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TMI Blog2016 (9) TMI 403X X X X Extracts X X X X X X X X Extracts X X X X ..... of the TPO/AO for fresh analysis on the lines between US and non-US transactions and if it is found that factors influencing the price are similar between US and non- US transaction, the price adopted for US transactions may be adopted for non-Us transactions also. Before we part with, we must make it clear that it is open to the TPO to examine the validity of the proposition that price adopted under MAP mechanism can be adopted in respect of other countries also where MAP was not resorted to. Reduction of telecommunication expenses export turnover - Held that:- As now the law is quite settled that while reducing telecommunication expenses from export turnover, the same should also be reduced from the total turnover on the reasons of parity as held by the jurisdictional High Court in the case of CIT vs. Tata Elxsi Ltd. (2011 (8) TMI 782 - KARNATAKA HIGH COURT ). Accordingly, we direct the TPO/AO to reduce the telecommunication expenses from the export turnover as well as the turnover while computing deduction u/s 10A of the Act. - IT(TP)A No.1302/Bang/2010 - - - Dated:- 22-7-2016 - SHRI VIJAY PAL RAO, JUDICIAL MEMBER and SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER For Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Honourable DRP and the learned AO have grossly erred in combining the transactions carried out by the appellant in the Shared Services segment with the transactions carried out in the Call Centre services segment. b) The Honourable DRP and the learned AO have erred in not appreciating the nature and type of the activities conducted by the Shared Services segment vis-a-vis the Call Centre services segment. Notwithstanding the above, a supplementary analysis has been carried out by the appellant using the Transaction Net Margin method (hereinafter referred to as TNMM ) as an alternative method to test the international transactions. The following common conceptual objections arises Common Conceptual Objections - for both segments The Honourable DRP and the learned AO grossly erred in upholding the income adjustment proposed by the learned TPO in arriving at the ALP of the international transactions entered into by the appellant. The appellant is in appeal before the honourable bench of the Income Tax Appellate Tribunal (hereinafter referred to as ITAT ) under section 253 (1) (d) against the order passed by the learned AO in pursuance of the directions of the learned Honour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accept a company without relying on the information available in the Annual report, a document that forms part of the public domain. d) The Honourable DRP and the learned AO erred in selecting comparables with different year ending selected by the TPO based on the financial information received pertaining to the period from 1st April, 2005 to 31st March, 2006, using 133(6) replies. The aggrieved appellant proposes that the following companies ascertained as comparables based on the aforementioned dichotomy be rejected: Datamatics Financial Services Limited Goldstone Infratech Limited Spanco Limited 4. Application of the Related Party Transaction (hereinafter referred to as RPT ) a) The Honourable DRP and the learned AO grossly erred in upholding the RPT threshold limit of 25% as arrived at by the learned TPO for the purposes of accepting/eliminating companies as comparables b) The TPO has erred in selecting the aforementioned threshold limit in purely arbitrary, and ad hoc manner, and without any reasonable basis. c) The Honourable DRP and the learned AO have erred in upholding the TPO's threshold limit of 25%, without taking into consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T % 1 R Systems International Ltd 15.39% 5. Use of contemporaneous data a) The Honourable DRP and the learned AO erred in concluding that the appellant ought to have employed contemporaneous data in the preparation of the Transfer Pricing report. b) The Honourable DRP and the learned AO erred in interpreting the word Shall in Rule lOB (4) to mean that data for the same Financial Year in which the international transaction was actually entered into is a mandatory requirement. Also the Honourable DRP and the learned AO ought to have appreciated that the transfer pricing regulations provide contemporaneous documentation to be mandatory, and not use of data for the same financial year. c) The Honourable DRP and the learned AO ought to have appreciated the fact that the objective underlying the use of multiple-year data was to ensure that the outcomes of the international transactions for the year under consideration were based on all the earlier periods which were relevant for determination of transfer price. 6. Market Risk Adjustment should be allowed a) The Honourable DRP and the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Asit C Mehta Financial Services Ltd Goldstone Infratech Ltd Spanco Ltd Ace Software Exports Ltd a) Companies eliminated erroneously citing inadequate information should be accepted as comparables. a) The Honourable DRP and the learned AU have erred in upholding TPO's contention of rejecting the following comparables on the grounds of inadequate information: Nittany Outsourcing Services Pvt. Ltd Cameo Corporate Services Ltd b) The Honourable DRP and the learned AU ought to have appreciated that the learned TPU failed to be consistent in his approach by not issuing the requisite notices under the provisions of Section 133(6) of the Act notices to these companies as well. 10. Datamatics Financial Services Ltd (Datamatics) should be Rejected a) The Honourable DRP and the learned AU have erred in accepting the learned TPU's contention of taking Datamatics as a comparable ignoring the submission made by the appellant. b) The Honourable DRP and the learned AU ought to have appreciated that Datamatics should be rejected based on the following reasons- The company does not have segmental information pertaining to the ITES segmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny