TaxTMI 
TaxTMI 
TaxTMI 
2017 (7) TMI 363
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....t so to do and also without specifying the relevant clause under section 92C(3) which necessitated the reference. The learned Commissioner of Income Tax (Appeals) - IV has erred in confirming the action of the Assessing officer. 3. The learned Assessing Officer, learned Transfer Pricing Officer and Commissioner of lncome Tax (Appeals) - IV have erred in, a. passing the order without demonstrating that appellant had motive of shifting profits outside India by manipulating prices charged in its international transactions; and b. 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 the addition made under Chapter X is bad in law. GROUNDS ON COMPARABLES AND REJECTION OF TP ANALYSIS OF THE APPELLANT 4. The learned Assessing Officer and learned Transfer Pricing Officer have erred in a. rejecting the transfer pricing analysis undertaken by the appellant without specifying the relevant clause under section 92C(3) which necessitated such rejection; and b. rejecting the comparables selected by the appellant on unjustifi....
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....methodology and process in arriving at the arm's length price; c. selecting Indian companies having onsite revenues as comparable after selecting AE(a company based in USA) as the tested party. Without prejudice, CIT(A) has erred in rejecting similarly placed Indian companies as comparable on unjustifiable reason; d. not appreciating that appellant has onsite revenue of more than 75% of total revenue and ought to be compared with other Indian companies having more than 75% on site revenues. On such a comparison, the appellant's international transaction relating to receipt of services from AE are at arm's length; and, e. adopting net margin of the comparable in computing the arm's length price without appreciating that under CPM gross margin are to be considered. GROUNDS ON ADJUSTMENT FOR DIFFERENCES 9. The learned Assessing Officer, learned Transfer Pricing Officer and Commissioner of Income Tax (Appeals) - IV have erred in not making proper adjustment for enterprise level and transactional level differences between the appellant and the comparable companies. GROUND RELATING TO RESTRICTING TP ADJUSTMENT TO AE TRANSACTIONS 10. Without prejudice to all the....
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....t with respect to the ratio to be adopted for computing the disallowance, i.e. the ratio of software development charges paid to AEs to the total expenses incurred by the unit for developing the software; iii. not appreciating the fact that the aforesaid ratio has been accepted by the assessing officer during the assessment proceedings for AY 2008-09; and, iv. The CIT(A) has erred in reducing the deduction under section l0B of the Act by an amount of Rs. 69,853,035. DISALLOWANCE UNDER SECTION 40(A)(l) IN RESPECT OF COMMISSION PAYMENTS 16. Without prejudice to ground no. I, the learned CIT(A) erred in holding that the services rendered by Mphasis Corporation outside India are in the nature of managerial services and commission paid to MphasiS Corporation in consideration of such services is chargeable to tax in India under section 9(i)(vii) of the Act and under Article 12 of the India-US treaty. 17. The learned CIT(A) erred in disallowing the commission payment to MphasiS Corporation under section 40( a)(i) of the Act in the absence of tax deducted at source without considering the Circular issued by the Central Board of Direct Taxes. INTEREST UNDER SECTION 234B OF THE AC....
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....ional transactions entered into by the tax payer with its associated enterprises (as per the 3CEB Report and as per the reference received by the TPO from the Assessing Officer U/S92CA). ♦ Rendering of software development and IT consultancy services - Rs. 18,23,60,998/- ♦ Receipt of software development, professional and IT consultancy services - Rs. 121,97,06,243/- ♦ Reimbursement of Expenses to AEs - Rs. 1,97,60,359/- ♦ Reimbursement of Expenses by AEs - Rs. 132,78,279/- ♦ Payment of selling commission - Rs. 15,50,58,541/- ♦ Investment in subsidiaries - Rs. 306,73,25,866/- The ALP has to be determined with reference to the above transactions. The taxpayer describes the nature of reimbursement expenses paid and received as under in its TP report. "Reimbursement of expenses to MphasiS BFL by the AEs MphasiS BFL incurs certain expenses on behalf of its AEs. Generally such expenses are in the nature of travel, stay and other similar expenses of the employees of the AEs, and have been cross-charged to the AEs. The above arrangement is for administrative convenience and there is no service element involved Further, MphasiS BFL ge....
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....ded to the cost as well as the revenue. There are two types of international transactions in this case. The taxpayer takes the services of its subsidiaries and also renders software development services to its AEs. The taxpayer was asked to submit the profit realized from these two types of international transactions separately. The taxpayer in its letter filed on 04.07.08 submitted the bifurcation as under. Description Rendering Services to AEs Receiving Services from AEs (Rs.) Total (Rs.) Operating Revenue 18,23,60,998/- 229,53,20,002/- 247,76,1,000/- Operating Expenses 14,48,86,732/- 193,85,26,736/-* 208,34,13,468/-** Operating Profit (PBIT) 3,74,74,266/- 35,67,93,266/- 39,42,67,532/- Operating Profit to Cost / Revenue 25.86% on cost 15.54% on revenue 15.91% *Includes the international transactions of Rs. 121,97,06,243/- and Rs. 15,50,58,541/- *Excluding diminution in the value of investments. As the mean PLI of the 17 comparables selected by the TPO is at 26.59% on cost whereas the PLI of the taxpayer in respect of rendering software services is 25.86%, the international transactions pertaining to rendering of software services are treated a....
