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TMI Blog2023 (3) TMI 502X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the order passed by the Commissioner of Income-tax (Appeals)-IV, Bengaluru [hereinafter referred to as 'the learned CIT(A)], under section 250 of the Income-tax Act, 1961 (the Act) and based on the facts and circumstances of the case, Tech Mahindra Limited (Tech Mahindra (R&D) Services Limited now merged with Tech Mahindra Limited) (hereinafter referred to as the Appellant], respectfully submits that the learned CIT(A) erred in confirming the additions proposed by the Deputy Commissioner of Income-tax-Range 1214) (hereinafter referred to as "the learned AO'] and the Deputy Commissioner of Income-tax (Transfer Pricing), Range V (hereinafter referred to as "the learned TPO) on the following grounds: Ground No. 1-Transfer Pricing adjustments 1.1 Addition to total income of Rs. 99,509,950. On the facts and in the circumstances of the case and in law, the learned Transfer Pricing Officer (TPO) and the learned Assessing Officer (AO) erred in making and the learned Commissioner of Income-tax (Appeals) - IV. Bangalore ['CIT(A)), erred in upholding the addition of Rs. 99,509,950 to the Appellant's total income based on the provisions of Chapter X of the Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant. 1.3.3 Incorrect selection of comparables by the learned TPO by not considering the FAR analysis pertaining to the international transaction under consideration. On the facts and in the circumstances of the case and in law, the leased TPO earned in and the learned CIT(A) further erred in upholding confirming the action of TPO in selection of the companies which are functionally not comparable to the appellant‟s business. The appellant prays that aforesaid action of the learned TPO and learned CIT(A) is factually incongruent and against the principles of comparability enshrined in Rule 10B(2) of the Income-tax Rules 1962 ("the Rules") and hence liable to be rejected or alternatively set aside. 1.4 Inconsistency in applicability of principle of impossibility of performance. On the facts and in the circumstances of the case and in law, the learned TPO / AO erred and the learned CIT(A) erred in applying the principle of impossibility of performance. The appellant prays that the learned TPO's action and learned CIT(A)'s confirmation of rejection of the appellant's benchmarking analysis conducted by using foreign i.e., COMPUSTAT database ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Ground No. 4- Disallowance of foreign exchange loss The learned CIT(A) erred in confirming the action of the learned AO in not allowing deduction of Rs.47,97,489, being foreign exchange loss incurred by Bangalore non-10A Unit on entering into forward contract as "Speculative Transaction" within the meaning of Section 43(5) of the Act." 3. In its appeal, Revenue has raised following grounds: "1. On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in not demonstrated how high turnover comparable companies effect profitability of the assessee company and ignoring the decision of the Hon‟ble Tribunal, Mumbai in the case of Natel Network Pvt. Ltd, and Maersk Global Centuries (I) Pvt. Ltd. dated 07.3.2014, which are in favour of the revenue. 2. On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeal) erred in not demonstrated how high turnover comparable companies effect profitability of the assessee company and ignoring the decision of the Hon'ble Tribunal, Delhi, in Navisite (I) Pvt. Ltd. where it was held that for a 'services company's turnover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tested party and accordingly benchmark the international transaction by searching Indian comparables. The TPO selected a set of 20 companies as comparable having average margin of 23.65%. After granting working capital adjustment, the arm's length mean margin on sales was arrived at 17.97%. Accordingly, the TPO made an adjustment of Rs. 9,95,09,950 to the aforesaid international transaction. In conformity, the Assessing Officer passed the order under section 143(3) read with section 144C of the Act. In appeal, learned CIT(A) vide impugned order treated assessee as a tested party, by observing as under: "17.1.2. It is evident that the assessee's TP study is based on a database i.e., unavailable to the TPO here in India. Thus in my view, the assessee company's AE cannot be taken as a tested party. Hence I find no infirmity in the TPO‟s action in substituting the assessee company as a tested party as well as introducing her own comparables from a database available to her herein India. Moreover, the assessee relied on multiple year data without demonstrating its impact in the current year, whereas the TPO was in a position to determine ALP on the basis of current year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k in its offshore delivery centres located in India. The role of associated enterprise is limited to performing customer relationships for assessee. For its USA business, assessee directly enters into a contract with the US clients for execution of offshore work in India. All contracts entered into by the assessee directly with the US clients. Assessee also maintains close involvement in all activities and decisions relating to the contract. The assessee later compensates associated enterprise on a cost plus basis for the support services. The associated enterprise also facilitates communication between the assessee and the US clients regarding