TaxTMI 
TaxTMI 
2022 (1) TMI 1147
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....chmarking the international transactions entered into by the assessee with its Associated Enterprise (AE). The factual background under which the aforesaid issue arises for consideration is that the assessee rendered Information Technology enabled Services [ITeS] to its AEs and therefore the price that the assessee received in rendering such services has to satisfy the arm's length price (ALP) test as laid down u/s. 92 of the Income-tax Act, 1961 [the Act]. The TPO to whom reference was made by the AO under the provisions of section 92 of the Act for determination of the ALP passed an order dated 15.12.2006 in which he determined the ALP of the international transactions by selecting the following comparable companies:- Sl. No. Name Operative Cost Operative Revenue Operative Profit Operative Profit/Cost 1. Vishal Information Technologies Ltd. 9.37 13.88 4.51 48.13% 2. Wipro BPO Ltd. 322.3 430.31 108.01 33.51% 3. Tricom India Ltd. 6.34 9.24 2.9 45.74% 4. Fortune Infotech Ltd. 8.08 11.38 3.3 40.84% 5. Spanco Telesystems & Solutions Ltd. 10.32 15.44 4.57 40.1% 6. Ultramari....
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....going back and forward from the AY 2004-05 till the AY 2010- 11, the appellant requested to adopt the internal comparable in un-controlled transaction as against an external comparable for the current year. In view of the above, it is observed from the agreed facts, that the seryices rendered to Non-AEs are similar to the services that were rendered to its AEs. Hence, respectfully following the decision of the jurisdictional Hon'ble ITAT in assessee's own case for AY 2010-11, I am of the view that internal TNMM is appropriate in the present circumstances. Sl No. Mean Margin 1 Mean Margin as per the comparables retained in this Appellate order supra 21.93% 2 Internal Margin worked out by appellant 23.00% 3 AE Margin 11.59% Considering the differences of opinion in respect of selection/rejection of the external comparables between the Appellant and the TPO, I am of the view that adopting the internal margin for TP comparability sake seems more appropriate. Considering the alternative ground taken up by the appellant, to accept internal TNMM, for TP comparability, the TPO/AO is directed to compute the Arm's lengt....
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....ervices to Non-AEs similar to the services that were rendered to its AEs. Wherein the margin earned for the Non AE's segment was 12.98%. In the additional ground, the appellant requested to adopt the internal TNMM for the TP purposes alternatively. It has also submitted the orders passed by the ITAT in its own case for the AY 2010-11, wherein the Hon'ble ITAT in IT(TP)A No.324(B)/2015 on page 12 of the order, has directed the TPO to choose the internal comparable in controlled transaction as against an external comparable, relying on the decision of the Co-ordinate Bench in the case of M/s. Mylan Labs Ltd in IT(TP)A 179/Bang/2015 and 214/Bang/2015. As the facts and the business profile remaining unchanged going back and forth from the AY 2004-05 till the AY 2010-11, the appellant requested to adopt the internal comparable in uncontrolled transaction as against an external comparable for the current year. The following table gives the details of the various margins: Sl No. Mean Margin 1 Mean Margin as per the comparables retained in this Appellate order supra 14.73% which is within +/- 5% of appellant margin being 16.49 and 6.49 2 Inte....
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....ost appropriate method for benchmarking the international transaction. v) Whether the Ld CIT(A) ought to have appreciated the fact that the taxpayer has not reported segmental break-up in respect of AE and Non AE's transactions in the audited financials. It is only before the transfer pricing office that a break-up between AE and Non AE segment has been furnished and it is without any key of allocation and supporting evidences in respect of expenses across the segments. Hence the Internal TNMM is not the most appropriate method for benchmarking. vi) Whether on the facts and circumstances of the case, the ld CIT(A) was correct in directing the TPO to adopt internal TNMM method, when the assessee has not raised this issue before the TPO during TP proceedings for arriving at the ALP." AY 2005-06 "Granting an internal margin of 12.98% worked out by the appellant under the TNMM i) Whether the ld. CIT(A) erred in fact and law by directing the TPO to adopt the Internal TNMM as the most appropriate method for benchmarking without appreciating the fact that the revenue earned from the AE is from the international market whereas the revenue ea....
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....7. First we shall adjudicate the Additional grounds. The learned counsel for the assessee submitted that several rulings of the Hon'ble Tribunal, subsequent to the petitioner finalizing its TP study have accepted internal ALP in case the assessee renders similar services to both Associated Enterprises (AE) and non- AE's. The counsel relied on the decision in the case of Mylan Labs Ltd. I(TP)A No.179/Bang/2015 and 214/Bang/2015. 7.1 We find that in IT(TP)A No.214/Bang/2015 and IT(TP)A No.179/Bang/15 in the case of M/s Mylan Labs Ltd. at para-10 it has been held as follows; 10. The TPO had applied external TNMM on entity level and on this issue, the Third Member decision of the Mumbai Bench of the Tribunal in the case of M/s. Technimont ICB Pvt. Ltd. v. Addl. CIT in ITA No.4608/Mum/2010 for AY 2005-06, order dated 17.7.2012 is relevant. In para 10 of the said order, the Tribunal held as under:- "10. Clause (i) of Rule 1OB(e) stipulates that net profit margin from an international transaction with an AE is computed in relation to cost incurred or sales effected or assets employed etc. IT(TP)A Nos.324 (B)/15 & 220(B)15 10 Clause (ii) is material for the prese....
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.... is patent that the various factors having bearing on the quality of output. assets employed, input cost etc. continue to remain by and large same in case of an internal comparable. The effect of difference due to such inherent factors on comparison made with the third parties, gets neutralized when comparison is made with internal comparable. Ex consequenti, it follows that an internal comparable uncontrolled transaction is more noteworthy vis-â-vis its counterpart i.e. external comparable." 11. It has also been brought to our notice that in the subsequent year i.e. AY 2011-12, the TPO has accepted the internal comparability. 12. The ld. DR relied on the order of DRP. 13. We are in conformity and are inclined to follow the decision of the Third Member, ITAT Mumbai Bench in the case of M/s. Tecnimont ICB Private Ltd. (supra) wherein it is held that "........ The underlying object behind computing ALP of an international transaction is to find out the profits which such IT(TP)A Nos.324 (B)/15 & 220(B)15 12 enterprise would have earned if the transaction had been with some third party instead of related party. When the data is available showi....