TaxTMI 
TaxTMI 
2018 (3) TMI 1680
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....in expertise to enable an organization to measure, compare, visualize its business data. The assessee reported, inter alia, an international transaction of 'Provision of software development services' amounting to Rs. 109,01,74,781/-. The Assessing Officer referred the matter of determination of the arm's length price (ALP) of the international transactions to the Transfer Pricing Officer (TPO). The TPO observed that the assessee employed the Transactional Net Margin Method (TNMM) for benchmarking its international transaction of Provision of software development services. The assessee declared its Profit Level Indicator (PLI) of Operating Profit/Total Cost (OP/TC) at 9.38%, which was compared with the average margin of seven comparables at 13.33%. That is how, the assessee tried to demonstrate that its international transaction was at ALP. The TPO made certain changes in the list of comparables making the number of comparables at 13 and their average PLI was worked out at 19.02%. This led to a transfer pricing adjustment of Rs. 13,75,72,821/-. After considering the directions from the Dispute Resolution Panel (DRP), the AO finally made an addition of Rs. 10,45,71,656/- on account ....
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....ments viz., Service clusters, Industrial clusters and Telecom clusters. The TPO considered only the Industrial cluster as the relevant segment for the purpose of comparison, whose OP/OC was computed as under :- Particulars Industrial Cluster Revenue 16,380,087,222 Expense 11,384,705,358 Profit 4,995,381,864 OP/OC 43.88% 7. Operating profit rate of L&T Infotech Ltd. (segment) at 43.88% was considered for computing the average margin of comparables for the purpose of making transfer pricing adjustment in this international transaction. 8. The ld. AR contended before us that while computing OP/OC of the relevant segment of L&T Infotech Ltd., the TPO did not consider `Unallocated expenses' to the relevant segment. We have gone through the Annual report of this company, whose copy is placed at page 73 onwards of the paper book. It can be seen from page 101 of the paper book that this company has reported revenues from three segments and the revenue from Industrial cluster segment is Rs. 1638,00,87,222/-, as has been rightly adopted by the TPO. The next item on page 101 under the Industrial Cluster segment is segmental operating profit of Rs. 527,75,53,809/-. If we ex....
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....the TPO did not allocate `Unallocable expenses', which are necessary ingredient of `Operating costs', without which correct amount of operating profits cannot be ascertained. Secondly, neither the nature of common unallocated expenses is known nor the information concerning the appropriate allocation keys is available. Under such circumstances, the very inclusion of Larsen & Toubro Infotech Ltd. (Seg.) in the list of comparables vitiates the comparability. The Delhi Bench of the Tribunal in CEVA Freight India Private Limited. (ITA No.4956/Del/2013), vide its order dated 18.01.2012, has directed the exclusion of a company in similar circumstances which also had certain unallocable expenses, not capable of proper allocation. 11. Be that as it may, the ld. AR has placed on record a calculation in which `Unallocable expenses' of Larsen & Toubro Infotech Ltd., have been apportioned on the basis of gross revenue, which gives segmental profit rate of the Industrial cluster segment of L& T at 34.9%. The ld. AR contended that even if the segment of L&T is included with this amended profit rate, its margin will be within the permissible range. Since we have held, in principle, that a compan....
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....yments, 'any other debt arising during the course of business' has also been expressly recognized as an international transaction. That being so, the payment/non-payment of interest or receipt/non-receipt of interest on the loans accepted or allowed in the circumstances as mentioned in this clause of the Explanation, also become international transaction, requiring the determination of the ALP. If payment of interest is excessive or there is no or low receipt of interest, then such interest expense/income need to be brought to its ALP. The expression 'debt arising during the course of business' in common parlance encompasses, inter alia, any trading debt arising from the sale of goods or services rendered in the course of carrying on the business. Once any debt arising during the course of business has been ordained by the legislature as an international transaction, it is, but, natural that if there is any delay in the realization of debts arising during the course of business, it is liable to be visited with the TP adjustment on account of interest income short charged or uncharged. Under such circumstances, the contention taken by the assessee before the TPO that it is not an in....