TaxTMI 
TaxTMI 
2012 (1) TMI 208
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....) was issued and served on the assessee. In response to the notice, the Manager of the assessee-company appeared and produced books of account and furnished details called for. After examining the books of account and the details filed, the assessment was completed. The AO noticed that during the relevant financial year, the assessee had international transactions exceeding Rs.15 crores. Therefore, with the prior approval of the CIT, Bangalore-1, reference was made to the Transfer Pricing Officer (TPO) to determine the Arms' Length Price (ALP) as per the provisions of sec.92CA of the Act. The assessee filed an application before the Dispute Resolution Panel (DRP). The DRP issued directions under sub-sec.(5) of sec.144C read with sub-section (8) of sec.144C which was received by the AO on 31-8-2010. In conformity with the directions of the DRP, the AO has completed the assessment by making the following additions: i) Adjustment u/s 92CA Rs.1,84,11,998/- ii) Excess claim of deduction u/s 10A Rs.7,14,465/- 3. Aggrieved by this order of the AO, assessee is on appeal before us. The assessee's appeal is broadly on three issues, viz., i) Determination of AL....
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....e assessee's AR and the ld. CIT-DR have filed concise synopsis of their arguments which are taken on record. 4. The concise grounds of appeal by the assessee with regard to ALP are as under: "The lower authorities (the learned Assessing Officer, learned Transfer Pricing Officer and Hon'ble Dispute Resolution Panel) have erred in: 1. Passing the order disregarding the principles of natural justice. 2. Making a reference to Transfer Pricing Officer for determining arms' length price. 3. Passing the order without demonstrating that appellant had motive of tax evasion. 4. Not appreciating that the members of Dispute Resolution Panel also being jurisdictional Commissioner/Director of Income Tax of the appellant, the constitution of the Disputes Resolution Panel is bad in law. 5. Not appreciating that the charging or computation provision relating to income under the head 'profits & gains of business or profession' do not refer to or include the amounts computed under Chapter X and therefore addition under Chapter X is bad in law. 6. Adopting a flawed process of issuing notices u/s 133(6) and relying on the same without providing complete information or opport....
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....seg.) 1,888,125,000 27.65% 28.40% 6 Lucid Software Limited 10,191,181 8.92% 6.17% 7 Media Soft Solutions P.Ltd. 17,577,145 6.29% 4.90% 8 R S Software (India) Ltd. 915,707,164 15.69% 15.98% 9 SIP Technologies & Exports Ltd. 65,344,634 3.06% 1.80% 10 Bodhtree Consulting Ltd. 53,189,165 15.99% 15.69% 11 Accel Transmatics Ltd.(seg) 80,205,000 44.07% 43.11% 12 Synfosys Business Solutions Ltd 4,886,725 10.61% 8.09% 13 Megasoft Ltd 192,185,451 16.97% 10.24% 14 Lanco Global Solutions Ltd 356,293,560 5.27% 5.58% Arithmetic Mean 17.23% 16.35% NOTES After removing KALS - Mean - 15.50% & WC adjusted mean 14.38% After removing KALS and Tata Elxsi - Mean- 14.49% & WC adjusted mean 13.21% After removing KALS, Tata Elxsi & Accel - Mean- 11.80% & WC adjusted mean 10.49% TABLE 2 - TURNOVER RANGE 1 to 500 CRORES Sl. Name of the company Operating Operating WC No. Revenues Margin on Adjusted cost Operating Margin on Cost 1 Aztec Software Ltd. 1,286,136,000 18.09% 19.45% 2 Geometric Software Ltd. (seg) 985,957,838 6.70% 6.42% 3 .KALS Information Systems Ltd 19,690,390 39.75% 42.07% 4 Mindtree Consulting Ltd. 4,487,982,158 14.67% 14.16% 5 Persistent Systems Ltd. 2,091,776,542 24.67% 24.63% 6 R Systems I....
