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Income Tax Appellate Tribunal, “K” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI PAWAN SINGH, JM
Against the above order, the assessee filed objections before the dispute resolution panel.
19 Prudential Process Management Services India Private Limited 15. The DRP further observed that the manner in which the entire transaction has been carried out, there cannot be an iota of doubt that without global agreement, there would not have been a transaction between the two Indian entities as mentioned above. The bifurcations of the total consideration of £25 million into two portions, indicates that there are has to be a specific clause in the global agreement to this effect, and it would mean that the sale of VD PMSS for consideration of £10.5 million was decided by the Prudential UK without any say in this regard by the assessee. It further observed that this actually gives rise to practically taking over of VD PPM as by Prudential UK for £10.5 million and then selling it to Capita UK/Capita India. The dispute resolution panel further noted that counsel of the assessee was requested to file a copy of global agreement which it failed to do. The dispute resolution panel further observed as under:
2.2.13 As per the definition of Section 92F, the transaction includes an arrangement, understanding or action in concert. As discussed above, there exists a global outsourcing agreement between Prudential UK and Capita UK to give the outsourcing business to the tune of £722 million covering a period of 15 years to Capita UK. As a part of this arrangement, Prudential UK was to transfer the Vikhroli division to Capita's Indian AE (COS). Thus, there is not only an arrangement /understanding between the AE of the assessee and AE of Capita India, but they have also acted in concert, respectively influencing and causing the sale of VDPPMS by I India and purchase of the same by Capita India.
Thereafter, the dispute resolution panel referred to the provisions of section 92B. The dispute resolution panel observed that from Explanation 9(i) a of section 20 Prudential Process Management Services India Private Limited 92B of the Act, the purchases and sale transfer of intangible property, plant etc is an international transaction. Thereafter, the dispute resolution panel held as under:
2.2.15 It is stated that once the appellant has undertaken an international transaction which falls within the meaning of section 92B of the Act, it is imperative that the income arising from this international transaction is determined having regard to the arm's length principle. For determination of income arising from the international transaction having regard to the arm's length principle along with the necessity of looking at the factors of comparability and then doing comparability analysis, it is necessary to consider one of the five methods given in section 92C(1) as most appropriate method. It is further, mentioned that while applying any of the methods which are provided in section 92C(1), it is imperative to find the comparable uncontrolled transaction /enterprise. In the given circumstances, when the valuation of the equity issue has to be arrived at, it would be deemed as if the comparable uncontrolled price method is being used for determination of the ALP of the international transaction of issue of equity to the AE. In this method also, what is prescribed is to consider the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction. Then such comparable uncontrolled transaction identified is adjusted to account for difference, if any, between the international transaction and the comparable uncontrolled transaction which would materially affect the price in the open market. Further the said adjusted price is then considered to be an arm's length price. Accordingly, it actually does not matter whether or not the appellant company was a wholly owned subsidiary of parent holding company at all material times. For determination of arm's length price of the sale of shares, its fair market valuation or valuation in an uncontrolled environment as in the open market situation has to be arrived at. It is this fair market value or valuation in an uncontrolled environment that would be considered as comparable uncontrolled transaction for the purposes of comparability and benchmarking. Accordingly the contention of the assessee regarding TPO not using any of the methods prescribed in the Rules for benchmarking is not found to be acceptable. 2.2.16 One of the condition that is required to be satisfied for a transaction to constitute an international transaction under 92B(1), is that at least one among the associated enterprise should be a nonresident. In the present case though both the assessee and capita India are residents for the purpose of Indian taxation, but the presence of a global agreement makes the 21 Prudential Process Management Services India Private Limited appellant's AE part of the entire transaction and hence the conditions laid down in section 92B(1) is fully satisfied.
2.2.17 The transactions between the-assessee and its AE is deemed to be international transaction, as per section 92B(2). The scope of section 92B(2) is explained in CBDT circular No. 14 of 2001, dated 22.11.2001 with an illustration as under: "55.8 Sub-section (2) of section 92B extends the scope of the definition of international transaction by providing that a transaction entered into with an unrelated person shall be deemed to be a transaction with an associated enterprise, if there exists a prior agreement in relation to the transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined by the associated enterprise. An illustration of such a transaction could be where the assessee, being an enterprise resident in India, exports goods to an unrelated person abroad, and there is a separate arrangement or agreement between the unrelated person and an associated enterprise which influences the price at which the goods are exported. In such a case the transaction with the unrelated enterprise will also be subject to transfer pricing regulations."
