TaxTMI 
TaxTMI 
2016 (3) TMI 111
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....hether the Ld. CIT(A) has erred in law and on facts by ignoring the characteristics of similarity in goods/services is strictest in CUP method which the assessee has filed to demonstrate by way of third party invoices." 2. The brief facts of the case are that CDOT Alcatel Research Centre Pvt. Ltd. is a joint venture between Centre for Development of Telematics ((CDOT) and Alcatel Participations, France. The Company is engaged in research and development activities for wireless broadband technology and access infrastructure to develop wireless broadband solutions and provide consultancy, maintenance and support services. 51% of the shares are held by Alcatel Lucent, France and 49% are held by CDOT, India. The assessee undertook following international transactions during the year under consideration : S.No Description of transaction Method Value (in Rs.) 1 Purchase of equipment Not benchmarked 72,26,594 2. Purchase of software CUP 15,41,724 3. Payment for subscriptions CUP 52,718 The assessee had used CUP method as the most appropriate method to benchmark the international transaction. The assessee has submitted two certificates,....
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....n there is a bulk purchase or for multiple number of users the negotiated rates will be cheaper than the isolated purchases. The cost of this software was shared by the Indian entity. Such centralized procurement helps the group in achieving economies of scale. The Ld. CIT(A) has deleted the addition of Rs. 52, 718/-. (Pg 25, Para 5.10 of the Ld. CIT(A)'s order) Quote The Ld. TPO in her remand report has not raised any objection to the submission of the Respondent except stating that, "the claim of the assessee appears to be verifiable". In view of this, I see no reason why adjustment should be made on account of sharing of software expenses with the AE. In the same way, TPO has not given any reason to treat the subscription value (amounting o Rs. 52,718/-) as nil. Therefore, in absence of any reason to hold otherwise the subscription paid should not be disallowed. AO/TPO is directed to delete the addition made under these heads. Unquote (Emphasis supplied) (B) Ground no. 2: Regarding the Purchase of Equipments 1. During the captioned Assessment Year, the Company purchased base station equipment, modems, CPE cards, Cables, etc. from its AEs. The Ld. TPO arbitrari....
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.... RBI before making the payment of licence fee, as such the nature of payment cannot be out rightly rejected or doubted. It requires proper adjudication in the light of detailed analysis and relevant evidences furnished by the Respondent. Whereas the Assessing Officer has disallowed the entire claim of payment of licence fee without looking into the merits of the case and the relevant provisions of the Act. We, therefore, are of the view that this issue requires fresh adjudication. Unquote (Emphasis supplied) (b) It has also been held by the Hon'ble SC that one arm of the Government must respect the finding of the other arm of the same Government. Reliance in this regard is placed on the decision of the Hon'ble Supreme Court in Apollo Tyres Ltd. (reported in 255 JTR 273). In this case, the Apex Court has held that the accounts of a company must be accepted as authentic and binding if the same have been maintained in a manner provided by the Companies Act, 1956 and have been audited and scrutinized and certified by the statutory auditors of the Company. Further, they have been approved by the company in its general meeting and also filed with the Registrar of Companies ....
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....ay serve as a basis for determining an arm's length price under section 482. Unquote (Emphasis supplied) 6. In the impugned TP order, the Ld. TPO has stated that valuation by customs authorities cannot be relied upon as the underlying purpose of a custom valuation is for different purpose. Reliance has been placed on the following judgements: (a) In this regard the Respondent would like to rely upon Coastal Energy Pvt. Ltd Vs ACIT [TS-356-ITAT-2011-CHNY] wherein it is ruled that comparable prices can be used for computing arm's length price for import of products. The relevant extracts are reproduced for your Honour's reference: Quote 6. The next question to be considered is whether this price variation noticed by the TPO should be taken as the basis for making adjustment in the transfer pricing. The grievance of the assessee is that the comparable price has been obtained by the TPO from the customs authorities and the valuation of the customs authorities need not necessarily be realistic as that department is more interested in collecting import duties. We should state without fear of contradiction that the customs authorities are assigning values to the im....
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....nt website a price list effective from June, 2010 has been found which contains prices for various products sold in the open market. Similarly, some online shopping websites have also been search where rates for certain Alcatel Lucent products not found in the price list, have been found.. Unquote (Emphasis supplied) 8. As can been seen from above, the Ld. TPO has compared the prices that were applicable during FY 2006-07 with prices that were applicable 3 years down the line, i.e. FY 2010-11. The Respondent humbly submits that the aforementioned methodology adopted by the Ld. TPO is flawed and contrary to the provisions of the Indian Transfer Pricing regulations. In this regard, the Assessee would like to quote the provisions as laid down under Rule 106(4) of in the Income Tax Rules, 1962 (the Rules), for your Honour's ease of reference: Quote 10B(4) The data to be used in analyzing the comparability of an uncontrolled transaction with an international transaction shall be the data relating to the financial year in ivhich the international transaction has been entered into: Provided that data relating to a period not being more than two years prior to such financia....
