TaxTMI 
TaxTMI 
2022 (8) TMI 1498
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.... the Dispute Resolution Panel - 1 ("Learned Panel" or "Learned DRP") erred in upholding the rejection of Transfer Pricing ('TP') documentation by the Deputy Commissioner of Income tax, Transfer Pricing - Range 1(1)(2), Bangalore (Teamed TPO') and in upholding the adjustment to the transfer price of the Appellant in respect of Software Development services (`SWD') & Information Technology enabled services ('ITeS') segments. 3. That on the facts and circumstances of the case, the Learned TPO along with the Learned AO, pursuant to the directions issued by the Learned Panel, erred in rejecting the comparability analysis in the TP documentation undertaken by the Appellant in accordance with the provisions of the Act read with the Income Tax Rules, 1962, (`the Rules') and also erred in rejecting companies functionally akin to the Appellant while performing the comparability analysis. 4. That on the facts and in the circumstances of the case, the Learned Panel and the Learned AO erred in upholding the Learned TPO's approach of determining the arm's length price for the provision of SWD services and ITeS of the Appellant by conducting a....
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....mental) d) Maveric Systems Limited e) InfoMile Technologies Limited f) Evoke Technologies Limited g) Harbinger Systems Private Limited h) Celstream Technologies Private Limited i) Isummation Technologies Private Limited j) Synfosys Business Solutions Limited k) OnjectOne Information Limited l) Care Risk Solutions Private Limited II. IT enabled Services Segment a) Sundaram Business Services Limited b) Informed Technologies India Limited c) ACE Software Exports Limited d) Allsec Technologies Limited e) Jindal Intellicom Private Limited f) Cosmic Global Limited g) Suprawin Technologies Limited h) Cyfuture India Private Limited i) ACE BPO Services Private Limited 11. The Learned TPO has erred in not considering the following comparables which are functionally comparable to the Appellant and pass all the filters as adopted by the Learned TPO - I. Software Development Services Segment a) Yudiz Solutions Private Limited b) E-Zest Solutions Limited c) Benchmark IT Solutions Ind....
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....company had international transactions as per Section 92 of the Income-tax Act, 1961. According to Section 92CA of the Income-tax Act, 1961, the case was referred to the Transfer Pricing Officer in order to determine the Arm's Length Price after obtaining necessary approval. The Ld.TPO observed that the assessee had following international transaction with its AE for the year under consideration: Sl. No Particulars Amount (in INR) 1. Provision for software development services 353,73,66,567 2. Provision of IT enabled services 110,76,89,935 3. Cost reimbursement by Citrix R&D India to Citrix group companies 3,90,30,428 4. Cost reimbursement by Citrix group companies to Citrix R&D India 13,51,19,065 5. Payment of interest on ECB- 3 month LIBOR 76,43,107 6. Payment of interest on ECB- 6 month LIBOR 75,63,742 2.3 The Ld.TPO noted that the assessee used TNMM as the most appropriate method and OP/TC as PLI to compute its margin under SWD and ITES segment. The assessee computed its margin at 15.29% for SWD segment and 13.31% for ITES segment. The assessee used following comparables under both the segments having ....
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....ies whose income was less than Rs. 1 Crore - excluded. 4. Companies whose software development service income is less than 75% of the total operating revenues - excluded. 5. Companies which have more than 25% related party transactions of the sales - excluded. 6. Companies which have export service income less than 75% of the sales - excluded. 7. Companies with employee cost less than 25% of turnover - excluded. 2.5 The assessee furnished following additional comparables during transfer pricing proceedings: SWD Segment: Sl.No. Company Name Weighted Average % OP/OC 1. Harbinger Systems Pvt. Ltd. 15.06% 2. Evoke Technologies Pvt. Ltd. 5.13% 3. Celestream Technologies Pvt. Ltd. 2.66% 4. Isummation Technologies Pvt. Ltd. 3.50% ITES Segment: Sl.No. Company Name Weighted Average % OP/OC 1. Bhilwara Info Technology Limited 9.13% 2. One Touch Solutions India Private Limited 15.57% 3. Microland Ltd. (Seg.) 13.62% 2.6 The Ld.TPO after considering the submissions, shortlisted following comparables under both the segment: SWD Segment: Sl. No Comparable....