2.2.18 It is clear from the contents of the CBDT circular that the transaction between an enterprise and an unrelated person it is influenced by the associated enterprise of the first party having an arrangement or agreement with the unrelated party, then such transaction would be deemed to be an international transaction. 2.2.19 Section 92B(2) can take two forms. A per the first limb it can be in the form of a prior agreement in relation to the transaction in uestion between the associated enterprise and the unrelated person. Secondly, the terms of the transaction have to be in substance determined by the associate enterprise and the unrelated party.
2.2.20 Chapter X is applicable when such prior agreement would consequently be in the nature of an arrangement or an understanding or an action in concert between the unrelated party and the associate enterprise.
2.2.21 Even for a moment if we do not consider the global agreement, as per the second limb it is sufficient, if the unrelated person and the associated enterprise have in substance determined the terms of the transaction. The second type of influence will arise if the associate enterprise and the unrelated party are able to jointly and imperatively prescribe or fix the essence of the character of the transaction in question. In other words, the Indian entity will not have an opportunity of determining the substance of the transaction as per
22 Prudential Process Management Services India Private Limited its volition. The Indian entity will have to yield itself to the influence of its associate enterprise and the unrelated party. The above discussion makes it clear that the Indian entity PPMS has no role or a say in determining the substance of the transaction with Capita India on it's own volition but it is totally influenced by the presence of global agreement. Thus the second limb of subsection 2 is also fulfilled. 2.2.22 According to us, the preconditions to attract section 92B(2) has been satisfied in the instant case therefore the transaction can be treated as deemed international transaction. In the present case, there exists a prior agreement between the AE and third party. The terms of the relevant transactions are determined in substance between the AE and the third party. 2.2.23 As discussed in detail above, the two Indian entities have entered into a contract for sale and purchase of Vikhroli division only to give effect to the global outsourcing agreement otherwise the transactions between the two Indian entities would not have materialised. Hence, we feel it is an international transaction in which the Indian entity i.e. assessee is merely giving effect to the global agreement entered into by its AE and therefore it clearly falls within the provisions of Section 92B. It is further the fact gathered by TPO from public domain and as such not disputed by the assessee that the resultant saving of £60 million per year by 2010 to Prudential UK and no portion of such benefit is there to assessee. 2.2.24 In view of detailed discussion above, we are satisfied that the above transaction is an international transaction and the objection raised by the assessee has no merits.
Thereafter, the dispute resolution panel adjudicated the valuation arrived at by the assessee towards valuing the Vikhroli division. The distribution panel observed as under:
2.2.28 We have carefully gone through the submissions. As far as the objection of the assessee towards use of RCM for valuation of the Vikhroli division is concerned, a clear finding was given that this method is not applicable to service sector like that of assessee where revenue is generated using human resource whose value is not captured in the Balance Sheet. This method can be used in capital intensive industries such as power, steel, etc. where the projects are having long gestation period. According to us there
23 Prudential Process Management Services India Private Limited exists a global outsourcing agreement between Prudential UK and Capita UK to give the outsourcing business to the tune of £722 million covering a period of 15 years to Capita UK. As a part of this arrangement, Prudential UK was to transfer the Vikhroli division to Capita's Indian AE (COS). When the business is secured for 15 years and hence, the contention that after 3 years there is no commitment of further renewal is not found to be acceptable, The assessee was also not in a position to establish the reliability of the assumptions made while carrying out the values. We concur with the finding of the TPO in this regard.
Thereafter, the dispute resolution panel referred to the objections of the assessee and the transfer pricing officer's method and upheld the value arrived at by the transfer pricing officer.
The dispute resolution panel also referred to ITAT Chennai decision in the case of Ascendas India Private Limited in wherein it was held that DCF is the most appropriate method to determine the arms length price of international transaction, the dispute resolution panel further referred to ITAT Chennai decision in the case of VIHI LLC in ITA number 17/MDS/2012 dated 20/12/2013. Accordingly, the dispute resolution panel upheld the transfer pricing officer's valuation.
