9911796707
TMI Blog2012 (8) TMI 326X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the return of income, the A.O. observed that the assessee entered into various international transactions with its Associated Enterprises (hereinafter called "AEs"). The A.O. made a reference u/s 92CA(1) to the Transfer Pricing Officer (hereinafter called "TPO") for the determination of Arm's Length Price (hereinafter called "ALP") in relation to the international transactions. The TPO noticed that the assessee entered into 10 types of international transactions with its AEs. The entire dispute in the present appeal revolves around the first type of transactions being "Receipt of fees towards Information Technology (IT) / Information Technology Enabled Services (ITES)" reported by the assessee at Rs.31,53,20,904. The assessee used Transactional Net Margin Method (hereinafter called "TNMM") for the purposes of determination of ALP. In support of its ALP, the assessee furnished transfer pricing report. All international transactions with its AEs were put in one basket with respect to IT services, IT enabled services (hereinafter called Rs.ITES') and marketing & support services. The TPO observed that the main transactions were of the nature of IT and ITES. On the basis of search ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the Prowess and Capitaline Databases, the TPO, after eliminating certain cases initially chosen, finally short-listed 33 companies which were declared as comparable. The list of such 33 companies with the amount of Turnover and PLI (OP to TC) in percentage has been tabulated on pages 12 and 13 of the TPO's order. From such tabulation, the TPO worked out average OP / TC margin of the combined IT / ITES comparable companies at 21.99%. This PLI was used by the TPO as arm's length margin to work out the amount of the proposed adjustment on account of transfer pricing in assessee's case. Here it is important to mention that the assessee raised various objections to some of the cases chosen by the TPO as comparables. Such objections of the assessee and the remarks of the TPO have been incorporated on pages 13 to 17 of his order. After rejecting the assessee's objections in this regard, the TPO concluded that the comparable companies finally selected by the him, represented the IT/ITES industry in a true sense. In this way, the TPO proceeded to compute the amount of adjustment at Rs.8.86 crore as under:- TABLE - A Income from IT / ITES services (A) 1,054,164,147 Total Costs (B) 93 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Non-AEs was available before TPO as well as DRP. Both the authorities have referred to such details in their respective orders. The figures as so given have not been controverted by any of these authorities. Thus it can be seen that margin in the case of international transactions with AEs stands at 16.77% as against the transactions with non- AEs at 10.80%. The assessee declared arm's length margin on the basis of two years' data at 17.20%, with which the TPO did not agree. In his opinion, and rightly so, the data to be used in analyzing the comparability of an uncontrolled transaction with an international transaction can be the data relating to the financial year in which the international transaction is entered into. This is the prescription of rule 10B(4). If we exclude the other year's profit margin from average of the 43 comparable cases taken note of by the assessee in its transfer pricing study, the average profit margin comes to 17.36%. This fact is verifiable from page 5 of the TPO's order. The TPO chose three cases from the assessee's list of 43 comparable cases and found out 30 cases at his own, which in his opinion were comparable. On the basis of final list of suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... educe the due tax in India. That is the reason for which the transactions with non-AEs have been excluded from the ambit of Chapter X of the Act. 8. Coming back to the facts of the instant case it is observed that the addition of Rs.8.86 crore has been made by the AO on the basis of the adjustment proposed by the TPO on the international transactions not only with AEs but non-AEs as well. This course of action has no force of law. When we concentrate on the international transactions of the assessee with its AEs, it can be observed that the margin from OP/TC comes to 16.77%. On the other hand, the TPO determined the average ratio of OP/TC at 21.99% from his chosen 33 comparable cases. If 5% plus minus margin is allowed in terms of section 92C(2), the arm's length service fee will come at Rs..115.90 (Rs..100 + Rs..21.99 = Rs..121.99 minus Rs..6.09 [5% of Rs..121.99] ). As against this, the service fee charged by the assessee is Rs..116.77 (Rs..100 + Rs..16.77 [16.77% of Rs..100] ). Thus it can be seen that the arm's length service fee at Rs.115.90 is less than that charged by the assessee at Rs.116.77. The above percentages when applied to the actual figures, give the following res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ptember, 2010, a copy of which is available on page 268 onwards of the paper book. These 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. None of these authorities have adversely commented on such allocation. It, therefore, implies that they accepted these figures as correct. 11. The other contention of the learned Departmental Representative is again devoid of any force. The TPO finally chose 33 uncontrolled comparable cases on the basis of their revenues from IT/ITES. If we peruse Table-A, it can be seen that such 33 comparable cases have been broadly classified in two classes viz., Segment and Total. For example, the comparable case given by TPO at Sr.nos.5, 6, 7, 8 etc. have been marked with "Seg." which represents the segmental results from IT/ITES. The other cases are those in which there is no separate identification. These cases include Ace Software Limited at sr.no.1, Allsec Technologies Ltd. at sr.no.2, Infosys Limited at sr.no.17, Aztec Software Limited at sr.no.14 etc. These are the companies which are exclusively engaged in rendering IT/ITES. To contend that the TPO wron ..... X X X X Extracts X X X X X X X X Extracts X X X X
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