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TMI Blog2017 (8) TMI 1627X X X X Extracts X X X X X X X X Extracts X X X X ..... for condonation of delay. We have heard the Ld. Departmental Representative and Ld. Sr. counsel for the assessee. We find that there was sufficient cause for not filing the appeal before the stipulated time. Therefore, we condone the delay and admit the appeal filed by the Revenue. Let's first take I.T.A. No.1218/Mds/2016. 3. Shri N. Venkatraman, the Ld. Sr. counsel for the assessee, submitted that the assessee claimed deduction under Section 10A of the Income-tax Act, 1961 (in short 'the Act') to the extent of Rs. 76,83,44,038/-. In fact, the Assessing Officer allowed the claim of the assessee. However, according to the Ld. Sr. counsel, the Principal Commissioner found that the assessee has two units, namely, 10A eligible unit and non 10A unit. The profit of the eligible 10A unit was 24.6% as against 5.42% in respect of non 10A unit. The Principal Commissioner also found that the assessee was not maintaining any separate books of account for eligible 10A unit. Therefore, according to the Ld. Sr. counsel, the Principal Commissioner concluded that the assessee has declared lesser profit in respect of non 10A unit by reducing the taxable profit by booking excessive expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer to modify the assessment by withdrawing the excess deduction claimed by the assessee under Section 10A of the Act to the extent of Rs. 37,10,94,443/-. 7. We have considered the rival submissions on either side and perused the relevant material available on record. It is not in dispute that the assessee-company is an Indian based multinational company engaged in the business of software development. During the year under consideration, the assessee claimed deduction to the extent of Rs. 76,83,44,038/-. The Principal Commissioner found that the assessee, by booking excessive expenditure in respect of non 10A unit, reduced the taxable profit and increased the eligible 10A unit, thereby the assessee claimed excessive deduction under Section 10A of the Act to the extent of Rs. 37,10,94,443/-. It is not in dispute that the assessee has not maintained separate books of account for the eligible 10A unit and non 10A unit. The Ld. Sr. counsel for the assessee now contends before this Tribunal that non 10A unit includes the unit at USA. When the assessee has non 10A unit at USA, it is not understood as to how separate books were not maintained for USA branch. 8. In the grounds o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igible 10A unit and non 10A unit and in case, no books were maintained for non 10A unit, including the so-called branch in USA, how the assessee was able to prepare separate Profit & Loss account for each unit. The Assessing Officer thereafter shall decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee. 10. In the result, the assessee's appeal for assessment year 2010-11 is partly allowed. 11. Now let's come to Revenue's appeal for assessment year 2011-12 in I.T.A. No.765/Mds/16. 12. The first issue arises for consideration is with regard to convertible foreign exchange not received in India by the due date. 13. We have heard Sh. Pathlavath Peerya, the Ld. Departmental Representative and Shri N. Venkatraman, the Ld. Sr. counsel for the assessee. During the course of hearing, both the Ld. D.R. and Ld. Sr. counsel for the assessee submitted that this issue is covered against the assessee by order of this Tribunal for assessment year 2008-09. In view of the above, this Tribunal does not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. 14. The next issue arises for consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubsidiary companies during the year under consideration. Citibank group has also become assessee's subsidiary company on account of merger of Citibank with Polaris India. However, from 07.05.2010, Citibank ceased to be Associate Enterprise of the assessee since Polaris India dropped its stake below 26% threshold. Citibank projects are generally awarded to various vendors based on competitive bidding irrespective of the Associate Enterprise relationship. 20. The Ld. Sr. counsel for the assessee further submitted that for benchmarking international transaction with overseas subsidiary, the assessee considered Transaction Net Margin Method as the most appropriate method. The assessee considered itself to be a tested party. According to the Ld. Sr. counsel, the assessee selected 22 comparable companies in the transfer pricing documentation with weighted average of operating cost/operating profit at 13.60%. In respect of Citibank group, the assessee benchmarked the international transaction till the time it was related to the assessee. During the assessment proceeding, according to the Ld. Sr. counsel, the assessee revised its segmentation and provided the details of profit of all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be treated as tested party, there should not be any transfer pricing adjustment. The Ld. Sr. counsel further submitted that even the OECD guidelines and the United Nations Transfer Pricing guidelines also provide that least complex entity should be selected as tested party. Once the Associate Enterprise in overseas country being the least complex party is selected as comparable, according to the Ld. Sr. counsel, there is no need for any adjustment for determining the arm's length price. 23. On the contrary, Sh. Pathlavath Peerya, the Ld. Departmental Representative, submitted that under the scheme of Income-tax Act, the transaction of assessee with Associated Enterprise outside the country has to be tested and compared with transaction of other comparable company. Referring to Rule 10B(1) (e) of Income-tax Rules, 1962, the Ld. D.R. submitted that the net profit margin realized by the enterprise from an international transaction entered into with an Associated Enterprise needs to be computed in relation to cost incurred or sales effected or assets employed by the enterprise or having regard to any other relevant base. The enterprise referred in Rule 10B(1)(e) always refers the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base ; (ii) the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base ; (iii) the net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market ; (iv) the net profit margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in subclause (iii) ; (v) the net profit margin thus established is then taken into account to arrive at an arm's length price in relation to the international transaction." 25. In this case, Transaction Net Margin Method is the most appropriate method adopted both by the assessee and Transfer Pricing Officer. A ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reading of Section 92F(iii) of the Act and Rule 10B(1)(e) of the Income-tax Rules, 1962 shows that the net profit margin of the enterprise which is in India, has to be determined by applying the Transfer Pricing Regulation. In fact, Mumbai Bench of this Tribunal in Aurionpro Solutions Ltd. (supra) examined this issue and found that the tested party for the purpose of determination of arm's length price is always the assessee and not the Associated Enterprise. In fact, the Mumbai Bench at 8.7 of its order observed as follows:- "8.7 Under the Transfer Pricing Regulations, an international transaction has to be compared with an uncontrolled transactions between unrelated parties which means that an international transaction is tested with the transaction, if the assessee could have entered into a similar transaction with unrelated third party and thereby the income of the assessee would have earned from a similar transaction with an uncontrolled party. Thus, the same income is expected or deemed to have been earned from the transaction with the AEs. The underlining principle of determining the ALP is based on the transaction between the unrelated parties. The income of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We have also gone through the decision of Ahmedabad Bench of this Tribunal in General Motors India Pvt. Ltd. v. DCIT in I.T.A. No.3096/Ahd/2010 dated 02.08.2013. After referring to some of the decisions of this Tribunal, the Ahmedabad Bench found that in order to determine the most appropriate method for determining arm's length price, first it is necessary to select tested party and such a selected tested party should be least complex and should not be unique so that prima facie cannot be distinguished from potential uncontrolled comparables. So, what the Ahmedabad Bench of this Tribunal found is that the selected party should be the least complex party and should not be unique. 31. For the purpose of selecting tested party being a least complex party, as already observed, the functional risk assumed by the Associated Enterprise has to be established by producing material evidence. In this case, the assessee miserably failed to establish functional risk assumed by the Associated Enterprise. Under the scheme of Indian Income-tax Act, the transaction of the assessee, more particularly the international transaction of the assessee, has to be compared with that of other company' ..... X X X X Extracts X X X X X X X X Extracts X X X X
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