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2012 (8) TMI 326 - AT - Income TaxTransfer Pricing - adjustment to ALP - addition - consideration of transactions both with AEs and Non-AEs for the purpose of recommending adjustment - assessee engaged in the development and sale of computer software objected to the comparables chosen - Held that - It is observed that assessee entered into international transactions with its AEs and also non-AEs and transfer pricing adjustment can be made only with reference to the international transactions with the AEs and not non-AEs. It is quite natural also because there can be no scope for arranging the transactions with non-AEs so as to reduce the due tax in India. On Revenue contention of restoring the matter to the file of TPO for a fresh determination of PLI on ground of non-availability of data it is held that facts indicate that the allocation of total revenues and total cost between AEs and non-AEs, was very much available before the TPO as well as DRP and none of these authorities have adversely commented on such allocation. It, therefore, implies that they accepted these figures as correct. Further, TPO finally chose 33 uncontrolled comparable cases on the basis of their revenues from IT/ITES and the companies in fact are those which appear to be exclusively engaged in rendering IT/ITES. It is manifest that the service fee charged by the assessee from international transactions with its AEs is more than the ALP determined by applying the PLI as found out by the TPO and hence no addition/adjustment is called for. We, therefore, order for the deletion of addition - Decided in favor of assessee
Issues Involved:
1. Transfer pricing adjustment under section 92CA(3) of the Income-tax Act, 1961. 2. Charging of interest under section 234A. 3. Charging of interest under section 234B. Detailed Analysis: 1. Transfer Pricing Adjustment under Section 92CA(3): The primary issue in this appeal is the confirmation of an addition of Rs. 8,86,68,683 on account of transfer pricing adjustment. The assessee, engaged in the development and sale of computer software and related services, filed its return declaring a total income of Rs. 87,64,611, which was later revised. The Assessing Officer (A.O.) referred the case to the Transfer Pricing Officer (TPO) to determine the Arm's Length Price (ALP) for international transactions with Associated Enterprises (AEs). The TPO identified 10 types of international transactions, focusing on "Receipt of fees towards Information Technology (IT) / Information Technology Enabled Services (ITES)" reported at Rs. 31,53,20,904. The assessee used the Transactional Net Margin Method (TNMM) to determine the ALP, identifying 43 comparable companies with an average Profit Level Indicator (PLI) of 17.20%. However, the TPO used only the financial year 2005-2006 data, finding an updated margin of 17.36%. The TPO eventually shortlisted 33 comparable companies, determining an average OP/TC margin of 21.99%, leading to a proposed adjustment of Rs. 8.86 crore. The TPO's approach included both AE and non-AE transactions, which was not legally permissible. The transfer pricing adjustment should only refer to transactions with AEs, not non-AEs. The assessee's margin from AE transactions was 16.77%, and when applying the TPO's margin of 21.99% with a 5% tolerance, the arm's length service fee was determined to be Rs. 115.90 crore, compared to the assessee's Rs. 116.77 crore. Hence, no adjustment was warranted, and the addition of Rs. 8.86 crore was deleted. 2. Charging of Interest under Section 234A: Interest under section 234A is charged for late filing of the return of income. The assessee filed its return on 21.10.2006 and a revised return on 24.10.2006, before the due date of 31.10.2006 for the assessment year 2006-2007. Since the return was filed before the due date, no interest under section 234A was chargeable. The tribunal ordered accordingly. 3. Charging of Interest under Section 234B: The issue regarding the charging of interest under section 234B is consequential. The tribunal disposed of this issue accordingly. Conclusion: The appeal was allowed, with the addition of Rs. 8.86 crore being deleted and the interest under section 234A not being charged. The issue of interest under section 234B was resolved consequentially. The order was pronounced on June 20, 2012.
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