9911796707
TMI Blog2015 (4) TMI 1139X X X X Extracts X X X X X X X X Extracts X X X X ..... (2,996,900)and loss from system and training segment of USD (2,169,000). So, it is an incorrect observation of the TPO that the reasons for the loss of the parent company are on account of segments and not the content segment. In view of the precedents cited in the impugned order, we find that the ld CIT(A) rightly observed that the assessee was justified in reducing idle fixed expenses of 3,87,30,000/- from the total operating expenses and thereby arriving at net operating expenses of 18,55,63,560/-. Based on such net operating expenses, the net operating profit margin works out to 1,80,16,160/-, resulting in NCP margin percentage of 9.71%. The arithmetical mean of the weighted averages of the comparable companies as compiled by the assessee and as also referred to and accepted by the TPO in para 5. 1 of his order is 10.12%. Since the assessee’s operating margins falls within (+1-) 5% of the arithmetical mean of comparable prices, Ld. CIT(A) has rightly held that the assessee’s International Transactions with its associated enterprises during the year to be at Arm's Length. Consequently the addition of 4,34,12,348/- made to the price of international transaction was directed to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the depreciation being part of total cost. It is therefore held that the price different as computed above is attributable to the main activity of provision of IT Enabled services to the group companies. The price of international transaction as per books of accounts is ₹ 20,27,10,379/- and to bring it back this transaction to arm's sphere its value is enhanced to ₹ 24,61,22,727 and thus an addition of ₹ 4,34,12,348/- to the taxable income of the assessee. In view of provision of chapter X of the I.T. Act, the assessee will not be entitled to benefit of exemption u/s 10A of the Act." 5. In view of above, the difference amounting to ₹ 4,34,12,348/- between arm's length operating profit and adjusted operating profit is added to the income of the assessee company by the AO vide his order dated 20-3-2006. 6. Against the aforesaid order of the Assessing Officer, assessee appealed before the Ld. CIT(A), who vide her Order dated 30.9.2010 has allowed the appeal of the assessee by deleting the addition. 7. Now the Revenue is in appeal before us. 8. Ld. DR relied upon the order of the Assessing Officer and TPO. 9. On the contrary, Ld. Counsel of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A). Since the Parent company outsources one hundred percent of its work it secure from customers to its subsidiaries in India and Asia. The natural outcome is that the volume of business outsourced by the Parent is directly co-related to the volume of business obtained by its customers. From a perusal of the chart below the assessee has been able to demonstrate before the ld CIT(A) and before us that it was receiving consistently jobs from Innodata US, as a percentage of the total revenue of the assessee. 14. Table 6 indicates the revenue of the Group and the appellant for five years, which is as under:- TABLE 6: REVENUES (figures in Rs. million) Year March 2001 March 2002 March 2003 March 2004 March 2005 Revenue (Group) 2,739.70 2,518.99 1,478.07 1,943.29 2,381.01 Revenue (IIPL) 331.50 282.80 202.70 249.40 290.10 % of IIPL revenue over group revenue 12.1% 11.2% 13.7% 12.8% 12.2% 15. Therefore the observation of the TPO that the Parent company has outsourced lower volume of work to the assessee is incorrect. 16. The explanation of the assessee that excess capacities were on account of human resources, computers, infrastructural facilities, electri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue 331.50 282.80 202.70 249.40 290.10 10.10 As shown above, the assessee made significant capital additions in March 2002. But, the revenue in the same year declined as compared to March 2001 of the prior year. Revenue of the Group further declined in March 2003 as compared to the prior year and so did the appellant's revenues. Due to the reduction in revenues, the assessee curtailed fixed asset additions in March 2003. Albeit, the revenue went up in 2004 and 2005, the assessee further curtailed its fixed assets procurement due to its already existing capacity. 17. The observations of the TPO as regards improper Transfer Pricing and that the parent company had passed on part of its losses to the assessee is not based on proper evaluation of facts. A perusal of the table represents the Parent's revenue for seven years starting March 2000: TABLE 7: REVENUES (figures in Rs. million) Year March 2000 March 2001 March 2002 March 2003 March 2004 March 2005 March 2006 Revenue (Group) 1413 2,740 2,519 1,478 1,943 2,381 1, 822 % fluctuation - 94% -8% -41% 31% 23% -23% 18. The ld CIT(A) has noted that in the financial year 2002-2003, Innodata US, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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