We have heard both the counsel and perused the records. At the outset, we note that in this case, the issue regarding the international transaction relating to sale of business was not referred by the Assessing Officer to the Transfer Pricing Officer. In this regard, the question was put to the assessee from the Bench as to whether or not the assessee has any grievance in this regard. The ld. Counsel of the assessee fairly
24 Prudential Process Management Services India Private Limited accepted that in view of this subsequent amendment in the Act, the Transfer Pricing Officer is duly empowered to go into the issue of the international transaction himself without the matter being referred by the Assessing Officer. Hence, the ld. Counsel of the assessee submitted that the assessee has no grievance in this regard.
We further note that apart from the Transfer Pricing Officer, making adjustment in this regard amounting to Rs.1,04,03,50,000/- on the same issue, the Assessing Officer has also passed an alternate order as under:
Addition u/s.50B on account of slump sale
5.1 Perusal of the details filed revealed that the assessee company has sold its business division to Capita India Pvt. Ltd. thereby, offering an amount of Rs.58,86,42,145/- as Capital Gains as per the provisions of section 50B of the Act. In this case, the TPO vide its order dated 24.01.2013 has made an upward adjustment to the arm's length price by Rs.104,03,50,000/-. In this case, the total sale consideration received by the assessee company stood at Rs.82.244 crores on which capital gain of Rs.58,86 crores have been shown. 5.2 In the instant case, the TPO has recomputed the Arm's Length Price based on the fact that the sale of said property / business was purely a repercussion agreement entered between the assessee's holding company, Prudential, UK and Capita UK, the holding company of M/s. Capita India Pvt. Ltd. Although this transaction is entered between two resident companies assessed to tax in India, the: TPO by applying the logic that this agreement was basically an outcome; of global outsourcing arrangement between the holding companies treated the transactions to be between two associate concerns within the meaning of section 92CA of the Act. Although the two companies are not associated enterprises; but, owning to the actual global outsourcing agreement between the holding companies was treated as transaction between two associate concerns. Although, the TPO has made an upward adjustment to the tune of Rs.104.035 crores, the issue is being examined afresh treating both the concerns as non-associate, enterprises to safeguard the interest of revenue. 5.3 The assessee company sold its Vikhroli division on going concern basis. The division was not sold because of any incurring losses but was sold to give effect to the Global outsourcing agreement between Prudential UK, and Capita UK being-the holding companies of the assessee company and M/s. Capita India
25 Prudential Process Management Services India Private Limited Pvt Ltd; respectively. At the time of transfer of this business the, assessee company; was already making an operating profit of 25.5% on cost which; is much above the stated mark of 13% taken up by the assessee company while making its submissions' before the TPO / computing the arm's length price. The transaction between the assessee company and Capita India Pvt. Ltd. cannot be looked into isolation as the Global contract was of the magnitude of Rs.5800 crores. The Assessee company is a captive'; service provider to its holding company and the business transferred to Capita India Pvt. Ltd. did not change the basic character of the business activity as 'Capital India -Pvt. Ltd. also became a captive provider its holding company Capita UK. 'Although the transaction between the assessee and Capita India Pvt Ltd as an uncontrolled transaction between unrelated parties the transfer of business should command a good price in the open market due to the regular and good profits posted by it over the years. Moreover the business was transferred on going concern basis arid looking; at the Indian market, this sector has good growth potentials in the upcoming future. Going by the growth trends shown by the industry it can be comfortably construed that the business would have grown at a cumulative rate of at least 2% which by applying DCF (Discounted Cash Flow) method would have fetched good dividends; to the assessee company. As already discussed and established that the assessee company was posting good profits on the said business there was no need for it to undervalue the company and transfer the same to Capita India Pvt. Ltd. at a price much below the market rate. Therefore, there is a definite and certain Connection between the transaction carried out by the holding companies and the- assessee company and M/s. Capita India Pvt. Ltd. Although the global outsourcing: agreement between the holding companies does not have any tax implication in India the transaction entered between the assessee company and M/s. Capital India Pvt. Ltd. does have a taxation angle attached to it as the receipts on sale of such business transfer is taxable in the hands of the assessee company and by .undervaluing its business the assessee company has inflected, a loss to the exchequer Without prejudice to the above, even if it is construed and' -believed' that the local business transaction between the assessee company and Capita India is not as a result of the Global outsourcing agreement between the holding companies then also, the valuation done by the assessee company for a well established growth oriented business having huge future potentials cannot be justified. Therefore applying the DCF method as done by the TPO the total value of sale transaction is taken at Rs.186.279 crores as against assessee's sale receipts of Rs.82,244 crores applying the ratio that the said transaction is between unrelated parties and is given specific colour so as to adversely hit the exchequer thereby reducing the tax liability out of the transactions. Therefore, a sum of Rs.104.035 crores (186.279-82.244 crores) is added to the total income of the assessee company being the capital, gain taxable within the meaning of section 50B of the I.T.Act. However as this addition has already been made by the TPO the disallowance made u/s.92CA(3):of the Act shall remain final and this 26 Prudential Process Management Services India Private Limited disallowance will only come into picture in case of adverse judicial view against the addition made by the Transfer Pricing Officer.