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....ty of Karnataka, receipt of placed at page 1159 of the PB. 2.10 The Ld.AO disallowed the claim by holding that the payment lack voluntary act cannot be basis to disallow the deduction. The assessee on receipt of the draft assessment order raised objection before the DRP. The DRP upheld the comparable under the SWD segment, however under ITES segment DRP inclusion three comparables that was submitted by the assessee. 2.11 On receipt of the DRP direction the Ld.AO passed the impugned order by making transfer pricing addition in the hands of the assessee at Rs.59,94,72,979/-. The corporate tax addition proposed in the draft assessment order was also confirmed by the Ld.AO in the final assessment order. Aggrieved by the final assessment order, the assessee filed present appeal before this Tribunal. 3. The Ld.AR at the outset submitted that Ground No.1-3 are general in nature and therefore do not require any adjudication. 4. He submitted that assessee do not wish to press Ground No.6, 8, 10 (g) partly and 10(h) partly. He submitted that in Ground 10(h) assessee do not wish to press inclusion of following comparables: In SWD segment, Harbinger Systems Pvt.Ltd., Sy....
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....nsaction with a transaction of similar nature entered into between unrelated parties, provides as follows: Determination of arm's length price under section 92C . 10B. (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction [or a specified domestic transaction] shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely :--- (a) to (d)............. (e)transactional net margin method, by which,- (i) the net profit margin realised by the enterprise from an international transaction [or a specified domestic transaction] entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by 'the enterprise or having regard to any other relevant base; (ii) the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base; (iii) the net profit margin referred to in sub-clause (ii) arising ....
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....erial effects of such differences. 1. A reading of Rule 10B(1)(e)(iii) of the Rules read with Sec.92CA of the Act, would clearly shows that the net profit margin arising in comparable uncontrolled transactions has to be adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, which could materially affect the amount of net profit margin in the open market. 2. Chapters I and III of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (hereafter the "TPG") contain extensive guidance on comparability analyses for transfer pricing purposes. Guidance on comparability adjustments is found in paragraphs 3.47-3.54 and in the Annex to Chapter III of the TPG. A revised version of this guidance was approved by the Council of the OECD on 22 July 2010. In paragraph 2 of these guidelines it has been explained as to what is comparability adjustment. The guideline explains that wheri applying the arm's length principle, the conditions of a controlled transaction (i.e. a transaction between a taxpayer and an associated enterprise) are generally compared to th....
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....soning is that: • A company will need funding to cover the time gap between the time it invests money (i.e. pays money to supplier) and the time it collects the investment (i.e. collects money from customers) • This time gap is calculated as: the period needed to sell inventories to customers + (plus) the period needed to collect money from customers - (less) the period granted to pay debts to suppliers." 14. Examples of how to work out adjustment on account of working capital adjustment is also given in the said guidelines. The guideline also expresses the difficulty in making working capital adjustment by concluding that the following factors have to be kept in mind (i) The point in time at which the Receivables, Inventory and Payables should be compared between the tested party and the comparables, whether it should be the figures of receivables, inventory and payable at the year end or beginning of the year or average of these figures. (ii) the selection of the appropriate interest rate (or rates) to use. The rate (or rates) should generally be determined by reference to the rate(s) of interest applicable to a commercial enterprise operating i....
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....hat information is insufficient, it is beyond the power of the Assessee to produce the correct information about the comparable companies. The Revenue has on the other hand powers to compel production of the required details from the comparable companies. If that power is not exercised to find out the truth then it is no defence to say that the Assessee has not furnished the required details and on that score deny adjustment on account of working capital differences. Regarding applying the daily balances of inventory, receivables and payables for computing working capital adjustment, the Delhi Bench of ITAT in the case of ITO Vs. E Value Serve.com (2016) 75 taxmann.com 195(Del-Trib) has held that insisting on daily balances of working capital requirements to compute working capital adjustment is not proper as it will be impossible to carry out such exercise and that working capital adjustment has to be based on the opening and closing working capital deployed. The Bench has also observed that that in Transfer Pricing Anal is there is always an element of estimation because it is not an exact science. One has to see that reasonable adjustment is being made so as to bring both compar....
