9911796707
TMI Blog2011 (5) TMI 222X X X X Extracts X X X X X X X X Extracts X X X X ..... ars. FAR analysis - Determination of ALP - The Ld. CIT(A) has erred in not affording any opportunity to the TPO before proceeding to compute the margin of the comparables and the assessee." - the contention of the appellant that 'FAR analysis' forms the basic foundation on which the ALP is determined and its importance just cannot be overemphasized - The appellant has been provided full opportunity during the course of appellate proceedings , to present the facts of the case, including FAR analysis and on consideration of same the ALP has been determined in subsequent paras." Whether ALP of international transaction between the assessee and its AE can exceed a total amount of revenue earned from clients by the assessee and its associate enterprises together - he same issue was decided in favour of the assessee in the assessment year 2003-04 by the CIT(A) which was confirmed by the Tribunal and since there was no consequent change in facts of the current year, the CIT(A) held that 1.40% of the revenue to be retained by the associate enterprises is adequate to compensate it for its marketing activities and the assessee is entitled to 98.6% of the amount earned by associated enterpris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the light of the decision of Hon'ble Supreme Court in the case of Liberty India v. CIT [2009] 317 ITR 218/183 Taxman 349. The learned CIT(A) in the current assessment year has decided this issue in the light of the order of Tribunal for the earlier year where the reliance on the decision of Hon'ble Supreme Court in the case of Liberty India (supra) was placed. 5. Respectfully following the Tribunal's order in the earlier year's order, we decide this issue against the assessee by upholding the order of the learned CIT(A). Thus, the grounds raised by the assessee are rejected. 6. In the result, the appeal filed by the assessee stands dismissed. ITA No. 116/Del/2011: 7. Now we shall come to the appeal filed by the revenue. 8. The effective grounds raised by the revenue are as under :-- "1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 12,37,05,850 made on account of difference of Arm's Length Price. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not affording any opportunity to the TPO before proceeding to compute the margin of the comparables and the assessee." 9. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rables selected by him selected OP/TC as a PLI for the bench marking of the international transaction entered into by the assessee. The TPO then computed the arm's length price at Para 8 on page 23 of his order as under:-- TC of assessee = Rs.58,85,00,000 Arm's Length revenue = Rs.122.21% *58,85,00,000 Rs.71,92,05,850 Book value of revenue = Rs.59,55,00,000 Difference of arm's length revenue and book value of international transactions = Rs.12,37,05,850 Arm's length value of international transactions Rs.57,41,44,735+Rs.12,37,05,850 = Rs.69,78,50,585 The TPO further held that since the percentage of adjustment of arm's length value was 17.7% being more than 5%, Proviso to section 92C(2) providing benefit of 5% was not attracted. The TPO, therefore, suggested an adjustment of Rs.12,37,05,850. 13. Being aggrieved, the assessee preferred an appeal before the learned CIT(A). 14. The learned CIT(A) framed following issues for adjudication in relation to transfer pricing:-- 1. Whether AO/TPO have erred while determining the ALP by taking appellant as the tested party as opposed to the analysis carried out by the appellant in which RCS was accepted as the tested party? 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, including FAR analysis and on consideration of same the ALP has been determined in subsequent paras." Having observed so, the learned CIT(A) decided this issue against the assessee for statistical purposes. 17. Regarding issue No.3 whether ALP of international transaction between the assessee and its AE can exceed a total amount of revenue earned from clients by the assessee and its associate enterprises together, the learned CIT(A) has held and observed as under:-- "23. The crux of the contention raised by the appellant is that in a revenue sharing arrangement between the entities, what may be questioned is the proportion of sharing between the entities and not the absolute amount of revenue itself which is subject of sharing because that is beyond the control of either the appellant or its associated enterprise(s) . I would agree with such a view because the prevailing Transfer Pricing Regulations only require us to analyse the transactions between associated enterprises and not the transactions with third parties since extraneous factors cannot be controlled. Moreover, if an entity is unable to earn adequate profits on account of legitimate business exigencies and not du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e No. 4, the learned CIT(A)'s order is as under :-- "28. I have carefully gone through the various contentions and submission made by the appellant. Though there is merit in the appellant's argument that there is no tax benefit being obtained by the appellant though shifting of profits, it cannot be the only basis to accept appellant's contentions in this regard. It is well understood that one associated enterprise can try to use its influence to determine the transaction in a manner prejudicial to the interests of the other associated enterprise because of several reasons. 