We find that in this regard, there is no adjudication on this aspect by the ld. Dispute Resolution Panel. The assessee has raised a ground in this ground in ground no. 3 above, which reads as under:
Without prejudice to the above, on the facts and in the circumstances of the case and in Law, the Hon'ble DRP erred in not disposing the Appellant's argument against the AO's position that where an adverse judicial view is taken against the transfer pricing addition made by the TPO, an adjustment of Rs.1,040,350,000 can be alternatively made under the provisions of Section 50B of the Act. It is prayed that no adjustment can be alternatively made under the provisions of Section 50B of the Act.
We find that there is no adjudication by the Dispute Resolution Panel on this limb of the objection though the Assessing Officer in the draft assessment order has also made this addition. In our considered opinion, adjudication on this aspect of the assessee’s ground is necessary. The Dispute Resolution Panel has erred in not adjudicating this issue raised before it. We further note that this issue raised by the assessee is without prejudice and, hence, it will be appropriate if on the issue of the sale of business, the Dispute Resolution Panel completes its order by also deciding upon the assessee’s ground regarding the addition made by the Assessing Officer as slump sale. We are not adjudicating the merits of the Transfer Pricing Officer addition in this regard. As first, the order of the lower authority has to be completed before proper adjudication can be done. As a decision on the addition made by the Transfer
27 Prudential Process Management Services India Private Limited Pricing Officer on the same issue without adjudicating the addition by the Assessing Officer on the same issue as slump sale, would lead to multiplicity of the proceedings at different forums. As the party aggrieved by the adjudication on one part will have to go to higher forum, while the other limb of the same issue will be open to adjudication before the other forum upon remitting that issue. Such practice is not appropriate and desirable. For this proposition, we place reliance upon the decision of the Hon’ble Madras High Court in the case of CIT vs. Ramdas Pharmacy [1970] 77 ITR 276 (Mad). Accordingly, ground no. 1 relating to sale of business division which has resulted in adjustment of Rs.1,04,03,50,000/- is remitted to the file of the Dispute Resolution Panel. The Dispute Resolution Panel is directed to complete its order by adjudicating upon the ground relating to the addition made by the Assessing Officer, by treating the transaction as slump sale. We make it clear that we have not adjudicated the issue upon the addition of the sum involved as transfer pricing adjustment. Both the parties are free to raise appropriate grounds as deemed necessary subsequently.
Apropos ground no. 4 & 5 regarding an adjustment of Rs.14,37,35,552/- in the provision of information technology enabled services:
The assessee is a captive back office support services provider providing call centre and other back office services to its group companies in UK region. Hence the services rendered by the assessee is in the nature of ITES. The assessee in its TP study report arrived at PLI (OP/TC) of 15.21%. Initially using a set of 11 comparables, the Arithmetic Mean was arrived at 11.16% in it's TP study. The TPO has issued a show
28 Prudential Process Management Services India Private Limited cause for rejection of the TP study report since the assessee has failed to use single year data and some of the companies are functionally not comparable. In the show cause he had used a set of 8 comparable companies to arrive at Arithmetic Mean of 26.57%. After considering the various objections raised by the appellant the TPO has used final set of 12 comparables to arrive at the Arithmetic Mean of operating margin of comparables at 26.02% and made an adjustment of Rs.14,37,35,552/-.