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....international transaction if- (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged to paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences." 18. In such a scenario there would remain no comparable uncontrolled transactions for the purpose of comparison. The transfer pricing exercise would therefore fail. Therefore, in keeping with the OECD guidelines, endeavor should be made to bring in comparable companies for the purpose of broad comparison. Therefore, the working capital adjustment as claimed by the Assessee should be allowed. We hold and direct accordingly." 5.4 In view of the above, we remit the issue to the file of AO/TPO to compute the working capital adjustment after necessary examination in the light of the above observation and after allowing an opportunity of hearing to the assessee. Accordingly this ground stands partly allowed for statistical purpose. 6. Ground No.7, i....
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....Citrix R&D India is responsible for initial / unit testing of the modules / components developed by it, to ensure that the activity undertaken by it meets the specification / requirements as agreed with its AEs. Citrix R&D India provides only a limited assistance to its AEs in carrying out this functionality. ITES segment: Citrix R&D India has provided order processing services to its AEs. Citrix R&D India carries out order processing for applications / products developed by Citrix group entities. Such order processing work undertaken by Citrix R&D India primarily includes the following activities: • Order gathering; • Order processing; and • Order fulfillment Citrix R&D India has entered into an Inter-company Services Agreement (effective as of 1 April 2010) with Citrix group companies for provision of order processing services. Salient features of the Agreement are: • Citrix R&D India to provide order processing services (services relating to processing of orders) to Citrix Group companies • Citrix R&D India will be compensated on a cost plus markup basis where cost would include its internal direct a....
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....routine IT enabled service provider, bearing minimal risks typically borne by service providers operating in these industries. 8. Ground No.9 is in respect of the comparables sought for exclusion under the SWD & ITeS Segment. The Ld.AR submitted that, the assessee seeks exclusion of following comparables under the SWD Segment: • Inteq Software Private LTd, • Larsen & Toubro Infotech Ltd. • Nihilent Technologies Ltd, • Persistent Systems Ltd. • Tata Elxsi Ltd. • Infobeans Technologies Ltd • Aspire Systems (India) Pvt. Ltd. • Infosys Ltd. • Thirdware Solutions Ltd. • Cybage Software Pvt Ltd. 8.1 Inteq Software Pvt. Ltd.: It is submitted that this company is functionally dissimilar to the assessee on various counts and therefore deserves to be rejected. The Ld.AR submitted that, this comparable is functionally not similar with that of assessee, and that, the segmental data is not available in respect of diverse activities carried on by it. He relied on page 1406 & 1445 of the annual report paper book. He thus preyed for this comparable to be exc....
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....pany are different from the routine low end software development services rendered by the assessee as a captive service provider to its AE. The Ld.AR further submitted that, segmental details of such diverse activities carried on by this company are not available. He thus prayed for exclusion of this company from the final list. 8.4 Thirdware Solutions Limited It is submitted that this company is functionally dissimilar to the assessee on various counts and therefore deserves to be rejected. The Ld.AR submitted that, this comparable is functionally not similar with that of assessee, as it is engaged software and consultancy. The Ld.AR submitted that this company has significant competencies in transaction systems, Analytics and Cloud applications. Further, the company has earned revenue from software development, implementation services, application management services, and other related services and from sale the sale of license and subscription for software application, which are not akin to the captive services rendered by the assessee. He placed reliance on page 2499 & 2531 of annual report paper book. The Ld.AR submitted that this company deals in product also and segmen....
