TaxTMI 
TaxTMI 
2012 (5) TMI 627
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....band-size:0; mso-tstyle-colband-size:0; mso-style-priority:59; mso-style-unhide:no; border:solid windowtext 1.0pt; mso-border-alt:solid windowtext .5pt; mso-padding-alt:0cm 5.4pt 0cm 5.4pt; mso-border-insideh:.5pt solid windowtext; mso-border-insidev:.5pt solid windowtext; mso-para-margin:0cm; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-fareast-language:EN-US;} SHRI G.D.AGRAWAL, VICE PRESIDENT AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER For the Appellant : S/Shri Arijit Chakravarty, Vijay Iyer, Manoneet Dalal & Atulan Shah, ARs. For the Respondent : Shri Piyush Jain, CIT-DR (Intl.). ORDER PER G.D.AGRAWAL, VP : These are cross-appeals filed against the order of learned CIT(A)- XX, New Delhi dated 28th August, 2009 for the AY 2003-04. 2. Ground No.1 of the assessee's appeal reads as under:- "That on facts and in law the Commissioner of Income-tax (Appeals) ("Learned CIT(A)") erred in upholding the orders ....
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....ant vis-a-vis the comparable companies. (h) Not giving due cognizance to the fact that the international prices charged by the appellant have been accepted and certified by the Software Technology Park of India, which is the Government/Reserve Bank of India designated competent technical authority to deal with the appropriateness of the price charged. (i) Not adjudicating on the argument that final assessment should be "having regard" to ALP and not based thereon." 5. At the time of hearing before us, the learned counsel for the assessee did not press ground No.2.1. Accordingly, the same is rejected. 6. With regard to ground No.2.2, it is stated by the learned counsel that the said ground is only arguments with reference to the addition made by the Assessing Officer and partly sustained by the learned CIT(A) by way of transfer pricing adjustment. The same is already challenged by ground No.2 and, therefore, if ground No.2 is adjudicated, no separate adjudication of ground No.2.2 is required. 7. In the Revenue's appeal also, by way of ground No.1, the Revenue has challenged the relief allowed by the learned CIT(A) in respect of transfer pricing adjustment made by the ....
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....Rs. 19,34,05,168/- 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. 19,34,05,168/- while computing its total income. No exemption u/s 10B shall be admissible on such adjustment in accordance with proviso of Sub-section (4) of Section 92C." 10. The above adjustment was worked out by the TPO by applying the TNMM. The TPO made the comparison by taking the operating margins of comparable companies, details of which are given in paragraph 8 of his order which is reproduced below for ready reference:- 8.0 Accordingly, operating profit over the total cost margin of the comparable companies was adjusted to take into account the difference in the working capital. The detailed computation of effect of working capital adjustment on operating profit/total cost margin is given in Annexure 1. The adjusted operating margins of comparable companies as a result of above adjustment are given in the table below: Mar-03 Mar-03 Company Name (OP/TC)% Adjust....
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....for excluding Hinduja TMT is to be reversed and a direction may be given that Hinduja TMT should be considered as a comparable. 14. The learned counsel for the assessee, on the other hand, fairly admitted that learned CIT(A) has clubbed the receipt and payment of the related parties and compared the same with the total outgoing of Hinduja TMT. He, however, submitted that even if the receipt of the related parties is compared with the total receipt and the outgoing of the related parties is compared with the total outgoing, there would be substantial payment to and from related parties. Therefore, Hinduja TMT was rightly rejected by learned CIT(A) as a comparable. He also alternatively submitted that this specific point can be restored back to the file of the Assessing Officer/TPO for verification of correct facts and then re-adjudication accordingly. 15. We have carefully considered the arguments of both the sides and perused the material placed before us. We find that CIT(A) has recorded the following finding in this regard:- "13.10 As regards to appellant's submissions regarding rejection of Hinduja TMT Limited, I have gone through financials accounts and it is found tha....
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....ejected some comparables by applying the filter of turnover of Rs. 5 crores. We find that while considering the comparable, the TPO has applied the filter of Rs. 1 crore but learned CIT(A) had applied the filter of Rs. 5 crores. The relevant finding of learned CIT(A) in this regard reads as under:- "Holding the same view which was taken while deciding the appeal of last year and as held in the last years appellate order that, after doing FAR analysis TPO applied a turnover filter of Rs. 5 crores and selected the comparables (but it is quite peculiar that in this year, the turnover filter was not applied when there is no change in the facts and circumstances in the appellants business, scale, functions and risks analysis). I apply the filter turnover of Rs. 5 crores as held by me to be correct in last year and accordingly the comparables are used for the further comparability analysis. It may be mentioned here that on this issue remand report was sought from the TPO, but he has not given any comments on this issue. Therefore, by applying the turnover filter of 5 crores considering the fact during the year the appellants sales volume is Rs. 213 crores, I hold that companies wit....
