Digest Of Important Judgements On Transfer Pricing and International Tax (Aug to Oct 2015)

I. Transfer Pricing

a. International transaction

1. The Tribunal held that where it was a concerted action intended in a manner as not to attract section 92B of the Act but in substance the agreements indicated a transaction between two AEs along with an intervening third party, the said transaction was to be classified as a deemed international transaction.
Novo Nordisk India Pvt Ltd v DCIT [IT(TP)A No 146 / Bang / 2015] – TS-366-ITAT-2015(Bang)-TP

2. The Tribunal held that for a deemed AE to exist, the goods / articles manufactured / processed by one enterprise are sold to the other enterprise or to persons specified by the other enterprise and the prices and conditions relating thereto are influenced by such other enterprise. Therefore in-spite of the first condition being satisfied in the case of the assessee, since there was no influence exercised over the prices, no deemed AE relationship existed.
DCIT v WB Engineers International Pvt Ltd [ITA No 523 / PN / 2014] – TS-404-ITAT-2015(PUN)-TP

3. The Tribunal held that outstanding receivables on account of services cannot be equated with international transactions in the nature of capital financing as provided for in Explanation to section 92B of the Act as it related to services rendered to the AE and was not in the nature of loans or advances given for capital financing. Accordingly the addition made by the TPO on account of notional interest on outstanding balances was deleted.
Pegasystems Worldwide India Pvt Ltd v ACIT [I.T.A. No. 1758/HYD/2014] – TS-488-ITAT-2015(Hyd)-TP

 

b. Most Appropriate Method (‘MAM’)

Comparable Uncontrolled Price Method

4. The Tribunal held that the CUP method was the MAM for benchmarking the brokerage transactions rendered by the assessee as it rendered similar services to non-related parties as well. For determining an appropriate adjustment allowable to the assessee on account of difference in functions performed and risk assumed in respect of services provided to related parties vis a vis unrelated parties, the Tribunal held that the difference in interest earned on margin monies received by the assessee from AE / Non-AE transactions could be taken into account for calculating the said adjustment.
JP Morgan India Pvt Ltd v ACIT [ITA NO 8193/Mum/2010] – TS-354-ITAT-2015(Mum)

5. The Court held that In application of the CUP method the authorities have to go by what was actually paid or charged in the comparable uncontrolled transaction and not the price payable or chargeable in case of an eventuality, which never occurred. Therefore, the Revenue was incorrect in considering the additional discretionary interest rate chargeable by the Bank in the event of default in repayment of loan taken by assessee for benchmarking the interest receivable by the assessee on loans given to its AEs, since the assessee had neither defaulted in its repayments nor paid the additional interest.
CIT v Bumi Highway India Ltd (ITA No 621 / 2015) – TS-437-HC-2015(Del) TP

6. The Tribunal upheld the use of the CUP method for the import of raw cashes from the AE and held that the TPO was to compare the average price published by the Cashew Export Council with the average price charged by the assessee and not the price mentioned in individual transactions. The Tribunal also held that due weightage was to be given to the fact that the assessee had availed credit for 150 days which required to be factored in while determining the ALP.
Reliable Cashew Co (P) Ltd v ACIT (I.T.A. No. 2237/Mds/2013) – TS-420-ITAT-2015 (CHNY) – TP

7. The Tribunal upheld the use of CUP as the Most Appropriate Method noting that there was no difference in the methodology adopted in determining price of copper concentrates between the AEs and Non-AEs and the difference in prices occurred merely because the AEs used the calendar year for determining treatment and refining charges (which was deducted from the price quoted) and the Non-AEs used the financial year which was a temporary difference.
Hindalco Industries Ltd v ACIT – TS-431-ITAT-2015(Mum) – TP

8. The Tribunal held that where the services provided to the AEs are similar to those provided to non AEs the CUP method was the most appropriate method as opposed to TNMM and therefore approved hourly rates charged to non-AEs as internal CUP.
ADIT v ABB Lummus Heat Transfer BV (ITA No.2763/Del/2013) – TS-492-ITAT-2015 (Del) – TP

9. The Tribunal upheld the order of the CIT(A) wherein the CUP method was held to be the most appropriate method since the assessee had similar transactions with its Non-AEs and its AEs.
DCIT v Devendra Kumar Bhasin (ITA No. 12/CHD/2014) – TS-499-ITAT-2015 (Chd) – TP

Profit Split Method

10. The Tribunal upheld the use of the Profit Spilt Method as the activities performed by the assessee and its AE were inextricably linked, with both entities contributing significantly to the value of the services. Additionally, it held that selecting the most appropriate method does not depend on whether the assessee is loss / profit making and that in the absence of an external comparable relative contribution of each entity based on key value drivers was to be determined Infogain India Pvt Ltd v DCIT [ITA No 6134 / Del / 2012] – TS-392-ITAT-2015(DEL)-TP

Resale Price Method

11. The Tribunal held that where the assessee was engaged in the importing of goods from its AE without making any value additions, the most appropriate method for benchmarking the international transactions was the Resale Price Method.
DCIT v Sanyo India Pvt Ltd – (2015) 45 CCH 0098 BangTrib

Transactional Net Margin Method

12. The Tribunal held that charging lesser rates to Non-AEs as compared to AEs was not a reason to reject internal TNMM as it is possible to make a reasonably accurate adjustment for such differences. It also held that internal CUP could not be accepted as the CUP method visualizes comparison on a project to project basis, if similar in all respects which was not the case of the assessee.
Valtech India Systems Pvt Ltd v DCIT [IT(TP)A No 1380 / Bang / 2011] – TS-374-ITAT-2015(Bang)-TP

13. The Tribunal accepted the internal TNMM method adopted by the assessee as the MAM for the software development services provided by it since the transactions with Non-AEs abroad were more than 25 percent of the total value of international transactions and that the assessee was able to demonstrate that the services rendered to unrelated parties were similar to those rendered to the AEs.
Valtech India Systems Pvt Ltd v DCIT [IT(TP)A No 22 / Bang / 2014] – TS-455-ITAT-2015(Bang) – TP

14. The Tribunal held that TNMM and not CUP was to be used for benchmarking the assessee’s activity of sale and purchase of diamond and gold jewellery from AEs as the transaction from Non-AEs amounting to 0.59 percent of total transactions was very negligible in comparison to sale transactions with AEs and also held that the transaction of the assessee required high degree of comparability between AE and Non-AE transactions in terms of quantity, specification, design and purity of the stones / metals involved which was absent in the assessee’s case.
Vijaydimon Diamond (India) Pvt Ltd v ACIT (ITA No.5182(Mum.) 2013) – TS-453-ITAT-2015(Mum) – TP

General

15. The Tribunal held that where Revenue has accepted the method adopted by the assessee for benchmarking international transactions, in the absence of reasons brought on record, there is no merit in deviating from the stand accepted in the previous and succeeding years.
Racold Thermo Limited v DCIT (ITA No 1454 / PN / 2010) – TS-436-ITAT-2015(PUN)-TP

16. The Tribunal held that an internal comparable is always preferable over external comparable when relevant data is available.
M/s Agila Specialities Pvt Ltd v DCIT [IT(TP)A No.214/Bang/2015] – TS-500-ITAT-2015 (Bang) – TP

c. Comparability – Inter and Intra Industry

Agency services

17. The Tribunal held that companies providing agency services, companies providing commissioning agency services and engaged in trading, companies engaged in publishing news-papers and other publications and companies earning commission from air tickets and transaction fees from sale of holiday packages were not comparable to the assessee who was engaged in the business of manufacturing and trading of mineral processing equipment and provision of market support services.
Metso Minerals (India) Pvt Ltd v DCIT [ITA No 2449 / Del / 2014] – TS-405-ITAT-2015(DEL)-TP

18. The Tribunal excluded a company engaged in port loading / unloading and storage activities as it was a complete service provider and the assessee was merely providing agency services in respect of shipping activities in India. It also held that merely because the assessee had included the said company it in TP study it did not preclude the assessee from raising the objection that the said company was not comparable, if the assessee is able to demonstrate the functional dissimilarity.
NYK Line (India) Ltd v ACIT (ITA No. : 8549/Mum/2011) – TS-464-ITAT-2015 (Mum)-TP

