9911796707
TMI Blog2014 (12) TMI 134X X X X Extracts X X X X X X X X Extracts X X X X ..... verseas associated enterprises within the group. Assessee is registered with the Software Technology Parks of India (STPI) Scheme of Govt. of India as a 100% EOU). For the AY under dispute, assessee filed its return of income on 23/11/2006 declaring 'NIL' income after claiming deduction u/s 10A of the Act. During scrutiny assessment proceeding, AO noticing that international transactions entered into by assessee during the year has exceeded more than Rs. 5 crores, made a reference to the Transfer Pricing Officer (TPO) for determination of Arm's Length Price (ALP). In course of proceeding, the TPO examined the TP document of the assessee and other relevant materials and noticed that during the relevant previous year assessee had the following revenue from international transactions: 1) Software Development Services - Rs. 90,23,79,989 2) Receipt of reimbursement of employee travel expenses - Rs. 9,15,46,361 3) Fixed assets - Rs. 2,42,463 On going through the TP study of the assessee, TPO noticed that assessee has adopted Transaction Net Margin Method (TNMM) as most appropriate method and after conducting a search in the data bases in ITES category has selected 45 comparables with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under the MAP. Assessee brought it to the notice of CIT(A) that they, in principle, have stated before the AO that they are in agreement with the resolution reached between US and Indian Competent authorities. It was also brought to the notice of the CIT(A), assessee to that effect has filed a letter dated 09/11/10 before AO confirming their acceptance of the MAP resolution. As mentioned by CIT(A) in para 4.2 of his order, since assessee wanted to withdraw their ground on TP adjustment and wanted to pursue the appeal on other issues only, the CIT(A) dismissed the ground relating to the addition made of Rs. 8,95,20,495 on account of TP adjustment. Relevant portion from the order of the CIT(A) extracted for the sake of convenience: "4.41 After considering such submissions of the appellant, `made vide their said letter filed in this office on 09/11/2010 and the above report of the AO confirming acceptance by the appellant of the said resolution reached between the US and Indian Competent authorities, in terms of section 90 of the Act read with Article 27 of the DTAA between India and USA and having regard to the provisions of Rule 44H of Income Tax Rules, 1962, the entire ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justment in respect of international transaction with Virtusa, UK also, the same needs to be adjudicated upon. Further, learned AR challenging the TP adjustment in respect of ALP of the international transaction with Virtusa, UK submitted that the TPO after rejecting the TP documentation of the assessee has undertaken search process and selected 17 comparables for analyzing the arm's length margin. Learned AR submitted that out of 17 comparables, though 10 are acceptable to the assessee, but, seven companies selected by the TPO are not comparable to the assessee under any circumstances. The comparables objected to by the assessee, in the grounds originally raised as well as in the course of hearing before us are as under: 1. Exensys Software solutions Ltd. 2. Sankhya Infotech Ltd. 3. Four Soft Ltd. 4. Thirdware Solutions Ltd. 5. Bodhtree Consulting Ltd. 6. Satyam Computer Development Services Ltd. 7. Infosys Technologies Ltd. Learned AR objecting to selection of the aforesaid comparables submitted that all these comparables in different orders of the Tribunal have been held to be uncomparable to a software development services provider. In this context, learned AR specifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reached by the US and Indian Competent Authorities in terms of section 90 of the Income-tax Act. 1961 (,the Act') read with Article 27 of DTAA; In this regard. we would like to confirm that the Company is in agreement with the resolution reached between the US and Indian Competent Authorities. Further, we wish to submit that the Company had preferred an appeal before the Commissioner of Income-tax (Appeals) Hyderabad for the Assessment Year ('AY') 2005-06 against the following adjustments made in the assessment order- a. Adjustment to Arm's Length Price under section 92CA of the Act of Rs. 8,95,20,495; b. Exclusion of communication expenses of Rs. 2,33,80,78. Insurance charges of Rs. 16.70.399 and TP adjustment of Rs. 8.95,20,495 from the export turnover c. Addition of other income of Rs. 362,797 to the total turnover, d. loss on sale of assets, provision for gratuity and disallowances under section 438 & 40(a)(ia) have not been added to the profits for arriving at income from business for Rs. 67,52,963 e. Error in computation of income from business. The learned AO deducted the 10A deduction amount computed from the business profits computed by the Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... US entity of Rs. 78,30,10,895 out of the total operating cost of Rs. 84,32,16,557, which works out to 92.86%. From the aforesaid facts, it appears that MAP resolution is in respect of 92.86% of the operating cost which relate to transactions with Virtusa, USA, thereby giving credence to the fact that balance 7.14% of the operating cost relates to international transaction with other entities i.e. Virtusa, UK. However, since the CIT(A) by taking into cognizance asesssee's letter, dismissed the ground relating to TP adjustment, these facts were not at all examined. Further, it is brought to our notice that assessee also filed a petition u/s 154 of the Act before the CIT(A) seeking rectification of the order which is still pending. In the aforesaid circumstances, we are of the view that the matter needs to be examined by CIT(A) on the issue of TP adjustment of Rs. 63,91,764, which as claimed by assessee, relates to transactions with Virtusa, UK. Accordingly, we remit the issue back to the file of the CIT(A) for deciding afresh after considering all facts and materials to be submitted by assessee as well as available on record and after due opportunity of being heard to the assessee. W ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
