AI Drafter 
TaxTMI 
TaxTMI 
2020 (9) TMI 575
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....aws and regulations that are relevant to debt collection activities. Further, the assessee also renders services for the bankruptcy vertical of Encore US and undertakes certain tasks pertaining to bankruptcy management services rendered by Encore US. 4. International transactions reported by the assessee are as under: i) Provision of ITES Rs. 6,53,19,30,694/- ii) Purchase of fixed asset and other goods Rs. 38,63,381/- 5. The assessee has used TNMM with OP/TC as the PLI and has arrived at a set of 7 companies under ITES segment with an average margin of 7.41%. The assessee workedout its own margin at 21.87%. Based on the analysis, international transaction was reported at arm's length. 6. During the transfer pricing assessment proceedings, the Assessing Officer rejected the following comparables used by the assessee: 1. R System International Limited - for the reason that this company is having financial year ending other than March. 2. Aditya Birla Minacs Worldwide Ltd. - This company was found having significant segment RPT at 33.5% and also failed the export sales filter. 3. CG VAK Software and Exports Ltd - This compan....
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....s are before us. 13. Before us, the counsel for the assessee argued for the exclusion of TCS E-Serve Ltd and TCS E-Serve International Ltd. 14. The learned counsel for the assessee vehemently stated that both these companies are functionally dissimilar and are part of Tata group and because of that, these companies have huge brand value having been associated with Tata brand. The learned counsel for the assessee further stated that these companies bear high risks and are functionally dissimilar as they are engaged in software testing, verification and validation of software. 15. Per contra, the ld. DR strongly supported the findings of the lower authorities. The ld. DR vehemently stated that the appellant is also part of a global group and its AEs have presence in 15 countries and have huge brand value, which is comparable to these comparables. It is the say of the ld. DR that the parent company of the assessee are handling debt accounts of more than 7 million consumers with large number of employees, around 8300, across the globe in various countries. The risks taken by the parent company are substantial as the assessee takes over the doubtful debt account, which are h....
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....E. 31. Arm's length price determination, in respect of an international transaction has necessarily to confirm to the mandate of Rule 10B. In this case, the method followed for determining the arm's length price of the international transaction adopted by the assessee and the revenue is the TNMM. The comparability of an international transaction with an uncontrolled transaction has, in such cases, to be seen with reference to the functions performed, taking into account the assets employed or to be employed and the risks assumed by the respective parties to the transaction as per rule 10B(2)(b). The specific characteristics of the property transferred or services provided (contemplated by Rule 10B(2)(a)) in either transactions may be secondary, for judging comparability of an international transaction in the TNMM, because the price charged or paid for property transferred or services provided and the direct and indirect cost of production incurred by the enterprise in respect of property transferred or services provided go into reckoning comparability analysis in the transaction methods, i.e. the comparable uncontrolled price, resale price and cost plus wh....
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....0B (3) on the other hand, indicates the approach to be adopted where differences and dissimilarities are apparent. Therefore, the mere circumstance of a company - otherwise conforming to the stipulations in Rule 10B (2) in all details, presenting a peculiar feature - such as a huge profit or a huge turnover, ipso facto does not lead to its exclusion. The TPO, first, has to be satisfied that such differences do not "materially affect the price...or cost"; secondly, an attempt to 11 ITA 532/2019 Page 12 of 21 make reasonable adjustment to eliminate the material effect of such differences has to be made. 34. The Court is also aware of the factors mentioned in Rule 10B (2), i.e. characteristics of the service provided, functions performed taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions; contractual terms of the transactions indicating how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions; conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws....
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....he purpose for which previous years data may be considered is - analysing the comparability of an uncontrolled transaction with an international transaction. It does not prescribe that once an uncontrolled transaction has been held to be a "comparable‟, in order to obviate an apparent volatility in the data, the arithmetic mean of three years (the assessment year in question and two previous years) may be taken. That would amount to assigning equal weight to the data for each of the three years, which is against the mandate of Rule 10B(4). The use of the word "shall" in Rule 10B(4) and, noticeably, "may" in the proviso, implies that the relevant assessment year‟s data is of primary consideration, as opposed to previous years‟ data. 39. This Court proceeds on the basis that there is sufficient guidance and clarity in Rule 10B on the principles applicable for determination of ALP. These include the various factors to be taken into consideration, approach to be adopted (functions performed, taking into account risks borne and assets employed, size of the market, the nature of competition, terms of labour, employment and cost of capital, geographical location....
