9911796707
TMI Blog2017 (2) TMI 1446X X X X Extracts X X X X X X X X Extracts X X X X ..... brevity. 3. Brief facts of the assessee company of M/s Development Consultants Private Limited (hereinafter referred to as 'DCPL'), are that the assessee is a closely held private limited company and parent company of the Development consultants (DC) group. The DCPL has subsidiaries in the Bahamas and United States of America ( New York and Philadelphia). Moreover, the DCPL has a 100% subsidiary in India- Data Core (India) Private Limited. The DCPL is the focal point for all design engineering activities. It directly executes all domestic projects and Group operations assigned to it. The DCPL is an India-based, transactional Consultig Engineering Group. It renders concept-through completion services covering planning, technology selection and development, design engineering, procurement assistance, construction supervision and project management services, for implementing diverse core-sector and high technology projects around the world. The DCPL has a wholly owned subsidiary in the Bahamas, M/s Development Consultant International Limited (DCIL). The DCIL in turn has a wholly owned subsidiary in the United States of America, M/s AMDC Inc. USA. The AMDC Inc. USA has two wholly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... international transaction. The assessee provides such services not only to its AE's but also to third parties. The margins (Gross Profit/Direct & Indirect cost of production or 'GP/DICOP') earned by the assessee in transactions with DClL & TKC was compared with margins earned by it in transactions with third parties. The results of analysis have been provided in the table below: DESCRIPTIOIN TKC DCIL OTHERS Design Design Design Income 45.32 280.54 324.52 Less:Salary 3.57 27.28 56.37 Less Direct travel 35.90 52.64 Less Direct Cost Total direct & indirect cost 3.57 63.18 109.01 Gross Margin 41.75 217.36 215.51 GP/DICOP 1169.47% 344.03% 197.70% Less:Overheads 5.20 39.72 82.07 Operating profit 36.55 177.64 133.44 Total Cost 8.77 102.90 191.08 OP/TC 416.76% 172.63% 69.83% The results of the analysis show that the arm's length GP /DICOP earned by the assessee in transactions with third parties is 197.70% whereas the assessee earned a profitability at the gross level of 1169.47% on its international transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct on our adjudication process, because the issue before us, in this appeal, is to decide whether Cost Plus method (CPM) or Resale Price Method (RPM) would be applicable to the assessee. Based on the order of the Transfer Pricing Officer U/s 92CA(3) of the I.T. Act, the Assessing Officer made the addition of Rs. 275.54 lakhs. 6. Aggrieved from the order of the Assessing Officer, the assessee filed an appeal before the ld. Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals), observed that since the assessee company was engaged in similar/identical business activities with its same AEs in the assessment years 2003-04 & 2004-05 and the facts of the case were duly covered, in assessee`s own case, in the appeal no. ITA Nos. 79 & 80/Kol/2008, Hon'ble ITAT 'A' Bench, Kolkata for the assessment years 2003-2004 & 20042005 and the AO had not brought on record any new facts, based on the ITAT judgement. Accordingly, the ld CIT(A) directed to the AO to compute ALP on a transaction-by-transaction basis. The ld CIT(A) also supported the judgment of the Hon`ble ITAT in assessee`s own case (supra), for international transactions of the assessee with ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of sale for DClL) 280.54 lacs Add: Gross margin earned by the DClL on sale of such services @159.67% on cost 447.94 lacs Sales (Cost + Gross margin) 728.48 lacs GP/Sales 61.49% Arm's Length GP/Sales 25.69% Arm's Length GP/Sale considering 5% 26.97% Arm's Length Gross margin 196.47 lacs Arm's Length cost of sale 532.01 lacs Deficit in fees paid to the assessee by DCIL 251.47 lacs ( 532.01 -280.54) This way, the ld.CIT (A) calculated the ALP at Rs. 251.47 lakhs and he, accordingly, directed the AO to calculate the ALP at Rs. 251.47 lakhs, in respect of international transactions with DClL. The ld.CIT(A), also sated that the ALP determined in respect of the international transactions of the assessee with AE's namely The Kuljian Corporation, USA and Datacore System INC, USA by the assessee is correct. However, the ALP determined by the assessee in respect of DClL is not correct and accordingly ALP should be recomputed at Rs. 251.47 Lakhs, as explained in the above cited computation, done by the ld.CIT(A). In fact, the ld. AR for the assessee submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceeding under Section 92CA (3) of the Income-tax Act. 5. That the assessee company craves leave to add to and/or alter, amend, modify or rescind the grounds hereinabove before or at the hearing of this appeal. 