TaxTMI 
TaxTMI 
2016 (5) TMI 1180
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....olled Price (CUP) method adopted by the appellant in respect of international transactions entered into by the appellant and applying Transactional Net Margin method (TNMM). 2. Without prejudice to Ground no. 1, on the facts and in the circumstances of the case, and in law, the learned Assessing Officer has erred, in conformity with the directions of Hon'ble Dispute Resolution Panel ('DRP'), Mumbai under section 144C(13) of the Income-tax Act, 1961, and the order of the Transfer Pricing Officer u/s. 92CA(3), in adding the negative margin of the appellant (-20.07%) to the positive margin of comparable companies (10.99%) and thereby adopting Arm's Length Margin of 31.06% (20.07%+10.99%) of operating costs. Instead, it should be only 10.99% of operating cost. 3. Without Prejudice to Ground no.1 and 2 above, on the facts and in the circumstances of the case, and in law, learned Assessing Officer has erred, in conformity with the directions of Hon'ble Dispute Resolution Panel ('DRP'), Mumbai under section 144C(13) of the Income-tax Act, 1961, and the order of the Transfer Pricing Officer u/s. 92CA(3), in applying the margin of 31.06% on the total cost w....
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....wholly and exclusively for the purpose of its business, merely on surmises and conjectures. 11. On the facts and in the circumstances of the case, and in law, the learned Assessing Officer ACIT (OSD) - 10(1), Mumbai, has erred in disallowing 50% of the Telephone and Communication expenses of Rs. 14,74,748/- incurred wholly and exclusively for the purpose of its business, merely on surmises and conjectures. 12. On the facts and in the circumstances of the case, and in law, the learned Assessing Officer ACIT (OSD) - 10(1), Mumbai, has erred in making an addition of Rs. 40,39,826/- in respect of Advances received in the course of business. 13. On the facts and in the circumstances of the case, and in law, the learned Assessing Officer ACIT (OSD) - 10(1), Mumbai, has erred in not allowing set off of following brought forward business loss and unabsorbed depreciation against the business income as assessed by him". 2. At the outset, Ld. Counsel for the assessee submitted that, grounds no. 1, 2, 7, 8, 9 & 13 are not pressed, accordingly, these grounds are treated as dismissed as not pressed. 3. Ground no. 3 & 4, relates to transfer pricing adjustment made by the TPO for su....
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.... Total 29,95,256/- 5. As regards the application of arm's length margin arrived at by the TPO on the entire operating cost, the Ld. Counsel submitted that, now it is a well settled proposition that, ALP margin had to be determined in respect of international transaction with the AE and not for the entire sales or operating cost. In support of his contention, he has given a list of 19 decisions, wherein, it has been unanimously held that transfer pricing adjustment should be restricted to the value of international transactions only and it could not be made on the entire turnover. The list of such decision are as under:- He submitted that, if adjustment is made only in respect of transaction with the AE then aggregate proportionate working would be in the following manner: "Total Operating Costs Rs.9,68,85,789/- Revenue from Associated Enterprises Rs.5,49,70,581/- Total Revenue Rs.8,06,84,349/- Therefore, Proportionate Operating Cost in respect of revenue from Associated Enterprises (A*B/C) Rs.6,60,08,689/- Add: Arm's Length Margin (@ 10.99% of above) Rs.72,54,355/- Arm's Length Pric....
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.... had disclosed operating loss of (-) 20.07% of the costs which has been rejected by the TPO and after carrying out the comparability analysis with the external comparables, he has arrived at an Arm's Length Margin of 36.01% and, thereby the resultant adjustment by way of Arm's length margin was computed at 10.99%. This arm's length margin of 10.99% has not been disputed before us, therefore, to this extent the TPO's determination of positive margin of 10.99% has attained finality qua this year. The sole issue which has been raised before us by the assessee is that, the Transfer Pricing adjustment under section 92 should have been made in respect of the transaction made with the AE only and not in respect of the entire transaction including Non-AE also. The total operating revenue of the assessee was Rs. 8,06,84,349/- and total operating cost was Rs. 9,68,85,789/-. As against this, the revenue from AE is Rs. 5,49,70,581/-. The proportionate operating cost in respect of a revenue from the AE was thus, Rs. 6,60,08,689/-. If Arm's Length Margin of 10.99% is applied to this sum then same would be Rs. 72,54,355/-. If such an ALP of Rs. 72,54,355/- is applied to revenue from AE, then it w....
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....e with its related parties and not for its entire transaction with non-related parties also. Therefore, ALP has to be seen only with regard to international transaction with A. Es and not o n the entire turnover/sales. 8. As regards contentions raised by the Ld. CIT DR that there is no segmental information with regard to the AE and non-AE transaction, therefore such an adjustment cannot be restricted to AE transaction only, we are unable to appreciate his argument firstly, there has been consistent view that the adjustment if at all, should be made on the international transactions and not at the entity level i.e. with the non-AE transactions also; and Secondly, the international transactions with the AE if have been duly reported, then what is required to be seen, whether such a transactions with the related party are at arm's length price or not and same cannot be benchmarked on the basis of the entire transaction at entity level. The deeming fiction created in the transfer pricing provision has to be restricted to the transactions with the related party, because only such transaction has to be judged on the arm's length principle. Thus, we agree with the contention of the Ld....
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.... reproduced here in below:- Sr. no. Vendor Name Purpose Amount Remarks 1. Dataformatics Consultancy Pvt Ltd Lisence 17,522 Win server Lisence 2. Antraweb Technologies Pvt Ltd AMC for Tally support 19,656 Tally software 3. Fiona Infosystems Ltd. Renewal Charges 36,208 Yearly Antivirus Renewal 4. S A A Software-Yearly Subscription Charges Total 609898 Less Prepaid 312000 3,12,000 Renewal software subs-Cription Agreement and invoice Attached Agreement and invoice Attached Reversal of prepaid of FY 2006-07 6,50,525 5. Tax Print Corporation TDS software For AY 2008-09 2,080 TDS Other ETDS Software upgrade 6. Tax Print Corporatin Salary and TDS Software for AY 2008-09 Including tally Linking charges etc 33,800 Salary TDS Calculation Software AY 2008-09 7. Prepaid Reversal Reversal of pre- Paid Medra Dictonery Sub- Scription Charges Accounted in FY 2006-07 19,338 1,091,130 It can be seen that, some of the expenditures are periodical and recurring in nature, which cannot be ....
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....nterest of justice, we feel that the disallowance made should be restricted to 25% of the total expenditure debited on account of travelling expenses. Thus, the assessee gets part relief on this score. Similarly, on ad-hoc disallowance of telephone and communication, the same was made 50% on total expenditure claimed at Rs. 14,76,748/- on the ground that relevant details have not been furnished. Since similar position is continuing at the stage of the Tribunal also, therefore, like in the travelling expenses, we direct the AO to disallow 25% of the total expenditure debited on this head. Thus, assessee gets part relief on this score also. 19. Now, coming to Rs. 40,39,826/- being advances received in the course of business, the AO has made the addition on the ground that, the assessee has not furnished any details with regard to the advances received. Before the DRP, the assessee submitted that it has required advances from the customers for programme for Appropriate Technology Health and other items like service tax refund, etc. Before the DRP, additional evidences were filed, however, the DRP on the basis of objections raised by the AO has rejected the assessee's submission. ....