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Income Tax Appellate Tribunal, “K” BENCH, MUMBAI
Asst. Commissioner of Income-tax, Circle 2(3)(1), Mumbai [ The ld AO ] for A.Y. 2011-12, against the order passed by the learned Commissioner of Income-tax (Appeals)-58, Mumbai [the learned CIT (A)], wherein the transfer pricing adjustment made by the learned Jt. Commissioner of Income Tax, Transfer pricing 2(2), Mumbai (the learned Transfer Pricing Officer) as per order dated 27th January, 2015, passed under Section 92CA(3) of the Income Tax Act [ The Act] treating the Arm's Length Price [ ALP] of fees paid for technical services at ₹nil incorporated in the
The learned Assessing Officer is aggrieved with that order and therefore, is in appeal before us raising following grounds of appeal:-
“1. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the adjustment to the extent of ₹ 22.67 crore made by the TPO on account of Arm’s length Price without appreciating the fact that the assessee had failed to justify the payment made to the AE.
2. On the facts and circumstances of the case and in law, the ld.CIT(A) erred in considering the segment profitability of the assessee which was never furnished by the assessee to the TPO during the relevant proceedings and no opportunity was given by the ld. CIT(A) to the TPO/AO to rebut the assessee’s contentions.
On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the ALP adjustment made by the TPO to the extent of ₹ 22.67 crore ignoring the fact that CanvasM USA sub- contracts the work it secures from third-party customers in the United States and performs only limited offshore development functions. It was claimed that it retains 5% of the total revenue. Hence, the TPO had rightly asked the assessee to justify the payment of such a huge amount to the AE
The brief fact shows that the assessee was incorporated on 28 July 2006 as joint venture between Tech Mahindra Limited (‘TML’) holding 80.10% and Motorala Cyprus Holding Limited (‘Motorola’) holding 19.90%.
Assessee is a key player in the mobile VAS space. It developing and deploying VAS solution and applications for media, operators and enterprises across the globe. It specializes in end-to-end enabling of solution with managed services, which bring together content, technology and device expertise for enhancement of digital experience to the customers.
Assessee filed its return of income on 28 November 2011 at a total income of ₹7,69,35,266/-. It was picked up for scrutiny. As assessee has entered into international transactions with its Associated Enterprises [AE] and therefore, the reference was made to the learned Transfer Pricing Officer for determination of Arm's Length Price. The only transaction in dispute is of ₹22.67 crores related to reimbursement of expenses paid to its associated enterprises. It is stated that assessee has paid on-site
The learned Transfer Pricing Officer did not disturb other transaction but examined the transaction of reimbursement of expenses paid to Associated Enterprises of ₹22,67,93,314/- being the charge made by the US entity for the cost of Associated Enterprises has incurred for the purpose of onsite portion of software development work sub contracted to the assessee in India. The learned Transfer Pricing Officer held that for the purpose of the above independent transaction of ₹22.67 crores, the most
Aggrieved, assessee approached the learned CIT (A), the learned CIT (A) held that in the preceding years the Transactional Net Margin Method has been approved as the most appropriate method. It is also held that assessee
For A.Y. 2008-09, the co-ordinate Bench has categorically held that the cost incurred by the Associated Enterprises is salaries, travel cost and office rent expenditure for that year, the learned CIT (A) also called for the remand report. Thereafter, co-ordinate bench vide order dated 23rd April, 2019, upheld the order of the learned CIT (A) stating that learned Transfer Pricing Officer has not adopted any of the known methods and therefore, addition deserves to be deleted. In that case, learned CIT (A) examined the margins of the assessee and held that when the earnings of the assessee from the Associated Enterprises and non Associated Enterprises are comparable, the addition deserves to be deleted. 013. However, the order of the learned CIT (A) before us is on different reasoning and rejected the earlier internal comparable in the Transactional Net Margin Method. In the present case, he upheld the external comparables in Transactional Net Margin Method. Further, when the learned Transfer Pricing Officer has held that benefit derived by the assessee is not demonstrated and therefore, the Arm's Length Price of the international transaction is nil, it is clear that learned Transfer Pricing Officer has applied Comparable Uncontrolled Price, whereas no third party would have paid such sum to its Associated Enterprises. Thus, it is clear case of
As the learned CIT (A) in the present case has deviated from the orders of the earlier years and rejected the argument that margin earned by the assessee are comparable with Associated Enterprises vis-à-vis non- Associated Enterprises transactions on internal comparability under TNMM method, he has categorically held that those are not comparable for this year for the simple reason that there are substantial bad debts and losses. This fact is not controverted or challenged by the assessee. Specific reference is to paragraph no.4.8 of the order of the learned CIT (A). Therefore, those observations are final.
However, the Transactional Net Margin Method was held to be most appropriate method by the learned CIT (A) and there is no challenge to the same by the Revenue. Therefore, the only option left is testing the margin of the assessee adopting the Transactional Net Margin Method and ignoring internal Transactional Net Margin Method therefore, to only compare with the external comparable. We find that assessee has furnished a segmented transfer pricing study report where the margin of the assessee is 22% and the margins of comparable was found to be
Accordingly, the appeal filed by the learned Assessing Officer is dismissed.
Order pronounced in the open court on 10.05.2023.