TaxTMI 
TaxTMI 
2015 (7) TMI 214
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....ispute Resolution Panel erred in sustaining the order of the learned Transfer Pricing Officer in considering certain non-comparable companies as comparable companies. 2 That on the facts of the assessee company's case the learned assessing officer erred in not passing speaking order. 3 That on the facts of the assessee company's case the learned assessing officer erred in using financial information of the comparable companies relating to the financial year ('FY') 2008-09 although such information was not available when the appellant maintained documentation as per the requirement of the act. 4 That on the facts of the assessee company's case the learned assessing officer erred in cherry picking the comparables which is not justified, as the learned assessing officer has not provided the information regarding the date of search and the date of database used. 5. That on facts and in the circumstances of the assessee company's case the Learned Dispute Resolution Panel erred in sustaining the order of the learned Transfer Pricing officer in selecting following companies as comparable companies even when these companies did not meet the comparability....
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.... Infosystems Limited (vi) Tech Mahindra Limited (vii) Thirdware Solutions Limited (viii) Larsen & Toubro Infotech Ltd. (ix) Mindtree Limited 6. That in law and on facts and circumstances of the case, the Learned Dispute Resolution Panel erred in sustaining the order of the learned Transfer Pricing Officer in computing net margin as required under Transactional Net Margin Method ('TNMM') by considering foreign exchange gain/ loss as non-operating item. 7. That on the facts and in the circumstances of the assessee company's case, the Learned Dispute Resolution Panel erred in sustaining the order of the learned Transfer Pricing officer in not making adjustments to the Arm's Length Price as computed by him so as to take into account the low risks assumed by the assessee company for its international transaction. 8. That on the facts and in the circumstances of the assessee company's case the Learned Dispute Resolution Panel erred in sustaining the order of the learned Transfer Pricing officer in using entirely different set of companies as comparable companies as mentioned in the transfer pricing order dated 23.01.2013 made....
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....by the assessee company. 14. That on the facts and in the circumstances of the assessee company's case the learned Dispute Resolution Panel erred in sustaining the order of the learned assessing officer in treating the net profit as per respective profit and loss accounts as operating profit of the various companies as selected by him without making adjustment for non-operating incomes & expenses of such companies. 15. That on the facts and in the circumstances of the assessee company's case the learned Dispute Resolution Panel erred by relying upon the action taken by the Transfer Pricing officer without exercising their own judgment and skill. 16. That on the facts and in the circumstances of the assessee company's case the learned Assessing Officer erred in levying interest based on the enhanced taxable income." 3 The factual matrix as emanating from the material on record is that the appellant company was incorporated as 100% export oriented undertaking under the Software Technology Park Scheme of the Government of India. It is a wholly owned subsidiary of M/s. SSP SIRIES Solutions Ltd., UK (SSP (UK)). It is a captive service provider and is engage....
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.... 40.51 2 Aricent Technologies Limited (Consolidated) 25.76 3 Bodhtree Consulting Limited (Standalone) 69.80 4 Cat Technologies Limited (Standalone) 34.43 5 KPIT Cummins Infosystem Limited (Consolidated) 21.56 6 Larsen & Turbo Infotech 21.33 7 Mindtree Ltd. 27.36 8 Persistent Systems Ltd. 37.77 9 R.S. Software (I) Ltd. 10.15 10 Tech Mahindra Limited (Consolidated Seg) 35.35 11 Think Soft 16.56 12 Thirdware Solutions Limited 37.27 Average 31.48% 5 On the aforesaid basis, the TPO made an adjustment of Rs. 2,70,87,490/- in the manner as under: S.No. Particulars Amount 1. Price received 18,90,20,954 2. Total cost 16,43,66,021 3. ALP at a margin of 31.48% 21,61,08,444 4. Price received 18,90,20,954 5. Difference 2,70,87,490 6 Pursuant to the directions of DRP out of the set of 12 comparables adopted by the TPO, one of the comparables namely Bodhtree Consulting Ltd. was directed to be excluded and margin was redetermined at 28% on a set of 11 comparables in the manner as under: S.No. Name of....