Consultancy / Financial advisory services

19. The Tribunal held that the assessee providing repair services, computer hardware and software related services, erection, commissioning and installation services could not be compared to Capital Trust Ltd which provided consultancy services to foreign banks. Verient Systems (India) Pvt Ltd v ITO [ITA No 5927 / Del / 2010] – TS-394-ITAT-2015(DEL)-TP

20. The Tribunal excluded Motilal Oswal as a comparable as it was into merchant banking, capital markets, finance markets and therefore functionally dissimilar to the assessee who merely provided non-binding advisory services.
Lehman Brothers Advisors Pvt Ltd v ACIT ( I.T.A. No. 7722/M/2012) – TS-465-ITAT-2015 (Mum) – TP

ITES Companies

21. The Tribunal held that companies having multi-stream revenues (product, sales, product maintenance & other IT services) were not comparable with an IT Product company in absence of segmental breakup. It further held difference in depreciation rates warrants appropriate adjustment and not exclusion from the margin of comparables.
ACI Worldwide Solutions Pvt Ltd v DCIT [IT(TP)A No 1089 / Bang / 2012] – TS-347-ITAT-2015(Bang)-TP

22. The Tribunal excluded 17 companies on the following grounds:
• Functionality – Activity of software product development, KPO services, product engineering, product designing, sale of licenses carried on by companies were not comparable with software development services provided by the assessee
• Turnover – Companies having turnover in excess of Rs.200 crore were rejected as the assessee’s turnover was Rs.66.94 crores
• Employee cost – Companies having employee cost to sales ratio less than 25 percent were rejected
AMD India Pvt Ltd v ITO [IT(TP)A No 437 / Bang / 2013] – TS-352-ITAT-2015(Bang)-TP

23. The Tribunal excluded 13 comparables on the following grounds:
• Functionality – Companies engaged in product development, KPO services, training & software services, software development & analytical services, product engineering, product designing, incurring high R&D expenses and owning intangibles were not comparable with the assessee engaged designing and development of software.
• Related Party transactions (‘RPT’) – Companies having RPT in excess of 15 percent
GXS India Technology Centre Pvt Ltd v ITO [IT(TP)A No 1444 / Bang / 2012] – TS-356-ITAT-2015(Bang)-TP

24. The Tribunal held that companies engaged in development of software product and having revenue from both software services and products were not comparable with software development service provider. Further, companies having exceptional year of operations and fluctuating margins are not to be considered as comparable.
ST Microelectronics Pvt Ltd v DCIT [IT(TP)A No 1394 / Bang / 2014] – TS-358-ITAT-2015(Bang)-TP

25. The Tribunal held that companies engaged in product development, sale of product, providing KPO services, providing product engineering services and owning substantial intangibles are not comparable to companies providing software development services. Additionally companies engaged in the ITES sector could not be compared with companies providing complete business solutions, providing high end intangible services, providing engineering design services, owning substantial intangibles or having extra-ordinary events such as mergers.
Kodiak Networks (India) Pvt Ltd v DCIT [IT(TP)A No 1540 / Bang / 2012) – TS-369-ITAT-2015(Bang)-TP

26. The Tribunal held that a company providing pure software development services cannot be compared with companies developing software products, having significant intangibles and huge revenue from software products, engaged in product design services or software product companies NXP Semi Conductors India Pvt Ltd v DCIT [IT(TP)A No 1634 / Bang / 2014) – TS-370-ITAT-2015(Bang)-TP

27. The Tribunal excluded a company on the ground that it had undergone restructuring and acquired another company resulting in a high profit margin and because it had a strong R&D background along with product development expertise which differed from the assessee. Additionally it held that exclusion of a company merely because it was loss making was not warranted ACIT v Citi Financial Consumer Finance India Ltd [ITAs No 2848 and 6305 / Del / 2012] – TS-389-ITAT-2015(DEL)-TP

28. The Tribunal held that the aggregation of the entire software development revenue of the merged assessee was not warranted as the maintenance of accounts was entity specific and the software development services were provided in 2 separate sectors. Additionally in relation to the ITES segment of the assessee the Tribunal excluded companies engaged in product development, dealing in software products and huge companies as they were not comparable with a software development company. Further, it held that provision for bad and doubtful debts was to be considered as operating in nature and that the distribution segment (pure trading) was to be benchmarked using RPM and not TNMM. OSI Systems Pvt Ltd v DCIT [ITA No 683 / Hyd / 2014] – TS-396-ITAT-2015(HYD)-TP

29. The Tribunal held that companies engaged in the business of software products and providing open and end to end web solutions software consultancy and design and having significant intangibles and extra-ordinary revenues were not comparable to a pure software development services company.
DCIT v Nvidia Graphics Pvt Ltd [IT(TP)A No 1118 / Bang / 2014] – TS-402-ITAT-2015(Bang)-TP

30. The Tribunal held that companies engaged in the following services were not functionally comparable with the assessee who was engaged in designing and development of software for its parent company:
• Companies engaged in development of software products / business of software products and software consultancy and design, providing training services
• Companies engaged in product development
• Companies providing KPO Services such as consultancy services and technical services
• Companies providing product engineering services and R&D activity resulting in IPRs and companies owning substantial intangibles
GXS India Technology Centre Pvt Ltd v ITO [IT(TP)A No.1444(Bang) 2012] – TS-412-ITAT-2015 (Bang) – TP

31. The Tribunal held that companies engaged in the business of software products and in providing open and end to end web solutions, software consultancy, design and development of software could not be compared with the assessee who was a captive software service provider.
Analog Devices India Pvt Ltd v DCIT [IT(TP)A No 1288 / Bang / 2014] – TS-419-ITAT-2015 (Bang) – TP

32. The Tribunal held that assessee providing data processing and other IT enabled services could not be compared to companies providing KPO services such as engineering design services, companies outsourcing most of its work, having a huge brand impacting profit margins, owning substantial IP or having extra ordinary event during the year impacting profit margins.
Global – e Business Operations Pvt Ltd v DCIT [IT (TP) A No 1678 / Bang / 2012) – TS-426-ITAT-2015 (Bang)

33. The Tribunal held that software product companies, companies such as Infosys being a market leader, having significant R&D activities and owning significant IPRs, intangibles and companies providing embedded product design services, industrial design and engineering services could not be compared with the assessee who was a captive software service provider.
iPass India Pvt Ltd v ITO [IT(TP)A No 1292 / Bang / 2014] – TS-427-ITAT-2015 (Bang) TP

34. The Tribunal held that the assessee, providing software development and IT enabled services could not be compared with Infosys as the assessee was a captive unit assuming limited risk as opposed to Infosys who was a giant company assuming all types of risks leading to high profits. The Tribunal rejected exclusion of companies merely due to supernormal profit. Further it held that only current year data is to be considered for benchmarking purposes.
Xchanging Technology Services India Pvt Ltd v DCIT (ITA No 1222 / Del / 2015) – TS-428-ITAT-2015 (Del) TP

35. The Tribunal held that a high employee-cost was a normal feature in the software development business as it is a skill oriented business and therefore companies having the said feature could not be rejected as comparable.
Arowana Consulting Ltd v ITO [IT(TP)A No 235 / Bang / 2015] – TS-282-ITAT-2014(Bang)-TP

36. The Tribunal held that companies engaged in product development, giant companies engaged in development of niche products could not be compared to a software development company. Further it held that companies having unreliable financial data, not satisfying the RPT and forex revenue filter, having considerable of its business outsourced and having a different business model due to amalgamation could not be taken as comparable.
Goldman Sachs Services Pvt Ltd v DCIT [IT(TP)A No 1423 / Bang / 2010]– TS-435-ITAT-2015 (Bang) – TP

37. The Tribunal held that the assessee, engaged in software development could not be compared to companies having software products, hybrid services business models, engaged in product development services, owning significant intangibles, engaged in product design services and having different financial year ending.
Hewlett Packard India Software Operation Pvt Ltd v ACIT [IT(TP)A 1682 / Bang / 2012) – TS-433-ITAT-2015 (Bang) – TP

38. The Tribunal held that companies failing the related party transaction filter, having extra-ordinary events resulting in high operating margins, failing the employee cost filter, having directors involved in fraud, owning substantial intangibles and functionally dissimilar with the assessee who was engaged in providing software development and related services could not be considered as comparable. Further it held that reimbursement of costs should be excluded from operating cost while computing the operating margin.
ADP Pvt Ltd v DCIT (ITA No 471 / Hyd / 2011) – TS-417-ITAT-2015 (Hyd) – TP