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....., USA which is related party as per notes to account. In this case since Indian company is parent company therefore there is no doubt that this related party transaction is with a related party under the accounting standard 18 issued by Institute of Chartered Accountants of India. Since there is a holding company subsidiary relationship clearly coming out therefore from facts, not only as per Accounting standards but also under section 92A of Income Tax Act, this would qualify to be an Associated enterprises. However, difficulty of related party transactions can be overcome by using consolidated accounts of the Genesys International since it is an established fact that in order to nullify the effect of related party transactions one may use consolidated accounts. This office had financial results of Genesys International both on standalone basis and consolidated. It is a fact that standalone financials of Genesys International are showing better operating margins as compared to consolidated but to meet the objection of related party transaction it is decided that consolidated accounts of Genesys International would be used." 21. However, the learned CIT(A) examined the consolid....
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....tion Limited. However, in the case of IT enabled services which is the main business of the assessee, 95% of the Genesys International Corporation Limited's consolidated account is received from subsidiaries and only 5% from Genesys International India operations. The subsidiary of Genesys International Corporation Limited is in United States. Similarly, even in respect of Global Information Services (GIS) segment, 60% of the consolidated revenue is from subsidiaries and only 40% from Genesys International Corporation Limited. In view of the above, in our opinion, the CIT(A) rightly held that Genesys International Corporation Limited cannot be considered as a comparable company for the purpose of determining arm's length price of IT enabled services rendered by the assessee. We, therefore, reject ground No.1(c) of the Revenue's appeal. 23. Now, we come to ground No.2 of the assessee's appeal. The limited argument of the learned counsel for the assessee was with regard to operating margin of MCS Ltd. It was stated by the learned counsel for the assessee that the CIT(A) has wrongly taken the operating margin of MCS Ltd. at 15.17%. The correct margin of MCS Ltd. is 7.64%. In this r....
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....25 % age 7.64% Average (%age) 26. We do not find any comment on this working of operating profit of MCS Ltd. by the CIT(A). However, we also agree with the submission of the learned DR that the figures given by the assessee cannot be accepted without verification. We, therefore, deem it proper to set aside the orders of authorities below in this regard and restore the matter back to the file of the AO. We direct the assessee to furnish this working before the AO and also furnish the source from where these figures of the operating profit of MCS Ltd. were obtained. Needless to mention that AO will allow adequate opportunity to the assessee. It was also contended by the learned counsel that if the above adjustments are made, then even as per the order of the CIT(A), the variation in the margin would be within the permissible range under Section 92C(2). However, as we have already set aside the issue of working of the margin of the comparable cases, therefore, the question whether the variation between the margin of comparable cases and the assessee's case is within the permissible range under Section 92C(2) or not can be verified only after the redeter....
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....he taxable income as the transaction had no impact on profit and loss item. Hence, grounds 3.1 & 3.2 are decided in favour of the appellant." 31. Thus, the CIT(A) has clearly recorded a finding that the above expenditure was not routed through the profit & loss account but the same has been shown in the balance sheet. When the expenditure was incurred, the amount is shown as receivable from the holding company i.e. 'AETRSCO' and when the amount is reimbursed, the same is credited to their account. In our opinion, if the assessee has not claimed any deduction for the expenditure in the year under consideration, the question of disallowing the same cannot arise. During the year under consideration, the only incident was of reimbursement of the expenditure by 'AETRSCO' which is credited to the pre-operative expenses account. Therefore, since no expenditure was claimed during the year under consideration, the Assessing Officer was not justified in disallowing the same. We, therefore, uphold the order of learned CIT(A) on this point and reject ground No.2 of the Revenue's appeal. 32. Ground No.3 of the Revenue's appeal reads as under:- "Whether in the facts and circumstances of....
