TaxTMI 
TaxTMI 
2016 (10) TMI 1266
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.... international transactions with its associate enterprises which necessitated reference to the Transfer Pricing Officer (TPO) as per the provisions of section 92CA. Accordingly, the case was referred to the TPO on 17/05/2010 for determination of Arm's Length Price with the prior approval of the CIT-I, Hyderabad. 3.1 Taxpayer's Profile: M/s Four Soft Ltd. (FSL India) was incorporated in India in 1999. For the year ended 31st March, 2008, FSL India has wholly owned subsidiaries in the following countries: 1. Four Soft Denmark A/s 2. Singapore - Four Soft Singapore Pte Ltd. 3. Netherlands - Four Soft B.V. 4. Malaysia - Four Soft Malaysia Sds Bhd. Further FSL India controls four subsidiaries in the following countries through its wholly owned subsidiary in Netherlands, namely, Four Soft B.V. 1. US - FourSoft Inc., USA 2. Netherlands - Four Soft BV Netherlands 3. Germany - Four Soft Germany Gmbh 4. UK - Four Soft UK Ltd. FSL India has branches in the following countries: Singapore - Four Soft Pte Ltd. Further FSL India indirectly controls branch in Australia through Four Soft Demark A/s B.V. and in....
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....ment services 25,02,10,202 Payment of implementation expenses 5,70,58,238 Loan to AE 3,76,25,021 Interest accrued on loan 29,30,176 Investment into equity 40,61,26,882 Repayment of interest on loan 40,50,447 Repayment of loan 2,03,81,362 Purchase of fixed assets from AE 1,24,514 Reimbursement of expenses by AE (receipts) 7,00,16,499 Reimbursement of expenses to AE (payments) 2,09,76,202 3.6 The taxpayer has carried out the economic analysis in search for comparables. The taxpayer has used Prowess and Capitaline Plus data base in search for comparable companies. For the software development services, after applying certain filters, the taxpayer using TNMM as MAM has short-listed 23 comparables with arithmetic mean PLI (OP/OC) was computed at 12.55%. For the transactions relating to reimbursement of expenses paid, no TP study has been carried out. Accordingly, the taxpayer holds that the transactions are within the arm's length. 3.7 On going through the TP document, the TPO noted that the method of the search process suffers from defects which resulted in selection of inappropriate comparables and rejection of compa....
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.... Total shortfall being the adjustment u/s 92CA Rs. 14,38,86,457 3.10 Accordingly, the TPO who passed an order u/s 92CA(3) of the Act on 28/10/2011, recommended adjustment of Rs. 14,38,86,457/-. The same was incorporated by the AO in the draft assessment order. Assessee preferred a petition before the Dispute Resolution Panel (DR) raising various objections. 4. DRP has given partial relief to the assessee as under: 4.1 The DRP has deleted the company M/s Celestial Biolabs Ltd. from the list of comparables as comparable. He directed that PLI of M/s Softsol India Ltd. and M/s Kals Infomration Systems Ltd. be taken at 25.78% and 30.92% respectively. 4.2 Considering the above findings of DRP, the AO has reduced the adjustment u/s 92CA to Rs. 9,48,05,292/-. 5. As regards the ALP of interest charged on loan transactions with AEs, the DRP observed that the assessee company adopted the methodology of LIBOR being an internationally accepted norm. It is directed that there is no requirement of any change in the interest charged by the assessee from its associated enterprises. Therefore, the transfer pricing adjustment on interest charged on loan transactions with....
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.... transactions of the Appellant for determining the ALP. Information obtained under section 133(6) 5. a) Using information/ documents obtained by exercising powers u/ s 133(6) of the Act which are not available in public domain; and b) Further not providing any opportunity to Appellant to crossexamine the same. Use of additional filters 6. Inter-alia use of the following additional filters in undertaking the comparative analysis to reject comparable companies having: a) Diminishing revenue/Loss making companies; b) Different financial year-end. c) Onsite revenue in excess of 75%; Selection of companies earning abnormal high margins 7. Selection of companies earning abnormal high margins as comparable to the Appellant; Selection of uncomparables 8. Not undertaking an objective comparative analysis and inter alia selecting the following companies as comparable to the software services of the Appellant: a) Avani Cincom Technologies; b) Bodhtree Consulting Ltd (Seg); - c) E-Zest Solutions Ltd; d) LGS Global Ltd; e) Persistent Systems Ltd; f) Quintegra Solutions L....
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....% p.a. on the guarantee amount without undertaking any economic analysis for the same; and c) No appreciating that the acquisition was in the same business as that the Appellant and accordingly beneficial to the Appellant; Non-discrimination under India - Netherlands tax treaty 16. Discriminating its Netherlands subsidiary in determining the ALP for corporate guaranteed provided vis-a-vis similar corporate guarantee provided by companies on behalf of their Indian subsidiaries resulting in violation of Article Levy of interest under section 234B 17. Imposing interest under section 234B of the Act on the transfer pricing adjustments; 18. Initiating the penalty proceedings u/ s 271(1(C) of the Act. The Appellant craves, to consider each of the above grounds of appeal without prejudice to each other and craves leave to add, alter, delete or modify all or any of the above grounds of appeal." 10. The ld. AR of the assessee submitted that the TPO has adopted various filters to select comparables out of which one of the filters are comparable companies should have at least 75% of its revenue from the software development services considering ....
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....re allowed for statistical purposes. 13. Ground Nos. 2, 3, 7 & 14 are not pressed at the time of hearing before us and the same are dismissed as not pressed. 14. As regards the issue of reimbursement of income and expenditure, we find that this issue is squarely covered by the decision of the coordinate bench of this Tribunal in assessee's own case for AY 2007-08 in ITA No. 1903/Hyd/2011, wherein the coordinate bench has held as under: "10. We have heard the parties and perused the material on record. On perusal of the TP order it is to be seen that in para 2.4.1 the TPO has admitted that the assessee has submitted segmental financials separately in respect of AE and non-AE transactions. As per the aforesaid segmental financials (reproduced at page 4 of TP order), the margin in respect of transactions with AEs is 39.26% as against margin of 6.30% in respect of non AE transactions. Therefore, when segmental details have been furnished by the assessee the TPO should have considered them properly instead of rejecting them with broad and sweeping allegations. It seems, the TPO has not properly allocated the segmental expenditures. If the bad debts etc. are not related to....
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....this Tribunal while considering similar argument advanced on behalf of the assessee by placing reliance on the decision of the Four Soft Ltd.(supra), held as under: "15.2 After hearing the rival submissions we feel that Assessing Officer will have to follow the decision of the ITAT Hyderabad or the amended provision of the Act in this regard. If the Finance Bill of 2012 is passed by the Parliament amending the provisions of section 92B, with effect from 1st April, 2002, he will have to ignore the decision of the ITAT Hyderabad. In case section 92B is not amended with retrospective effect, he should grant relief to the appellant." 25.4 In the aforesaid view of the matter, we agree with the TPO that ALP of the corporate guarantee has to be determined as it falls within the scope and ambit of an international transaction after the retrospective amendment to section 92B. However, it appears that the TPO has applied the rate of 3.75%, which is applicable to bank guarantee issued by the bank. As the corporate guarantee is not in the nature of bank guarantee, the rate applicable to bank guarantee provided by the bank cannot be applied to corporate guarantee which is prov....