TaxTMI 
TaxTMI 
2017 (4) TMI 1627
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.... failed to appreciate that at the time of preparation of the TP documentation for March 2003, contemporaneous data for a financial year 2002-03 was not available in the data base (Prowess & Capitaline) for some of the companies. 2b) the ld.CIT(A) and the ld. TPO ought to have appreciated that the appellant in its transfer pricing (TP) documentation had screened 707 companies engaged in the provisions of software development services based on systematic criteria i.e. functional difference, absence of foreign exchange earnings, significant related party transactions etc. However, the ld CIT(A) has cherry picked certain comparables having huge margins with a sole intention of making adjustments. 2c) the ld. CIT(A) has disregarded the submission made with regard to the use of contemporaneous data for the following three comparables * ADCC Research and computing Centre ltd. * Bodhtree Consulting Ltd * Onward Technologies 2d) the ld. CIT(A) and the ld. TPO erred in not applying multiple year/prior year data for comparable companies while determining arm's length price. 2e) the ld. CIT(A) and the ld. TPO erred in rejecting the set of filters applied by the appellant in the T....
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....nted on the rate of interest in his order. II Corporate Tax Denial of deduction under section 10A on interest and miscellaneous income. 1.1 The ld. CIT(A)-IV, Bangalore erred in confirming the denial of deduction u/s 10A of the IT Act on interest and miscellaneous income earned by the appellant. 1.2 The ld. CIT(A) failed to appreciate the fact that the interest income had arisen on account of short term investment of surplus funds lying with the appellant. The ld CIT(A) has erred in not appreciating the fact that the interest income has a direct nexus with the profits o the business and accordingly, is eligible for deduction under the provisions of sec.10A of the Act. The Appellant craves leave to add, to alter or amend all or any of the afore-stated grounds of appeal. For the above and any other grounds, which may be raised at the time of hearing, it is prayed that necessary relief may be provided". 3. The grounds raised by the revenue are as under; "1. The order of the CIT(A) is opposed to aw and the facts and circumstances of the case. 2. The CIT(A) erred in deleting the adjustment made on account of Employee Stock Option Plan on the ground that the expenditu....
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....of the assessee in respect of TP issues, ld. AR of the assessee submitted that as per page-9 of the TPO's order, it can be seen that from the list of 13 comparables selected by him, comparable no. 1 M/s ADCC Research & Computing Centre Ltd. is on the basis of data for FY ended on 31, 2002 and similarly, for the comparable company no. 2 M/s Bodhtree Consulting Ltd., the data considered are for FY ended on 30-06-2002 and similarly, for comparable company no. 8 i.e. M/s Onward Technologies Ltd., the data considered by the TPO is for FY ended 30-06-2002 and we are concerned with assessment year 2003-04 i.e. For FY ended on 31-03-2003. Thereafter, he has drawn our attention to para-8 of the same order of TPO on the same page, where it is stated by the TPO that for M/s Cherry Soft Technologies Ltd., data is not available for FY: 2002-03 and therefore, not included in the list as comparable. He submitted that having excluded one company i.e. M/s Cherry Soft Technologies Ltd. (Supra) on this basis that the data for this company is not for FY: 2002-03, the TPO was not justified in including three companies on the basis of data for different year ending and not for FY ended 2002-03. At this ....
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....copy submitted by him), in para-24.2 of this Tribunal order, it was observed by the Tribunal that this company is alleged to have indulged in malpractice in the subsequent periods. He submitted that if for assessment year 2005-06, the Tribunal says that this company is engaged in malpractice in subsequent period, then for assessment year 2003-04, this cannot be a basis to conclude that this company is engaged in malpractice and exclude on that basis. 8. In the rejoinder, it is submitted by the ld. AR of the assessee that the Tribunal order rendered in the case of M/s Sap Labs India Pvt. Ltd (Supra) is for the same year i.e. assessment year 2003-04 and therefore, this issue should be decided in favour of the assessee by following various Tribunal orders cited by him which are in favour of the assessee and regarding the one Tribunal order cited by ld. DR of the revenue as per which after assessment year 2005-06, this company was engaged in malpractice, he submitted that this Tribunal order is without considering various earlier Tribunal orders and therefore, the same should be considered as per-incurium 9. We have considered rival submissions. Regarding TP issues, we feel it proper....
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....t is admitted position that Satyam company's statement of affairs were falsified during the period 2002-08 and it became publicly known in January, 2009. In the absence of any ground regarding exclusion of Satyam Computer from the list of final comparables and in the absence of any written submissions in that regard before the Tribunal, we feel that this finding of the Tribunal that Satyam Computers' statement of affairs were falsified during the period 2002-08 is without any valid basis. In addition to that, the finding of the Tribunal in the case of NTT Data Global Delivery 'Services Ltd. (Supra), to the effect that this company is alleged to have involved malpractice only in the subsequent period and this finding is given by the Tribunal while deciding the appeal of the assessee for assessment year 2005-06. In view of these facts, we feel it proper that this issue regarding Satyam Computers should also be decided by AO/TPO afresh after finding out the factual aspect as to whether the accounts for current year i.e. FY: 2002-03 were also falsified by that company i.e. Satyam Computers and if the assessee can establish that the accounts of that company were falsified in FY: 2002-03....