29. The issue relating to use of current year data is well settled now in view of the decision of Bangalore Tribunal in the case of Aztec Software & Technology Services Ltd. and reaffirmed in the case of Mentor Graphic Pvt. Ltd. Even in the recent order dated 10-2-2009 in the case of Honeywell Automation India Ltd. v. DCIT the ITAT Pune Bench (2009-TIOL-104-ITAT-Pune) has also reaffirmed this issue. Thus, it is held that the TPO is correct in using single year data while determining arm's length price in the case of the appellant. 30. As regards contention of the appellant that transaction of the appellant wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ALP as under :-- "Re-computation of ALP 33. To summarize, the ALP determined by the AO/ TPO needs to be recomputed in view of matters adjudicated above. Therefore, the ALP is recomputed after making the following adjustments: 1. The four comparables chosen by the TPO for determining the ALP are found appropriate. 2. A suitable working capital adjustment has been made to adjust the operating margin of the abovementioned remaining 4 comparables. The final operating margin of the comparables, after giving effect to the said working capital adjustment comes to 24.13%. The detailed computation of the operating is given at Annexure 1. The computation of ALP on the basis of aforesaid average operating margin of comparables is given hereunder: Particulars Amount Total Operating Cost of the appellant 58,85,15,696 Less: Operating Cost incurred in relation to service to third parties (3.28%) 1,93,03,315 Net Operating cost in relation to the International transaction with GVI(A) 56,92,12,381 Arm's Length margin that should have been earned by the appellant i.e. 24.13% of the Operating cost (B) = (A)* 2.13% 13,73,50,98 Arm's Length Value of the International Transaction undertak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the difference of Rs. 2,90,74,219 between the ALP determined by him at Rs. 60,32,18,954 and the value of transactions declared by the assessee at Rs. 57,41,44,735 did not exceed 5% of the ALP determined by him. 23. Now, the department is in appeal before us. 24. In the course of hearing of this appeal, the learned counsel for the assessee pointed out that the various issues decided by the learned CIT(A) in relation to transfer pricing matter had come for consideration in earlier 2 assessment years 2003-04 and 2004-05, and the learned CIT(A) has decided this issue in the light of his decision for the earlier years, which has been upheld by the Tribunal vide order dated 17th December, 2009 passed in ITA Nos. 2763 and 2764/Del/2009 and 1432 & 2321/Del/2009 pertaining to the assessment years 2003-04 and 2004-05, a copy of which has been placed at Pages 80 to 111 of the Paper Book dated March 18, 2011 filed by the assessee. 25. The learned DR on the other hand, submitted that though the issues are covered by the decision of Tribunal passed in earlier years where the order of the learned CIT(A) was upheld, the various points were not raised and considered at that stage. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he absolute amount of revenue earned by the assessee that is the subject matter of transfer pricing provisions and what needs to be examined is whether that was earned at an arm's length. l The revenue from the third party might be "beyond control" of the AE but the revenue from the AE was not. And, the law also required that the said revenue should have been at an arm's length. l Therefore, if the observation of the ITAT/CIT(A), that the ALP cannot be more than the total revenue earned by the AE, is disregarded - the order of the CIT(A) is in Revenue's favour and is relied upon." 26. We have heard both the parties and have gone through the orders of the authorities below. We have also gone through the Tribunal's order passed in assessment years 2003-04 and 2004-05. 27. The decision of the learned CIT(A) on the issue that ALP of the international transactions earned by the assessee should be restricted to 98.6% of the total revenue earned by the assessee and its associate enterprises in assessment years 2003-04 and 2004-05 has been reproduced by the Tribunal at Para 13 of its order. The learned CIT(A)'s findings on other issues were reproduced in Paras 14, 15, 16 & 17 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