39. The Tribunal held that the assessee engaged in the business of providing its AE software solutions could not be compared to companies engaged in both software development and ITES absent segmental information, companies having product sales and providing telecommunication software services without a segmental break-up of the said activities and companies engaged in software development services and products.
Pegasystems Worldwide India Pvt Ltd v ACIT [I.T.A. No. 1758/HYD/2014] – TS-488-ITAT-2015(Hyd)-TP

40. The Tribunal held that the assessee providing software development services and marketing services exclusively to its AE could not be compared to companies owning substantial intangibles and having huge revenues, companies engaged in product development and product design services, engaged in both software development services as well as product development services but not having segmental information and companies engaged in clinical research and manufacture of bio products.
Support.com India Pvt Ltd v JCIT [IT(TP)A No.240/Bang/2013] – TS-498-ITAT-2015 (Bang) – TP

 

41. The Tribunal excluded the following companies as they were not comparable to the assessee engaged in providing software development services:
• Companies engaged in 2D and 3D animation services
• Companies engaged in software products business
• Companies engaged in clinical research and manufacture of bio and other products
• Companies not being a pure software service company
• Companies providing KPO services
• Companies failing the employee cost filter
• Companies having huge turnover exceeding Rs. 200 crores and significant intangibles
Further it admitted additional ground for exclusion of comparable considered by TPO even though it was chosen by the assessee in its own TP Study and held that the assessee was not estopped from pointing out mistakes in assessment even if such mistake was a result fo evidence adduced by it.
AMD India Pvt LTd v ITO [IT(TP)A No.1244/Bang/2011] – TS-495-ITAT-2015(Bang) – TP

42. The Tribunal held that the assessee, a software development service provider could not be compared to companies having related party transactions in excess of the permitted limit, companies having unusually high profits with a growth rate double the industry average, companies engaged in clinical research and manufacture of bio and other products, companies outsourcing its work therefore failing the employee cost filter, companies owning substantial intangibles and having huge revenues and companies whose income included income from sale of licenses.
M/s SAP Labs India Pvt Ltd v DCIT [I.T(TP).A No.1118/Bang/2011] – TS-497-ITAT-2015 (Bang) – TP

43. The Tribunal held that companies engaged in product development, development of software products, high end technical services such as KPO services, high end hardware and software activities, holding technology and marketing intangibles and assuming full-fledged risk could not be compared to the assessee, a captive offshore development center engaged in software development.
Apigee Technologies (India) Pvt Ltd v JCIT [IT(TP)A No.870/Bang/2013] – TS-472-ITAT-2015(Bang)-TP

44. The Tribunal held that the assessee, engaged in the provision of ITES services to its AE, could not be compared to the following companies:
• Companies outsourcing its services, since the assessee rendered services on its own
• Companies engaged in KPO services encompassing data analytics, data processing services, pricing analytics, content operation, product data management etc (such as Eclerx Services Ltd)
• Companies having extra-ordinary events such as mergers which impact profitability
• Companies for which sufficient information was not available in the public domain
• Companies providing geographical information services
IHG IT Services (India) Pvt Ltd v DCIT (ITA No.6381 /Del./2012) – TS-476-ITAT-2015 (Del)- TP

45. The Tribunal excluded the following companies as comparable to the assessee who was engaged in providing software development services:
• Companies engaged in software product development, absent segmental details
• Companies having large turnover, brand value, scale of operation, diversified activities and owning intangibles
• Companies not satisfying employee cost and RPT filters
• Companies having a variety of services and products and a large magnitude of operations
• Companies providing 2D and 3D animation services
United Online Software v ITO (ITA No.1658/Hyd/11) – TS-493-ITAT-2015 (Hyd) – TP

46. The Tribunal excluded companies having turnover in excess of Rs. 200 crore based on the reasoning that such companies would be in a position to attract more customers and would also have a broad base of skilled employees able to give better output which would not be available in the case of smaller companies. It further excluded companies having related party transactions in excess of 15 percent.
Additionally, it held that merely because companies had inventories in their balance sheet it was not indicative of the fact that the companies were in the nature of a software product company. It held that segmental analysis was required to arrive at the said conclusion.
Radisys India Pvt Ltd v ITO [IT(TP)A 371 & 345 / Bang / 2015] – TS-489-ITAT-2015(Bang) – TP

47. The Tribunal held that companies having turnover in excess of Rs.200 crore could not be compared with the assessee who had a turnover of Rs. 32.84 crores. Further it excluded companies that were functionally dissimilar with the assessee.
DCIT v Software AG Bangalore Technologies Pvt Ltd [IT(TP)A No 1343 / Bang / 2014] – TS-472-ITAT-2015 (Bang)- TP

48. The Court upheld the order of the Tribunal where in a US based company was excluded as a comparable on the ground that a local software service provider in the US market could not be compared with a software service provider in India due to the difference in markets and also due to the fact that the basis of allocation of costs in the segment was unclear, not reflecting whether the US profits of the said company were entirely from software operations or whether they included other activities.
Pr CIT v Pitney Bowes Software India Pvt Ltd (ITA 681/2015) – TS-473-HC-2015 (Del) – TP

49. The Tribunal held that a).companies earning medical transcription and training receipts besides software service receipts b) companies earning a combined revenue from sales and software services c) companies having acquisitions during the year d). companies functionally dissimilar could not be considered as a comparable to the software development and maintenance support segment of the assessee.
With respect to the assessee’s back office support segment the Tribunal excluded companies functionally dissimilar, companies having extra-ordinary financial events, companies outsourcing their activities and KPO service providers.
Sun Life India Service Centre Pvt Ltd v DCIT (ITA No.1489/Del/2014) – TS-482-ITAT-2015(Del) -TP

50. The Tribunal excluded Accentia Technologies (i.e. selected by the TPO) as a comparable on account of the fact that an extra-ordinary event of acquisition had taken place during the year under review. Further it held that the reasons cited by the DRP for exclusion of Microland (selected by the assessee) i.e. non availability of segmental data and lack of information in relation to exports, were incorrect as the published accounts provided both the aforesaid details. Therefore it included Microland as a comparable and held that where the demarcated segment results were available there was no reason to apply revenue ratios.
ISG Novasoft Technologies Ltd v DCIT [IT(TP)A No.185(B)/2015] – TS-485-ITAT-2015(Bang)-TP

Research services

51. The Tribunal while adjudicating on the inclusion / exclusion of 2 companies as comparable on the ground of functionality held that a company performing research in seismic services was comparable with the assessee who was engaged in the research and development for automobile components and since no difference in assets employed or risks assumed were brought there was no reason to exclude the company. Further, it held that a company providing research and development relating to effects of various drugs on humans involved living beings and human interface and was therefore not comparable with the assessee.
Bosch Ltd v ACIT IT(TP)A No.670/Bang/2011– TS-411-ITAT-2015 (Bang) – TP

52. The Tribunal held that the assessee, engaged in providing research and development services to its AE could not be compared to companies engaged in activities such as mud logging, gas detection, drilling and companies engaged in development and sale of software products and data warehousing.
FMC India Pvt Ltd v DCIT [IT(TP)A No 1039 / Bang / 2012] – TS-480-ITAT-2015 (Bang)

Support Services

53. The Court held that Call Centers are not functionally comparable with KPO service providers and that supernormal profits indicating functional dissimilarity would require further analysis – Rampgreen Solutions India Pvt Ltd v Commissioner of Income-tax – [2015] 60 taxmann.com 355 (Delhi)

54. The Tribunal, following the decision of the High Court in the case of Rampgreen Solutions Pvt Ltd excluded high end KPO service providers as comparable to the assessee’s low end back office support services. It also excluded companies involved in fraud and financial irregularities and companies having extra-ordinary events during the year. It further held that the RPT filter of 15 percent was to be applied eliminating companies having RPT in excess of 15 percent.
Avaya India Pvt Ltd v ACIT (ITA No 5528 / Del / 2011) – TS-444-ITAT-2015 (Del) – TP

Other Industries
55. The Tribunal held that compromising similarity to some extent under TNMM does not mean switching over to an altogether different product and therefore companies dealing in tractors could not be compared with the assessee who dealt in harvester combines. DCIT v Claas India Pvt Ltd [ITA No 1783 / Del / 2011] – TS-371-ITAT-2015(DEL)-TP