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....menced its call centre prior to the FCE unit (EOU) applying for the broad branding before NEPZ. b) The appellant started its business with the FCE unit (EOU) only and the funds were received from the shareholders as Share Capital. The investment in AEGSC unit (STP) was made from specifically borrowed funds. c) The appellant submitted the following points of distinction between the existing FCE unit and the new AEGSC unit to demonstrate that AEGSC unit was not formed by splitting up or expansion of existing business of FCE unit, tabulated as under: S.No. Points of Distinction FCE Unit (Old Unit) AEGSC Unit (New Unit) 1 Physical location A-37, Mohan Co-operative Industrial Estate, Mathura Road, New Delhi - 110044 Plot no.A-26, Sector- 34, Infocity, Gurgaon, Haryana 2 Nature of activities Carries out processes by utilizing telecommunication equipment & machines (including computers) and other technology equipments, on raw data received in electronic form and exports the output to customers located overseas Provides call centre services to Group companies and back office support in relation to resolving card member matters related to billing ....
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....of tax holiday under section 10B to demonstrate that two units are separate and function independently of each other and the same were as under: TURNOVER (in INR) Assessment Year FCE Unit (EOU) AEGSC Unit (STP) 2002-03 1,29,42,33,447 -- 2003-04 1,29,59,50,379 83,66,30,080 2004-05 1,51,54,52,033 1,62,89,94,061 2005-06 1,64,49,97,430 1,77,15,60,454 2006-07 1,79,68,75,159 1,99,29,79,700 2007-08 1,89,11,17,724 2,26,24,73,452 2008-09 2,94,59,02,448 2,77,85,45,928 e) It was also submitted before me that the turnover of both the units have increased over the years after expiry of tax holiday under section 10B to demonstrate that two units are separate and function independently of each other and the same were as under: 17.4 In view of above findings, it is clear that the new AEGSC unit (STP) was not formed by splitting up or reconstruction of existing business of FCE unit (EOU) and hence, I hold that the AEGSC unit is eligible for deduction under section 10A. Accordingly, ground nos.2.1 is decided in favour of the appellant." 35. The Revenue, aggrieved with the above findi....
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....ee on Income tax refund with the interest paid by the assessee on its over-draft facilities. The interest received from Department on Income Tax refund will stand entirely on a different footing as the payment of tax, if any, is not made by the assessee with an intention to earn interest but to discharge tax liability. It cannot have any connection with the business of the assessee as earning of interest on income tax payment has nothing to do with the business of the assessee. Therefore, the character of interest received by the assessee on Income tax refund cannot be linked with the business of the assessee and it will retain its character of income from other sources. Therefore, the ld.CIT(Appeals) is wrong in holding that the interest earned by the assessee on income tax refund has a colour of income from business. If the same cannot be related to the business of the assessee then netting off cannot be granted as there is no inextricable link between the earning of the interest and payment of interest. We also do not find force in the contention of the assessee that since the payment of tax was made out of overdraft facility, therefore, interest receipt on income tax refund sho....
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....dictional High Court held as under:- "4. We are in agreement with the view of the Tribunal that computer accessories and peripherals such as, printers, scanners and server etc. form an integral part of the computer system. In fact, the computer accessories and peripherals cannot be used without the computer. Consequently, as they are the part of the computer system, they are entitled to depreciation at the higher rate of 60%." 43. Respectfully following the aforesaid judgment, we hold that the learned CIT(A) was right in allowing the depreciation at the rate of 60% on computer peripherals and accessories. We uphold his finding on this point and reject ground No.5 of the Revenue's appeal. 44. Now, we take up the remaining grounds of assessee's appeal. 45. Ground No.3 of the assessee's appeal reads as under:- "That the learned CIT(A) has erred in law in not applying the Proviso to section 92C(2) of the Act and has failed to allow the Appellant an option for the downward variation of 5 percent in determining the arm's length price." 46. At the time of hearing before us, at the outset, it was pointed out by the learned DR that in the Finance Bill, 2012, there is a pro....
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....evenue has accepted the deletion of Rs. 7,11,000/- as there is no ground in the Revenue's appeal against such deletion. That the nature of receipt of Rs. 1,62,60,000/- is also similar to the receipt of Rs. 7,11,000/-. That the entire compensation received from the landlord was by way of refund of the rent which was paid to him due to delay in handing over the possession of the said premises. That the rent paid by the assessee for the pre-commencement period was shown as pre-operative expenses. Therefore, refund of such rent was rightly credited to pre- operative expenses account. 51. The learned DR, on the other hand, relied upon the orders of authorities below on this point and he stated that the learned CIT(A) has considered the entire issue and has already allowed the relief which was due to the assessee. 52. We have carefully considered the submissions of both the sides and perused the material placed before us. We find force in the contention of the learned counsel. When the rent was paid by the assessee, it was debited to rent account. Part of it was for the period prior to commencement of STP unit which was transferred to pre- operative expenses and the part of the ren....