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TMI Blog2022 (8) TMI 90X X X X Extracts X X X X X X X X Extracts X X X X ..... d have been charged for products and services, as nearly as possible, if such international transactions were not controlled by virtue of their being executed between related parties. The object of the exercise is to remove the effect of any influence on the prices or costs that may have been exerted on account of the international transactions being entered into between related parties. It is clear that for the exercise of determining the arm s length price to be reliable, it is necessary that the controlled transactions be compared with uncontrolled transactions which are similar in all material aspects. As in the present case Excel Infoways Pvt. Ltd. fails not only the service revenue from export/ITES filter of 75% insisted upon by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice (ALP). 3. He states that the ITAT erred in excluding Excel Infoways Ltd. by relying on the decision of the coordinate Bench of the Tribunal in Baxter India Pvt. Ltd. for the AY 2012-13. He states that upon an appeal being filed against the judgment of the Tribunal in Baxtor India Pvt. Ltd., this Court had framed questions of law. He, however, states that the said appeal was disposed of on account of low tax effect. He further states that the Tribunal wrongly concluded that the Excel s ratio of employee cost to sales was merely 13.05%. He states that in response to a notice under Section 133(6) of the Income Tax Act, 1961 (hereinafter referred to as the Act ), Excel Infoways had informed that the segmental employee cost pertaining to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 Selected companies which had positive sales and ratio of other operating income to sales 50% over the time period under consideration. The filter is insufficient. Further, the correct filter in respect of operating income is that service income should be more than 75%. This will ensure that predominantly service companies are selected. xxx xxx xxx Companies who have export service income less than 75% of the sales were excluded This has been done primarily to exclude predominantly domestic companies which cannot be compared with the taxpayer, having major earnings from exports. This is because economic circumstances of such companies are different. Rule 10 B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween an assessee and its associated enterprise having regard to the arm s length price in order to nullify the effect of transfer of income to a jurisdiction outside India, if any, in respect of the controlled transaction. The exercise of determining the arm s length price in respect of international transactions between related enterprises is aimed at determining the price which would have been charged for products and services, as nearly as possible, if such international transactions were not controlled by virtue of their being executed between related parties. The object of the exercise is to remove the effect of any influence on the prices or costs that may have been exerted on account of the international transactions being entered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material bearing on the value or the profitability, as the case may be, depending on the method used, is ignored. 42. Before concluding, there is yet another aspect of the matter that needs consideration. The Tribunal proceeded on the basis that while applying TNMM method, broad functionality is sufficient and it is not necessary that further effort be taken to find a comparable entity rendering services of similar characteristics as the tested entity. The DRP held that TNMM allows flexibility and tolerance in selection of comparables, as functional dissimilarities are subsumed at net margin levels, as compared to Resale Price Method or Comparable Uncontrolled Price Method and, therefore, the functional dissimilarities pointed out by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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