TaxTMI 
TaxTMI 
2016 (10) TMI 1040
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....customers. During the year under review, assessee earned margin of 36.08% on cost. 2.1 During the year the assessee had undertaken the following international transactions: 1. Provision of IT enabled services - TNMM was applied and the value of transaction was Rs. 120,569,328/-; 2. Reimbursement of expenses to AEs - TNMM was used and the value of the transaction was Rs. 2,239,503/-; 3. Reimbursement of expenses from AEs - CUP method was applied and the value of transaction was Rs. 138,837,163/-. 2.2 During the year, the assessee had received Rs. 136,795,724/- from its AEs as 'cost recharge for spare capacity'. It was the assessee's contention that this amount should not be routed through the Profit/Loss Account as it was only a reimbursement. However, the department's stand has been that the assessee has not given any evidence and support of its claim that this expenditure was towards maintenance of spare capacity at the instance of the AEs. The Hon'ble DRP held that ALP of the receipts from the AEs must include all costs and the assessee had failed to give cogent reasons for excluding certain costs for the purpose of computing ALP. It was assessee's further contention that if....
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....shed in May 2008 Not referred to TPO AY 2010-11 500 58 Not referred to TPO AY 2011-12 500 98 Before the Tribunal AY 2012-13 458 103 One floor surrendered in Feb 2012 TPO accepted the arm's length price computed by the Assessee AY 2013-14 250 70 Assessment proceedings initiated AY 2014-15 250 50 Assessment haven't begun AY 2015-16 250 Company closed Assessment not yet initiated 3.2 It was submitted that as per the arrangement set out in the intercompany agreement, the Assessee was remunerated on: * For the services rendered - Cost-plus mark-up; and * For idle infrastructure - Cost-to-cost basis. 3.3 It was submitted that during AY 2011-12, in an infrastructure set-up for 500 employees, the assessee was only able to employ 98 employees (on an average) for its operations. The business of the assessee decreased substantially over the years and eventually was shut down in August 2014. Further, the global business operations related to the relevant service line were under losses and they too were shut down. It was further submitted that for the operations, the Assessee was fully compensated on cost- plus mark-up for the provision of I....
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....ome loan transactions and it was also a fact that the assessee did not incur any interest on its receivables. It was further submitted that under the guise of bench marking the nature of transaction cannot be changed. It was further submitted that it was not a separate transaction in itself but a part of the ITeS services. It was further submitted that if working capital adjustment is allowed to the assessee then this ground will be taken care of. The ld. AR relied on the decision of the coordinate 'I' Bench of ITAT, Delhi in Kusum Healthcare Pvt. Ltd. vs. ACIT in ITA No. 6814/Del/2014 for the proposition that the working capital adjustment takes into account the impact of outstanding receivables on the profitability. 6. The ld. DR submitted that if the amounts are received within the period of agreement interest is not to be charged. However, charging of interest becomes mandatory if the payment is received beyond the stipulated period and hence, charging/non charging of interest on the loans accepted/receivables from an AE are to be treated as an international transaction requiring determination of the ALP. The ld. DR placed reliance on the decision of the coordinate 'I' Bench o....
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.... computing the margin of the assessee from the transactions with the associated enterprises in respect of software development services. The ld. Counsel for the assessee has also filed before us a comparative chart explaining the computation of Net Margin, excluding the bad debts and clearly demonstrated before us that if the bad debts/reimbursements are excluded for the purpose of computing the margins on the transactions relating to the associated enterprises, the net margin comes to 19.07%, which is well comparable with the Arm's Length Margin of 19% determined by the Transfer Pricing Officer. In our considered view, for computing the net margin of the assessee for the purposes of transfer pricing, only the cost related to the transaction with the Associated Enterprises has to be considered and accordingly, we approve that segmental financials is to be considered for the purpose of arriving at the net margin on the international transaction with the assessee's enterprise in respect of software development services. In that process, bad debts/reimbursements has to be excluded and segmental profitability has to be adopted. We find support in this behalf from various decisions of t....
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....st on receivables Act, 2012 has inserted Explanation to sec. 92B with retrospective effect from 1.4.2002. Clause (i) of this Explanation which is otherwise also for removal of doubts, gives meaning to the expression 'international transaction' in an inclusive manner. Sub-clause (c) of clause (i) of this Explanation, which is relevant for our purpose, provides as under: Explanation - For the removal of doubts, it is hereby clarified that - (i) The expression "international transaction" shall include - (a) .......... (b) .......... (c) Capital financing, including any type of long term or short term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business;....' 22. On going through the relevant part of the Explanation inserted with retrospective effect from 1.4.2002, thereby also covering the assessment year under consideration, there remains no doubt that apart from any long term or short term lending or borrowing etc., or any type of advance payments or deferred payments, 'any other debt arising during the course of business' ....