AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (9) TMI 99
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....ternational transactions under section 92CA made by the learned Additional Commissioner of Income-tax (Transfer Pricing)-I (2), New Delhi (hereinafter referred to as "the TPO") vide order dated September 23, 2009 for the assessment year 2006-07. 2. The assessee has raised the following grounds of appeal : "1. That on the facts and in the circumstances of the case and in law, the order passed by the learned Assessing Officer ("AO") is bad in law and void ab initio. 2. That on the facts and in the circumstances of the case and in law, the reference made by the learned Assessing Officer suffers from the jurisdictional error as the learned Assessing Officer did not record any reasons in the draft assessment order based on which he reached the conclusion that it was 'expedient and necessary' to refer the matter to the learned Transfer Pricing Officer ('the TPO') for computation of the arm's length price, as is required under section 92CA(1) of the Income-tax Act, 1961 ('Act'). 3. That on the facts and in the circumstances of the case and in law, the learned Assessing Officer erred in making an addition of Rs. 16,24,01,920 to the ....
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....s filed by appellant-company on ground No. 7 of the Dispute Resolution Panel and failed to pass the speaking order. 7. That the learned Assessing Officer erred in the facts and in law in charging and computing interest under sections 234B, 234D and 244A of the Income-tax Act, 1961. 8. On the facts and in the circumstances of the case, the learned Dispute Resolution Panel has erred in not examining the validity of initiation of penalty proceedings under section 271(1)(c)." 3. The appellant is a private limited company, being wholly owned subsidiary company of Eserve Value Limited, Bermuda, engaged in the business of provision of services in the field of information technology enabled services to its associated enterprises. It is also registered with software technology park as 100 per cent. export oriented unit and eligible to claim deduction under section 10A of the Income-tax Act. It is deriving income from its associated concern and has entered into international transactions. 4. The assessee filed its return of income on November 29, 2006 showing nil income and claiming deduction under section 10A of the Income-tax Act of Rs. 6.76 crores leaving the balan....
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.... and biotechnology, chemicals, energy, consumer goods. It uses primary and secondary sources to conduct this research and analysis in this segment. Its research capabilities include industry and value chain analysis, in-depth analysis of customer segments, products channels technologies competitive benchmarking, monitoring and customising newsletters forecasting modeling and financial analysis, database content creation and management updating of existing research commercialisation analysis and business plans. Broadly, it provides services under following segments : (ii) Under the intellectual property segment, the services are provided for patents, drafting, prior art search, and intellectual property asset management. The assessee is in old in carrying out patent assessment, intellectual property research, and analysis, patent consulting, and preparing draft patent application to be filed overseas. This research is delivered overseas to associated enterprises, which is an arrangement with the team of lawyers for filing of the patent applications in the appropriate jurisdiction. It also offers intellectual property asset management and helps in analysing portfolio patents....
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....learned Transfer Pricing Officer held that it is not required in view of the financial position of the comparables. Based on this, the learned Transfer Pricing Officer passed an order under section 92CA(3) of the Income-tax Act, 1961 on September 23, 2009 proposing an adjustment of Rs. 16,24,01,920. 9. The learned Assessing Officer on receipt of the order of the learned Transfer Pricing Officer passed assessment order under section 143(3) read with section 144C of the Act on December 21, 2009 wherein the above adjustment with respect to the transfer pricing of Rs. 16,24,01,920 was made. The learned Assessing Officer was further of the view that the assessee has claimed deduction under section 10A of the Income-tax Act and thereafter claimed the set off of the brought forward business loss for the assessment year 2002-03 against the balance profits under the head. According to him, the manner of the computation is incorrect. According to him the brought forward losses have to be deducted first from the profits and gains of business and deduction under section 10A shall be granted only from the balance income under this head. Therefore against the returned income of Rs. nil. The t....
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....anced before us, and therefore this ground of appeal is dismissed. 16. Ground No. 2 of the appeal of the assessee is with respect to the jurisdictional error that the learned Assessing Officer has not recorded any reasons in the draft assessment order for reference to the learned Transfer Pricing Officer for computation of the arm's length price under section 92CA(1) of the Income-tax Act, 1961. The learned authorised representative did not press any argument for this ground and therefore we dismiss it. 17. Ground No. 3 of the appeal of the assessee is against the order of the learned Assessing Officer against the addition of Rs. 16,24,01,920 to the returned income of the appellant on account of the arm's length price of the international transactions under section 92 of the Income-tax Act. Ground No. 4 of the appeal of the assessee is contesting various issues with respect to the transfer pricing adjustment and ground No. 5 of the appeal of the assessee is with respect to the denial of the benefit of 5 per cent. margin under the proviso to section 92C(2) of the Income-tax Act. Therefore, as the ground Nos. 3, 4 and 5 are related to the transfer pricing adjustment the....
