TaxTMI 
TaxTMI 
2016 (11) TMI 1499
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....dopted the CUP method as the most appropriate method and has adopted the foreign company AE as the tested party and the US Companies as comparables. It arrived at the margin of the comparables at 14.64% as against the assessee's margin of 12.90% and therefore, treated the international transaction to be at ALP. The TPO, however, rejected the assessee's T.P. study, on the ground that the foreign party cannot be taken as a tested party. According to the TPO, the holding company, in India, bears most of the risks, the assets & functions etc., and therefore, the Indian company i.e. the assessee should be taken as the tested party and Indian companies are to be taken as comparables. He, therefore, rejected the tested party selected by the assessee and treated the assessee as a tested party. He also rejected the CUP method adopted by the assessee on the ground that there is no adequate data to apply CUP method or other methods. He considered the TNMM as the most appropriate method. Thereafter, he proceeded to consider the comparable companies in India and arrived at 22 companies and after conducting the FAR analysis of the comparables, he arrived at the mean margin of the comparables and....
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....s have been carried at arm's length basis. 5. The Ld. CIT (Appeals) erred in law and in facts in not appreciating that as per the operating margins computed by the TPO, the transactions with Associated Enterprises are carried out at similar operating margin as that of non Associated Enterprises implying that the transactions with Associated Enterprises were carried at arm's length. 6. The Ld. CIT(Appeals) erred in not appreciating that the Ld. TPO erred in law and in facts in not considering the submissions of the appellant with respect to the selection of comparable data and arbitrarily selecting comparable companies. 7. The Ld. CIT (Appeals) erred in not appreciating that the Ld. TPO erred in law and in facts in applying selection criteria for rejecting all the loss making and low margin comparables for various reasons amounting to cherry picking of com parables which is not in line with the Act. 8. The Ld. CIT(Appeals) erred in law and in facts in confirming that the Ld. TPO 's rejection of the appellant's bifurcation of cost between the transactions with Associated and non Associated Enterprise and considering sales as basis of apportionment of cost. Each of t....
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.... the Rules and in support of his contentions that the defect is a curable one and will not affect the maintainability of the appeal, he placed reliance upon the following decisions of the Tribunal: a) Lallooram Pyarelal vs. Income Tax Officer reported in (1984) 19 TTJ 0040 wherein it was held that the non signing of grounds of appeal by the Managing Partner was only a curable irregularity and not a fatal defect so as to render the appeal a nullity. b) Harilelas vs. Income Tax Officer reported in (1986) 16 TTD 0356 wherein it was held that the form of appeal not signed by the Partners who were all non-residents but signed by the constituted attorney, is a curable irregularity and defect once removed, such removal relates back to the date, the appeal was originally filed. c) Wipro Information Technology Ltd vs. Dy.CIT reported in (2004) 88 TTJ 0778 wherein it was held that the appeal signed by the incompetent person is a curable defect and since the same has been cured, appeal is maintainable. 6. The learned DR, however, opposed the same and relied upon the decision of the Coordinate Bench of this Tribunal in the case of Suvistas Software (P) Ltd vs. Income Tax Officer reported i....
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....ve decision is distinguishable from facts. As held by the various Benches of the Tribunal, the defect in the assessee's case is only a curable defect and the assessee having rectified the defect, the appeal is maintainable. Therefore, the objection of the Revenue that the appeal is not maintainable is not sustainable. 10. Coming to the assessee's appeal, the grounds of appeal No.1 is general in nature and needs no adjudication. 11. As regards Ground No.2, the learned Counsel for the assessee submitted that this issue is covered in favour of the assessee by the judgment of the Hon'ble Andhra Pradesh High Court in the assessee's own case for A.Y 2005-06, copy of the order is placed at Page No.614 of the Paper Book. The learned DR however, supported the orders of the authorities below. We find that the AO, while computing the deduction u/s 10A of the Act, observed that the assessee had computed the loss from non export business to the extent of Rs. 61,85,180 while claiming deduction of Rs. 33,42,076 from export business u/s 10A of the Act. The AO held that the loss of non export business is to be set off from the profit of the export business and only thereafter deduction u/s 10....
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....e profits of the undertaking engaged in the business of computer software for purposes of determination of the allowable deduction u/s 10B of the Act. The Revenue, therefore, filed appeal before the Hon'ble High Court and the High Court framed the following question for determination: "Whether the Tribunal was correct in holding that the deduction u/s 10A or 10B of the Act during the current assessment year has to be allowed without setting off brought forward unabsorbed losses and the depreciation from earlier assessment year or current assessment year either in the case of non- STP units or in the case of the very same undertaking?" The Hon'ble High court has considered the issue at length and at Para 31 of its order has held that as deduction u/s 10A has to be excluded from the total income of the assessee, the question of unabsorbed business loss being set off against such profits and gains of undertaking would not arise and in that view of the matter, the approach of the AO was quite contrary to the aforesaid provision and the appellate Commissioner as well as the Tribunal were fully justified in setting aside the said assessment order and granting the benefit of s....
