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2018 (6) TMI 1565 - AT - Income TaxTP adjustment made u/s 92CA(3) - determination of arm s length price of transactions pertaining to payment of fees for advisory and other services by the assessee to its associated enterprises - MAM selection - Held that - As decided in assessee s own case 2017 (12) TMI 1568 - ITAT PUNE tribunal held that TNMM method was the most appropriate method to be applied to benchmark international transactions undertaken by the assessee by taking foreign associated enterprises as tested party and further the Tribunal held that the said transaction of fees paid for advisory and other services was to be benchmarked by comparing the margins of tested party i.e. foreign associated enterprises with margins of external comparables selected by the assessee who were also engaged in providing similar advisory and related services to its entities. However for the limited purpose of verification that the margins shown by tested party i.e. foreign associated enterprise was at arm s length price of margins shown by comparables selected by the assessee the matter was remitted back to the file of Assessing Officer / TPO for verification. The issue arising in the present appeal before us is similar to the issue which arose in earlier year and since the international transactions undertaken by the assessee were identical to the international transactions undertaken in earlier years hence following the same parity of reasoning we hold that TNMM method was the most appropriate method to be applied to benchmark arm s length price of international transactions of fees paid for advisory and other services by taking foreign associated enterprise as tested party. AO is directed to benchmark the transactions by taking margins of foreign comparables which were selected by the assessee in earlier year and even in the year under consideration. However to verify the claim of assessee that the margins shown by assessee and the mean margins shown by the comparables were within /- 5% range the Assessing Officer is directed to comply with the directions of Tribunal as in earlier year and compute arm s length price of international transactions. Comparable selection - Held that - The assessee provides Oracle software support services to Emerson Climate Technologies Incorporation USA (AE). It is back office support activity in the nature of IT enabled services (ITes). It has earned a mark-up of 10.20% on cost. Thus companies functionally dissimilar with that of assessee need to be deselected from final list. Companies fluctuating margins is to be excluded from final set of comparables. Additional depreciation of 10% claimed u/s 32(1)(iia) on the assets which had been added to the block of Plant & Machinery during financial year 2011-12 relevant to 2012-13 - Held that - As relying on case of CIT Vs. Rittal India ( P.) Ltd. 2016 (1) TMI 81 - KARNATAKA HIGH COURT the assessee is entitled to claim balance additional depreciation @10% of the value of asset added to the block of Plant and Machinery during Financial year 2011-12 on account of additional depreciation under section 32(1)(iia) of the Act. - Decided in favour of assessee.
Issues Involved:
1. Transfer pricing adjustment on account of payment of fees for advisory and other services. 2. Determination of arm's length price for Oracle support services. 3. Disallowance of provision for privileged leave encashment and sick leave encashment. 4. Disallowance of balance additional depreciation claimed under section 32(1)(iia) of the Act. Detailed Analysis: 1. Transfer Pricing Adjustment on Account of Payment of Fees for Advisory and Other Services: The primary issue raised by the assessee was the transfer pricing adjustment of ?9,57,57,501/- related to the payment of fees for advisory and other services to associated enterprises (AEs). The Transfer Pricing Officer (TPO) had determined the arm's length price (ALP) of these services as 'Nil', rejecting the Transactional Net Margin Method (TNMM) applied by the assessee and instead using the Comparable Uncontrolled Price (CUP) method. The Tribunal referred to its earlier decisions in the assessee's own cases for previous assessment years, where it had held that TNMM was the most appropriate method for benchmarking such transactions. The Tribunal directed the Assessing Officer (AO)/TPO to verify the margins of the comparables selected by the assessee and ensure they fall within the permissible range. Thus, the adjustment was deleted, and the ground was allowed. 2. Determination of Arm's Length Price for Oracle Support Services: The second issue pertained to the transfer pricing adjustment of ?44,57,685/- for Oracle support services provided to AEs. The TPO had rejected the comparables selected by the assessee and made an adjustment based on a new set of comparables. The Dispute Resolution Panel (DRP) modified the TPO's filters and included additional comparables, leading to an enhanced adjustment. The Tribunal observed that one of the comparables, Excel Infoways Ltd., showed fluctuating margins and was excluded in previous years. Following the same reasoning, the Tribunal directed the exclusion of Excel Infoways Ltd. from the final set of comparables and instructed the AO to recompute the ALP after providing a reasonable opportunity of hearing to the assessee. Thus, this ground was also allowed. 3. Disallowance of Provision for Privileged Leave Encashment and Sick Leave Encashment: The assessee did not press this ground during the hearing, and hence, it was dismissed as not pressed. 4. Disallowance of Balance Additional Depreciation Claimed under Section 32(1)(iia) of the Act: The final issue involved the disallowance of balance additional depreciation of ?21,56,824/- on assets added to the block of Plant and Machinery during the financial year 2011-12. The assessee had claimed 50% of the additional depreciation in the subsequent year (2013-14) as the assets were used for less than six months in the initial year. The Tribunal referred to the Karnataka High Court's decision in CIT Vs. Rittal India (P.) Ltd., which held that the balance additional depreciation could be claimed in the subsequent year. Following this precedent, the Tribunal allowed the assessee's claim for additional depreciation. Conclusion: The appeal of the assessee was allowed on the grounds of transfer pricing adjustments and additional depreciation, while the ground related to leave encashment was dismissed as not pressed. The stay application filed by the assessee was dismissed as infructuous. The order was pronounced on June 6, 2018.
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