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.... is a knowledge process outsourcing company and cannot be compared with the assessee. He submitted that in the assessee's own case for the assessment year 2007-08 that clear cut finding is given that the assessee is engaged in low-end service/back office enabled ITES support services and hence cannot be compared to a knowledge process outsourcing unit. He further referred to the decision of the Hon'ble Delhi High Court in the case of Rampgreen Solutions P. Ltd. v. CIT [2015] 377 ITR 533 (Delhi) wherein it has been stated that Vishal Information Technologies Ltd. is a KPO and has discussed this comparable in detail and stated that it cannot be compared to companies engaged in low and services/back office enabled ITES support services. He further referred to the plethora of decisions wherein this comparable company has held to be engaged in KPO business. 21. With respect to Alpha Go India Limited, he submitted that this company is functionally not comparable because it is engaged in the business of exploration and production of oil. He further referred to the facts mentioned on the website of the company wherein it has been stated that it is engaged in providing seismic survey....
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....t the co-ordinate Bench has mistakenly stated that the assessee is not providing a high-end IT enabled services, whereas in the assessee's own case for the assessment year 2005- 06, the Tribunal has held that it is providing a high-end IT enabled services on the basis of transfer pricing study report of the assessee for that year. On that basis, it was submitted that the assessee itself has admitted and classified itself in that year as providing a high-end IT enabled services. Therefore, it is comparable with the KPO and the decision cited by the learned authorised representative of the Delhi High Court in Rampgreen Solutions does not apply to the facts of the case. For the functional profile of the assessee, the learned Departmental representative submitted that the assessee is the creator of an industry worth billions of rupees and the company offers investment research that analytics technology research and business research services worldwide and is one of the hottest destinations for employment seekers. It is further submitted that in the website itself that Evalueserve is knowledge process outsourcing unit and it is a high- end knowledge oriented research and analytics i....
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....s required to obtain report from an independent accountant. Therefore that particular report, wherein the under capacity utilisation was not made the assessee is not entitled to claim it. For this proposition he also relied on the decision of the co-ordinate Bench in the case of Aithent Technologies P. Ltd. v. Deputy CIT [2016] 74 taxmann.com 214 (Delhi-Trib) wherein it has been held that adjustment, if any, could have been allowed. If the assessee are demonstrated that the comparable companies had more under utilisation of the labour force compared to the assessee. The onus to prove such under utilisation of the employees of the comparable for claiming adjustment squarely lies on the assessee. He further relied on the decision of the co-ordinate Bench in the case of i.e. ION Trading India (P.) Ltd. v. ITO (I. T. A. No.1035/Del/2015 dated December 7, 2015) wherein it has been held that no capacity utilisation adjustment can be made in the case of comparables in the case of us are captive service provider. As the assessee is also a captive service provider it cannot be granted the above adjustment. He further relied upon the decision of the court in it Bench in the case of FCI OEN C....
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.... This is raised by the assessee as an additional ground of appeal. It is the assessee's contention that one of the independent comparable which has been included by the assessee as also by the Transfer Pricing Officer has been wrongly included in the comparable for more than one reasons. Firstly, according to the asses see, in the case of Data Matrix Technologies Ltd. out of the total sales of Rs. 54.85 crores, its transactions with the associated concern amount to Rs. 17.15 crores which works out to 31.27 per cent of the total sales made by the Datamatics Technologies Ltd. The assessee submits as is the accepted transfer pricing practice in terms of O. E. C. D. guidelines, as also sanction by law in India, such transactions with the associated parties cannot be considered as uncontrolled transactions. It is also submitted that there is an arithmetical error on account of which operating expenses of Rs. 579 crores were not taken into account while aggregating total expenditure as a result of which the original profit to cost ratio worked out to 138.46 per cent. The assessee's contention is that the inclusion of this comparable, which takes into account profit on cost at 138....
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....ch- (i) the net profit margin realised by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base ;" The aforesaid sub-clause has been reproduced only to emphasise that even under transactional net margin method Indian Regulations attach considerable significance to 'assets employed or to be employed' and must be taken into consideration. Then sub-rule (2) of rule 10B requires application of FAR test for judging comparability of international transaction with uncontrolled transaction and is as under : "10B.(2) For the purposes of sub-rule (1), the comparability of an international transaction with an uncontrolled transaction shall be judged with reference to the following, namely- (a) the specific characteristics of the property transferred or services provided in either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions; ....
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....nd, therefore, it is not treated as comparable by the tax authorities, they also have to consider that the Datamatics has earned extraordinary profit and has a huge turnover. Besides differences in assets and other characteristics referred to by Shri Aggarwal. The Income- tax Appellate Tribunal is a fact-finding body and, therefore, has to take into account all the relevant material and determine the question as per the statutory regulations. 31. In the case of CIT v. Bharat General Reinsurance Co. Ltd. [1971] 81 ITR 303 (Delhi), the Hon'ble Delhi High Court observed as under (page 307) : "It is true that the assessee itself had included that dividend income in is return for the year in question but there is no estoppel in the Income-tax Act and the assessee having itself challenged the validity of taxing the dividend during the year of assessment in question it must be taken that it had resiled from the position which it had wrongly taken while filing the return. Quit apart from it, it is incumbent on the Income-tax Department to find out whether a particular income was assessable in the particular year or not. Merely because the assessee wrongly included the inc....