The comparables considered by the transfer pricing officer for benchmarking the international transactions are as under:
Sr. No. Name of the Company NCR 2008-09 (%) 1 Accentia Technologies Ltd 43.44% 2 AcroPetal Technologies Ltd 32.43% 3 Aditya Birla Minacs Worldwide Ltd 1.85% 4 Crossdomain Solutions Private Limited 29.40% 5 Datamatics Financial Services Ltd 3.07% 6 E4e Healthcare Business Services 33.31% Private Limited 7 Informed Technologies India Limited 23.13% Assessee's comparables 8 B N R Udyog Ltd. (Medical 37.57 transcription segment) 9 Cosmic Global 43.11 10 Caliber Point Business Solutions Ltd. 31.62% 11 In House Productions Ltd (Media division and healthcare division) 12 Shreejat Info Hubs Ltd. 33.33% Arithmetical Mean 26.02% The Assessee is earning an operating profit margin of 15.21% as against the comparables' operating margin of 26.02%. Therefore, the operating margin on total cost @ 26.02% is applied to the total cost of the assessee. The ALP is as under:
29 Prudential Process Management Services India Private Limited Total Cost A 102,72,07,907/- The Arm's length Price (A x 1 .2602) B 129,44,87,404/- Transaction value C 115,07,51,882/- 105% of Transaction value 120,82,89,476/- 95% of Transaction value 109,32,14,288/- Difference 14,37,35,552/- As the ALP falls outside the limit of +7- 5%, the amount of Rs 14,37,35,5527- is adjusted to the international transaction.
Against the above order, the assessee filed objections before the dispute resolution panel. The dispute resolution panel found itself in the agreement with the order of the transfer pricing officer. It concluded as under:
4.2.10 The TPO has given valid reasons in respect of the addition of comparables such as Acropetal Technologies Ltd, (Segmental), Cross Domain Solutions Ltd., Eclerks Services Ltd. and Informed Technologies (I) Ltd. Similarly in respect of Galaxy Commercials Ltd. and Sparsh BPO Ltd., a detailed reasoning has been given by the TPO for rejecting the comparables. We find the selection of fresh comparables by the TPO and the rejection of some of the comparables in the TP study by the assessee are found to be in order.
Against above order assessee is in appeal before us.
We have heard both the counsel and perused the records. The learned counsel of the assessee submitted that the transfer pricing officer has rejected six of the comparables selected by the assessee and added seven from his own search. The ld. Counsel of the assessee submitted that comparables in this case are already covered in various order's of the ITAT. In this regard, both the parties have given submissions.
Upon careful consideration, we note that with regard to the issues raised relating to the provision for information technology enabled services, the assessee has 30 Prudential Process Management Services India Private Limited also raised an alternate ground. By way of this, it has been submitted that “Without prejudice to the above, on the facts and in the circumstances of the case and in law, the Hon'ble DRP erred in failing to appreciate the rectification application filed by the Appellant, requesting either to consider pro-rata cost or total revenue (including revenue from domestic associated enterprise) for computation of the adjustment.”
We find that here also the assessee has raised the alternate ground by way of which it is emanating that one limb of this issue relating to the addition is pending adjudication at the Dispute Resolution Panel level. On the same reasoning and the case law as referred hereinabove in ground no. 1 above, we deem it appropriate to remit this issue also to the file of the Dispute Resolution Panel. Dispute Resolution Panel shall complete its direction by giving direction on the alternate (without prejudice) ground raised by the assessee.
Both the parties are at liberty to raise the necessary grounds subsequently as and if necessary.