8. The grounds of appeal taken by the Revenue and the cross objections raised by the assessee relate to the same issue, that is, whether cost plus method (CPM) or Resale Price Method ( RPM) should be applied to determine the Arm`s Length Price of transactions with DCIL. The Solitary grievance of the Revenue is that the cost plus method (CPM) should be applied to determine the Arm`s Length Price (ALP) whereas the solitary grievance of the Assessee is that Re-Sale Price Method (RPM) should be applied to compute the ALP. 8.1 Before us, the Ld DR for the Revenue has submitted that the assessee has himself accepted the Cost Plus Method (CPM) and Transactional Net Margin Method (TNMM) as most appropriate method in his Transfer Pricing Study Report (TP-Study Report), submitted by him before the Transfer Pricing Officer (TPO). Therefore, the CPM method recommended by the TPO is the appropriate method, which is based on the TP study report of the assessee. This way, the ld DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.69% is lower than the GP/Sales of DClL for the year ended 31st December 2004 of 52.91% explained in the table above, which clearly indicates that DClL has retained more than the arm's length margin. However, the TPO while passing the order for the assessment year under consideration chose to ignore order of Hon'ble Tribunal and following its own approach which is not justifiable. The ld AR for the assessee mentioned that verdict of jurisdictional Tribunal is binding on the authorities below i.e. the assessing and the appellant authority as per the judgment of Hon`ble Supreme Court in the case of Union of India vs. Kamalakshmi Finance Limited - AIR 1992 SC 711. The Ld AR for the assessee also pointed out that ld CIT(A) accepted the judgment of the Hon`ble ITAT with some modification and computed the ALP in respect of transactions with the DClL based on Re-Sale Price Method (RPM ) as under: Sale Value of the assessee (Cost of sale for DClL) 280.54 lacs Add: Gross margin earned by the DClL on sale of such services @159.67% on cost 447.94 lacs Sales (Cost + Gross margin) 728.48 lacs GP/Sales 61.49% Arm's Length GP/Sales &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erprise from the associated enterprise;" The ld AR for the assessee pointed out that ALP computed by the CIT (A) by following contemporary resale price method is not in accordance with Rule 10B (1) (b) of the Income Tax Rules. The said Rule 10B (1) (b) defines the Resale Price Method, which is applicable to the assessee under consideration but the ld CIT (A) ignored it and applied his own method which is not applicable in Indian scenario. Therefore, ld CIT(A) has deviated from the accepted method in India. Hence, ld AR for the assessee has requested the Bench to direct the ld.CIT(A) to follow the method accepted by the Hon`ble Tribunal in assessee`s own case (supra). 8.3. Having heard the rival submissions, perused the material available on record, we are of the view that there is merit in the submissions of the assessee, as the propositions canvassed by the ld. AR for the assessee are supported by the judgment of Hon`ble ITAT Kolkata in assessee`s own case (supra). As ld AR for the assessee has rightly pointed out that method adopted by the ld. CIT(A) to compute ALP neither falls in CPM Method nor in RPM Method. The Hon'ble Income Tax Appellate Tribunal-Kolkata, in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee (Cost of sale for DClL) 280.54 lacs Add: Gross margin earned by the DClL on sale of such 447.94 lacs services @159.67% on cost Sales (Cost + Gross margin) 728.48 lacs GP/Sales 61.49% Arm's Length GP/Sales 25.69% Arm's Length GP/Sale considering 5% 26.97% Arm's Length Gross margin 196.47 lacs Arm's Length cost of sale 532.01 lacs Deficit in fees paid to the assessee by DCIL 251.47 lacs ( 532.01 -280.54) We observed that the above cited method adopted by the ld CIT(A), to compute the ALP is not accepted because of the following reasons: (1). First of all, as we have seen that ld CIT(A) has ignored the provisions of Rule 10B (1) (b) of the Income Tax Rules, which contain the definition of RPM. (2).The ld.CIT(A) referred the contemporary resale price and stated that this method is internationally recognized in developed countries. The ld CIT(A) failed to explain that how and why his method is recognized internationally, he failed to bring any evidence and citation on record. (3) The Ld.CIT (A) failed to demonstrate that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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