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TMI Blog2022 (3) TMI 469X X X X Extracts X X X X X X X X Extracts X X X X ..... e provision for doubtful debts written back is operating income and hence has to be included while computing the operating margin of the assessee. 4. The learned CIT(A) ought to have held that the sundry balances written back and miscellaneous income is operating income and hence has to be included while computing the operating margin of the assessee. 5. The learned CIT(A) has erred in law and on facts in holding that the loss on sale of fixed assets is operating expenditure and hence has to be included while computing the operating margin of the assessee 6. The learned CIT(A) has erred in law and on facts in upholding the action of the TPO/AO in excluding M/s. I Gate Global Solutions and M/s Sofisol India Ltd from the final list of comparables. 7. The learned CIT(A) ought to have held that companies M/s Bodhtree Consulting Ltd and M/s Tata Elxsi Ltd are not comparable with the assesse and hence should have been excluded from the final list of comparables as determined by the TPO 8. The learned CIT (A) has erred in law and in facts in upholding the action of the TPO/AO in including M/s Akshay Software Technologies Ltd in the final list of comparables. 9. The learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d into by the assessee. The AO passed the assessment order under section 143(3) of the Act, inter-alia, on the basis of adjustment proposed by the TPO. 8. In appeal, the learned CIT(A) vide order dated 29.04.2009, in the first round of proceedings, inter-alia, deleted the transfer pricing adjustment proposed by the A.O./TPO. 9. In appeal by the Revenue against the relief granted by the CIT(A), the Tribunal, vide order dated 21.08.2013, passed under section 254 of the Act, inter-alia, restored the matter to the file of the A.O./TPO for fresh determination of arm's length price of international transactions entered into by the assessee with its A.E. 10. The AO made a reference to the TPO, pursuant to the directions of the Tribunal. The TPO, vide order dated 08.01.2015, passed under section 92CA(3) r/w section 254 of the Act benchmarked the international transaction pertaining to "Provisions of Software Consultancy Services' by applying Transaction Net Margin Method (TNMM) as a most appropriate method with Profit Level Indicator (PLI) of Operating Profit / Operating Expenditure. Accordingly, the TPO proposed an adjustment of Rs. 2,66,56,724, in respect of international transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived Rs. 6,88,01,068, and the balance amount of Rs. 1,09,53,179, was retained by the A.E. for services rendered by it. The learned A.R. further submitted that the adjustment Rs. 2,66,56,724, made by the TPO is substantially higher than the amount retained by the A.E. for the services rendered. The learned A.R. submitted that if the shortfall in arm's length price i.e., the adjustment proposed by the TPO is added to the amount received by the assessee, the resultant revenue [i.e., Rs. 2,66,56,724 (+) Rs. 6,88,01,068 = Rs. 9,54,57,792] will be much higher than the actual amount billed to the customers. It was further submitted that the excess amount proposed to be added amounting to Rs. 1,57,03,545, was neither received by the assessee nor by the A.E. in the present case and thus may be directed to be deleted. 15. On the other hand, Shri Tejender Pal Singh, the learned Departmental Representative, appearing for the Revenue, vehemently relied upon the orders passed by the TPO/A.O. and the CIT(A). 16. We have considered the rival submissions and perused the material available on record. We find that on identical issue, the Co-ordinate Bench of the Tribunal in ITO v/s M/s. Ominigl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved by the associated enterprise from the customer and the actual value of international transactions, i.e., the amount received by the assessee in respect of international transactions. 12.4 In view of the same I am of the considered view that the adjustment to the income of the appellant has to be restricted to Rs. 1,19,60,457- being the amount retained by the associated enterprises." 13. Aggrieved with this order, the Revenue had come up in the present appeal. Ld. D.R. placed reliance on the order of Ld. CIT(A) and had prayed for quashing of CIT(A)'s order on this issue. On the other hand, Ld. Sr. Counsel submitted that the appellant could not have expected to receive from the customers of the AEs of the appellant, anything more than the amount paid by some customer to the AE, if the appellant were to be obtain the contracts for services from the customers directly, i.e., without the involvement of the AEs of the appellant. Thus, at the most the consideration received by the appellant from the AEs may be replaced by the consideration received by the AEs from its customers, for the services provided by the appellant; the price charged by AEs to the customers being the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the following observation of the Hon'ble Delhi bench of the Tribunal in the case of Li & Fung (India) Pvt. Ltd. vs. DC IT (ITA No 5156/DeI/2010): 17. The Hon'ble Delhi High Court recently vide order dated 16-12-2013 (in ITA No.306/2012), while adjudicating on the said decision of the Tribunal, held in paragraph 40 of the order that "the approach of the TPO and the tax authorities in essence imputes notional adjustment / income in the assessee's hands on the basis of a fixed percentage of the free on board value of export made by unrelated party vendors. " ..... 18. Reliance in this regard is also placed on the recent decision of Delhi Bench of the Tribunal in the case of Hyper Quality India Pvt. Ltd. vs. ACIT (ITA No. 5630/0ell2011 ), wherein, it has been held as under: "7. Ld. TPO erred in evaluating FAR (Functions performed, Assets. employed and Risk assumed) analysis which has been summarily confirmed by DRP. To support its case, assessee furnished split financials of the appellant and its AE. Whereas the appellant has been able to earn profit in India its counterpart the AE has continuously sustained losses. There being no element of profit in the han ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adopted by the assessed, and examining and giving benefit of set off. Section 92(3) does not bar or prohibit set off." 20. In view of the aforesaid, it is respectfully submitted that the adjustment shall be restricted to Rs. 1.19 crores. 21. We have head rival submissions and perused the material on record. Ld. CIT(A) had followed the ratio laid down in the case of Global Ventedge P. Ltd. (supra) (in I.T.A. No. 1432 & 2321 / Del/2009 and 116/Del/2011). This decision was affirmed by both Hon'ble High Court and Hon'ble Supreme Court and his ratio was followed in subsequent decisions as submitted earlier and, therefore, the order of Ld. CIT(A) on this issue is reasonable and we do not find any reason to interfere with this finding of Ld. CIT(A) and hence, the grounds of appeal filed by revenue are dismissed. Accordingly, appeal filed by revenue is dismissed." 19. So, following the decision rendered by the coordinate Bench of the Tribunal in HCL Technologies BPO Ltd. vs. ACIT (supra, affirmed by Hon'ble Delhi High Court and Hon'ble Supreme Court, we are of the considered view that ld. DRP has rightly held that transfer pricing adjustment should not exceed the am ..... X X X X Extracts X X X X X X X X Extracts X X X X
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