9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2011 (11) TMI 464 - AT - Income TaxTransfer Pricing Adjustment determination of ALP margin by Revenue on basis of detailed analysis of the assessee s and the TPO s approach to selection of comparable data - assessee contested agianst Satyam Computers Services Limited accepted as a comparable Held that - Various Tribunals have taken note of the fact that Satyam cannot be accepted as a comparable on the ground that it was publicly known that its financial statements were not reliable. See case of Agnity India Technologies (P.) Ltd. 2010 (11) TMI 852 - ITAT DELHI . Hence, this plea of the assessee is allowed. Rejection of comparable companies with margins less than 6% (Including comparable companies with negative margins) Held that - The Tribunal was of view that extreme cases should not be included as comparables and thus has taken a conscious decision in excluding companies having margin less than 6% from the comparables on facts and circumstances of the case. Hence, this plea of the assessee is rejected. Request for Risk Adjustment at 5.25% - Held that - It is not clear as to how the assessee had arrived at relief of 5.25%. However, ITAT has allowed benefit of deduction of 5% under proviso to section 92C(2) and in view of the decision in case of Symantec Software Solutions (P.) Ltd. v. Asstt. CIT (2011 (5) TMI 107 - ITAT MUMBAI) no separate adjustment is required on account of risk functional difference. Therefore, this plea of the assessee is dismissed. Computation of the arm s length range Held that - When there are two prices determined by the most appropriate method, the first step is to take the arithmetical mean of such prices as ALM. Assessee has the option to adjust the above ALM by 5%. However, in present case the arithmetical mean of two prices (price determined by A.O. & assessee) has not been done. For this purpose, this issue is restored to the file of the AO, who shall in turn, may refer the matter to the TPO - Decided partly in favor of assessee.
Issues Involved:
1. Acceptance of Satyam Computers Services Limited as a comparable. 2. Rejection of comparable companies with margins less than 6% (including negative margins). 3. Request for Risk Adjustment. 4. Computation of the arm's length range. Detailed Analysis: 1. Acceptance of Satyam Computers Services Limited as a Comparable: The Tribunal initially included Satyam Computers Services Limited in the list of comparables for determining the Arm's Length Price (ALP). However, the assessee argued that Satyam should not be considered due to the unreliability and falsification of its audited financial statements, which became publicly known in January 2009. The Tribunal acknowledged that Satyam's financial data was unreliable and noted that other tribunals had also excluded Satyam for similar reasons. Therefore, the Tribunal directed that Satyam should not be taken as a comparable, allowing the assessee's plea. 2. Rejection of Comparable Companies with Margins Less Than 6% (Including Negative Margins): The Tribunal excluded comparables with very low margins, reasoning that extreme cases should be avoided to ensure representativeness. The Tribunal noted that the assessee's agreement with its German associate contemplated a compensation of cost plus 6%, and thus, comparables with margins less than 6% were excluded. The assessee argued that this methodology would always result in an upward ALP adjustment, but the Tribunal held that it had taken a conscious decision based on the facts and circumstances of the case. Consequently, this plea of the assessee was rejected. 3. Request for Risk Adjustment: The assessee requested a risk adjustment, arguing that it operated in a risk-mitigated environment compared to the entrepreneurial risk-taking functions of the comparables. The Tribunal noted that the assessee did not provide a working risk adjustment in its transfer pricing study, nor did the AO/TPO grant any risk adjustment. The Tribunal referred to the ITAT Mumbai decision in Symantec Software Solutions (P.) Ltd. v. Asstt. CIT, which held that no separate adjustment is required on account of risk and functional differences when the benefit of a 5% standard deduction under proviso to section 92C(2) is allowed. Accordingly, the Tribunal dismissed this plea of the assessee. 4. Computation of the Arm's Length Range: The Tribunal interpreted the proviso to section 92C(2) of the Act to mean that the assessee could adopt a price different from the arithmetical mean by an amount not exceeding 5% of such mean. The Tribunal allowed the assessee a standard deduction of 5%, increasing the operating margin to 13.80%. However, the assessee argued that the arm's length range of +/- 5% should be computed from the arithmetical mean of the prices of the comparable companies, not the assessee's transfer price. The Tribunal restored this issue to the AO for recomputation, directing the AO to refer the matter to the TPO if necessary. Conclusion: The Tribunal partly allowed the Miscellaneous Petition, directing that Satyam should not be included as a comparable, rejecting the plea regarding the exclusion of comparables with margins less than 6%, dismissing the request for risk adjustment, and restoring the issue of computing the arm's length range to the AO.
|
