TaxTMI 
TaxTMI 
2022 (12) TMI 247
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....Appellant while filing its return of income; Adjustments made by the Transfer Pricing Officer ("TPO‟)/AO 2. erred in making an transfer pricing adjustment and thereby making an addition of Rs.93,894,899 to the income of the appellant, on the premise that the international transactions entered by the Appellant with its Associated enterprise (AE) were not at arm‟s length; 3. erred in invoking powers under section 92C(3) of the Act without fulfilling the conditions stated therein and considering the facts and circumstances of the case; 4. erred in disregarding the economic analysis undertaken by the Appellant, without proper justification and conducting a fresh economic analysis for the determination of the arm's length price in connection with the impugned international transactions; 5. failed to appreciate that the Appellant is availing tax holiday u/s 10A of the Act, and hence there is no intention to shit the profit base out of India, which is one of the basic intention of the introduction of transfer pricing provisions; Use of contemporaneous data 6. erred in determining the arm's length margin pri....
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....n 10A unit and non 10A unit in the ratio of their turnovers, thereby reducing the profits eligible for deduction under section 10A of the Act; Reduction of communication expenses from export turnover and but including the same in turnover 15. erred in reducing 50 per cent of the communication expenses amounting to Rs. 6,652,452 from the export turnover on the ground that the same was in connection with the delivery of services outside India; 16. Without prejudice to Ground No. 15, erred in excluding the communication expenses from the export turnover and not excluding the same from total turnover while calculating the deduction under Section 10A of the Act; Depreciation granted on servers considered as 'Computer's as against 'Plant and Machinery‟ 17. erred in granting depreciation by classifying additions to servers amounting to Rs.19,587,053 in relation to the STP unit as 'Computers instead of 'Plant and Machinery and thereby reducing the profits eligible for deduction under Section 10A of the Act; 18. Without prejudice to the Ground No 17. should have on a consistent basis given similar treatment to t....
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....ssessee's appeal, deals with transfer pricing adjustment made by the Transfer Pricing Officer ("TPO‟) / Assessing Officer. During the course of hearing, learned Representatives appearing for both the parties submitted that all the other grounds pertaining to transfer pricing adjustment will be rendered infructuous, in view of decision rendered in respect of ground no. 11, raised in assessee's appeal. Accordingly, we are dealing with ground no. 11, at the outset. 5. The issue arising in ground No. 11, raised in assessee's appeal, is pertaining to selection of profit level indicator ("PLI‟) for benchmarking the international transaction. 6. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is wholly owned subsidiary of Reuters Ltd., U.K. The Reuters group is a leading global provider of news, financial information, and technology solutions to the world's media, financial institutions, businesses and individuals. Assessee distributes Reuters products within the territory of India. During the year under consideration, assessee provided IT Enabled Services to its associated enterprises. For the relevant assessment yea....
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....tly argued that Rule 10B(1)(e) does not permit the adoption of Cash profit. He accentuated on that this Rule provides for taking only the net profit in numerator with varying denominators whose selection depends upon the facts and circumstances of each case. It was, therefore, urged that the adoption of Cash profit as numerator in the PLI should not be allowed. In the opposition, the learned Counsel for the assessee brought to our attention the order passed by the TPO in assessee's own case for the assessment year 2007-2008 accepting Cash profit / Operating cost as the PLI Similar position was demonstrated in respect of the order passed by the TPO for assessment year 2008-2009 also. 6. The further contention of the learned Departmental Representative that the principle of res judicata is not applicable in case of different years, is no doubt correct. Since the learned CIT(A) has allowed the claim of exclusion of depreciation by considering the fact that in subsequent assessment year Le. 2007-2008 TPO has accepted the same, therefore, the principle of consistency cannot be ignored. Here is a case in which the TPO has himself accepted the ratio of Cash profit / Operating....
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....he TPO for the subsequent years i.e. A.Y. 2007-08 and 2008-09 cannot be the basis to adopt it for the subject assessment year. This on the ground that the principle of res judicata is inapplicable to tax matters. (b) We find that before the Tribunal, the Revenue contended that the adoption of ratio of cash profit to operating cost is not permissible under the TNMM method. In the above context, the impugned order observed that the ratio of cash profit operating cost in application of the TNMM method was infact accepted by the TPO itself for Assessment Years 2007-08 and 2008-09. Thus it is an acceptable ratio while applying the TNMM method. In any case on facts as obtained from the remand report of the TPO, the Authorities under the Act i.e. the CIT(A) as well as the Tribunal have for the subject assessment year found that the ratio of cash profits to operating cost is appropriate to determine the ALP." 11. We also find that even TPO has also accepted cash profit/cost as PLI for benchmarking the international transaction pertaining to ITeS in assessment years 2007-08 and 2008-09, in assessee's own case. 12. The learned DR could not show us any reason to deviat....
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....he expenses which are not allocated to the STP unit were those expenses, which were not allocated to the operations of the STP unit. The learned AR also submitted that the communication expenses incurred by the assessee pertains to the communication lines used by the assessee for transmission of information products to its customers and in relation to activities carried out in non-STP unit. Further, the foreign exchange loss is in relation to the non-STP unit. The auditor's remuneration has already been allocated amongst both the units. 18. On the other hand, learned DR vehemently relied upon the orders passed by the lower authorities. 19. We have considered the rival submissions and perused the material available on record. In the present case, assessee has non-STP units at Delhi, Mumbai and Calcutta, while its STP unit is in Bangalore. It is the plea of the assessee that expenses having allocated between the STP unit and non-STP unit on the respective cost centres of both the units. It is also the plea of the assessee that impugned expenditure is pertaining to places where assessee has no STP unit. We find that the lower authorities on the basis that the functions performed....
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....urse of hearing. Accordingly, same is dismissed as not pressed. 25. The issue arising in ground no. 18, raised in assessee's appeal, is pertaining to consideration of servers as 'computers' instead of plant and machinery for the non-STP unit. 26. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the course of assessment proceedings, it was observed from the details of addition to fixed assets that many items, which are in nature of computers, such as servers, were treated as plant and machinery by the assessee for which depreciation is chargeable at 15%. The Assessing Officer observed that following such an approach in case of STP unit, profits are inflated to the extent depreciation was short claimed and therefore, depreciation on servers is chargeable at 60% by considering the same in the category of 'computers'. During the assessment proceedings, assessee submitted that similar treatment is to be given to the servers shown in the non-STP unit also. The Assessing Officer denied the aforesaid claim of the assessee on the basis that no such servers have been added to the fixed assets of non-STP unit. The learned DRP vide direction....
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....ival submissions and perused the material available on record. Since, the issue is regarding the correct computation of deduction under section 10A of the Act and regarding same assessee's rectification application under section 154 of the Act is still pending, therefore, we deem it appropriate to remand this issue to the file of Assessing Officer for necessary adjudication after consideration of all the details. Needless to mention that no order shall be passed without granting opportunity of hearing to the assessee. As a result, ground no. 19 raised in assessee's appeal is allowed for statistical purpose. 32. The issue arising in grounds no. 20 and 21, raised in assessee's appeal, is pertaining to disallowance of expenditure, inter-alia, in the nature of training, office renovation, office equipment and property maintenance under section 40(a)(ia) of the Act. 33. The brief facts of the case pertaining to this issue, as emanating from the record, are: The Assessing Officer, inter-alia, disallowed various expenditures incurred by the assessee under section 40(a)(ia) of the Act for non-deduction of tax at source while making the payment. The learned DRP, inter-alia, rejected t....