TaxTMI 
TaxTMI 
2017 (2) TMI 1446
X X X X Extracts X X X X
X X X X Extracts X X X X
....passed for the sake of convenience and brevity. 3. Brief facts of the assessee company of M/s Development Consultants Private Limited (hereinafter referred to as 'DCPL'), are that the assessee is a closely held private limited company and parent company of the Development consultants (DC) group. The DCPL has subsidiaries in the Bahamas and United States of America ( New York and Philadelphia). Moreover, the DCPL has a 100% subsidiary in India- Data Core (India) Private Limited. The DCPL is the focal point for all design engineering activities. It directly executes all domestic projects and Group operations assigned to it. The DCPL is an India-based, transactional Consultig Engineering Group. It renders concept-through completion services covering planning, technology selection and development, design engineering, procurement assistance, construction supervision and project management services, for implementing diverse core-sector and high technology projects around the world. The DCPL has a wholly owned subsidiary in the Bahamas, M/s Development Consultant International Limited (DCIL). The DCIL in turn has a wholly owned subsidiary in the United States of America, M/s AMDC In....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... The assessee used the internal Cost Plus Method (CPM) to justify this class of international transaction. The assessee provides such services not only to its AE's but also to third parties. The margins (Gross Profit/Direct & Indirect cost of production or 'GP/DICOP') earned by the assessee in transactions with DClL & TKC was compared with margins earned by it in transactions with third parties. The results of analysis have been provided in the table below: DESCRIPTIOIN TKC DCIL OTHERS Design Design Design Income 45.32 280.54 324.52 Less:Salary 3.57 27.28 56.37 Less Direct travel 35.90 52.64 Less Direct Cost Total direct & indirect cost 3.57 63.18 109.01 Gross Margin 41.75 217.36 215.51 GP/DICOP 1169.47% 344.03% 197.70% Less:Overheads 5.20 39.72 82.07 Operating profit 36.55 177.64 133.44 Total Cost 8.77 102.90 191.08 OP/TC 416.76% 172.63% 69.83% The results of the analysis show that the arm's length GP /DICOP earned by the assessee i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 275.54 lakhs. Since the Revenue is not an appeal before us for this arithmetical error therefore, we just highlighted this error as a passing reference and it does not have any impact on our adjudication process, because the issue before us, in this appeal, is to decide whether Cost Plus method (CPM) or Resale Price Method (RPM) would be applicable to the assessee. Based on the order of the Transfer Pricing Officer U/s 92CA(3) of the I.T. Act, the Assessing Officer made the addition of Rs. 275.54 lakhs. 6. Aggrieved from the order of the Assessing Officer, the assessee filed an appeal before the ld. Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals), observed that since the assessee company was engaged in similar/identical business activities with its same AEs in the assessment years 2003-04 & 2004-05 and the facts of the case were duly covered, in assessee`s own case, in the appeal no. ITA Nos. 79 & 80/Kol/2008, Hon'ble ITAT 'A' Bench, Kolkata for the assessment years 2003-2004 & 20042005 and the AO had not brought on record any new facts, based on the ITAT judgement. Accordingly, the ld CIT(A) directed to the AO to compute ALP on a t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....,69,984)/4,69,984]* 1 00= 159.67 (b)Thereafter, the ld CIT(A) computed the ALP in respect of transactions with the DClL based on Re-Sale Price Method (RPM ) as under: Sale Value of the assessee (Cost of sale for DClL) 280.54 lacs Add: Gross margin earned by the DClL on sale of such services @159.67% on cost 447.94 lacs Sales (Cost + Gross margin) 728.48 lacs GP/Sales 61.49% Arm's Length GP/Sales 25.69% Arm's Length GP/Sale considering 5% 26.97% Arm's Length Gross margin 196.47 lacs Arm's Length cost of sale 532.01 lacs Deficit in fees paid to the assessee by DCIL 251.47 lacs ( 532.01 -280.54) This way, the ld.CIT (A) calculated the ALP at Rs. 251.47 lakhs and he, accordingly, directed the AO to calculate the ALP at Rs. 251.47 lakhs, in respect of international transactions with DClL. The ld.CIT(A), also sated that the ALP determined in respect of the international transactions of the assessee with AE's namely The Kuljian Corporation, USA and Datacore System INC, USA by the assessee is correct. However, the ALP det....