international transaction. Therefore, the comparability of an uncontrolled and unrelated transaction with the international transaction has to be decided by using current year data. Only when the current year data does not give a true picture of the affairs and results of the comparables due to existence of abnormal circumstances, the multi year data can be considered.....
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....It has been done rightly so because profit is not a factor itself, but consequence of effects of various factors. Only if the higher or lower profit rate results on account of effect of factors given in Rule 10B(2) read with sub-rule (3), that such case shall merit omission then only it can be considered. Higher profits achieved due to factors not mentioned in the Rule then such case shall be continued to find place in the list of comparables. Similar view has been approved by various coordinate Benches of the Tribunal including Exxon Mobil Company India (P.) Ltd. - (2011-TTJ-68-ITAT-MUMTP) and DCIT vs. M/s. B.P. India Services (P.) Ltd. - ITA No.4425/Mum/2010 Assessment Year 2004-05. 10. The other ground in the assessee's appeal is regarding considering the reimbursable expenses and corresponding reimbursements as part of operating expenses and operating income respectively of the assessee while determining the ALP. 11. After hearing both the sides, we find that the functional analysis reveals that certain expenses amounting to Rs. 4.9 crores has been incurred in the course of services. Moreover, the agreements of the assessee with AEs stipulate that all ancillary expenses in c....
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....e relevant period. Therefore, the payment of such bonus to them is deductible. Ld. AR submitted that the declaration of the bonus has no relation and no connection with the shareholder directors. Ld. AR also relied on the decision of Hon'ble Bombay High Court in the case of Loyal Motor Service Co. Ltd. vs. CIT - 14 ITR 647 and also relied on the decision of ACIT vs. Bony Polymers Pvt. Ltd. - [2010] 36 SOT 456 (Delhi) and Hon'ble Delhi High Court decision in the case of CIT vs. Career Launcher India Ltd. in ITA No.939/2010 & Ors. dated 19.04.2012. 17. On the other hand, ld. DR submitted that the bonus/commission paid to an employee is not allowable as deduction if it could have been paid as profit or dividend. There is no dispute that these two directors were also having all the share capital in the ratio 2 : 1. The bonus is also paid in the same ratio. Had the bonus not been paid to these persons it could have enhanced reserve of the assessee company which ultimately to be paid as dividend to these shareholders cum directors. The provisions of law are very clear. There is no ambiguity in this regard. He further submitted that the case law of Loyal Motor Service Co. Ltd. ....
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....in allowing the bonus payment to the directors cannot be accepted. It has not disputed the facts viz., (a) that the payment was supported by board resolutions and (b) that none of the directors would have received a lesser amount of dividend than the bonus paid to them, having regard to their shareholding. Further, the directors are full time employees of the company receiving salary. They are all graduates from IIM, Bangalore. Taking all these facts into consideration, it would appear that the bonus was a reward for their work, in addition to the salary paid to them and was in no way related to their shareholding. The bonus payment cannot be characterised as a dividend payment in disguise. The Tribunal has found that having regard to the shareholding of each of the directors, they would have got much higher amounts as dividends than as bonus and there was no tax avoidance motive. The quantum of the bonus payment was linked to the services rendered by the directors. It cannot therefore be said that the bonus would not have been payable to the directors as profits or dividend had it not been paid as bonus/commission." In assessee's case, the payment of the bonus was directly rela....