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.... have erred in rejecting the foreign company as the tested party, only on the ground, that the TPO does not have the power to obtain information about the foreign comparables. In support of his contention that a foreign company can be adopted as a tested party, the learned Counsel for the assessee relied upon the following decisions: i) General Motors India Pvt.Ltd (ITA No.3096/Ahd/2010) for the A.Y 2006-07 wherein the Tribunal has upheld the selection of the foreign company as a tested party. ii) Tata Motors European Technical Centre Plc in ITA No.7630/Mum/2012 dated 22.12.2014 wherein after considering the OECD transfer pricing guidelines and also the UN Manual of transfer pricing, about the selection of tested party, the Tribunal has held that the blanket assumption of the TPO that the foreign comparables cannot be accepted at all is not correct as the Indian transfer pricing does not reject the foreign comparables if the tested party is foreign. 14. The learned DR, on the other hand, supported the orders of the authorities below and submitted that during the TP analysis, the AO/TPO will have to verify the details filed by the assessee and if the tested party is a foreign com....
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....ocumentation filed by the assessee. We are satisfied that all the necessary information about the tested party and also the foreign comparables adopted by the assessee have not been provided by the assessee before the AO or the TPO to verify the same and for arriving at the ALP. Therefore, we are satisfied that the assessee has not done a proper TP study and therefore, the TPO has rightly rejected the foreign company as a tested party and the foreign comparables for arriving at the ALP. Accordingly Grounds 3 & 4 are rejected. 17. As regards Grounds 5 to 7, the TPO has adopted the assessee company as the tested party and has adopted 15 companies as comparable to the assessee and adopted TNMM as the most appropriate method. The learned Counsel for the assessee submitted that the assessee is challenging the comparables selected by the TPO on various grounds, but in effect the assessee is challenging the inclusion of the following four companies: i) Fortune Infotech Ltd ii) Tricom India Ltd iii) Ultramarine & Pigments Ltd iv) Goldstone Teleservices Ltd He submitted that while, Fortune Infotech Ltd and Tricom India Ltd are functionally different from the assessee, Ultramarine & Pi....
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.... perusal of the details furnished and submissions made, it is seen that this company has developed its own software called "Finetran" and "image index" for performing specialized services in medical transcription and patient record management. On appraisal of the same, we are of the opinion that this comparable company has developed unique software from which it would derive substantial benefits /advantages when compared with the assessee which is undertaking pure call centre services. Applying the principle that companies which are on similar standards only should be taken as comparables, we hold that this company which has unique intangibles cannot be taken as a comparable for the assessee and accordingly direct the Assessing Officer / TPO to exclude it from the list of comparables in this case". 18. We find that the assessee before us is into the software development and providing call centre services exclusively to its AE as in the case of 24/7 Customer.com Pvt. Ltd and therefore, the decision of the Coordinate Bench in the above case is applicable to the facts before us. Respectfully following the same, we direct exclusion of Fortune Infotech Ltd and Tricom India Ltd from th....
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....s, the TPO was justified in considering the segmental results in respect of the above company, for comparability analysis in this case. Accordingly, the AO was also justified in accepting such segmental results in respect of the above company for comparability analysis in this case. 41. We have heard both the parties on this issue. It is an admitted fact that the cases which were showing abnormal trading results, as discussed in earlier paras, by relying on the order of the Bangalore Bench in the case of Genisys Integration Systems India Pvt. Ltd. (supra), companies showing abnormal results cannot be considered as comparables. It is an admitted view that the companies making abnormal profits as compared to the assessee cannot be considered as comparables while determining the ALP. For this purpose we place reliance on the decision of Special Bench in the case of Dy. CIT vs. Quark Systems Ltd. (132 TTJ 1) (Chd.) (SB). Accordingly, in our opinion, super profit companies per se are liable to be excluded from the comparables". Respectfully following the same, we direct that this company cannot be taken as a comparable. 20. As regards Goldstone Teleservices Ltd is concerned, the ob....
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....ransaction with related parties which makes it un-comparable with the assessee. In the present case, related party disclosure in Ace Annual Report shows no services are provided to Apex Data Services. Relationship has to be examined as per definition of Associated Enterprises (AEs) as per section 92A of the Act. It was stated before us that Apex Data Services is having 7% share capital in Ace Software Exports Ltd. Even otherwise provisions of section 92A(2)(i) deems two companies as AEs only, if 100% goods are purchased and sold. Though the transactions with related parties cannot be considered for the purpose of comparison, in the present case considering the facts, rejection is not justified". Since the above decision is for the same A.Y and facts are the same, respectfully following the above decision, we direct that this company may also be considered as comparable company to the assessee. 22. As regards Ground No.8, the learned Counsel for the assessee did not advance any arguments and therefore, the same is rejected as not pressed. 23. In the result, assessee's appeal is partly allowed. 24. As regards Revenue's appeal against the exclusion of Vishal Information Technolog....