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....and the consideration received by sale of import entitlement is to be construed as income of the business of the undertaking. There is a direct nexus between this income and the income of the business of the undertaking. Though, it does not par take the character of a profit and gains from the sale of an article, it is the income, which is derived from the consideration realized by export of article. In view of the definition of income from Profo9ts and gains incorporated in sub-section (4), the assessee is entitled to the benefit of exemption of the said amount as contemplated u/s 10B of the Act. Therefore, the Tribunal was justified in extending the benefit to the aforesaid amounts also. We do not find any merit in these appeals. Therefore, the first substantial question of law raised in ITA no. 428/2007 is answered in favour of the revenue and against the assessee and the first substantial question of law in ITA no. 447/2007 is answered in favour of the assessee and against the revenue. In the light of the aforesaid findings, the second substantial question of law in both these appeals do not arise for consideration". 15. From the above Para, it is seen that in that case, it ....
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....sessee company and therefore, no addition is justified in respect of this notional adjustment made by the AO. In this regard, he placed reliance on the following judicial pronouncements:- a) Haworth India Pvt. Ltd Vs DCIT 11 ITR(T) 757(Del.) b) Mitsubishi Corpn.India Pvt. Ltd. Vs DCIT 44 ITR 416 c) Marubeni Itochu Steel India Pvt. Ltd. Vs DCIT 156 ITD 62- (Del.Trib.) d) Li and Fung India Pvt. Ltd. Vs DCIT 361 ITR (Del.). 19. He has raised one alternative contention that even if some addition is called for on this account then also ESOP cannot be included in the operating cost and in support of his contention; he placed reliance on the following judicial pronouncements; a) HOV Services Ltd Vs JCIT 73 Taxmann.com 311(Pune Trib.) b) ICC India Pvt.Ltd.V DCIT 71 Taxmann.com 64 (Del.Tib.) c) Capegemini India Pvt. Ltd. Vs ACIT 27 ITR 74 (Mum.) 20. We have considered the rival submissions. We find that this issue was decided by ld. CIT (A) as per para-12.7.1 to 12.7.4 and for the sake of ready reference, these paras are reproduced below:- "12.7.1 The assessee aggrieved over an adjustment of Rs. 2 Crores made to costs by the TPO on account of employees stock option p....
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....a)_ Pvt. Ltd. Vs DCIT (11 ITR (Tri.) 757). The Bench observed as under; "We have carefully considered the rival submissions on this issue. We find no force in the contention of the ld. AR that such expenses were required to be excluded. The reason for not accepting such argument s that what are operational expenses are the expenses which are incurred to earn that income. It is not even the case of the assessee that those expenses did not relate to manufacturing segment of the assessee out of which the revenue earned by the assessee. If the expenses have nexus with the revenue then they are to be considered as operational expenses and they cannot be excluded simply for the reason that the date of occurrence of the revenue is later and expenses have been incurred prior to that. Therefore, ground no. 5 of the assessee is rejected". 12.7.4 In the instant case, I see no justification for the TPO to include a sum that has not been charged/claimed/paid to the value of operating cost. The arrangement between the AE and the assessee company is very clear in as much as the AE provided certain assets as well as service free of cost to the assessee company. The assessee company....
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....ost. Hence, we have to consider only the first set of judgments noted above. The first judgment is the Tribunal order rendered in the case of Haworth India Pvt. Ltd (Supra). In this case, the facts and dispute were different. In that case, the commission expenses were suo motu disallowed by the assessee in the revised return and the assessee also had paid the due taxes on that. Under these facts, it was held that the same cannot be considered as part of operating cost. These facts of that case also very important that the major component of receipt of international transactions of the assessee was commission income which amounts to Rs. 1539.33 lakhs out of total operating income of Rs. 1773.98 lakhs and it is observed by the Tribunal that it cannot be said that commission expenses which had been suo moto disallowed by the assesee were not claimed as operating expenses while computing the ALP. Therefore, it was held that if they are subsequently, disallowed suo moto by the assessee in the revised return, they are required to be excluded from the operating cost. In view of these facts of that case, this Tribunal order is not relevant in the present case because in the present case, t....
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.... goods sourced by third party customers from Indian exporters/vendors to compute the assessee's profit is unjustified. In the present case, this is not an allegation of the TPO that cost of goods sourced from third party vendors is to be included in total cost and profit margin should be applied to such enhanced cost. In the present case, the allegation is this that the assessee had suppressed its operating cost by availing various services from its AE free of cost. Unless this allegation of the TPO is proved to be wrong, the assessee has no case because if the assessee has suppressed its cost by obtaining certain services from its AE free of cost then, the cost of such services has to be included in the cost base of the assessee to work out the cost plus margin of the assessee. In view of this difference in facts of that case and the facts of the present case, this judgment of Hon'ble Delhi High Court is also not applicable in the present case. 26. As per above discussion, we have seen that none of the judgments relied by the ld. AR of the assessee is applicable in the present case because of difference in facts. Accordingly, ground no. 2 & 3 of the revenue's appeal are allowed f....