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....untries and relied upon the order passed by the ld. TPO/ld. DRP. 16. When we examine profile of L&T from its financials, available at pages 6, 7 & 11 of the paper book, it is into providing application development and maintenance services providing digital solutions such as big data analytics, enterprise computing, cognitive computing, infrastructure management services and enterprise solutions. It has also been awarded and recognized by various forums for providing such niche services in the field of innovation in information technology category, analytics solutions/services etc., explained at page 11 of the paper book. 17. When we examine Notes forming Parts of Accounts at page 116 of the paper book, it is evident that L&T is having two segment accounts, namely, (i) Services Cluster Segment which includes Banking and Financial Services, Insurance, Media & Entertainment, Travel & Logistics and Healthcare, and (ii) Industrial Cluster Segments which consists of Hi Tech and Consumer Electronics, Consumer Retail & Pharma, Energy & Process, Automobile & Aerospace, Plant Equipment & Industrial Machinery, Utilities and E&C. But aforesaid various segments do not indicate....
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....rred to LTTSL, the Company was wound up during the year." 6.7 In view of the above reporting, it is clear that under the telecom segment, the assessee was engaged in providing engineering services, which is distinct from the services of the software development. Thus, at entity level, the company cannot be considered functionally similar to the assessee. The company cannot be considered comparable at the segment level also because of there are expenses of Rs. 205,80,17,445/- ( page 129 of PB-2) , which has not been allocated into three segments, and thus the segmental result are distorted. 6.8 During the year, the extraordinary event of demerger of product engineering service business (PES) has occurred with effect from 01/01/2014, which has also impacted the profit of the company at the entity level. In the decision of the Tribunal in case of Xchanging Technology Service India Private Limited (ITA No. 1897/Del./2004), which has been approved the Hon'ble High Court in ITA No. 813/2015 , the company is held to be not valid comparable on account of extraordinary events. Thus, In view of the extraordinary event in the year under consideration also, this company i....
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....n the form of premium pricing and huge volume of business ultimately leading to the higher profitability. So, we are of the considered view that L&T is not a suitable comparable vis-à-vis the taxpayer, hence ordered to be excluded. THIRDWARE SOLUTION LTD. (THIRDWARE) 40. The taxpayer sought exclusion of Thirdware on the ground that it is functionally dissimilar vis-à-vis the taxpayer. However, on the other hand, ld. DR for the Revenue relied upon the orders passed by the ld. TPO/ld. DRP to retain this comparable. 41. Perusal of Notes - Additional Information and Profit & Loss account, available at page 570 of the annual reports paper book, shows that it has income earned from sale of licence and provision of training services also under the head 'software services from local unit', 'export of software services', 'revenue from subscription & training' and 'sale of licence' to the tune of Rs. 2809.62 lakhs, Rs. 19285.11 lakhs, Rs. 32.59 lakhs & Rs. 8.77 lakhs respectively. The taxpayer has also brought on record website of the company, available at pages 71 to 73 of the appeal memo, which shows that Thirdware is....
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....again on account of functional dissimilarity being into providing outsourced product development services and Healthcare BPO services to its customers as per website extracted at pages 83 to 85 of the appeal memo set. It being a private limited company its financials are not available in the public domain. Its annual report made available at pages 848 to 909 of the annual reports paper book does not provide segmental profitability earned from software development services, outsourced product development services and Healthcare BPO services. 47. When we examine profit & loss account at page 873 of the annual report paper book, software development and service charges are shown in composite manner with no segmental profitability. In these circumstances, we are of the considered view that Inteq is not a suitable comparable vis-à-vis the taxpayer which is a routine software development service provider working on cost-plus mark up model, hence ordered to be excluded from the final set of comparables. We note that the assessee in Global Logic India Ltd. (supra) was a captive service provider to its AE for assessment year 2016-17. Nothing has been placed by the Revenue....
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....tnerships with various leading platform providers in Analytics, Big Data, Cloud, Mobile, Machine Learning, and IoT. He placed reliance on page 1672 & 1676 & 1708 of the annual report paper book. The Ld.AR submitted that as a part of Aepona acquisition, this company acquired development centers in Belfast, UK and in Colombo, Sri Lanka during the year under consideration. He placed reliance on page 1706 of the annual report paper book. He thus prayed for exclusion of this company from the final list. The Ld.AR submitted thus submitted that Persistant Systems Ltd, is not functionally similar with that of assessee who is a captive service provider to its AE. 8.6 Infosys Ltd.: It is submitted that this company is functionally dissimilar to the assessee on various counts, and therefore, it ought to be rejected from the final list of comparables. It is submitted that the Ld.TPO erred rejected contentions of the assessee and upheld the inclusion of the company in the final list of comparables. It is submitted that this company renders services like business IT services comprising of application development and maintenance, independent validation, infrastructure management, engi....
