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2009 (3) TMI 637 - AT - Income TaxTP Adjustment - ALP determination - business of providing call centre/IT enabled services to the customers of the American holding company - international transactions with associate enterprise - addition made by AO was confirmed by CIT(A) - action of the authorities below in not allowing the option exercised by it in determining the arms length price by adjusting the arithmetical mean by 5 per cent as stipulated in the proviso to section 92C(2). HELD THAT - Both the sides have agreed that the issue raised is squarely covered in its favour by the decision of the Tribunal in the case of Sony India (P.) Ltd. v. Dy. CIT 2008 (9) TMI 420 - ITAT DELHI-H wherein it was held that the second limb/portion of proviso to section 92C(2) allows marginal relief to the assessee at his option to take ALP not exceeding 5 per cent of the arithmetical mean and the said benefit is available to all assessees irrespective of the fact that price of international transaction disclosed by them exceeds the margin provided in the proviso. Respectfully following the said decision of the Tribunal we direct AO to allow 5 per cent adjustment to the arms length price determined by the TPO as per the option exercised by the assessee in accordance with the proviso to section 92C(2) and allow ground of the assessee s appeal. Comparable analysis - determination of ALP - assessee-company had applied quantitative filters on the prowess database on data pertaining to two financial years 2000-01 and 2001-02 for selecting the potential comparables whereas the international transactions took place during the financial year 2002-03 - OP/TC ratios of the comparables by using financial data pertaining to financial year 2002-03 was furnished - TPO took the data pertaining to the financial years 2000-01 and 2001-02 and ignored the data of the current financial year i.e. 2002-03 - application u/s 154 r/w section 92CA(5) filled before AO requesting to make the necessary rectification by using the contemporaneous current year data - dismissed by TPO - CIT(A) erred in holding that TPO was not justified in using the prior years data for conducting comparability analysis for determination of ALP without assigning any reasons for such deviation HELD THAT - As submitted by the ld counsel for the assessee Rule 10B(4) is quite clear in this context which specifies that the data to be used in analyzing the comparability of an uncontrolled transaction with an international transaction shall be the data relating to the financial year in which the international transaction has been entered into. It is no doubt true that an exception has been carved out in the proviso to Rule 10B(4) which allows that data relating to a period not being more than two years prior to such financial year may also be considered if such data reveals facts which could have an influence on the determination of transfer prices in relation to the transactions being compared. As held by CIT(A) in this context the TPO however had not brought on record any cogent relevant and reliable evidence to prove that the data for preceding two years revealed facts which could have had an influence on the determination of ALP and this position has not been controverted or rebutted by the learned DR at the time of hearing before us. There was thus no case made out by the TPO to justify the use of prior years data by invoking the proviso to Rule 10B(4) and this being so we are of the view CIT(A) was fully justified in holding that the main Rule 10B(4) was applicable in the facts of the assessee s case and it was mandatory on the part of the TPO to use the data relating to financial year 2002-03 in which the international transactions were admittedly entered into by the assessee-company with the associated enterprise. In that view of the matter we uphold the impugned order of CIT(A) on this issue and dismiss this appeal filed by the revenue. At the time of hearing before us the learned counsel for the assessee has not pressed any of the grounds raised by the assessee-company in its cross-objection. Accordingly the said cross-objection filed by the assessee is dismissed as not pressed. In the result the appeal of the assessee is partly allowed whereas the appeal of the revenue and cross-objection of the assessee are dismissed.
Issues Involved:
1. Transfer pricing adjustment for the assessment year 2002-03. 2. Use of prior years' data for comparability analysis by the TPO. 3. Charging of interest under sections 234B and 234C. Detailed Analysis: 1. Transfer Pricing Adjustment for the Assessment Year 2002-03: The assessee, a 100% subsidiary of a US company, engaged in providing call center/IT-enabled services, entered into international transactions worth Rs. 15,95,13,613 with its associate enterprise. The Assessing Officer referred the case to the Transfer Pricing Officer (TPO) under section 92CA(1) to determine the arm's length price (ALP). The TPO determined the ALP at Rs. 17,18,97,693, leading to an addition of Rs. 1,23,84,080 to the assessee's income. This addition was confirmed by the CIT(A), leading the assessee to appeal to the Tribunal. The Tribunal noted that the issue raised in ground No. 9 was covered in favor of the assessee by the decision in Sony India (P.) Ltd. v. Dy. CIT [2008] 114 ITD 448 (Delhi), which allowed a 5% adjustment to the ALP as per the proviso to section 92C(2). Consequently, the Tribunal directed the Assessing Officer to allow the 5% adjustment, reducing the addition to Rs. 37,89,196. The assessee chose not to press grounds 1 to 8 challenging the addition on merits, and these grounds were dismissed as not pressed. 2. Use of Prior Years' Data for Comparability Analysis by the TPO: The revenue's appeal focused on the CIT(A)'s acceptance of raw data provided by the assessee without a proper study of comparables and a FAR (Function, Assets, Risk) analysis. The TPO used data from financial years 2000-01 and 2001-02 instead of the current financial year 2002-03 for comparability analysis. The CIT(A) held that Rule 10B(4) mandates the use of current financial year data unless prior years' data reveals facts influencing the determination of ALP. The TPO failed to provide evidence that prior years' data influenced the ALP determination, making the use of such data unjustified. The Tribunal upheld the CIT(A)'s decision, emphasizing that Rule 10B(4) requires the use of current financial year data unless exceptions are justified with evidence. The revenue's appeal was dismissed. 3. Charging of Interest under Sections 234B and 234C: The relief sought by the assessee regarding interest under sections 234B and 234C was noted to be consequential. The Tribunal directed the Assessing Officer to allow consequential relief on these issues. Conclusion: The Tribunal partly allowed the assessee's appeal by directing a 5% adjustment to the ALP, reducing the transfer pricing addition. The revenue's appeal regarding the use of prior years' data was dismissed, affirming the CIT(A)'s decision. The assessee's cross-objection was dismissed as not pressed.
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