Apropos ground no.6 - Adjustment of Rs.29,01,303/- on account of disallowance u/s. 14A of the Act:
On this issue, the assessing officer observed that during the year under consideration income of Rs.2,80,25,594/- was claimed exempt. In response to assessing officer’s query, the assessee company submitted a statement of computation of disallowance u/s.14A read with Rule 8D wherein disallowance was arrived at 31 Prudential Process Management Services India Private Limited Rs.14,01,303/-. The assessing officer was not satisfied, he made the addition in this regard by observing as under: 6.2 The assessee has not disputed the applicability of Section 14A and Rule 8D in its case. However, while computing the disallowance: as per Rule 8D, the assessee has taken investments as on 31.03.2008 at Rs.290243353 whereas the investments on the said date as per the Balance Sheet amount to Rs.443342560. Similarly, the assessee has taken investments as on 31.03.2009 at Rs.270277801 whereas, the investments on the said date as per the Balance Sheet amount to Rs.87598740. It is not explained as to why the figure as per the Balance Sheet is not adopted and why some of the investments have been excluded for the purpose of computing disallowance u/s 14A. Therefore, the said disallowance is computed as per the formula given in Rule 8D adopting the figures of investments appearing in the Balance Sheet as on 31.03.2008 and 31.03.2009, which is as under: i. Disallowance of directly related expenditure Nil ii. Disallowance of interest expenses Nil iii. Disallowance of other expenses a. Average amount of Investments Opening balance 570277801 Closing balance 590243353 Total 1160521154 Average amount 580260577 0.5% of Average amount of Investments 0.5% of Rs.580260577 Rs.29,01,303 Total disallowance u/s 14A Rs.29,01,303 Disallowed by the assessee in computation Rs.14,01,303 Net Disallowance u/s. 14A ; Rs.15,00,000 33. The dispute resolution panel rejected the objections of the assessee and upheld the action of the assessee officer in this regard.
Against this order, the assessee is in appeal before us.
We have heard both the counsel and perused the records. The ld. Counsel of the assessee submitted that the authorities below have totally erred in deciding the factual
32 Prudential Process Management Services India Private Limited aspects in this regard. He submitted that the assessee in its submissions before the Dispute Resolution Panel has duly submitted as under:
Factual and legal arguments against the addition proposed by the Assessing Officer An extract of sub section 1 of section 14A is reproduced below "For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act" Section 14A does not attract those investments, income from which is taxable under this Act. The difference of Rs.300,000,000/- in value of investment as on 31.03.2008 and 31.03.2009 for the purpose of rule 8D as compared to the value of investments as per balance sheet is on account of investment in debt based mutual funds - growth option, income from which is not exempt from tax. Investments in Mutual Fund schemes with growth option do not earn dividend income and therefore the arise. Further, Capital Gains on Debt taxable and not exempt as contemplated u/s 10(38).
Referring to the above, the ld. Counsel of the assessee stated that the assessee’s investment portfolio included those investments the dividend from which is not exempt and the assessee has been duly taxed/assessee has offered to tax the dividend on the same.
Hence, the ld. Counsel of the assessee submitted that the same should not be taken into account while computing the disallowance.
Per contra, the ld. Departmental Representative could not controvert the submissions of the ld. Counsel of the assessee. We find that these submissions were made before the Dispute Resolution Panel but the Dispute Resolution Panel has passed a laconic order without considering the legal and factual aspect of the situation. The Hon’ble Apex Court in the case of M/s Sahara India (Farms) Vs. CIT & Anr. 300 ITR 403 (SC) has expounded that even administrative order have to consistent with the rules
33 Prudential Process Management Services India Private Limited of natural justice. Accordingly, in light of the above factual submissions, we deem it appropriate to remit this issue to the file of the Dispute Resolution Panel. The Dispute Resolution Panel shall examine the factual aspect and pass a speaking order keeping in mind the assessee’s submissions regarding the proposition of the law and the facts involved.
Revenues appeal:
The Revenue is aggrieved that the dispute resolution panel has erred in deleting the interest chargeable. The transfer pricing officer has made the addition in this regard by observing as under:
The assessee was to receive Rs.186.16 crores as Arm's Length consideration towards the sale of VDPPMS, since the assessee had received only Rs. 82.24 crores the TPO has treated the difference Rs.104.03 crores as outstanding as on 31-3-2009.