inquiries, orders, delivery schedules, quality, service, administrative and other matters. (b) On-site business - Assessee has appointed associated enterprise as a contract service provider for providing on-site software development services in relation to its on-site business in USA. The contractual arrangements for on-site business are also directly entered into by the assessee with the US client. For such on-site work, assessee compensates associated enterprise on a cost plus basis. Assessee is overall responsible for the performance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e which is unavailable here in India. In this regard, assessee has submitted that comparables were selected using COMPUSTAT database, which is available in public domain on subscription basis just like PROWESS and CAPITALINE as used by the TPO. The assessee further submitted that the database is based on financials filed with USA SEC, and therefore is as reliable as PROWESS and CAPITALINE for selecting comparable to the assessee. 14. It is settled that tested party is the one to which the transfer pricing method can be applied in the most reliable manner and for which most reliable comparables can be found, i.e., it will most often be the one that has the less complex functional analysis. In this regard, it is relevant to note the following observations of the coordinate bench of Tribunal in Ranbaxy Laboratories Ltd. vs a ADIT, [2008] 110 ITD 428 (Delhi): "58. .....The tested party normally should be the party in respect of which reliable data for comparison is easily and readily available and fewest adjustments in computations are needed. It may be local or foreign entity, i.e., one party to the transaction. The object of transfer pricing exercise is to gather reliable data, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rking analysis with the above directions, the grounds raised in Revenue's appeal pertaining to selection of comparables by treating assessee as a tested party, have become infructuous and are accordingly dismissed. 17. The issue arising in ground No. 2, raised in assessee's appeal, is pertaining to disallowance of custom duty paid. 18. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee company has reflected an amount of Rs. 11,78,884 towards custom duty. During the course of assessment proceedings, details of same were sought by the Assessing Officer. In reply, assessee submitted that the custom duty is towards debonding and shifting assets and is in the nature of revenue expenditure. The Assessing Officer vide order dated 24/01/2012 passed under section 143(3) read with section 144C of the Act did not agree with the submissions of the assessee and held that said expenses are to be factored towards the block of assets and cannot be debited to profit and loss account. In appeal, the learned CIT(A) dismissed the appeal filed by the assessee on this issue. Being aggrieved, the assessee is in appeal before us. 19. During the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance made by the Assessing Officer under section 14A read with Rule 8D. Being aggrieved, assessee is in appeal before us. 23. During the course of hearing, learned AR submitted that for making any disallowance under section 14A of the Act only the investment which yields exempt income should be considered. On the other hand, learned DR vehemently relied upon the orders passed by the lower authorities. 24. We have considered the rival submissions and perused the material available on record. The Assessing Officer computed the disallowance under section 14A read with Rule 8D, as under: a. Expenditure directly relating to income which does not form part of Total Income Nil b. Expenditure incurred by way of interest, not attributable directly to any particular income or receipt Rs.56,140/- c. Half Percent of Average Investment Rs.8,22,683/- Rs.8,78,823/- 25. Thus, from the above it is evident that the Assessing Officer has agreed that there is no direct expenditure which was incurred by the assessee for earning the exempt income. Further, the Assessing Officer has treated Rs. 56,140 as an expenditure incurred by way of interest which is not directly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndising business to guard against loss through future price fluctuation in respect of its contract for actual delivery of goods manufactured or merchandise sold by it. In appeal, learned CIT(A) vide impugned order dismissed the appeal filed by the assessee on this issue. Being aggrieved, assessee is in appeal before us. 29. During the course of hearing, learned AR submitted that the assessee uses foreign currency forward contracts to hedge its risk associated with foreign currency fluctuations relating to certain firm commitments and forecasted transactions and therefore loss arising on account of forward contract is allowable. On the other hand, learned DR vehemently relied upon the orders passed by the lower authorities. 30. We have considered the rival submissions and perused the material available on record. As per the assessee, forward contracts were entered into in the ordinary course of business to safeguard against exchange rate fluctuations because it was an enterprise which had only export earnings. The assessee further claimed that it was a protective contract to provide for fluctuations in currency in respect of receivables by the assessee and thus the purpose of ente ..... X X X X Extracts X X X X X X X X Extracts X X X X
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