56. The Tribunal held that the assessee in the business of computer radiated designing of light vehicle systems could not be compared to companies engaged in clinical research, companies providing KPO services, companies having huge revenues and significant intangibles, companies engaged in software development and product development, providing animation services, companies for which reliable data was unavailable, companies failing the employee cost filter, companies having their own brand, companies which had undergone significant restructuring during the year and earning income from sale of licenses.
Meritor LVS India Pvt Ltd v ACIT [I.T(TP).A No.1231/Bang/2011] – TS-496-ITAT-2015 (Bang) – TP

Filters

57. The Tribunal held that since the assessee had objected against the incorrect RPT to sales filter of 25 percent adopted by the TPO, 15 percent being the reasonable threshold, it could not be estopped from seeking exclusion of comparables even though the said comparables were originally selected by it in its study.
Siebel Pvt Ltd v ITO [IT(TP)A No 1318 / Bang / 2010] – TS-360-ITAT-2015(Bang)-TP

58. The Tribunal held that the RPT to sales filter should be considered at 15 percent and not 10 percent. It further held that size and turnover of a company are deciding factors while considering comparability. Further, companies having erratic margins and growth over the years and incorrect revenue recognition policies were not to be considered Kodiak Networks (India) Pvt Ltd v DCIT [IT(TP)A No 532 / Bang / 2013] – TS-378-ITAT-2015(Bang)-TP

59. The Tribunal held that the application of 0 percent RPT to Sales filter was incorrect and that 15 percent was an optimum threshold. It further upheld the application of an upper turnover filter and the treatment of foreign exchange gains / losses as operating gains / losses ACIT v Iron Mountain Information Management India Pvt Ltd [IT(TP)A No 445 / Bang / 2012] – TS-373-ITAT-2015(Bang)-TP

60. The Tribunal excluded a certain company as comparable on the ground that its related party transactions were in excess of 50 percent and that it was a government undertaking whose prices were regulated and therefore could not be compared with a non-government company whose prices were determined by market forces.
DCIT v Babite Consultants (India) Pvt Ltd (In ITA. No.1018/Ahd/2011)– TS-414-ITAT-2015 (Ahd) – TP

61. The Court held that removal of filter by the ITAT which had been accepted by the TPO would not be feasible as companies eliminated by the filter could not be brought back for examination. Further high or low turnover was not reason to justify exclusion of a comparable but since the TPO had applied a lower limit of Rs. 5 crore there was no justification in not applying an upper turnover filter.
CIT v Nokia India Pvt Ltd (ITA 676 / 2015) – TS-432-HC-2015 (Del) – TP

62. The Tribunal denied the exclusion of comparable companies on the 15 percent RPT filter based on mere reliance on legal proposition without any supporting evidence to substantiate the said the percentage of related party transactions.
ITO v ICC India Pvt Ltd (ITA No 2630 / Del / 2011) – TS-424-ITAT-2015 (Del) – TP

63. The Tribunal held that when neither the TPO nor the assessee applied the turnover filter while selecting comparables, the same could not be applied for the purpose of rejecting comparables. It further held that low turnover alone may not have an impact on profitability unless there are other factors impacting the profitability.
Ness Technologies (India) Pvt Ltd v DCIT [IT(TP)A no.943/Mum./2015] – TS-483-ITAT-2015(Mum) – TP

64. The Tribunal excluded companies having Related Party transactions in excess of 15 percent and companies that were functionally different being giant companies having significant brand value, R&D activities and owning IPRs. However, it rejected the assesse’s prayer for exclusion of a company (selected by the TPO) the assessee had failed to raise the ground for exclusion of the said company before lower authorities.
Misys Software Solutions (India) Pvt Ltd v ITO [I.T.(T.P.) A. No.1425/Bang/2010] – TS-484-ITAT-2015 (Bang) – TP

65. The Tribunal held that the CIT(A) could not arbitrarily modify the 25 percent employee cost filter by including companies have 24.70 percent employee cost on the basis that it was almost 25 percent.
ACI Worldwide Solutions Pvt LTd v ACIT [IT(TP)A No.651/Bang/2012] – TS-492-ITAT-2015(Del) – TP

66. The Tribunal held that a company having 50 percent of its turnover relating to manufacturing activities could not be compared with the assessee who did not carry on any manufacturing activities.
DCIT v Devendra Kumar Bhasin (ITA No. 12/CHD/2014) – TS-499-ITAT-2015 (Chd) – TP

67. The Tribunal excluded companies having different financial year endings on the ground that comparability would not yield correct results until and unless there are reliable published accounting records for a financial year comparable to that of the tested party.
DCIT v Electronics for Imaging India Pvt Ltd [I.T(TP).A No.876/Bang/2013] – TS-468-ITAT-2015 (Bang) – TP

68. The Tribunal excluded certain companies as comparable on the ground that a). they didn’t satisfy the related party transaction filter of 15 percent, b). were functionally dissimilar, c). had turnover in excess of Rs. 200 crore and d). failed the employee cost to total cost filter of 25 percent.
Autodesk India Pvt Ltd v DCIT [IT(TP)A No.912/Bang/2011] – TS-502-ITAT-2015(Bang) – TP

69. The Tribunal held that the following companies could not be considered as comparable to the assessee who was engaged in providing engineering design and related services to its AE:
• Companies who were 100 percent owned by the Government since it was sheltered by its holding company and awarded various projects / contracts by government companies
• Companies having Related Party Transactions in excess of 25 percent and carrying out activities which were functionally different.
Bechtel India Pvt Ltd v DCIT [I.T.A.No.882/Del/2014] – TS-487-ITAT-2015 (Del) – TP

General

70. The Tribunal held that a company could not be rejected as comparable merely because it was not included at the time of TP study since its financial data was not available but included at the appellate stage when the financial details were made available. Additionally, it held comparables could not be excluded merely on the basis of its low turnover. It also held that companies having high significant related party transactions were to be excluded.
American Express (India) Pvt Ltd v DCIT [ITA No 1700 / Del / 2010] – TS-408-ITAT-2015(DEL)-TP

71. The Tribunal held that the assessee is entitled to raise objections regarding comparability at any stage of proceedings and even in cases where it has not raised objections for including companies as comparable before lower authorities or even if the assessee had chosen the company it seeks to exclude in its Transfer Pricing study, subject to providing the TPO with an opportunity to examine the comparables. It further eliminated companies as comparable on functionality as well as by applying a turnover filter of Rs.200 crores since the turnover of the assessee was Rs. 13 crore.
Open Silicon Research Pvt Ltd v ITO [IT(TP)A No.1128/Bang/2011] – TS-454-ITAT-2015 (Bang) – TP

72. The Tribunal held that the TPOs action of excluding companies as comparable due to the fact that the working capital adjustment required for the companies exceeded 4 percent of profits and that their profits consisted of a substantial amount of income from financial activities which was not its operating business, was incorrect as the other income was insignificant and small, not enough to warrant such conclusion.
ARM Embedded Technologies Pvt Ltd v DCIT [IT(TP)A No 1659 / Bang / 2014] – TS-466-ITAT-2015 (Bang) TP

d. Computation / Calculations / Adjustments

73. The Tribunal held that expenses disallowed in the computation of taxable income were to be excluded from the operating margin and that foreign exchange gains / losses pertaining to business activities were to be included being operating in nature. Further it held that where a company’s management was tainted causing the financials to be unreliable, it could not be considered as comparable.
Pole to Win India Pvt Ltd v DCIT [IT(TP)A No 1275 / Bang / 2010] – TS-361-ITAT-2015(Bang)-TP

74. The Tribunal allowed 5 percent adjustment under section 92C(2) of the Act on the RBI forex rates used as benchmark for international transactions pertaining to trading in foreign exchange as the RBI rates were an average rate computed.
DCIT v UAE Exchange & Financial Service Ltd [IT(TP)A No 213 / Bang / 2015] – TS-349-ITAT-2015(Bang)-TP

75. The Tribunal allowed deduction under section 10A of the Act in respect of the entire business income as the assesse had made a suo moto transfer pricing adjustment to the arm’s length price of its international transactions.
Austin Medical Solutions Pvt Ltd Vs ITO [I.T. (T.P) A. No.542/Bang/2012] – TS-348-ITAT-2015(Bang)-TP

