9911796707
TMI Blog2015 (11) TMI 1545X X X X Extracts X X X X X X X X Extracts X X X X ..... ies, employees and business) from e4e Tech Support ((India) Pvt.Ltd. a group company, with effect April 1, 2007 on slump sale basis. Consequent to the same, the company has also started rendering infrastructure management services, which is in the nature of Information Technology enabled services ("ITES") e4e India renders such IT enabled services to its AE's and other third parties. 3. For the assessment year 2010-11, relevant to the financial year 2009-10, the assessee e-filed its return of income on October 15,2010 declaring a taxable income of Rs. 23,945,375/- 3.1 The case was selected for scrutiny assessment proceedings and during the course of the proceedings for the AY: 2010-11, the international transactions entered into by the assessee were referred by the learned DCIT, Circle-11(3) to the DCIT (Transfer Pricing)-IV for determination of Arm's Length Price (ALP) under Sec.92CA of the IT Act, 19161 ( The Act). 3.2 The company has adopted transactional Net margin method (TNMM) as the most appropriate method (MAM) to arrive at the ALP which is evident from the Transfer Pricing (TP) Documentation maintained for AY: 2009-10. The Profit Level Indicator (PLI) adopted by the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected to reject Sundaram Business Services Ltd. 6. With regard to the adjustment made by the AO of Rs. 1,846,246 in the DAO for the deduction claimed u/s 10A of the Act, the DRP directed the AO to reduce the telecommunication expenses incurred in foreign currency from both export turnover as well as total turnover. Pursuant to the above directions , the AO passed the final assessment order under section 143(3) r.w.s.144C of the Act, dated December 30,014 (received on January 6, 2015) determining the total income of the assessee at Rs. 100,873,056/- and raised a tax demand of Rs. 42,605,150/-. In the final assessment order the AO has made the following adjustments. Sl.No Additions/Disallowance Amount(RS.) 1 TP adjustment 76,342,156 2 Excess claim under section 10A of the Act 585,520 Total additions/disallowances 76,927,676 6.1 Aggrieved by the said final assessment order, the assessee has filed this appeal before the ITAT raising the following grounds; "a. The assessment order dated 30-12-2014 passed by the AO/TPO pursuant to the directions passed by the DRP is not in accordance with the law and is contrary to the facts and circumstances of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... j. The DRP and the AO/TPO erred in law and on facts in upholding the arm's length margin arrived at by the learned TPO without granting the benefit of the proviso to section 92C(2) of the Act. Adjustments under section 10A of the Act k. The DRP and the AO have erred in law and on facts in concluding that the telecommunication expenditure and expenditure incurred in foreign currency are to be excluded from the export turnover for the purpose of computation of relief under section 10A of the Act". The assessee also filed Additional grounds which are as under; "a. Without prejudice to the grounds raised in the appeal set, after realizing the fact that the assessee renders similar service to both its Associated Enterprises (AE) and its non-AEs for the subject year (this is apparent from the transfer pricing order), the learned Transfer Pricing Officer (TPO) ought to have applied internal transactional net margin method (internal TNMM) for determining the ALP of the assessee. The learned Dispute Resolution Panel (DRP) has erred in upholding the approach followed by the TPO and; b. The DRP has erred in suo-moto rejecting Sundaram Business Services Limited as a comparable to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lled transaction. The word 'comparable' may encompass internal comparable or external comparable. There is cue in the rule itself as to preference to be given to internal comparable uncontrolled transactions vis-à-vis externally comparable uncontrolled transactions. It is because the delegated legislature has firstly referred to the net profit margin realized by the enterprise (internal) from a comparable uncontrolled transaction and, thereafter, it points towards net profit margin realized by an unrelated enterprise (external) from a comparable uncontrolled transaction. Thus where potential comparable is available in the shape of an uncontrolled transaction of the same assessee, it is likely to have higher degree of comparability vis-â-vis comparables identified amongst the uncontrolled transactions of third parties. The underlying object behind computing ALP of an international transaction is to find out the profits which such enterprise would have earned if the transaction had been with some third party instead of related party. When the data is available showing profit margin of that enterprise itself from a third party, it is always safe and advisable to have reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 61,981,771/- under section 92CA of the Act. 8.3 Taking the above order into consideration, the AO concluded the assessment proceedings and passed a draft assessment order on February 20,2014 (served on Feb.24, 2014) in the DAO, the AO reduced telecommunication expenses of Rs. 13,090,703/- and travelling expenses incurred in foreign currency of Rs. 731,249 from the adjusted export turnover and added similar amounts to the adjusted total turnover of the company. Based on such adjustment, the AO re-computed the relief under section 10A of the IT Act at Rs. 25,131,114/- as against a claim of Rs. 26,977,360/- thereby resulting in an upward adjustment of Rs. 1,846,246/- to the total income of the company. The AO was of the view that the aforementioned expenses need to be reduced only from the ET and no such reduction was warranted from the ET. As per the AO, even though the subject issue of reduction of expense from both ET and TT has been decided by the jurisdictional Karnataka High Court in favour of the assessee, since the revenue has preferred an appeal against the said decision and the issue has not reached finality, the adjustment has been proposed. 8.4 M/s e4e filed its ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee craves leave to add, alter, amend and/or delete any of the grounds mentioned above". 9. The learned counsel for the assessee submitted before us that the telecommunication expenses and travel expenses incurred in foreign currency should not be reduced from both ET and TT as the same have not been incurred towards rendering of technical services outside India as contemplated under section 10A of the Act. 9.1 The learned counsel for the assessee submitted that the second limb of the definition of ET under section 10A of the Act, provides for exclusion of expenditure incurred in foreign currency in connection with providing 'the' technical services outside India. The pr4sence of the word 'the' before the term 'technical service' indicates that the assessee needs to provide a particular or specific technical service outside India and expenses incurred in foreign currency in providing those technical services are to be excluded. Accordingly, this clause of exclusion of foreign currency expenditure would be applicable only if the assessee is providing technical services outside India. The above argument has been upheld in the following decisions; Jurisdictional Banga ..... X X X X Extracts X X X X X X X X Extracts X X X X
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