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....n'ble Hyderabad Tribunal in case of Infor (India) Pvt. Ltd. vs. DCIT in ITA-TP.No. 198/Hyd/2021 by order dated 06.10.2021 for A.Y. 2016- 17. On the contrary, the Ld.CIT.DR placed reliance on orders passed by authorities below. We have perused the submissions advanced by both sides in the light of records placed before us. Before us, the Ld.DR has not been able to place anything on record contrary to the above submissions by the Ld.AR. We of the view that with such varied functions, these companies cannot be compared with assessee before us, which is a captive service provider. We accordingly direct the Ld.AO/TPO to exclude Persistent Systems Ltd., and Infosys Ltd. from the final list. 8.7 Aspire Systems (India) Pvt. It is submitted that, this company is functionally not comparable with the assessee as it earns income from power generation. The Ld.AR placed reliance on page 127 of Annual Report. The Ld.AR submitted that, the company owns significant intangibles in form of goodwill, customer contracts. He placed reliance on page 2077 & 2087 of annual report paper book in support. It is submitted that Applied Development Software (India) Pvt.Ltd., and Pure Apps Consulti....
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....ement and IT functions, and planning & system designing, which are in no way comparable to the captive software development activities as provided by the assessee. The Ld.AR further submitted that, this company has incurred significant expenses in foreign currency of 37.68%, 33.27% and 37.47% of its total expenditure during the FYs 2015-16, 2014-15 and 2013-14, respectively, which suggests that is engaged in provision of onsite services. And that, during the FY relevant to assessment year under consideration, this company acquired GNet Group LLC, a business intelligence and analytical company, and Intellect Bizware Services Pvt. Ltd., specialising in ERP and enterprise innovation. The Ld.AR submitted that, these acquisitions are bound to have a significant impact on the financials of the company. The Ld.AR thus submitted that, for all the above reasons this company cannot be considered to be comparable with. He relied on the decision of Hon'ble Mumbai Tribunal in case of Red Hat India Pvt. Ltd. v. ACIT (supra) On the contrary, the Ld.DR relied on the orders passed by the authorities below. We have perused the submissions of both sides in light of records placed before us. ....
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....ts AE for assessment year 2016- 17. Nothing has been placed by the Revenue to deviate from the above view taken by the coordinate bench of this Tribunal in Red Hat India Pvt. Ltd. v. ACIT (supra). We are of the view that, based on the functions performed by this company as submitted by the Ld.AR and the observations of Hon'ble Mumbai Tribunal, this comparable deserves to be excluded from the final list. We therefore respectfully following the above view, direct the Ld.AO/TPO to exclude Nihilent Technologies Ltd from the final list. 8.9 Cybage Software Pvt.Ltd. It is submitted that this company is engaged in the provision of diversified services which include product engineering, testing & quality assurance services, specialized services, support services, etc. It is submitted that this company is engaged in product development and has developed a product called 'excelshore' apart from providing spectrum of services including ITeS and BPO services and that segmental information of the diverse business functions undertaken by the company is not available. The Ld.AR submitted that this company is making super normal profits and that it is not reflective of the performan....
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....bench of this Tribunal in case of ARM Embedded Technologies (P.) Ltd., reported in (2021) 129 taxmann.com 263 On the contrary, the Ld.DR relied on the orders passed by the authorities below. We have perused the submissions of both sides in light of records placed before us. 11. This Tribunal in the case of Autodesk India Pvt.Ltd. Vs. DCIT (supra), took note of all the conflicting decision on the issue and rendered its decision and in paragraph 17.7 of the decision held as that high turnover is a ground for excluding companies as not comparable with a company that has low turnover. The following were the relevant observations: "17.7. We have considered the rival submissions. The substantial question of law (Question No.1 to 3) which was framed by the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) Pvt.Ltd., (supra) was as to whether comparable can be rejected on the ground that they have exceptionally high profit margins or fluctuation profit margins, as compared to the Assessee in transfer pricing analysis. Therefore as rightly submitted by the learned counsel for the Assessee the observations of the Hon'ble High Court, in ....
