9911796707
TMI Blog2014 (4) TMI 475X X X X Extracts X X X X X X X X Extracts X X X X ..... P adjustments confirmed by DRP and the directions which are not complied TPO 2. Other income excluded from the business profit for deduction u/s 10A 3. Disallowance of depreciation on computer peripherals 4. Interest under section 234A, 234B and 234C of the Act. 2. Brief facts are, Hyper Quality (India) Private Limited i.e. assessee is engaged in providing back office support services to HyperQuality Inc., USA in rendering quality evaluation services to its clients. HyperQuality US markets the services in the US and manages customer relationship and for this purpose seeks the support services from HyperQuality India. The US customers post calls for evaluation on their dedicated File Transfer Protocol (sFTP) in US, which are downloaded f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other additions has been affirmed. Aggrieved assessee is in appeal before the ITAT. 5. The appellant being a contract service provider to its US based parent company, bills its parent company at a total cost plus of 11%, which is based on the commercial character of the transaction of service it delivers to its AE. Assessee conducted a transfer pricing study by an independent external professional (BSR & Co.), their report is based on appropriate industry scenario and the compliance of Arm's Length Pricing (ALP) by the appellant. 6. During the course of the assessment proceedings, ld TPO objected to the ALP worked out on the Profit Split Method (PSM) and proposed to apply Transactional Net Margin Method (TNMM) and was asked to provide the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant to shift profit out of India. Further, the fact that the appellant company is entitled for tax incentive under section 10A of the Income Tax Act, it is in full business interest of the appellant as well as the AE to allow more profit to the appellant company. Reliance is placed on DCIT vs. Indo American Jewellery Ltd ( AIT-2010- 219-ITAT), the Mumbai Income Tax Appellate Tribunal ("Tribunal"/"ITAT") (page 432 to 442) holding that unless proper method is followed, comparables are chosen and selected after doing a proper FAR study as well as adjustments are made to the extent possible it would be unfair to summarily reject the transfer pricing analysis made by the assessee. The relevant paragraph of the order is as below. "We also f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come, Transfer Pricing provisions being machinery provision shall not apply. 11. It is not disputed that assessee is a captive service provider to its AE in US who is providing call evaluation and monitoring services to other call centers. The appellant's business is experimental and new in this line and has therefore the hardship to penetrate the market and create demand for its service. This is the reason for thin business and lack of demand has resulted in no other players venturing into this kind of business. Thus there is no other company in the market which can be compared with the appellant company in terms of its business functionality. In the absence of an appropriate comparable to benchmark the financial result that too to a 10A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adopted Operating cost to Operating Expenses (OP/OE). The Ld. DRP on submission by the appellant has directed (Paragraph 3.2 of its order dated 3rd September, 2011) the TPO to revisit the case of the appellant and re compute the ALP accordingly. The Ld. TPO has failed to follow the direction of the DRP while passing its final order dated 28th October, 2011. 14. Apropos Other income excluded from the business profit for deduction u/s 10A ld. counsel contends that even the profits are increased assessee being eligible to exemption u/s 10A entire exercise becomes tax neutral. Without prejudice it is prayed that these additions be treated as exempt accordingly. 15. Disallowance of depreciation on computer peripherals (Ground No. 4). The UPS a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India. iii. The Far has not been properly evaluated by TPO and DRP. iv. Proper justifications for applying TNMM method have not been assigned by lower authorities. v. No objective justifications are provided by lower authorities as to why and how, PSM method applied by assessee in the above peculiarities of business was not an appropriate method. 19. Assessee's reliance on the ITAT judgments in the case of DCIT vs. Indo American Jewellery Ltd; CIT Vs. KRMTT Thiagaraja Chetty & Co. Morvi Industries Ltd. Vs. CIT (supra) is well placed which we respectfully follow. In view thereof we deleted the TP adjustments added to the income of the assessee. 20. Apropos the issue of UPS and computer peripheral, respectfully following Hon'ble Delhi H ..... X X X X Extracts X X X X X X X X Extracts X X X X
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