TaxTMI 
TaxTMI 
2015 (9) TMI 607
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....ng the sum of Rs. 4,594,589 being interest on short-term deposits and Rs. 7'109,196 being interest on income tax refund as "Income from Other Sources" and in "denying deduction under section 10B/10A of the Act. 4.2. That the Learned CIT(A) has erred on facts and in law in not accepting that interest on short-term deposits and interest on income tax refund is income derived from the business of the undertaking and accordingly eligible for deduction under section 10B/10A of the Act. 4.3. That the Learned CIT(A) has erred on facts and in law in not netting off the interest income against the interest expense." In revenue's appeal (ITA No.1832/Del/2010), the following grounds are taken :- "1) On Relief of Rs. 15,87,61,266/- on account of Arm's Length Price : a) Whether in the facts and circumstances of the case the Ld. CIT(A) was right in rejecting the comparables on the ground of related party transactions? b) Whether in the facts and circumstances of the case the Ld. CIT(A) was right in treating the foreign exchange and miscellaneous income as operating income? c) Whether in the facts and circumstances of the case the Ld. CIT(A) was right in admitting the additio....
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.... Interest on term loan received CUP 3,60,97,590 13. Interest on bank overdraft CUP 1,44,330 4.4 In the Transfer Pricing study, the assessee had divided the ABOVE INTERNATIONAL transaction into two categories i.e. Category-I which includes transactions from 1 to 8 of the table above; and Category-II with reference to transactions from Sl. Nos.9 to 13. With reference to Category-II transactions, there was no transfer pricing adjustment and the arm's length price of these transactions was accepted. In benchmarking Category-I transactions, the assessee adopted approach of aggregation of international transactions from 1 to 8 and concluded that Transactional Net Margin Method (TNMM) is most appropriate method to benchmark these international transactions. In TNMM, the assessee has compared its operating margin upon operating cost (OP/TC) for the year under consideration. The assessee in its transfer pricing study had taken 16 comparable companies and arrived at their margin at 14.62% and assessee's margin was calculated at 11%. Thus, the assessee sought to justify its arm's length price with regard to international transactions it had undertaken with it....
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....f services by the assessee : (as per Appendix F of TP Report) Rs. 2,83,56,58,219/- Margin @ 23.90% of the above: Rs. 67,77,22,314/- Operating Margin calculated by assessee (as per Appendix F of TP Report) Rs. 30,87,87,874/- Difference Rs. 36,89,34,440/- Book value of international transaction of export of business processing and support Rs.3,14,44,46,093/- Add: Difference as above Rs. 36,89,34,440/- Arm's length price of international transaction of export of business processing and support Rs. 3,51,33,80,533/- 9. The arm's length price of the international transactions entered into by the assessee regarding export of business processing and support to its AEs is determined at Rs. 3,51,33,80,533/- in place of Rs. 3,14,44.46,093/-. Since the price charged by the assessee varies by more than 5% from the Arm's Length Price, an adjustment of Rs. 36,89.34,440/- is to be made to the income of the assessee, being the difference between the arm's length price and the price charged by the assessee from its AEs for rendering services to them. i.e. the Assessing Officer shall enhance the income of the assessee by an amount of Rs. 36.8....
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....nual accounts, the working of OP/TC of this company was not calculated. Accordingly, this case was included in the list of comparables with the remarks 'NA' against the column OP/TC margin. The assessee submitted the data in respect of this company before the ld. CIT(A), which came in public domain later on. Such data was considered by the ld. CIT(A) for the purposes of calculation of arithmetic mean of the comparable companies. On this score, we find that the Revenue is aggrieved against the acceptance of additional evidence in respect of this company in violation of Rule 46A. 8. There are two aspects of this issue. First is the question of the very inclusion of this company in the list of comparables and the second is about the calculation of its profit margin. As regards the first issue, we do not find any reason to disturb the view of the ld. CIT(A) because the assessee included it in the list of comparables in its Transfer pricing study. The very comparability of this company was not disputed by the TPO. In that view of the matter, the ld. CIT(A) cannot be faulted with for directing to include the data of a company in the list of comparables, which was originally included b....