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.... by TNMM. Rule 10B (2) of the Income Tax Rules, 1962 also clearly indicates that the comparability of controlled transactions would be judged with reference to the factors as indicated therein. Clause (a) and (b) of Rule 10B (2) expressly indicate that the specific characteristics of the services provided and the functions performed would be factors for considering the comparability of uncontrolled transactions with controlled transactions. ...... 30. As indicated above, in order to determine the ALP in relation to a controlled transaction, the analysis must include comparables which are similar in all aspects that have a material bearing on their profitability. Paragraph 1.36 of the "OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations" published in 2010 (hereafter 'OECD Guidelines') indicates the "comparability factors" which are important while considering the comparability of uncontrolled transactions/entities with the controlled transactions/entities. Sub-rule (2) of rule JOB of the Income Tax Rules, 1962 also mandates that the comparability of international transactions with uncontrolled transactions would be judged with refe....
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....ual to or in excess of 75% of their business. The ITAT did that on the basis that Wipro 16 ITA 532/2019 Page 17 of 21 Ltd. had a significant brand presence in the market and could, therefore, not be deemed to be a comparable entity. This Court explained the RPT filter as under: "The RPT filter, is relevant and fits in with the overall scheme of a transfer pricing study which is premised primarily on comparing light entities having similar if not identical functions. Therefore, if a particular entity predominantly has transactions with its associate enterprise - in excess of a certain threshold percentage, its profit making capacity may resulted in a distorted picture, either way." 21. A reference may next be made to the decision in The Principal Commissioner of Income Tax-3 v. Evalueserve Sez (Gurgaon) Pvt. Ltd. (supra) where a reference is made to the earlier decision to the BC Management Services Pvt. Ltd. (supra). This decision dealt with the exclusion of three specific comparables, which have also involved in the present case namely M/s.TCS E-Serve Ltd., M/s.TCS E-Serve International Ltd. and M/s. Infosys BPO Ltd. This Court upheld the exclusion of all three comparable....
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....he course of audit, it was brought to the notice of the assessee that certain invoices raised in subsequent year pertains to F.Y. 2009-10 and since income has accrued in 2009-10, the same should be incorporated in the income of FY 2009-10. 23. Since the Assessing Officer has denied claim of deduction under section 10A of the Act, he did not consider this claim of the assessee. However, before the ld. CITA the assessee raised this issue of claiming deduction under section 10A of the Act on two additional invoices which were raised during the year under consideration. Claim was denied by the ld. CIT[A] who was of the opinion that the appellant has raised these invoices after closure of books of account and has not revised its books of account and only through computation of income claim has been made and confirmed the findings of the Assessing Officer by holding that any income accruing to separate year on account of error in accounting entries cannot be revised without changing the books of account. The ld. CIT(A) further observed that the assessee has not complied with the provisions of the Act and has not furnished any certificates in support of its claim. 24. Before us t....
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....dvancing of staff loans by such special category of assessees covered under Section 10-A or 10-B of the Act is integral part of their export business activity and a business decision taken in view of the commercial expediency and the interest income earned incidentally cannot be de-linked from its profits and gains derived by the Undertaking engaged in the export of Articles as envisaged under Section 10-A or Section 10-B of the Act and cannot be taxed separately under Section 56 of the Act." 30. In light of the aforementioned decision of the Hon'ble High Court, we direct the Assessing Officer to allow claim of deduction under section 10A of the Act on interest income. No details of miscellaneous income has been given and, therefore, we are not in a position to examine the nexus with the business income of the assessee. Therefore, the claim of deduction for Rs. 30,451/- is denied, 31. In the result the appeal of the assessee is partly allowed. 32. Coming to the revenue's appeal in ITA No. 3765/DEL/2017, the grounds relating to Transfer Pricing relates to exclusion of Accentia Technology Pvt Ltd and Infosys BPO Ltd by the ld. CIT(A) 33. Before us, the ld. DR reite....
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....s rightly considered the facts of the case in true perspective and allowed the claim and, therefore, we do not any reason to interfere with the findings of the ld. CIT(A). This ground is accordingly dismissed. 40. In the result the appeal of the revenue is dismissed. 41. Before parting, the assessee by way of additional ground has claimed deduction of cess on the ground that the same is not covered under section 40(a)(ii) of the Act. 42. Though this claim was not made before the lower authorities, but being a statutory claim, we admit the additional ground. 43. The Hon'ble High Court of Bombay at Panaji bench in the case of Sesa Goa 423 ITR 426 had the occasion to consider a similar issue and has held as under: "In relation to taxing statute, certain principles of interpretation are quite well settled. In New Shorrock Spinning and Manufacturing Co. Ltd. Vs Raval, 37 ITR 41 (Bom.), it is held that one safe and infallible principle, which is of guidance in these matters, is to read the words through and see if the rule is clearly stated. If the language employed gives the rule in words of sufficient clarity and precision, nothing more requires to be done. Ind....