76. The Tribunal held that capacity adjustment allowable has to be on the profit margin of the comparable companies and not vis-à-vis the assessee and laid down the mechanism for computation of the adjustment to be granted.
DCIT v Claas India Pvt Ltd [ITA No 1783 / Del / 2011] – TS-371-ITAT-2015(DEL)-TP

77. The Tribunal held that trading advances written off and foreign exchange fluctuations resulting from trading items are to be considered as an operating items while computing the Profit Level Indicator. Write offs of fixed assets being capital in nature is a non-operating item. Further, it was held that transfer pricing adjustments were to be made in respect of AE related transactions only and that internal comparables were preferential as compared to external comparables.
Claas India Pvt Ltd v DCIT – (2015) 44 CCH 0515 (Delhi)

78. The Tribunal deleted the TP adjustment made by the TPO by re-characterising support services as trading activities. It further held that since the assessee was engaged in providing support services, the berry ratio adopted by it as the PLI was correct and that the TPO erred in attempting to include the cost of sales in the PLI as the assessee had not undertaken any sales during the year and its costs were the cost incurred towards providing services only and not towards any sales.
Mitsui & Co India Pvt Ltd v DCIT [ITA No 6463 & 5082 / Del / 2011] – TS-390-ITAT-2015(DEL)-TP

79. The Court upheld the order of the Tribunal and held that transfer pricing adjustments were to be restricted to the value of international transactions and not on the entire turnover.
CIT v Firestone International Pvt Ltd [ITA No 1354 of 2013] – TS-401-HC-2015(BOM)-TP

80. The Tribunal held that the assessee could not combine distribution and agency service activities while determining arm’s length price as distribution involved import, warehousing, advertisement etc whereas the agency function involved coordination, marketing and logistic services and also due to the fact that the risks assumed in the two activities were different, in spite of the transactions being closely linked.
DDIT v M/s Corning SA [ITA No 2564 / Del / 2011] – TS-403-ITAT-2015(DEL)-TP

 

81. The Tribunal held that foreign exchange gains / losses arising from the operating activities of the assessee (software development services) was to be considered as an operating item while computing the margin of the assessee.
DCIT v Nvidia Graphics Pvt Ltd [IT(TP)A No 1118 / Bang / 2014] – TS-402-ITAT-2015(Bang)-TP

82. The Tribunal upheld the order of the DRP wherein it was held that subvention income earned from the AE was not to be considered as an operating item but since the assessee had offered the subvention income to tax it was to be reduced from the TP adjustment proposed by the TPO.
UPS Jetair Express Pvt Ltd v DCIT [ITA Nos 1166 and 1219 / Mum / 2014] – TS-413-ITAT-2015 (Mum) TP

83. The Tribunal held that foreign exchange fluctuations was to be considered as operating income, observing the fact that the entire turnover of the assessee was from software exports and therefore rejected the contention that there was no nexus between the foreign exchange fluctuations and software development income.
IGEFI Software India Pvt Ltd [IT(TP)A No 1201 / Bang / 2014] – TS-418-ITAT-2015 (Bang)-TP

84. The Tribunal held that foreign exchange gain on realization of consideration for rendering software development services is to be regarded as part of operating revenue.
Analog Devices India Pvt Ltd v DCIT [IT(TP)A No 1288 / Bang / 2014] – TS-419-ITAT-2015 (Bang) – TP

85. The Tribunal held that foreign exchange fluctuation arising as a consequence of realization of consideration of rendering software development services was to be included while computing the operating revenue of the assessee.
iPass India Pvt Ltd v ITO [IT(TP)A No 1292 / Bang / 2014] – TS-427-ITAT-2015 (Bang) TP

86. The Tribunal held that transfer pricing adjustments could not be added to book profits under MAT as it did not fall under the permissible adjustments enumerated in Explanation 1 to Section 115JB(2) of the Act which are the only adjustments possible to book profits under section 115JB of the Act. It held that the AO could only travel beyond the net profits declared by the assessee if the accounts were not in accordance with Part I&II of Schedule VI of the Companies Act or if the wrong accounting policies, standards were adopted.
Cash Edge India (Pvt) Ltd v ITO (ITA No 64 / Del / 2015) – TS-443-ITAT-2015(Del) – TP

87. The Tribunal held that the onus for claiming any adjustment in the computation was on the assessee and therefore denied the assessee a risk adjustment as the assessee had made a generalized submission about assuming low / no risk instead of providing a detailed working or exhibiting that specific risk undertaken by the comparables were absent in its case.
Stryker Global Technology Centre Pvt Ltd v ACIT (ITA No 149 / Del / 2013) – TS-450-ITAT-2015(Del) – TP

88. The Tribunal held that operating revenue should be computed by including foreign exchange gains / losses arising as a consequence of realization of consideration for rendering software development services.
DCIT v NXP Semi Conductors India Pvt Ltd [IT(TP)A No 1662 / Bang / 2014] – TS-426-ITAT-2015(Bang) – TP

89. The Tribunal held that deferred revenue expenditure incurred and written off would be classified as operating if they were incurred either after the start date of rendering services, or before but were in relation to such services. Further, it held that if revenue from incurring such expenses was linked with and accounted for in the current year then the corresponding deferred revenue expenses were to be treated as operating notwithstanding that the assessee claimed a deduction of only 20 percent thereof.
Corporate Executive Board Pvt Ltd v ITO (ITA No 4986 / Del / 2010) – TS-423-ITAT-2015 (Del) – TP

90. The Tribunal held that foreign exchange income and miscellaneous income were to be considered as operating income while computing the margin of the assessee.
American Express (India) Pvt Ltd v DCIT [ITA No 1700 / Del / 2010] – TS-408-ITAT-2015(DEL)-TP

91. The Court held that adjustment on account of expenses determined by the TPO and attributed entirely to the international transaction was without merit. Since the international transactions constituted 23.38 percent of the total transactions, only a proportionate TP adjustment could be made in respect of such international transactions.
CIT v Keihin Panalfa Ltd (ITA 11 / 2015 and ITA 12 / 2015) – TS-474-HC-2015(Del) – TP

92. The Tribunal held that the approach of the TPO in excluding export incentive entitlement while computing PLI of the assessee and not excluding the same while computing PLI of the comparable companies was incorrect. It held that since the CIT(A) had rightly compared PLI after both, including and excluding the export incentive entitlement from the assessee and the comparable companies, which was within the 5 percent range of comparable companies, no TP addition was to be made.
ACIT v Super House Ltd (ITA No.630/LKW/2013) – TS-460-ITAT-2015(LKW)-TP

93. The Tribunal held that working capital adjustment has to be allowed based on the working capial requirements of the assessee and the comparable companies irrespective of the fact that the adjustment is negative or positive.
DCIT v Software AG Bangalore Technologies Pvt Ltd [IT(TP)A No 1343 / Bang / 2014] – TS-472-ITAT-2015 (Bang)- TP

94. The Tribunal rejected the view of the TPO that working capital adjustments could not be allowed to asessees in the service industry and held that it becomes eminent to allow such adjustment in order to neutralize differences on account of high or low inventories, trade payables and trade receivables in order to bring the assessee at par with other functionally comparable companies.
Further, it held that foreign exchange gains / losses should be treated as operating in nature while computing PLI.
Sun Life India Service Centre Pvt Ltd v DCIT (ITA No.1489/Del/2014) – TS-482-ITAT-2015(Del) -TP

95. The Court held that as per the Provisions of Chapter X of the Act, transfer pricing adjustments were to be made only on transactions undertaken with AEs and not on the assessee’s entire sales including Non-AE sales.
CIT v Tara Jewels Exports Pvt Ltd – (ITA No 1814 of 2013) – TS – 481- HC-2015(BOM)

e. Specific Transactions

Advertisement, Marketing and Promotion

96. The Tribunal held that expenses directly related to the sales, marketing and other sales promotion expenses such as trade discounts cannot be included as a part of the AMP expenses for determining ALP.
M/s AW Faber Castell (India) Pvt Ltd v DCIT (ITA No 577 / Mum /2015) – TS-447-ITAT-2015(Mum) – TP