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....ed party instead of the assessee's price. Therefore it was submitted that the impugned order of the CIT (Appeals) is not sustainable and liable to be set aside. In support of his contention, he has relied upon the decision dt.22.4.2016 of this Tribunal in the case of M/s. Kshema Technologies Ltd. Vs. ACIT in IT(TP)A No.1105/Bang/2012. 8. On the other hand, the learned Departmental Representative has relied upon the orders of the authorities below. 9. Having considered the rival submissions as well as the relevant material on record, we find that in order to determine whether the international transactions carried out by the assessee are at arm's length, the price/cost of international transactions is compared with the uncontrolled independent price as per the method and procedure prescribed under Chapter X of the Income Tax Act, 1961 (in short 'the Act'). Therefore only the price/the PLI of international transactions of the assessee has to be compared with the uncontrolled comparable price. The assessee took its entity level margin for the purpose of bench marking its international transactions which is not permissible under the T.P. provisions of IT Act as envisaged ....
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....sessee as tested party and further recomputed their profit margin by excluding certain expenses which we find is not permitted under the provisions of transfer pricing. Not only changing the tested party from the assessee to its AE, the CIT (Appeals) has also selected a domestic company as a comparable to the AE of the assessee. Therefore the entire exercise of determining the ALP by the CIT (Appeals) is contrary to the provisions of transfer pricing under the I.T. Act. Hence in view of the facts and circumstances of the case, we set aside the impugned order of the authorities below and remit the issue to the record of the Assessing Officer / TPO for deciding the matter afresh by considering the segment-wise data of the assessee and then compare the same with the comparable companies in the light of various decisions relied upon by the assessee. We find that in the series of decisions, this Tribunal has come to a conclusion that the threshold limit of the RPT should not be more than 15% in normal circumstances where there is no difficulty in selecting the comparable companies. Therefore we direct the TPO to apply the RPT filter at 15% instead of 25% and then consider the comparabil....
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....39;s own case for the Assessment Year 2003-04 (supra) in paras 2 & 3 as under : In view of the decision of Hon'ble jurisdictional High Court in assessee's own case, we decide this issue in favour of the assessee. 2. The first substantial question of law arose for consideration before this Court in ITA No.776/2007 disposed of on 13.06.2014, wherein this Court has held at paras 18 and 19 as under:- 18. From the aforesaid provision it is clear that the consideration in respect of computer software received in or brought into India by the assessee in convertible foreign exchange is deducted from the profits of the said business. In other words the assessee is not liable to pay any income tax on such consideration received from export of computer software. However the said export turnover does not Include freight, telecommunication charges or insurance attributable to the delivery of computer software outside India or expenses if any incurred in foreign exchange in providing technical service outside India. In other words out of the said export turnover the following amounts have to be deducted; a. freight b. telecommunication charges c. insurance attributable to t....
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....a. The software Engineers deputed abroad who among other things have to do testing, installation and monitoring of software supplied to the client. Though the said services are technical in nature it does not fall within clause (ii) of subsection (1) of section 80HHE of the Act of providing technical services outside India in connection with the development or production of computer software. It falls under sub-clause (1) of sub-section (1) of Section 80 HHE of the Act. Therefore, the said expenditure cannot be excluded in computing export turn over. In that view of the matter we do not see any merit in this appeal. Accordingly, the said question of law is answered in favour of the assessee and against the revenue. Ordered accordingly. 3. In view of the said judgment, the substantial question of law is answered in favour of the assessee and against the Revenue. In view of the decision of Hon'ble jurisdictional High Court in assessee's own case, we decide this issue in favour of the assessee. 14. Ground Nos.13 & 15 are regarding disallowance of deduction under Section 10B in respect of on site development work subcontracted to and income derived by the AE. 15. We have ....
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....ale of asset is not an income derived from the business activity of the assessee-undertaking. Hence we do not find any error or illegality in the order of the Assessing Officer in denying the claim of deduction under Section 10B in respect of interest income and profit o sale of asset. 18. Ground Nos.16 & 17 are regarding disallowance made under Section 40(a)(i) of the Act. 19. The Assessing Officer has disallowed commission payment under Section 40(a)(i) of the Act by holding that the same is Fees for Technical Services and therefore in the absence of deduction of tax at source it is not allowable. 20. On appeal, the CIT (Appeals) though upheld the orders of the Assessing Officer that the payment in question is in the nature of Fees for Technical Services however it was also held by the CIT (Appeals) that no service has been rendered by the AE for which the alleged payment has been made. 21. Before us, the learned Authorised Representative of the assessee has submitted that even if this payment of commission is disallowed under Section 40(a)(i), it will enhance the income of the undertaking which is eligible for deduction under Section 10B of the Act. Thus he has submitted tha....