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....ologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in Willis Processing Services (supra) and have to be regarded as per incurium. These three decisions also place reliance on the decision of the Hon'ble Delhi High Court in the case of Chriscapital Investment (supra). We have already held that the decision rendered in the case of Chriscapital Investment (supra) is obiter dicta and that the ratio decidendi laid down by the Hon'ble Bombay High Court in the case of Pentair (supra) which is favourable to the Assessee has to be followed. Therefore, the decisions cited by the learned DR before us cannot be the basis to hold that high turnover is not relevant criteria for deciding on comparability of companies in determination of ALP under the Transfer Pricing regulations under the Act. For the reasons given above, we uphold the order of the CIT(A) on the issue of application of turnover filter and his action in ex cluding companies by following the ratio laid down in the case of Genisys Integrating (supra)." 12. Coordinate bench of this Tribunal in the case of Barracuda Networks India (P.) Ltd. vs. DCIT reported in [2021] 131 taxmann.com 33....
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.... a position to bargain the price and also attract more customers. It would also have a broad base of skilled employees who are able to give better output. A small company may not have these benefits and therefore, the turnover also would come down reducing profit margin. Thus, as held by the various benches of the Tribunal, when companies which arc loss making are excluded from comparables, then the super profit making companies should also be excluded. For the purpose of classification of companies on the basis of net sales or turnover, we find that a reasonable classification has to be made. Dun & Bradstreet & Bradstreet and NASSCOM have given different ranges. Taking the Indian scenario into consideration, we feel that the classification made by Dun & Bradstreet is more suitable and reasonable. In view of the same, we hold that the turnover filter is very important and the companies having a turnover of Rs. 1.00 crore to 200 crores have to be taken as a particular range and the assessee being in that range having turnover of 8.15 crores, the companies which also have turnover of 1.00 to 200.00 crores only should be taken into consideration for the purpose of making TP study." ....
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.... of multiple year data" for undertaking comparability analysis in transfer pricing cases. The use of range concept being a statistical tool enhances the reliability of analysis undertaken for computation of ALP. The range concept will be applicable in certain cases for determining the price and will begin with the 35th percentile and end with the 65th percentile of the comparable prices. Transaction price shown by the taxpayers falling within the range will be accepted and no adjustment will be made. The use of multiple year data allows for yearly variations to be averaged out and would therefore add value to transfer pricing analysis. The Amended Income-tax Rules, 1962 ('Rules') via Notification 83 of 2015 which is the 16th amendment to the originally drafted Indian Tax Rules, 1962, are applicable for transactions undertaken on or after 1 April 2014 (i.e. from FY 2014-15 and onwards). These amended provisions are applicable only when the determination of 'ALP' is done under the MAM being resale price method ('RPM'), cost plus method ('CPM') or transactional net margin method ('TNMM'). The relevant provisions of Rule 10CA of the Rules, in so ....
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....eceding the said financial year undertaken the same or similar comparable uncontrolled transaction then,- (i) the price in respect of such uncontrolled transaction shall be determined by applying the most appropriate method in a similar manner as it was applied to determine the price of the comparable uncontrolled transaction undertaken in the financial year immediately preceding the current year; and (ii) the weighted average of the prices, computed in accordance with the manner provided in sub-rule (3), of the comparable uncontrolled transactions undertaken in the aforesaid period of two years shall be included in the dataset instead of the price referred to in sub-rule (1) : Provided also that where the use of data relating to the current year in terms of the proviso to sub-rule (5) of rule 10B establishes that, - (i) The enterprise has not undertaken same or similar uncontrolled transaction during the current year; or (ii) the uncontrolled transaction undertaken by an enterprise in the current year is not a comparable uncontrolled transaction, then, irrespective of the fact that such an enterprise had undertaken comparable u....