are depicting abnormal fluctuations on a year-on-year basis. Percentage of employee cost to revenue is 8.68%, which is below the qualifying percentage of 25% 15. Spanco Limited (Spanco) should be Rejected The Honourable DRP and the learned AO have erred in upholding the learned TPO's contention that Spanco Limited is a comparable company on account of the following reasons: Recourse to the provisions of Section 133 (6) of the Act and such data was not available in public domain. BPO segment comprises of only 38% of the total operating revenue and hence is less than the limit specified by the learned TPO. The company further has forex earnings of 23%, which is less than the limit of 25% adopted by the Transfer Pricing Officer. Trend analysis of the revenue depict an abnormal/supernormal growth for the financial year ended 31st March 2006 vis- -vis 31st March 2005 and 31st March 2004. Percentage of employee cost to revenue is 23%, which is below the qualifying percentage of 25% 16. ACE Software Exports Limited (ACE Software) should be Rejected The Honourable DRP and the learned AO have erred in upholding the learned TPO's contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecific bandwidth capacity which is used for downloading of data/software for carrying out the primary business activity of providing call centre support to the customers of various Dell overseas entities worldwide. The Honourable DRP and the learned DOT has also erred in not accepting the contention of the appellant that the definition of Total Turnover under section 80HHC / 80HHE should be used to compute the deduction under section 1OA of the Act. Notwithstanding and without prejudice to the above, the Honourable DRP and the learned AO further erred in not considering that should a portion of the telecommunication expenses be reduced from the export turnover, such expenses should also be reduced from the total turnover in arriving at the deduction under section 1OA of the Act. The Honourable DRP and the learned AO have erred in not taking cognizance of the decision of the jurisdictional Income Tax Appellate Tribunal, Bangalore in the appellant's own case on an identical issue for the assessment years 2003-04 and 2003-04 vide ITA No. 251 309/Bang/2007 dated 16.11.2007, wherein it has been held that should the expenses be reduced from export turnover then such exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome was taken up for scrutiny assessment by issuing required statutory notice u/s 143(2) of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short]. During the course of assessment proceedings, the Assessing Officer (AO) noticed that the assessee-company had entered into international transactions of call centre and share services with its AE located both in US and non US countries, therefore, referred the matter to the Transfer Pricing Officer (TPO) for the purpose of determining arm s length price (ALP) in respect of reported international transactions. The TPO, vide order dated 30/10/2009 passed u/s 92CA of the Act, proposed TP adjustment of ₹ 136,34,05,692/- under the provisions of sec.92C. Accordingly, the AO passed draft assessment order dated 23/12/2009. After receipt of draft assessment order, the assessee-company filed objections before the Hon ble Disputes Resolution Panel (DRP). The Hon ble DRP had disposed of the objections. The AO finally passed the assessment order u/s 143(3) r.w.s.144C of the Act vide order dated 20/09/2010 incorporating the directions of the Hon ble DRP. 4. Being aggrieved, the assessee-company came in the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en the '96%' and '4%'transactions. 3.5. On the other hand, Ld. CIT-DR, vehemently opposing the arguments of the Ld. Counsel, submitted that there is no concept of determination of ALP under the Mutual Agreement Procedure. The rules and regulations of transfer pricing as prescribed u/s. 92C Chapter X of the Income Tax Act are not applicable under MAP, and therefore, no ALP was determined under MAP, and therefore, assessee cannot claim to take any benefit of the mark-up reached under MAP i.e. @ of 14.38%. Accordingly to him, the ALP should be computed freshly and independently for the remaining 4% transactions, and for this purpose this issue can be sent back to the lower authorities . 7. The assessee-company also raised the following additional grounds of appeal and submitted that the additional grounds of appeal may be admitted as they do not involve investigation of any facts and purely question of law: Additional grounds Issue: Deduction under Section 10A ought to be granted on the increased income determined as per Mutual Agreement between Competent Authorities of India and USA Gist of our submission: 1. Additional Ground of appeal may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er be restored to the file of the TPO/AO for fresh analysis on the lines between US and non-US transactions and if it is found that factors influencing the price are similar between US and non- US transaction, the price adopted for US transactions may be adopted for non-Us transactions also. 10. Before we part with, we must make it clear that it is open to the TPO to examine the validity of the proposition that price adopted under MAP mechanism can be adopted in respect of other countries also where MAP was not resorted to. 11. As regards reduction of telecommunication expenses export turnover, now the law is quite settled that while reducing telecommunication expenses from export turnover, the same should also be reduced from the total turnover on the reasons of parity as held by the jurisdictional High Court in the case of CIT vs. Tata Elxsi Ltd. (349 ITR 98). Accordingly, we direct the TPO/AO to reduce the telecommunication expenses from the export turnover as well as the turnover while computing deduction u/s 10A of the Act. 11. As regards the additional grounds of appeal raised by the assessee-company, there is no dispute about proposition canvassed by the learned c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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