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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 Revenue, resultantly, the other grounds of appeal raised by the assessee in this appeal become academic in nature. - ITA No. 6585/Mum./2019 - - - Dated:- 4-3-2022 - SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER AND SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER Assessee by : Shri Vijay Mehta Revenue by : Shri Tejinder Pal Singh ORDER PER SANDEEP SINGH KARHAIL, J.M. The present appeal has been preferred by the assessee challenging the impugned order dated 09.08.2019, passed by the Commissioner of Income Tax (Appeals) 58, Mumbai [hereinafter referred to as the CIT(A) ] under section 250(6) of the Income-tax Act, 1961 (hereinafter referred to as the Act ) for the assessment year 2004 05. 2. The assessee has filed the present appeal on the following grounds: 1. The learned CIT (A) has erred in law and on facts in upholding the order passed by the Assessing Officer u/s. 143(3) r.w.s. 254 of the Income-tax Act, 1961, which is illegal and bad in law. 2. The learned CIT (A) has erred in law and on facts in upholding the transfer pricing adjustment made by the TPO. 3. The learned CIT(A) ought to have held that the provision for doubtful debts writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers abroad and certain software development and service work are outsourced to the assessee which are provided by the assessee from its off shore facilities in addition to on shore service provided by it. 5. During the year under consideration, the assessee entered into following international transactions as per Form no.3CEB, details of which are as under: Sr. no. Nature of Service Amount (Rs.) 1. Software Consulting Services 6,88,01,068 2. Reimbursement of travel and other expenses reimbursed at actual basis by TT Inc. 90,62,835 6. The assessee received following payments for software consultancy services provided to different A.Es., during the year under consideration: Name of the A.E. Amount (Rs.) Trigyn Technologies Inc. 6,82,77,694 Applisoft Inc. 2,33,332 Trigyn Technologies Europe, GmbH 2,90,052 7. Pursua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for consultancy services on gross basis. The A.E. retained the share of revenue as provided in the agreement and the balance is remitted to the assessee. 13. The learned A.R., during the course of hearing, submitted following revenue sharing arrangement between the assessee and the A.E. Chart showing revenue sharing arrangement between the assessee and the A.E. Sr. no. Name of A.E. Total revenue charged to independent customer (Rs.) Retained by A.E. Retained by assessee Basis of sharing 1. Trigyn Technologies, USA 7,91,00,030 1,08,22,336 6,82,77,694 A.E. retains 10% of the total revenue in case the independent customer is Credit Suisse First Boston and 20% of the total revenue in case of other independent customers. 2. Trigyn Technologies, Europe 3,62,565 72,513 2,90,052 A.E. r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E. Ld. AR for the taxpayer contended that this issue is covered in favour of the taxpayer by the decision rendered by the coordinate Bench of the Tribunal in the case of HCL Technologies BPO Ltd. vs. ACIT ITA No.3547/Del/2010 which is confirmed by Hon'ble Delhi High Court and Hon'ble Supreme Court. Operative part of which is as under :- 11. Without prejudice to the assessee company's contention that the adjustment made by the TPO in not sustainable, it was submitted that the adjustment at best could be made only to the extent of ₹ 11,960,457, being the amount which has been retained by the associated enterprise. 12. The Ld. CIT(A) in his order restricted the Transfer Pricing adjustment to ₹ 1.19 crores holding as under: The Transfer Pricing Officer has computed an adjustment of ₹ 17.04 crores while the value of international transactions is ₹ 13,00,89,632. The total revenue received by the associated enterprises in respect of BPO services rendered by the appellant amounting to ₹ 13,00,89,632 is ₹ 14,20,50,089. In other words, the associated enterprise has retained ₹ 1,19,60,457 out of the total proceeds rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acknowledged in the Act only recently. It is a concomitant of the operations of multinational corporations (MNCs) that set up base by incorporating a local subsidiary in a country where they seek to operate. It is often seen that the MNC transfers goods and services to its local subsidiary at a price not reflective of the market price (or arm's length price as if is referred to in the present context) and in turn the subsidiary is able to avoid, partly or wholly, payment of the local tax, Although the expression transfer price has not been defined in the Act,' it is 'understood to mean that price which is arrived at when two associated or related' enterprises deal with each other . 14. Reference was made to the Finance Minister's Budget Speech for the year 2001 that the presence of multinational enterprises in India and their ability to allocate profits in different jurisdictions by controlling prices in intra-group transactions has made the issue of transfer pricing a matter of serious concern. The purpose of inserting these provisions is therefore to determine the arm's length price (ALP) of an international transaction involving an MNC and its lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommercial profit available in the hands of the AE. In absence of profit availability, the any enhancement of the ALP results in artificial profit anticipated by the Ld. TPO and not earned by the Appellant. The order of the LD, TPO in enhancing the ALP offered by the appellant is in ignorance of valid FAR and factual considerations and is bad in law and facts. 19. Reliance in this regard is placed on the recent decision of Delhi High Court in case of Sony Ericsson Mobile Communications India Pvt. Ltd. vs. CIT III (ITA No. 16/2014) where in it has been held that the arm's length seeks to correct distortion and shifting of profits of tax the actual income earned by a resident. The Hon'ble Delhi High Court held as under: '77. As a concept and principle Chapter X does not artificially broaden, expand or deviate from the concept of real income . Real income , as held by the Supreme Court in Poona Electricity Supply Company Limited versus CIT, [1965J 57 ITR 521 (SC), means profits arrived at on commercial principles, subject to the provisions of the Act. Profits and gains should be true and correct profits and gains, neither under nor over stated. Arm's length ..... X X X X Extracts X X X X X X X X Extracts X X X X
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