3.2.2 Since a tangible benefit has been passed to the AE by charging a consideration, which was below the ALP the TPO has treated the difference of Rs. 104.03 crores as interest free receivable and proceeded with the bench marking the benefit obtained by the AE. We find the observation of the TPO that had the actual difference which was charged by the assessee had been received it would have reduced the interest burden and also improved the working capital of the assessee. Had it been with any 3rd party, interest would have been charged on the interest receivable in such a situation, the TPO has considered the average PLRR 12% with markup of 3% risk factor and finally bench marked 15% as the ALP. Such interest benefit was charged for the period 1-10-2008 to 31-3-2009.
Upon the assessee's objection, the dispute resolution panel has directed for the deletion of the addition. The distribution panel has observed as under:
34 Prudential Process Management Services India Private Limited 3.2.3 In respect of the assessee's contention regarding secondary adjustment on the notion that such amount was lying with the assessee's AE on which there is need of imputation of interest, it is stated that the concept of secondary adjustment is not expressly provided in the Chapter X of the Act. The mandate in this chapter is to determine arm's length price of the international transaction undertaken by the tax payer, which is what has been done by the TPO in the case on hand. Once this aspect is addressed, as per the requirement of law, there is nothing further provided to impute any secondary adjustment. Accordingly the action of the AO/TPO in charging interest on such amount of adjustment arrived at towards the ALP of the issue of equity share, over and above the amount of adjustment, is not found to be in accordance with the provisions of law. The AO is therefore, directed not to make the addition of Rs.7,80,26,2507- arrived at by the TPO as secondary adjustment on the amount arrived at as adjustment towards the transaction of issue of equity shares. In the view of directions above in respect of secondary adjustment done by the TPO, the other contentions of the assessee regarding recharacterization of nature of transaction, interest rate charged, rate charged to be LIBOR based etc become inconsequential and hence not discussed and no separate directions are considered necessary in regard to them.
Against the above order revenue is in appeal before us.
We have heard both the counsel and perused the records. On this issue, we note that the Transfer Pricing Officer has made an addition on account of interest on the international transaction pertaining to sale computed by him. In this regard, we find that the Dispute Resolution Panel has noted that the concept of secondary expenditure is not expressly provided in the Chapter X of the Act. It has been observed that the mandate in this chapter is to determine arm's length price of the international transaction undertaken by the tax payer, which is what has been done by the Transfer Pricing Officer. We agree with the ld. Departmental Representative that once this aspect is addressed, as per the requirement of law, there is nothing further provided to 35 Prudential Process Management Services India Private Limited impute any secondary adjustment. Hence, we do not find any infirmity in the direction of the Dispute Resolution Panel that the action of the Transfer Pricing Officer in charging interest on such amount of adjustment arrived at towards the ALP of the issue of equity share, over and above the amount of adjustment, is not found to be in accordance with the provisions of law. Hence, we find ourselves in agreement withteh direction of the Dispute Resolution Panel and hence we uphold the same.
Accordingly, the Revenue’s appeal stands dismissed.
Cross objection by the assessee:
The cross objection by the assessee is without prejudice to the ground in connection with the competition of interest by the transfer pricing officer being a secondary adjustment. In this regard assessee has urged that in the event when the secondary adjustments case conformed the TPO be directed to charge interest at the rate of 10% listed of 15% as proposed by the TPU. It has been submitted that the dispute resolution panel has not adjudicated as to whether the interest is to be charged at the rate of 15% or 10%.
Since, we have already dismissed the Revenue’s appeal on this issue, the adjudication on this issue has become infructuous and, hence, the same is dismissed as infructuous.
36 Prudential Process Management Services India Private Limited 44. In the result, the assessee’s appeal is allowed for statistical purpose and the Revenue’s appeal and cross objection by the assessee stands dismissed.
Order pronounced in the open court on 13.04.2018
Sd/- Sd/- (Pawan Singh) (Shamim Yahya) �या�यक सद�य / Judicial Member लेखा सद�य / Accountant Member मुंबई Mumbai; �दनांक Dated : 13.04.2018 व.�न.स./Roshani, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. आयकर आयु�त(अपील) / The CIT(A) 3. आयकर आयु�त / CIT - concerned 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 5. गाड� फाईल / Guard File 6. आदेशानुसार/ BY ORDER,