2010 (2) TMI 1174 - AT - Income Tax

Summary

Issues Involved:
1. Adequate opportunity of being heard.
2. Addition of Rs. 6.73 crores to the value of international transactions.
3. Appropriate method for determining Arm's Length Price (ALP).

Summary:

Adequate Opportunity of Being Heard:
The assessee contended that the order u/s 92CA(3) was passed by the TPO without providing an adequate opportunity of being heard. The assessee's representative was precluded from providing a response to the financial analysis of different companies handed over by the TPO on Dec. 19, 2006. The Ld. CIT(A) rejected the ground raised by the assessee that a fair and reasonable opportunity of hearing was not given by the AO.

Addition of Rs. 6.73 Crores to the Value of International Transactions:
The assessee argued that the AO erred in making the addition of Rs. 6.73 crores to the value of the international transactions for providing IT Enabled Services. The Ld. CIT(A) held that the price charged by the appellant for running call center services to its AEs is on an arm's length basis, having regard to the external CUP method of transfer pricing employed and facts brought on record. The Ld. CIT(A) noted that the data of specific companies engaged in voice-based service sectors showed billing rates in the range of US$ 10 to 13 per hour, and the appellant's effective rate was US$ 13.09 per hour, which is well within that range. The addition made of Rs. 6.73 crores by making adjustments u/s 92 was deleted.

Appropriate Method for Determining Arm's Length Price (ALP):
The Ld. Counsel for the assessee contended that the CUP method is the appropriate method to be adopted. The Ld. CIT(A) found that the TPO/AO selected companies that were not comparable to the assessee's voice-based call center services. The TPO/AO's method of using the TNMM was not justifiable as the companies selected were engaged in different segments like data conversion services, web designing, and software development. The Ld. CIT(A) concluded that the Comparable Uncontrolled Method (CUP) followed by the assessee company is the most appropriate method in this case.

Conclusion:
The appeal filed by the Revenue was dismissed, and the order of the Ld. CIT(A) was upheld. The Comparable Uncontrolled Method (CUP) was deemed the most appropriate method for determining the ALP, and the addition of Rs. 6.73 crores was deleted.