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....sactions undertaken by its AEs with third parties during the relevant assessment year. A comparative analysis of the price at which the products were purchased by the Respondent vis-a-vis the prices charged by the AEs for the same products from third parties has been summarized in the table below for your Honour's ease of reference: Product Description as per customs documents Model Number Product Description as per AE's Quantity Price charged by AE's to CDOT (in Euro) Total Value Average Price Charged by AE's to third parties (in Euro) +5% of range of the price Base Station Receiver 3BK 27506 AAAA Model Wimax Base Station A9116WBSA25- 2 1 12,112 12,112 12,499* 12693 -DO- -DO- Wimax Base Station A9116WBSA25- 2 1 12,112 12,112 12,499* 12693 Transciever Zyxel Wimax CPE PCMIA Card N.A. Zyxel Wimax CPE PCMIA Card 2 136 272 191* N.A. *Refer Annexure 4 of Submission dated October 8, 2012 for third party rates and average computation The underlying backup documents have been attached for your Honour's ease of reference as Annexure 3A and 3B of Submission dated October 8, 2012. (PB....
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....ng order is flawed. Further, with regard to the price of NEMO Kit as charged by the AE from the Respondent, the Respondent would like to submit that the said product is a proprietary' product of the group, which is sold as a part of a Base Station Transceiver to the customers. The NEMO Kit, being the primary and core component of the final product is not sold in isolation in the open market. Accordingly, the market price of the component is not available in the public domain. Furthermore, as the Respondent is a research organization, engaged in undertaking research and development in the area of wireless broadband technology, this component was provided to the Respondent on a sporadic basis for undertaking research work. The component purchased was purely provided to the Respondent for non-commercial use and thus the market price of the same cannot be ascertained but for the cost certificates provided by the AEs that the said equipment was sold on a cost to cost basis. The Respondent has already submitted that the aforementioned component, alongwith other equipments purchased by the Respondent from its AEs during the relevant assessment were supplied at cost and no elemen....
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....s now been able to secure the standard cost list that was applicable during the relevant assessment year for the two balance equipment/ components, namely Base Station Transceiver (I Section) and Modem Indoor I DIV 2.5 Ghz (refer Annexure 5 of the submission to CIT(A) dated October 8, 2012 )(PB 108). From the perusal of the standard cost list alongwith the formula as mentioned in the cost certificates provided by the AEs, we can arrive at the price at which the Respondent purchased the equipment/ component from its AE. The calculation of the same has been given below: Nature of cost Formula Station Trariiseeiver (I Section) (WBSA25-1" as per pricelist) Modem Indoor I DIV 2.5 Ghz ("A9100 2.5 Ghz CPE simple indoor EU power" as per price list) Direct Cost* A 6935.24 216.67 R&D Cost B = A*8% 554-819 17-334 Management Cost C= A*3% 208.057 6.5001 Fixed and Variable cost coverage D = A*9% 624.172 19-5 CSC E = A* 1.2% Nil* Nil* Total F = A+B+C+D+E 8322 260 Price at which purchased by the Respondent 8322 260 #Source - Cost list *No CSC cost was added by the AEs on the aforementioned equipment/....
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.... or retail 12. The assessee has submitted the cost certificate from its AEs. The cost certificates duly certify the assessee's claim that only the actual cost component had been charged from the assessee. The customs Valuation Certificates were also submitted before the lower authorities which state that the value of the imported equipment has been declared truthfully. 13. The decision of Chennai Bench in the case of Coastal Energy Pvt. Limited in ITA No. 2099/Mds/2010 dated 13th July, 2011, quoted by the assessee is for the proposition that valuation undertaken for customs purposes, can be relied upon for transfer pricing purposes to demonstrate that the goods have been imported at an arm's length value. 14. The ld. TPO has relied the equipments rates for the F.Y. 2006-07based on the internet search whereas the case pertains to F.Y. 2010-11 wherein after passing of time, the rates will naturally increase. The provisions of Rule 10B(4) of the IT Rules read as under : (4) The data to be used in analysing the comparability of an uncontrolled transaction with an international transaction [or a specified domestic transaction] shall be the data relating to the financial year....