2024 (8) TMI 1435

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....ment rendered by the Income Tax Appellate Tribunal ["ITAT"] dated 25 July 2016 and has posited the following questions for our consideration:- "2.1 WHETHER on facts and in the circumstances of the case Ld. ITAT is legally justified in holding that provisions of section 92(3) of the Act prohibit the determination of the arm's length price of intra-group services by ignoring provisions of Explanation to section 92(1) and 92B of the Act? 2.2 WHETHER on facts and in the circumstances of the case Ld. ITAT is legally justified in holding that adjustment on account of determination of arm's length price of intra-group services has to be reduced from the cost base of the assessee by ignoring the provisions of transfer pric....

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....tion of amount receivable for the IT enabled services rendered by the assessee. Of course, as far as TPO is concerned, the action at that level was, from this perspective, could have been justifiable inasmuch as the ALP margin was taken at 29.53%, as against 20% taken by the assessee, and, therefore even after removing something from the cost base, due to increase in the mark-up rate, ALP of the services rendered could still be higher vis-a-vis the amount chargeable after including intra group services in the cost base. Once DRP deletes the adjustment in the mark-up rate on cost plus basis, such a possibility ceases to exist. Therefore, in the present circumstances, any ALP adjustment in the consideration for intra group service, which is i....

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.... case, we find that the determination of ALP of the intra group service at NIL value does lower the profits of the assessee inasmuch as the revenue of the assessee from the IT enabled services will reduce correspondingly, and infact 20% more than the adjustment- as a result of loss of mark up as well. The ALP adjustment of Rs 8,40,95,610 by the revenue authorities is, therefore, essentially required to be coupled with reduction of 10,09,14,732. That would erode our tax base, rather than augmenting it. The computation of income from International transactions on the basis of arm's length price, in the given situation, would result in lowering the income of the assessee vis-a-vis the income "computed on the basis of entries made in the bo....