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....wever, notice was issued to Megasoft. xi) In case of Megasoft, TPO and DRP has considered entity-wide margins on the ground that software product segment also consists software services and therefore at entity level software services are more than 75% of operating revenues. However, similar situation in case of other comparables have been ignored. xii) Benefit of 5% deduction in determining the arms' length price in accordance with proviso to sec.92C(2) was not given. 6. Per contra, the CIT-DR, in his concise submissions has argued as under: "(i) Adopting flawed process in issuing notices u/s 133(6) and relying upon such replies to compute ALP. (ii) Not giving an opportunity to the assessee to cross examine the parties involved. This issue has been discussed in my written submission on page no 4 to 7 and page no 21 where in stated that Section 92CA(3) empower the TPO to consider such evidence as he may require on any specified point and after taking into account all relevant materials which he has gathered, he shall determine the ALP in relation to the international transaction in accordance with the provisions of sec. 92C. Thus, if the information gathered by the TPO is ....
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....r Engineering India Pvt. Ltd Vs. DClT (ITA No. 1184/Bang/2010) Ground No 8 & 9 & 10 :- Doing fresh transfer pricing analysis in the absence of any defect in the transfer pricing analysis by the appellant the TPO rejected the comparables after analysing in detail as discussed in para- ll (page no.40 to 54 of the TP order) issue has been discussed by me on specific contentions raised by the assessee on page no 21 to 40 of written submission. Ground No 11: Not recognizing that the company was insulated from risk as against comparables which assume these risks and therefore have to be credited with risk premium on this account. The TPO discussed this issue in details in para 15 (page 79 to 101) of her order. In my written submission discussed this issue on page no 40 to 42. The case laws relied upon. i) M/s.Marubeni India Private Limited Vs Addl. CIT (ITA No 945/ Del/2009) ii) Symantec Software Solution Private Limited Vs ACIT (ITA No/7894/Mum/2010) iii) Exxon Mobil Company India Pvt. Ltd Vs DClT (ITA No.8311/Mum/2010 iv) ADP (P) Ltd Vs. DClT, (ITA No 106/Hyd/2009) v) Vedaris Technology (P) Ltd Vs. ACIT (2010) 131 TIJ (Del) 309 vi) M/s. Deloitte Consulting India Pvt. Ltd Vs DCl....
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....ctions and similar directions can be given in this case also. 9. We have heard rival submissions and considered the facts and materials on record including the contents of the paper books and the case-laws cited therein. After consideration of the entire submissions in the light of the facts of the case before us and following the decision of the Tribunal in the case of M/s.Genesis Integrating Systems (India) Pvt. Ltd., we deem it fit and proper to accept the contention of the assessee that the ITA matter is to be remitted back to the file of the TPO for fresh consideration. Hence, we are remitting the matter to the file of the TPO with the following directions: (i) The operating revenue and the operating cost of the transactions relating to associated enterprises only shall be considered. (ii) The comparables having the turnover of more than Rs.1 crore but less than Rs.200 crores only shall be taken into consideration. (iii) All the information relating to comparables which are sought to be used against the assessee shall be furnished to the assessee. (iv) The assessee shall be given an opportunity to cross examine the parties whose replies are sought to be used a....
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....visions of section 80HHC, the courts have laid down various principles, which are independent of the statutory provisions. There should be uniformity in the ingredients of both the numerator and the denominator of the formula, since otherwise it would produce anomalies or absurd results. Section 10A is a beneficial section which intends to provide incentives to promote exports. In the case of combined business of an assessee, having export business and domestic business, the legislature intended to have a formula to ascertain the profits from export business by apportioning the total profits of the business on the basis of turnovers. Apportionment of profits on the basis of turnover was accepted as a method of arriving at export profits. In the case of section 80HHC, the export profit is to be derived from the total business income of the assessee, whereas in section 10-A, the export profit is to be derived from the total business of the undertaking. Even in the case of business of an undertaking, it may include export business and domestic business, in other words, export turnover and domestic turnover. To the extent of export turnover, there would be a commonality between the num....