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee company and Development Consultant International Ltd., contained in the "Analysis of Transfer Pricing Arrangement with Associated Enterprises - Fiscal year ending 31st March, 2005", which was filed before the Ld. Transfer Pricing Officer during the course of assessment proceeding under Section 92CA (3) of the Income-tax Act. 5. That the assessee company craves leave to add to and/or alter, amend, modify or rescind the grounds hereinabove before or at the hearing of this appeal. 8. The grounds of appeal taken by the Revenue and the cross objections raised by the assessee relate to the same issue, that is, whether cost plus method (CPM) or Resale Price Method ( RPM) should be applied to determine the Arm`s Length Price of transactions with DCIL. The Solitary grievance of the Revenue is that the cost plus method (CPM) should be applied to determine the Arm`s Length Price (ALP) whereas the solitary grievance of the Assessee is that Re-Sale Price Method (RPM) should be applied to compute the ALP. 8.1 Before us, the Ld DR for the Revenue has submitted that the assessee has himself accepted the Cost Plus Method (CPM) and Transactional Net Margin Method (TNMM) as most a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Travelling 1,056 Total COS 574,655 Gross Profit 645,749 GP/Sales 52.91% The assessee computed the arm's length GP/ Sales of the comparable companies at 25.69% in his analysis. The arm's length GP/ Sales of the comparable companies at 25.69% is lower than the GP/Sales of DClL for the year ended 31st December 2004 of 52.91% explained in the table above, which clearly indicates that DClL has retained more than the arm's length margin. However, the TPO while passing the order for the assessment year under consideration chose to ignore order of Hon'ble Tribunal and following its own approach which is not justifiable. The ld AR for the assessee mentioned that verdict of jurisdictional Tribunal is binding on the authorities below i.e. the assessing and the appellant authority as per the judgment of Hon`ble Supreme Court in the case of Union of India vs. Kamalakshmi Finance Limited - AIR 1992 SC 711. The Ld AR for the assessee also pointed out that ld CIT(A) accepted the judgment of the Hon`ble ITAT with some modification and computed the ALP in respect of transactions with t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ified domestic transaction] and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of gross profit margin in the open market; (v) the adjusted price arrived at under sub-clause (iv) is taken to be an arm's length price in respect of the purchase of the property or obtaining of the services by the enterprise from the associated enterprise;" The ld AR for the assessee pointed out that ALP computed by the CIT (A) by following contemporary resale price method is not in accordance with Rule 10B (1) (b) of the Income Tax Rules. The said Rule 10B (1) (b) defines the Resale Price Method, which is applicable to the assessee under consideration but the ld CIT (A) ignored it and applied his own method which is not applicable in Indian scenario. Therefore, ld CIT(A) has deviated from the accepted method in India. Hence, ld AR for the assessee has requested the Bench to direct the ld.CIT(A) to follow the method accepted by the Hon`ble Tribunal in assessee`s own case (supra). 8.3. Having heard the rival submissions, perused the material available on record, we are of the view t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....th cost price of DCIL for December ending and determine the gross profitability for March ending to compute the value of adjustment of Rs. 251.47 lakhs, as follows: Margin of the DClL is computed by the CIT(A), as under: Sale of DCIL US $ 12,20,404 Cost of sale (sub contracting fees) US $ 4,69,984 GP/Cost = [( 12,20.404-4,69,984)/4,69,984]* 1 00= 159.67 Adjustment of Rs. 251.47 lakhs computed by the ld CIT(A), as under Sale Value of the assessee (Cost of sale for DClL) 280.54 lacs Add: Gross margin earned by the DClL on sale of such 447.94 lacs services @159.67% on cost Sales (Cost + Gross margin) 728.48 lacs GP/Sales 61.49% Arm's Length GP/Sales 25.69% Arm's Length GP/Sale considering 5% 26.97% Arm's Length Gross margin 196.47 lacs Arm's Length cost of sale 532.01 lacs Deficit in fees paid to the assessee by DCIL 251.47 lacs ( 532.01 -280.54) We observed that the above cited method adopted by the ld CIT(A), to compute the ALP is not accepted because of the fol....