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.... As per clause (ii) of 1st proviso to section 10CA(2), weighted average of the prices of the 3 financial years have to be taken in accordance with Rule 10CA(3) and the weighted average so taken shall be included data set instead of the price arrived at by using current year data alone. In the present case, if one sees the chart of comparables of TPO given in paragraph-4 of this order, the profit margins of the Company R.S. Software (India) Ltd., for the three financial years were 2013-14 to 2015-16 were 24.14%, 32.75% and - 2.09% respectively and the weighted average margin of 24.83% has been considered by the TPO. 18. The second proviso to section 10CA(2) of the Rules provides for a situation where R.S. Software (India) Ltd., has undertaken comparable uncontrolled transaction only in Financial year 2014-15 & 2015-16, then the weighted average of the two financial year 2014-15 and 2015- 16 has to be computed in the manner laid down in Rule 10CA(3) of the Rules and the margin so arrived at has to be included in the dataset. 19. The third proviso to section 10CA(2) of the rules provides that if in the current year i.e., financial year 2015-16 if R.S. Software (India....
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.... sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base; (ii) the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base; (iii) the net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction [or the specified domestic transaction] and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market; (iv) the net profit margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-clause (iii); (v) the net profit margin thus established is then taken into account to arrive at an arm's length price in relation to the international transaction [or the specified domestic transaction]; ** (2) For the purposes ....
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....an international transaction can be done only if differences, if any, between the transactions that are compared or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market or reasonably accurate adjustments can be made to eliminate the material effects of such differences. A reading of Proviso to Rule 10B(4) would show that use of data relating to a period of two years prior to the current year may also be considered but with a rider that "if such data reveals facts which could have an influence on the determination of transfer prices in relation to the transactions being compared". If by application of any filter an enterprise undertaking uncontrolled transaction similar to an international transaction is regarded as not being comparable in the earlier two years immediately preceding the current year and thereby attracting the provisions of Rule 10B(2) or 10B(3) then the data for those years will not have any influence on the determination of transfer prices in relation to the transactions being compared for the current year and hence have to be ig....
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.... note that this Tribunal in case of Prism Networks Pvt. Ltd.(supra) observed and held as under: 18. We heard the rival submissions. It is clear from the order of the DRP that the DRP has not considered the plea of the Assessee in proper perspective. The fact that the TPO rejected the TP study of the Assessee cannot be the basis not to consider the claim of the Assessee for inclusion of comparable companies. The TPO excluded these companies only on the ground that information related to these companies was not available in the public domain and this fact was shown to be an incorrect assumption by the Assessee in the submissions before the DRP. In such circumstances, it was incumbent on the part of the DRP to have adjudicated the question of inclusion of these companies as comparable companies. The fact that these companies do not figure in the search matrix of the TPO is not and cannot be a ground not to consider inclusion of these companies as comparable companies. Since the DRP has failed to do so, we are of the view that the issue regarding inclusion of the aforesaid companies as comparable companies should be set aside to AO/TPO for fresh consideration in the light of t....
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.... CLC, relevant page 3941), FNF India (P.) Ltd. ITA No. 1565/Bang/2019 at para 10 page 8 (page 3952 to 3961 of CLC, relevant page 3959). Allegis Services (India) (P.) Ltd. ITA No. 1693/Bang/2019 at para 19 & 20 page 8, Sling Media (P.) Ltd. [2022] 135 taxmann.com 164 (Bangalore-Trib.) at para 6.1 & 6.2 page 7-8, JMS Mining (P.) Ltd. [2021] 130 taxmann.com 118 (Kolkata-Trib.) at para 23 page 15-16. We have perused the submissions advanced by both sides based on records placed before us. 18. We note that this Tribunal in case of Sling Media (P.) Ltd.(supra) observed as under: 6.1 We note that assessee has suo moto disallowed the expenditure towards the CSR responsibilities u/s. 37(1) of the Act and claimed deduction u/s. 80G to the extent of donations paid to eligible charitable institutions. The observations of co-ordinate bench of this Tribunal in case of First American (India) (P.) Ltd. (supra) on the same issue is as under: "15. In our view, expenditure incurred under section 30 to 36 are claimed while computing income under the head, 'Income form Business and Profession", where as monies spent under section 80G are claimed while compu....