2011 (5) TMI 508 - HC - Income Tax

Determination of Arm's Length Price - International Transaction - Assessee had employed Transactions Net Margin Method for the purpose of computing Arm Length Price - TPO noticed that one of the comparables, out of independent comparable selected by the assessee for the computation of Arm's Length Price was M/s. Imercius Technologies India (P.) Ltd. which showed a net loss at the rate of 73.48 per cent - The TPO rejected M/s. Imericus Technologies India (P.) Ltd. as comparable holding that the said company was incorporated in 2002 only and its networth was negative whereas turnover was also less than the turnover of the tested party - Accordingly, the TPO passed an order u/s 92CA(3) of the Act on 23-11-2006 determining the Arm's Length Price of remuneration received by the assessee for software development services - Held that the Tribunal vide order dated 22-10-2009 upheld the exclusion of M/s. Imercius Technologies India Pvt. Ltd. as comparable and remanded the issue of 5 per cent relaxation to the Assessing Officer to reconsider the same in view of the amendment in section 92C(2) of the Act - The Tribunal further accepted the additional ground taken by the assessee for exclusion of M/s. Datamatics Technologies from the list of comparables for the purpose of determination of Arm's Length Price - Decided in favour of assessee.

Summary

Issues:
1. Justification of accepting additional ground for exclusion of a company as comparable.
2. Validity of remanding the case to the Assessing Officer.
3. Assessment of Arm's Length Price for software development services.

Issue 1:
The appeal was filed by the revenue under section 260A of the Income-tax Act, 1961, questioning the decision of the Income-tax Appellate Tribunal (ITAT) to accept an additional ground raised by the assessee for excluding M/s. Datamatics Technologies Ltd. as a comparable company for determining Arm's Length Price. The Tribunal also remanded the issue of exclusion of M/s. Datamatics Technologies Ltd. to the Assessing Officer for reconsideration. The primary contention was whether the Tribunal was justified in allowing the additional ground for exclusion.

Issue 2:
The main issue revolved around whether the Tribunal's decision to remand the case to the Assessing Officer was valid. The Tribunal directed that the assessee could produce all relevant material for determining the proper Arm's Length Price and cooperate for the expeditious disposal of the matter. The crux of the matter was whether the Tribunal had the authority to remand the case and whether the subsequent actions of the Assessing Officer were in line with the Tribunal's directions.

Issue 3:
The case involved the assessment of Arm's Length Price for software development services provided by the assessee to its parent company. The Transfer Pricing Officer (TPO) had determined the Arm's Length Price and made adjustments based on his findings. The CIT(A) partly allowed the appeal, granting a 5% benefit to the assessee under section 92C(2) of the Act. The Tribunal upheld the exclusion of M/s. Imercius Technologies India Pvt. Ltd. as comparable and remanded the issue of the 5% relaxation to the Assessing Officer for reconsideration. The Tribunal also accepted the additional ground raised by the assessee for excluding M/s. Datamatics Technologies from the list of comparables.

In conclusion, the High Court dismissed the appeal by the revenue, stating that no substantial question of law arose for consideration. The Court noted that the Assessing Officer had passed an order in favor of the assessee after the remand, and since the assessee had cooperated and provided relevant material as directed by the Tribunal, there was no legal basis for further consideration of the appeal.