97. The Tribunal held that the TPO had exceeded his jurisdiction in determining the ALP of commission paid as Nil on the premise that the assessee had not explained the need of the services and not demonstrated how the services were actually rendered. The necessity of the commission expense was not to be determined by the TPO.
Durovalves India Pvt Ltd v ACIT (ITA No 2483 / PN / 2012) – TS-452-ITAT-2015 (PUN) – TP

98. The Tribunal held that the TPO was incorrect in comparing the AMP cost incurred by the assessee relevant to its outbound segment with the AMP costs for its inbound segment as such comparison was inappropriate as there was material difference in the inbound and outbound segment as the assessee was required to incur substantial marketing and advertisement expenses in its outbound business whereas those expenses were incurred by the foreign tour operator / travel agent in the inbound business.
Le Passage to India Tours & Travels Pvt Ltd v DCIT (ITA No: 2491/Del/2014 & ITA No. 1529/Del/2015) – TS-471-ITAT-2015 (Del) – TP

99. The Tribunal held that the examination of the AMP functions carried out by the assessee and probable comparables is sine qua non in the process of determination of ALP of the international transaction. It rejected the TPOs application of the bright line test as it was a mere quantitative analysis ignoring the examination of the AMP functions carried out by the assessee and the potential comparables. It held that distribution and AMP functions, which are two separate international transactions need to be compared with uncontrolled transactions and because of their inter-twining, could be aggregated in the first instance for comparability purposes if the comparables also perform similar distribution and AMP functions. If there are no comparables performing both functions, then the international transaction of AMP should be segregated and determined separately by applying a suitable method.
Nikon India Pvt Ld v DCIT (ITA No.789/Del./2015) – TS-456-ITAT-2015(Del)- TP and Haier Appliances India Ltd v DCIT – (2015) 45 CCH 0148 Del Trib

Corporate Guarantee

100. The Tribunal held that Explanation (i)(c) to Section 92B in no way imposed a new liability with retrospective effect as it was clarificatory in nature. It held that the rate of corporate guarantee was not comparable to the rate of bank guarantee and determined its ALP at 0.50 percent following various Tribunal and High Court decisions.
Hindalco Industries Ltd v ACIT (I.T.A. No.4857/Mum/2012) – TS-431-ITAT-2015(Mum) – TP

101. The Tribunal held that the LIBOR rate should be used to benchmark loan given to AEs situated in a foreign country and following the orders in the assessee’s own case in previous year deleted the addition made by the TPO. Further, it held that a rate of 0.5 percent for corporate guarantee provided by the assessee to its AE was wholly justified.
Manugraph India Ltd v DCIT (ITA No. : 491/Mum/2015) – TS-463-ITAT-2015 (Mum) -TP

102. The Tribunal, relying on the decision of the High Court in the case of Tata Autocomp Systems Ltd [TS-45-HC-2016(BOM)-TP], rejected the application of Prime Lending rate prevalent in India for benchmarking foreign currency loans and held that where the assessee had advanced loan to its AEs in a foreign country, then the rate of interest was to be determined on the basis of rate prevailing in the said foreign country viz. where the loan had been consumed.
Varroc Engineering Pvt Ltd v ACIT (ITA No.573/PN/2014) – TS-457-ITAT-2015(PUN)-TP

Cost Contribution

103. The Tribunal held that the TPO was incorrect in determining the ALP of intra-group services at Nil on the ground that the services had not resulted in any profit margin increase.
DCIT vs. Payne (India) Pvt Ltd [IT(TP)A No.446(B)/2012] – TS-346-ITAT-2015(Bang)-TP

104. The Tribunal held that while evaluating ALP of a service the real question was to determine what price an independent enterprise would have paid and not to determine whether the assessee benefits from it or not and that the AO did not have the power to determine the business needs of the company DCIT v Danisco (India) Pvt Ltd [ITA No 2444 / Del / 2012] – TS-393-ITAT-2015(DEL)-TP

105. The Tribunal held that where the assessee had furnished relevant details of services provided and it had also been able to demonstrate its ostensible benefits the AO could not decide the requirement of such services and hold the ALP to be Nil since commercial decisions must be left to the assessee. Gillette India Ltd Vs ACIT [ITA No. 1087/JP/2011] – TS-372-ITAT-2015(JPR)-TP

Issue of shares

106. The Tribunal held that investments in the nature of equity allotted after a delay due to regulatory approvals cannot be treated as loans and advances. Further it held that foreign exchange fluctuations relating to operations was to be considered as an operating item in computing Profit Level Indicators.
Mylan Laboratories Limited v ACIT [ITA No 2123 / Hyd / 2011] – TS-399-ITAT-2015(HYD)-TP

Loan

107. The Tribunal held that for determination of ALP of interest on loan, the interest should be determined according to the market rate applicable to the currency in which the loan was to be repaid and accepted LIBOR over SBI Prime Lending Rate for interest on loan repayable in US Dollars.
Firestar International Pvt Ltd v ACIT [ITA No.488/MUM/2015] – TS-355-ITAT-2015(Mum)-TP

108. The Tribunal held that for the purposes of benchmarking interest on loan given in foreign currency, rates of interest prevailing in India could not be taken and it considered the prevailing ECB rates.
IL & FS Maritime Infrastructure Co Ltd v ACIT [ITA No 867 / Mum / 2015] – TS-381-ITAT-2015(Mum)-TP

109. The Tribunal held that in cases where the lender and borrower are overseas based, the RBI guidelines for benchmarking unsecured loans would be applicable and not the prevailing domestic interest rates.
DCIT v M/s Geodesic Ltd [ITA No 1656 / Mum / 2013] – TS-377-ITAT-2015(Mum)-TP

110. The Tribunal held that the rate of interest paid by the assessee to its associated enterprise was an appropriate rate to benchmark the interest received from its AEs situated in the same country. Further, where interest rates prevalent in the country of the AE was lower than the interest rate received from the said AE, no addition could be made.
iGate Global Solutions Ltd v ACIT [IT(TP)A No 1239 / Bang / 2010] – TS-385-ITAT-2015(Bang)-TP

Management fees

111. The Tribunal held that he domain of examining commensurate benefit derived by the assessee from services received on account of management consultancy and technical fees paid to its AE, lies with the AO and not the TPO.
Forsoc Chemicals India Pvt Ltd v DCIT [M.P. No.47/Bang/2015] – TS-407-ITAT-2015(Bang)-TP

Reimbursement of expenses

112. The Court upheld the order of the ITAT allowing the reimbursement of sales promotion expenses incurred by the AE under the assessee’s instruction. Further, it held that the question of benefit to the assessee would only arise when the expenses were incurred by the AE in its own right for the common benefit of the group as a whole and not under instruction from the AE which was the present case.
CIT v Apollo International Ltd (ITA 610 / 2015) – TS-439-HC-2015(Del) – TP

113. The tribunal held that the CUP method was more appropriate than TNMM for benchmarking reimbursement of overhead expenses and consultancy charges expended by the assessee on behalf of the AE as no mark-up was charged. It further held that since the assessee bore lesser business risk as compared to the comparable companies due to its nature of revenue model, the CUP method was better suited.
Lee Harris Pomeroy Architects PC Kolkata v DCIT (ITA No.382/Kol/2015) – TS-458-ITAT-2015 (Kol) – TP

Royalty

114. The Tribunal deleted TP addition on royalty and technical services fee payment to AE which was benchmarked using the CUP method, on the ground that assessee is not required to demonstrate that payment of royalty is justified since such agreements are periodically approved by the RBI and by the Ministry of Industries and the assesse was paying the amount as per agreements.
DCIT vs Kirby Building Systems India Ltd [ITA No.316/Hyd/2015] – TS-363-ITAT-2015(HYD)-TP

115. Though the Tribunal agreed with the contention of the TPO that royalty paid by the assessee to Suzuki on account of license for trademark was not warranted, since Suzuki was a weaker brand as compared to the assessee, it held that it was not permissible for the TPO to bifurcate royalty paid by the assessee to Suzuki into (i). royalty for licensed information and (ii) royalty for licensed trademark so as to determine the ALP of the royalty for licensed trademark as Nil as the royalty payment was a common consideration for use of licensed information and licensed trademarks, which could not be bifurcated.
Maruti Suzuki India Ltd v ACIT – (2015) 44 CCH 0555 Del Trib