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....le basket is narrow whereas the fixed cost and establishment cost of newly established companies are large. Therefore the TPO action is correct in rejecting companies having sales turnover less than Rs. 1 Crore." 9.1 Before us, the ld. AR relied on the judgment of Techbooks International Pvt. Ltd. vs. DCIT in ITA No.240/Del/2015 order dated 06.07.2015. The Tribunal in the case of Techbooks International Pvt. Ltd. (supra) held as under :- "12.2.2. Having heard both the sides on this issue, we find that the TPO has accepted the functional comparability of this company on segmental level. The ld. DR was also fair enough to candidly accept the functional similarity of the relevant segment of this company. In such circumstances, the question arises as to whether the relevant segment of this company can be excluded from the list of comparables merely on the ground that the revenue from this segment is only Rs. 83 lacs? In our considered opinion, the quantum of turnover can be no reason for the exclusion of a company which is otherwise comparable. We have noticed above the judgment of the Hon'ble jurisdictional High Court in the case of ChrysCapital Investment Advisors (India) P.....
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.... regarding exclusion of Datamatics Technologies Limited. The assessee for exclusion of Datamatics Technologies Limited and Hinduja TMT Limited is relying on the following case laws :- (i) Nokia India (P) Ltd. Vs. DCIT - ITA No.242/Del/2010 & 178/Del/2010; and (ii) ACIT vs. Convergys India Service (P) Ltd. - ITA No.4291/Del/2009. The assessee has given the working of related party transactions of Datamatics Technologies Limited, which is at 39% (page 49 of the Paper Book submitted by the assessee). This aspect has not been considered by the CIT (A). The Tribunal in the case of Nokia India (P) Ltd. (supra) has held as follows :- "16. We find that this submission has two components, viz., the composition of numerator and denominator and the percentage of such numerator to the denominator. We agree in principle that if any company though functionally comparable, but, has more than a specific percentage of the RPTs, then, the same should be ignored by treating it as a controlled transaction. However, the percentage of RPTs to make a company as ineligible for comparison, in our considered opinion, should be taken as more than 25% and not 15% as suggested on behalf of the asse....
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....d to section 80I has been given only to the direct profit and gains from the undertaking/ exports. In all these sections the wordings are exactly the same as that of section 10A that is profit "derived" from the undertaking. The legislature has not used the word profits pertaining to the manufacture and production of article or things. The word "derived" is narrower in connotation and cannot be equated with "pertaining to". Such second degree income would constitute independent source of income beyond the first degree nexus between profit and the industrial undertaking. Therefore the interest income from other sources doesn't qualify for deduction. Therefore this ground is rejected." 11.2 Before us, the ld. AR submitted that interest income earned on short term deposit is eligible for deduction u/s 10A/10B of the Act. For the above proposition, the ld. AR relied on assessee's own case in ITA No.1016/Del/2001 for AY 2002-03. It was further submitted that the issue in question is squarely covered by the following judgments/orders of the Hon'ble High Court and the Tribunal :- (i) CIT vs. Motorola India Electronics (P) Ltd. - ITA No.428 and 447 of 2007 (Karnataka High Court....
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....ed as a comparable by the assessee and same was accepted by the TPO. Before the CIT (A), assessee challenged the inclusion of this company in comparable list for the reason that it was having high related party transactions exceeding 25% during the relevant assessment year. The CIT (A) vide para 11.5 of the impugned order excluded the above said company from the list of comparables. The relevant finding of the CIT (A) reads as follows :- " ...... Based on the above calculations, it is clear that the company has significant percentage of related party transactions (total value of related party transactions/ total operating expense is close to 68%) hence, I hold that Hinduja TMT is not to be used as a comparable company on account of significant related party transactions." 13.2 The revenue, being aggrieved, is in appeal before us. 13.3 Having heard rival submissions, we notice that this company is having high related party transactions to the extent of 68%. This categorical finding of the CIT(A) has not been challenged by the revenue in its grounds The various orders of the Tribunal have held that the companies having related party transactions in excess of 25% are to be....
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....S OF AEGSC UNIT (GROUND NO.2 OF DEPARTMENT'S APPEAL) 15. The AO denied deduction u/s 10A of the Act in respect of the newly set up AEGSC unit. The reasoning given by the AO reads as follows :- " ..... Based on the directions given by Addl. CIT, Range-1 my predecessor had treated the business of AEGSC Unit (Regd as STP Unit) as having been created by splitting/ expansion of the existing business of FCE Unit which is already enjoying the benefit of Section 10B of the Act and the issue was decided against the assessee in the preceding year. In view of facts of the case and following the decision given by my predecessor for AY 2003-04, I am satisfied that business of AEGSC Unit (Regd as STP Unit) as having been created by splitting/ expansion of the existing business of FCE Unit which is already enjoying the benefit of Section 10B of the Act. Hence, as a natural corollary to above; the assessee's eligibility for exemption u/s 10A for the newly set up AEGSC unit is rejected." 15.1 The CIT (A) decided the issue in favour of the assessee by following his predecessor's order. The CIT (A) held that new unit was not set up by splitting up or existing business and, therefore, i....