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2012 (12) TMI 482 - AT - Income TaxWhether amended provision of Sec. 92C(2) which was applicable w.e.f. AY 2009-10 are equally applicable to appeals pending relating to previous years Revenue in the present case to deny the assessee benefit for adjustment of /-5% variation while computing ALP - Held that - Though the amended proviso to sec 92C(2) was applicable w.e.f 1.10.2009 and following the decision in case of UE Trade Corporation India (P) Ltd. (2010 (12) TMI 224 - ITAT, NEWDELHI) it is a well-settled proposition that the statutory provisions as they stand on the first day of April of the assessment year must apply to the assessment of the year and the modification of the provisions during the pendency of assessment would not generally prejudice the rights of the assessee. Therefore, we find no justification in the action of the lower authorities in disentitling the assessee the benefit of /-5% while computing ALP in terms of erstwhile proviso to sec 92C(2). Appeal decides in favour of assessee Adjustment of higher depreciation in calculation of ALP - Assessee has charged higher depreciation as compare to the rates prescribed under the Companies Act Assessee claims that such excess depreciation was liable to the excluded while benchmarking the financial results of the assessee with those of comparable cases Held that - It was opined that the object and purpose of the transfer pricing is to compare like with the like and to eliminate differences, if any, by suitable adjustments. Therefore, it found justification on the part of the assessee in pleading that the profits be taken without deduction of depreciation. Allow adjustment after verification. Issue remand back to AO Adjustment of start-up cost in calculation of ALP Assessee is in 1st year of operation and due to start-up cost profit margins are abnormally affected - Capacity utilization was not satisfactory Held that - Following the decision in case of Skoda Auto India P. Ltd.(2009 (3) TMI 249 - ITAT PUNE-A) as the plea set-up by the assessee for economic adjustments on account of under capacity utilization and being in start-up phase, is not something which is unreasonable and neither it is otiose to the mechanism of transfer pricing assessments. The matter requiring factual appreciation, the same is to calculated on reasonable basis. Therefore remanded back to the file of the AO No. of years for which financial data used to compute ALP of comparable companies - TPO in using the financial data of the comparable companies available at the time of assessment and that too only for the single year pertaining to the year under consideration - Assessee of having carried out the transfer pricing study on the basis of the financial data of the comparable companies for the prior two years Held that - Apart from making a generalized submission, such onus has not been discharged by the assessee on the basis of any credible or cogent material. In the absence of any substantive material being brought out by the assessee to justify the use of multiple data of prior two years and the manner in which it would influence the determination of transfer pricing in relation to the impugned international transaction. Issue decides in favour of revenue.
Issues Involved:
1. Adjustment of Rs 9,22,02,777/- to the Arm's Length Price (ALP) of international transactions. 2. Rejection of the approach adopted by the assessee for transfer pricing analysis. 3. Claim for adjustment on account of charging higher depreciation. 4. Claim for adjustment on account of start-up costs and under-utilization of capacity. 5. Use of financial data of comparable companies. 6. Benefit of +/-5% variation while computing ALP. Detailed Analysis: 1. Adjustment of Rs 9,22,02,777/- to the Arm's Length Price (ALP) of international transactions: The primary dispute in the appeal concerns an addition of Rs 9,22,02,777/- made by the Assessing Officer (AO) to the ALP of the appellant's international transactions with its Associated Enterprises (AE). The appellant, a wholly owned subsidiary of Amdocs Development Ltd., Cyprus, provided IT-enabled services to its parent company under a service agreement. The AO referred the matter to the Transfer Pricing Officer (TPO), who determined the ALP by considering only the data for the year under consideration and not the past years. The TPO rejected economic adjustments made by the assessee and certain comparables, leading to the adjustment. 2. Rejection of the approach adopted by the assessee for transfer pricing analysis: The assessee contended that its transfer pricing study, which adopted the Transactional Net Margin Method (TNMM), was conducted appropriately. However, the TPO rejected the weighted average mean of the Profit Level Indicators (PLIs) of the comparables used by the assessee, considering only the data for the year under consideration. The TPO also disallowed economic adjustments to the PLI and rejected one of the comparables, M/s Goldstone Teleservices Ltd., adopted by the assessee. 3. Claim for adjustment on account of charging higher depreciation: The assessee argued that it had charged higher depreciation compared to the rates prescribed under the Companies Act, 1956, and that such excess depreciation should be excluded while benchmarking financial results. The Tribunal upheld the assessee's plea, referencing decisions in Egain Communications P. Ltd. and Schefenacker Motherson Ltd., which supported adjustments to eliminate differences in depreciation policies. The Tribunal directed the AO to verify the factual aspect and allow appropriate adjustments. 4. Claim for adjustment on account of start-up costs and under-utilization of capacity: The assessee claimed that being in its first full year of operation, it incurred start-up costs and under-utilized capacity, affecting its profit margins. The Tribunal found the plea reasonable and in line with decisions in Global Vanttedge P. Ltd., Brintons Carpets Asia (P) Ltd., and Skoda Auto India P. Ltd. The matter was remanded back to the AO to consider the propositions and allow appropriate economic adjustments on a reasonable basis. 5. Use of financial data of comparable companies: The TPO used financial data of comparable companies available at the time of assessment for the single year under consideration, rejecting the assessee's use of data from prior two years. The Tribunal upheld the TPO's approach, referencing the decision in Bindview India P. Ltd., which mandated that data used for comparability should relate to the financial year in which the international transaction occurred. The Tribunal found no credible reasoning from the assessee to justify the use of multiple years' data. 6. Benefit of +/-5% variation while computing ALP: The Tribunal addressed the issue of whether the benefit of the option available under the erstwhile proviso to section 92C(2) of the Act, which allowed a +/-5% variation for computing ALP, was applicable. The Tribunal referenced its decision in Starent Networks (India) P. Ltd., which held that the benefit was applicable for assessment years prior to the amendment effective from 1.10.2009. The Tribunal found no justification to deny this benefit to the assessee and upheld the plea for the +/-5% adjustment. Conclusion: The Tribunal set aside the matter back to the AO to re-determine the ALP of the international transaction, considering the directions provided. The AO was instructed to allow reasonable opportunity for the assessee to be heard and adjudicate the issue afresh in accordance with the law. The appeal of the assessee was partly allowed.
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