116. The Tribunal held that approval from the FIPB cannot substitute the determination of ALP under the provisions of the Act as it is not in context of the ALP under the IT provisions. Further it held that since the payment of royalty was a separate transaction it could not be clubbed with the transactions of purchase and sale of goods and material with the AE.
M/s AW Faber Castell (India) Pvt Ltd v DCIT (ITA No 577 / Mum /2015) – TS-447-ITAT-2015(Mum) – TP

117. The Tribunal held that the TPO had not brought on record any cogent reasoning based on which the royalty payment made by the assessee could be held to be not in line with the arm’s length standard. Further, considering that the assessee had consistently earned an operating margin substantially higher than that of the comparable and that the effective rate of royalty was lower than earlier years where no adjustment was made, there was no reason to make any adjustment to the royalty paid.
ACIT v Oracle India Pvt LTd – (2015) 45 CCH 0116 Del Trib

Others

118. The Court held that unutilized subsidy received from an Associated Enterprise could not be reflected as income unless corresponding expenditure was also debited to the Profit and Loss account as it would be contrary to the matching concept and therefore receipt of the said subsidy could not be subject to transfer pricing.
CIT v Canon India Pvt Ltd – (2015) 93 CCH 0172 Del HC

119. The Tribunal held that once the TPO had accepted the CUP data (valuation report from a Chartered Engineer) submitted by the assessee in relation to the sale of 5 machines, he could not reject the CUP data for the 3 other machines sold merely because they were sold at a loss.
Perma Pipe India Pvt Ltd v DDIT (ITA NO 471/Mum/2015) – TS-470-ITAT-2015 (Mum) – TP

120. The Tribunal deleted the ad-hoc addition made by the TPO on the purchase of second hand machinery by the assessee from its AEs. It held that since the assessee had substantiated the price paid on purchase by producing documentary evidence including the valuation report from an approved valuer in the USA (country where AE was situated), the TPO was incorrect in disallowing 50 percent of the purchase consideration without referring the valuation to the Department Valuation Officer as the TPO is no expert on valuation and the method adopted by him was not as per the provisions of the Act.
Further, it held that the TPO was incorrect in determining the ALP of the cost sharing agreement entered into by the assessee with its AE at Nil since the assessee had furnished all agreements and other ancillary / relevant documents relating to the sharing of cost.
Koch Chemicals Technology Group (India) Ltd v ACIT ( ITA no.8091/Mum./2011) – TS-467-ITAT-2015 (Mum) TP

 

f. Assessment

121. The Tribunal held that the time limit for completion of assessment pursuant to the order of the TPO is contained in section 144C(4) and (13) of the Act. It further held that time limit under section 153 of the Act has no relation with the passing of the draft order which should be passed within reasonable time. Further it was held that the word ‘may’ in section 92CA(3) of the Act was to be read as ‘shall’ providing a mandatory time limit for the TPO to pass an order. If the order of the TPO is time barred by the draft order is timely, the final assessment order would be saved but the TP additions would be deleted.
Honda Trading Corporation v DCIT (IT) – (2015) 61 taxmann.com 223 (Delhi Trib)

122. The Court held that Reference to TPO for the determination of ALP of international transaction could not be made by the AO where there was no assessment pending before him as the determination of ALP envisages computation which is possible only during assessment.
CIT v XL India Business Services Pvt Ltd (ITA No 713 / 2015) – TS-438-HC-2015 (Del) – TP

123. The Tribunal held that when no assessment proceedings were pending in relation to the relevant assessment year, the AO was precluded from making a reference to the TPO under section 92CA(1) of the Act for the purposes of computing the ALP of international transactions and the consequent order of the TPO proposing an addition was void ab initio and not valid material for the AO to entertain belief that certain income chargeable to tax had escaped assessment under section 147 of the Act.
Kaeser Compressors (India) Pvt Ltd v ACIT [ITA No 2379 / PN / 2012] – TS-406-ITAT-2015(PUN)-TP

124. The Tribunal, following the decision of the Special Bench in the case of DCIT v Quark Systems Pvt Ltd [TS-23-ITAT-2009 (CHANDI) – TP], held that an assessee cannot be estopped from seeking an exclusion even from its own selection, at a later stage if it is found that comparables selected were not matching with its profile.
Radisys India Pvt Ltd v ITO [IT(TP)A No 371 / Bang / 2015] – TS-489-ITAT-2015 (Bang) – TP

125. The Tribunal held that where the revenue and assessee had not followed any of the prescribed methods envisaged in Rule 10B of the Income-tax Rules and section 92C of the Act, then the method of computation adopted by both of them was erroneous and was to remitted back to the file of the AO to re-compute the ALP.
Autoneum Nittoku Sound Products India Pvt Ltd v ACIT – (2015) 45 CCH 0088 Chen Trib

126. The Court upheld the decision of the Tribunal wherein the Tribunal deleted penalty by holding that there was reasonable cause on account of which the AMP transactions were not disclosed as international transaction since the assessee was under the bonafide belief that no reporting was required for AMP transactions and that the ruling of the Special Bench of LG Electronics [TS-11-ITAT-2013 (DEL)-TP] which was approved by the High Court in the case of Sony Ericsson Mobile Communications [TS-96-HC-2015 (DEL)-TP], addressing the said issue was passed post the penalty order.
Pr CIT v Haier Appliances India Pvt Ltd (ITA 481 / 2015) – TS-477-HC-2015(DEL)-TP
CIT v Amadeus India Pvt Ltd (ITA 535/2014 & ITA 729/2014) – TS-478-HC-2015 (DEL) – TP
Reebok India Company v ACIT (ITA 23 / 2015 & ITA 55 / 2015) – TS-479-HC-2015 (DEL)-TP

127. The Tribunal held that the AO could not make disallowance under section 40A(2) of the Act once the international transaction was subject matter of Chapter X of the Act.
Herbalife International India Pvt Ltd v DCIT (IT(TP)A No.1679/Bang/2012 & IT(TP)A No.184/Bang/2013) – TS-491-ITAT-2015 (Bang) -TP

128. The Tribunal held that a reference made to the TPO where there was no assessment pending was invalid and bad in law. It further held that the order of the TPO pursuant to the illegal reference could not be used in the reassessment proceedings by the AO and therefore the reassessment proceedings based on illegal reference were held to be void ab initio.
Bucyrus India Pvt Ltd v DCIT [I.T.A No. 616/Kol/2015] – TS-486-ITAT-2015(Kol)-TP

g. Penalty

129. The Court upheld the ITAT’s deletion of penalty on non-disclosure of AMP expenses considering that the documentation was correct with the requirement of law at the relevant time and that the Bright Line Test concept was newly framed post the passing of the penalty order.
CIT v Haier Appliances India Pvt Ltd (ITA No 481 / 2015) – TS-400-HC-2015(DEL)-TP

I. Transfer Pricing
II. International Tax

a. Permanent Establishment

130. The Tribunal held that the Indian subsidiary (‘RIPL’) of the assessee did not constitute a dependent agent PE by virtue of entering into a distribution agreement as the assessee merely provided products / services to RIPL for further distribution and that RIPL had independent contracts with Indian subscribers, did not maintain stock of the assessee and did not conclude contracts on behalf of the assessee.
It was held that Bureau Chief deputed to India, who only acted as a Chief Reporter in India in the field of collection and dissemination of news, did not constitute a service PE as the functions of the Chief did not perform any services leading to earning of distribution fees to the assessee.
Reuters Limited v DCIT (ITA No 7895 / Mum / 2011) – TS-511-ITAT-2015 (Mum)

131. The Court quashed the ruling of the AAR and held that the assessee’s liaison office in India engaged in purchasing activity was not a permanent establishment under Article 5 of the India – USA DTAA as the liaison office was engaged in identifying component manufacturers, price negotiation, discussion of material to be used, quality control and testing of products and coordination with supplier and customer. It observed that where a non-resident purchases goods in India for the purpose of export, no income accrues or arises in India for such non-resident.
M/s Columbia Sportswear Company v DIT (IT) (WP No 39548/2012) – TS-600-HC-2015 (KAR)

132. The Apex Court held that the MAT Provisions were not applicable to foreign companies not (a) having a PE in India (b) required to seek registration under section 592 / 380 of the Companies Act as per Press Release dated September 24, 2015 and Instruction No 9 / 2015 dated September 2, 2015 issued by the Central Board of Direct Taxes
Castleton Investment Ltd v Director of Income tax (IT) – Civil Appeal No 4559 and 4560 of 2013

b. Royalty and Fees for technical services (‘FTS’)