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.... at this juncture opposed the prayer of the taxpayer to raise an additional ground of appeal during the course of hearing. 9 We have considered the rival submissions, perused the material on record. The additional ground raised by the appellant reads as under: "That the learned Transfer Pricing Officer/Dispute Resolution Panel have factually erred in computing the margin with the PLI OP/OC of the appellant at 13.05% instead of 15.01%." 10 According to the appellant, the TPO at page 2 of the TPO order has erroneously determined the OP/OC margin at 13.05%. According to him, the OP/OC margin is 15.01%. It was clarified that 13.05% is the OP/OR margin, which was the PLI adopted by the appellant in his TP study. We find the TPO has stated in the order as under: "3.1 The operating profit margin (OP/OC) computed by the assessee is as below. Particulars Amount (Rs.) Income from services rendered 18,90,20,954 Other Revenue (foreign exchange) 24,495 Total Operating Income 18,90,45,449 Expenditure: Personnel Expenses 9,02,91,690 Operating & Other Expenses 6,93,56,048 Depreciation 47,18,283 Total operating ....
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....chase or sale transaction, it partakes of the same character as that of the transaction to which it relates. The Special Bench of the Tribunal in the case of ACIT vs. Prakash I. Shah (2008) 115 ITD 167 (Mum) (SB) has held that foreign exchange fluctuation gain is a part of export turnover. Though such decision was rendered in the context of section 80HHC, but the same logic applies generally as well. The essence of the matter is that any gain or loss arising out of change in foreign currency rate in respect of transaction for import or export of goods is nothing, but inherent part of the price of import or the value of export. The Hon'ble Supreme Court in Sutlej Cotton Mills Ltd. VS. CIT 116 ITR 1 (SC) has held that : 'where profit or loss arises to an asssessee on account of appreciation or depreciation ITA Nos.4446 & 4447/Del/2007 in the value of foreign currency held by it, on conversion into another currency, such profit or loss would ordinarily be trading profit or loss if the foreign currency is held by the assessee on revenue account or as a trading asset or as part of circulating capital embarked in the business'. When we read the ratio of the case of Sutlej Cot....
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....eover, we find that the Assessing Officer while computing the margin of the tax payer, has adopted the foreign exchange loss of Rs. 13,01,702/- as part of the operating cost; whereas while computing the margin of the comparables, he has treated foreign exchange gain/loss as non operating item which to our mind, is apparently contradictory and otherwise not in conformity with the aforesaid decision of the Tribunal. In light of the above, we direct the AO/TPO to treat the foreign exchange gain/loss as an operating item. As such, the ground raised by the appellant is allowed. 18 Ground No. 5(b) preferred by the appellant relates to exclusion of M/s. Info Drive Software Limited as comparable taken by the TPO/TRP. According to the appellant, employee cost of M/s. Info Drive Software Limited is 18% which is much below the 25% filter adopted by the TPO. It was therefore, submitted that such comparable be excluded. The learned special counsel opposed the contention of the appellant on the ground that such comparable has been adopted by the assessee in its initial list of comparables. The learned counsel in the rejoinder submitted that the said contention is not maintainable in view of t....
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....cost is 17.69% which is less than the filter of 25% applied by the TPO, therefore the same should be excluded. We therefore, direct the AO/TPO to verify the claim of the appellant as to the computation of percentage at 17.69% and if the said computation is correct then the said comparable of M/s. Info Drive Software Ltd. be excluded from the list of comparables. So far as objection raised by the learned DR as well as the DRP that this company has been taken as comparable at the time of filing TP study is not maintainable in light of the recent judgment of the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) (P) Ltd. vs. DCIT 56 taxmann.com 417 wherein it has been held as under: "The fact that the assessee had included it in the previous assessment years does not have any bearing on its inclusion for the subject assessment year. In this regard, this Court relies on the Supreme Court's decision in CIT v. C. Parakh & Co. (India) Ltd. [1956] 29 ITR 661, where the Court noted: "Whether the respondent is entitled to a particular deduction or not will depend on the provision of law relating thereto, and not on the view which it might t....
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.... 35. In para 4.16 of latest report, the OECD provides the following guidelines : "In practice, neither countries nor taxpayers should misuse the burden of proof in the manner described above. Because of the difficulties with transfer pricing analysis, it would be appropriate for both taxpayers and tax administrations to take special care and to use restraint in relying on the burden of proof in the course of the examination of a transfer pricing case. More particularly, as a matter of good practice the burden of proof should not be misused by tax administrations or taxpayers as a justification for making groundless or unverifiable assertions about transfer pricing. A tax administration should be prepared to make good faith showing that its determination of transfer pricing is consistent with the arm's length principle even where the burden of proof is on the taxpayer, and the taxpayers similarly should be prepared to make good faith showing that their transfer pricing is consistent with the arm's length principle regardless of where the burden of proof lies." 36. The aforesaid decisions and guidelines may not be exactly on identical facts before us but they emph....