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....Lordships of Supreme Court are as under (page 74) : "The decision in Amarendra Narayan Roy v. CIT, AIR 1954 Cal 271 has no bearing on the question raised before us. There the concessions scheme tempted the assessee to disclose voluntarily all his concealed income and he agreed to pay the proper tax upon it. The agreement there related to the quantification of taxable income but in the present case what is sought to be taxed is not a taxable income. The assessee in such a case can certainly raise the plea that his income is not taxable under the Act. We, therefore, reject this plea." 35. In paragraph 4.16 of latest report, the OECD provides the following guidelines : "In practice, neither countries nor taxpayers should misuse the burden of proof in the manner described above. Because of the difficulties with transfer pricing analysis, it would be appropriate for both taxpayers and tax administrations to take special care and to use restraint in relying on the burden of proof in the course of the examination of a transfer pricing case. More particularly, as a matter of good practice the burden of proof should not be misused by tax administrations or taxpaye....
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....arm's length price can be determined in accordance with the law the proceedings before the tax authorities are not adversarial proceedings and the assessee should not, therefore, be placed at under advantage because of his inadvertent and bona fide mistakes. With this objective in sight, and having no led inconsistencies in selection of compatibles, while we uphold the exclusion of Imercius from comparables, we also deem it fit and proper to remit the matter to the file of the Assessing Officer for adjudication de novo in the light of the above observations and in accordance with the law. We direct the assessee to place all the relevant material before the Assessing Officer and/or Transfer Pricing Officer and fully co-operate in expeditious disposal of the matter in accordance with the law. The matter stands restored to the file of the Assessing Officer as such. (Extracted from taxmann.com, Underline supplied by us) 30. On perusing the above decision it is apparent that the assessee was allowed to resile from the comparable selected by it for the reason that (a) those were the initial years of transfer pricing assessments, (b) the assessee showed that relat....
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.... assessee is a high-end ITES provider and is engaged in the business of knowledge management services relying on paragraph No. 43 of the order of the co- ordinate Bench in the case of the assessee for the assessment year 2005-06. In ITO v. E Value Serve.com [2016] 52 ITR (Trib) 314 (Delhi) (I. T. A. No. 393/Del/2010 and Co No. 85/Del/2010 dated September 30, 2016 for the assessment year 2007-08 it has been held that (page 328) : "38. The learned counsel pointed out that the assessee is only in data calculation and there is no value addition at the assessee's end. The assessee actually acts as support service provider. The learned counsel relied on the decision of the Hon'ble Delhi High Court in the case of Rampgreen Solutions Pvt. Ltd. v. CIT (I. T. A. No. 102 of 2015 dated August 10, 2015) [2015] 377 ITR 533 (Delhi), wherein the Hon'ble Delhi High Court has noted with reference to the decision of the Special Bench of the Tribunal in Maersk Global Centers (India) P. Ltd. v. Asst. CIT (I. T. A. No. 7466/Mum/2012) [2014] 31 ITR (Trib) 1 (Mumbai) [SB], that there might be a case where an entity may be rendering a mix of services, some of which may be functionally comparab....
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....sment year 2007-08 while reading the orders for the assessment year 2005-06 of the co-ordinate Bench in the case of the assessee, has entered in to an error by not looking at paragraph No. 43 of the order, where findings are contained, where in it has been held that the assessee is high-end ITES provider in its transfer pricing study report because the assessee conducts research activity and provides knowledge management services to its associated enterprises. The co-ordinate Bench has looked at the reference and finding in the case of Maersk Global Centers (India) P. Ltd. (I. T. A. No. 7466/Mum/2012) in paragraph Nos. 38 and 39 of that judgment and has held that the assessee is a low-end ITES provider. According to us those paragraphs of the order for the assessment year 2005-06 do not contain the finding about the functional profile of the assessee. The assessee has submitted at page No. 245 onwards of the paper book order of the learned Transfer Pricing Officer for the assessment year 2005-06 wherein at paragraph No. 2 the learned Transfer Pricing Officer has described the business description of the assessee and at paragraph No. 2.3 the assessee has mentioned the description of....
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....le of the learned Assessing Officer/Transfer Pricing Officer for ascertaining the correct functional profile of the assessee for this year without being influenced by the order of the co-ordinate Bench for the assessment year 2007-08, then carry out examination of comparability analysis and then determine the arm's length price of the international transactions. Needless to say that the assessee shall be duty bound to provide correct functional profile of the assessee and its complete search process and its steppers results to the learned Transfer Pricing Officer/Assessing Officer along with its justification for claim of working capital adjustments or capacity utilisation for examination by the learned Assessing Officer/Transfer Pricing Officer. In the result ground Nos. 3, 4, 5 and additional ground are remitted back to the file of the learned Assessing Officer/Transfer Pricing Officer to decide the whole issue afresh and hence these grounds of appeal of the assessee are allowed with the above directions. 35. Ground No. 6 of the appeal of the assessee is against the issue whether deduction under section 10A of the Income-tax Act is allowable after setting of brought forwar....