133. The Authority for Advanced Rulings (‘AAR’) held that business guidance and procurement services provided by a company situated in the UK to an Indian company could not be classified as technical or consultancy services and moreover it did not ‘make available’ any technical knowledge and therefore could not be classified as FTS.
Measurement Technology Limited – (2015) 123 DTR (AAR) 34

134. The AAR held that payments received by the applicant on sale of its e-learning software products to Skillsoft India for onward sale to final customers constituted Royalty under the Treaty as ‘software’ was included within the ambit of ‘literary work’ and the end-customers were granted license to access software providing them the right to use the copyright embedded in the product notwithstanding its non-transferability.
SkillSoft Ireland Limited – (2015) 123 DTR (AAR) 17

135. The Tribunal held that reimbursement of costs (without any mark-up), allocated to group entities on the basis of headcount which was paid to the Non-Resident Head Office (‘HO’) on account of usage of software purchased by the HO from various vendors was not chargeable to tax and did not attract provisions of section 195 of the Act.
Lionbridge Technologies Pvt Ltd v ITO(TDS) – (2015) 45 CCH 0006 Mum Trib

136. The Tribunal held that once the assessee has complied with the provisions of section 195 of the Act by obtaining the certificate under section 195(2) then no disallowance can be made in respect of the said amount paid to the non-resident by invoking section 40(a)(i) of the Act.
DCIT v Carl Zeiss India Pvt Ltd [IT(IT)A Nos 1258(B) / 2014 & IT(IT)A No 1251(B) / 2014] – TS-463-ITAT-2015(Bang)

137. The Tribunal held that when amount received by assessee was not in nature of “Fee for technical services” as per definition of Article 13(4)(c) of the India-UK DTAA, there was no necessity to examine its taxability u/s 9(1)(vii).
IMG Media Ltd v DDIT – (2015) 44 CCH 0553 Mum Trib

138. The Tribunal held that consideration received by the assessee for providing access to internet and other networking facilities to an Indian entity was royalty under Article 12(3) of the India-US DTAA observing that such payment was for the use of embedded secrety software enabling Indian customers to call residents of the USA and vice versa. Following the AAR Ruling in the case of ABC (238 ITR 296), it held that the transaction would to related to scientific work and would partake the character of intellectual property.
Cincom System Inc v DDIT (ITA No. 952/Del/2006) – TS-568-ITAT-2015 (Del)

139. Services provided by Chinese subsidiary of Indian holding company in connection with procurement of goods by Indian company from Chinese vendors involving specialized services of market research, information on new developments was taxable as fees for technical services on the gross amount @ 10 percent.
Guangzhou Usha International Ltd In re – (2015) 62 taxmann.com 96 (AAR – New Delhi)

140. The Court held that the income of the assessee from rendering ISO certification and audit services was not taxable as fees for technical services under the Act or under the India-Germany DTAA as there was no transfer of technology and that the assessee was not involved in management of clients business. It held that though there were some instances of advice given it could not be termed as a pure consultancy service.
DIT v TUV Bayren (ITA No 1304 of 2013) – TS-586-HC-2015 (BOM)

c. Shipping Income

141. The Tribunal held that the profits of the assessee from operation of ships was not taxable in India as per Article 8 of the India-UAE DTAA. It disagreed with the contention of the Revenue that since no taxes were actually paid in the UAE, the LOB clause was applicable and held that the requirement of actual liability had been done away with by the India-UAE protocol and thus the treaty benefits could not be denied. Further, it denied the Revenue’s contention that the LoB clause was applicable as the vessel was owned by a non-treaty partner by observing that ownership of the vessel was not a condition precedent under Article 8.
ITO v MUR Shipping DMC Co (ITA No 405 / Rjt / 2013) – TS-603-ITAT-2015 (Rjt)

142. The Tribunal held that freight receipts of Singapore based shipping company was not taxable in India under Article 8 of the India-Singapore DTAA. IT held that the LOB clause was not triggered as the income was taxable on accrual basis and therefore the conditions stipulated in the LOB clause were not satisfied.
Alabra Shipping Pte Ltd v ITO (I.T.A. No.: 392/RJT/2014) – TS-588-ITAT-2015 (Rjt)

d. Interest

143. The Tribunal held that interest paid by the assessee company to non-resident investors on FCCBs is specifically excluded from the deeming provision as per section 9(1)(v)(b) of the Act, as per which interest payable in respect of any debt incurred outside India and used for the purpose of business or profession carried on by such person outside India or for the purpose of making any investment outside India, could not be covered in the definition of income deemed to accrue or arise in India. It further held that the place of actual lending was important to determine the place where the interest income can be said to have accrued or arisen. Accordingly, the assessee was not an assessee in default within the meaning of section 201(1) of the Act.
ADIT (IT) v Adani Enterprise – (2015) 45 CCH 0029 Ahd Trib

e. Capital Gains

144. The Court held that the AAR was incorrect in rejecting the application based on the fact that it was a prima facie case of tax avoidance as there was not a single finding of fact to prove so. The Court stated that the TRCs issued by the Mauritius authorities were sufficient evidence for accepting the status of residence and beneficial ownership. Further it interpreted the words “liable to taxation” to mean that the Government is entitled to tax the person whether or not he actually pays the tax and accordingly held that the DTAA would be applicable and no tax was deductible on capital gains arising from sale of shares from the Mauritius entity to the Indian assessee company.
Serco BPO Private Limited v AAR – (2015) 60 taxmann.com 433 (Punjab & Haryana)

f. Reimbursement of expenses

145. The Tribunal held that when expenses are in the nature of reimbursements they are not liable to tax. Further it was held that where the assessee merely rendered services without imparting any knowledge or skills, the said service could not be considered as fees for technical services under the India-Israel Double Tax Avoidance Agreement.
ADIT v TTI Team Telecom International Ltd – (2015) 45 CCH 0042 Mum Trib

g. Withholding tax

146. The Court held that demurrage charges paid by an Indian company to a foreign shipping company without deducting tax at source do not attract disallowance under section 40(a)(i) of the Act as it was covered specifically by section 172 of the Act which is a code in itself. Due to the conflicting view expressed by the co-ordinate bench in DCIT v Orient (Goa) Pvt Ltd, the Court held that the issue was to be resolved by a larger bench and sougt for the direction for constitution of a Larger Bench.
CIT v VS Dempo and Company Pvt Ltd (ITA No 989 and 991 of 2015) – TS-526-HC-2015 (BOM)

147. The Court held that mere passing of book entries, which were reversed would not give rise to an obligation to deduct tax at source under section 195 of the Act as the assessee had neither paid the royalty nor reflected the same as payable and therefore the assessee could not have been treated as an assessee in default under section 201 of the Act.
DIT v Ericsson Communications Ltd – (2015) 61 taxmann.com 117 (Delhi)

h. Others

148. The Court rejected the argument of the Revenue that only if the income is chargeable to tax in India could the assessee claim benefit of foreign tax credit (under the India-Canada DTAA). It held that income under section 10A of the Act was chargeable to tax under section 4 and 5 of the Act but no tax is charged because of the exemption given under section 10A only for a period of 10 years and therefore merely because the exemption was granted, it could not be postulated that the assessee was not liable to tax. It further held that the benefit of foreign tax credit has been extended and hence payment of tax in both jurisdictions was not sine qua non for granting relief.
Wipro Limited v DCIT – TS-565-HC-2015(KAR)

149. The Court held that where during the assessment under section 143(3) of the Act, receipts by the assessee was treated as royalty and taxed on gross basis at 15 percent, but the AO initiated reassessment proceedings contending that the said amount was to be taxed at 20 percent considering that the assessee had a PE in India and the royalty was attributable to the Indian PE, the reassessment proceedings were to be quashed as the AO had earlier examined the issue of royalty and its taxability in its entirety and all relevant facts were truly disclosed by the assessee.
Oracle Systems Corporation v ADIT – (2015) 62 taxmann.com 291 (Del)

150. The Tribunal held that the assessee, a partnership firm registered in the UK, was entitled to the benefits of the India – UK Treaty even though it was not recognized as a taxable entity under the taxation laws of UK.
DDIT(IT) v Zee Telefilms Ltd – (2015) 45 CCH 0112 Mum Trib

(Compiled by Sunil Moti Lala)

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