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Income Tax Appellate Tribunal, BENGALURU BENCH C, BENGALURU
Before: SHRI. JASON P. BOAZ
PER LALIET KUMAR, JUDICIAL MEMBER :
This is an appeal filed by the assessee against an order of the ITO, Ward -4(1)(4), Bengaluru, passed u/s.143(3) r.w.s. 144C(13) of the Act, in pursuance to the directions of the DRP, for the assessment year 2011-12, on the grounds which are reproduced herein below :
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Brief facts are the assessee was incorporated on 14. 02.2010 03. under the Companies Act, 1956 and is a subsidiary of Moog IT(TP)A.129/Bang/2016 Page - 4 Singapore P. Ltd, Singapore. The assessee commenced its operations on 01.04.2010 and is registered under the STP of India. The assessee is engaged in the business of software development and support services and has entered into a master service agreement with Moog Inc., USA, the ultimate holding company to render these services. During the FY 2010-11, the assessee has entered into the following international transactions with the AE.
International transactions Amount (Rs.) Components (Prototype for testing 4,32,595 Purchase of capital goods 49,01,424 Software Development services 36,85,37,395 Unsecured loan 7,22,874 IT & HR cost allocation 3,09,10,861 Travel Expenses 37,07,789 The assessee has shown the following operating income, operative expenditure and operating profit for the AY 2011-12 :
Particulars Amount (Rs.) Operating income 36,85,37,395 Operating expenditure 32,13,60,433 Operating profit 4,71,76,962 OP / OC 14.68% OP/OR 12.80%
During the FY 2010-11 the assessee has entered into the following international transactions with the AEs :
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It may be pertinent to mention here that all the international transactions except software development services were entered into by the assessee and adjustments were made for an amount of Rs.27,346,522/-.
The assessee has selected the following comparables as per its TP study :
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However, the TPO was not satisfied with the TP study of the assessee and therefore the TPO issued a show cause notice rejecting the TP study of the assessee. It was indicated by the TPO to apply the following filters :
Based on the filters applied by the TPO, the TPO has selected the following comparables. The table below shows the comparables selected by the TPO as well as the unadjusted margin :
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The TPO after considering the submissions of the assessee had passed a detailed order computing the ALP of the assessee and thereby made an adjustment of Rs.27,346.522/-. The table depicting the working of ALP as per the TP order is as under :
12. The assessee challenged the order of the TPO in the proceedings before the DRP. DRP vide the impugned order before us has upheld the order passed by the TPO. Finding of the DRP is reproduced herein below for the sake of clarify :
11.1 The TPO has done detailed functional analysis of the companies before selecting / rejecting them as comparables. The comparables have also been selected after subjecting IT(TP)A.129/Bang/2016 Page - 8 them to various filters applied by TPO. The TPO has given detailed reasons and justifications for selection of final comparables for determination of margin. The assessee has used multiple year data in selecting comparables without justifying the same. This is against Rule 10B(4). Data for some of the companies proposed by assessee were not found to be available in public domain. In view of all these facts and circumstances the contention of the assessee cannot be accepted and hence rejected.
The directions of this panel, as per the discussions above, are hereby communicated to the assessee and the departmental authorities concerned as per the provisions of section 144C(5) of IT Act.
Now the assessee is in appeal before us on the grounds mentioned hereinabove. At the outset, our attention was drawn to the above reproduced paragraphs of the DRP order, wherein the DRP in a cryptic order had adjudicated all the grounds raised
by the assessee pertaining to transfer pricing and others. We are of the opinion that the law commands that the DRP should adjudicate the grounds of the assessee by passing a detailed order and give a reason for agreeing or disagreeing with the contention of the assessee as well as of the TPO. But the perusal of the order clearly shows that the DRP has not applied its mind and has passed a cryptic stereotyped order confirming the order passed by the TPO. In the light of the above, it is required to remand the matter back to the file of the DRP to adjudicate it afresh after affording opportunity of hearing to the assessee. Needless to say that while adjudicating the issues, the DRP shall be bound to consider the law laid down by the Hon’ble Delhi High Court in the matter of IT(TP)A.129/Bang/2016 Page -
9. Chryscapital Investment Advisors (India) (P.)Ltd. V. DCIT [(2015 376 ITR 183], as well as the order passed by the Bangalore Bench of the Tribunal in the matter of ACI Worldwide Solutions in IT(TP)A.262/Bang/2015, dt.26.07.2017. In view thereof the ground nos.1 to 15, pertaining to TP raised by the assessee are remanded back to the file of the DRP for adjudication afresh.
14. Ground nos.16 to 18 pertain to computation of deduction u/s.10A by reducing the sums of Rs.1,900,478 and Rs.5,152,837/- towards telecom & communication expenses and internet charges incurred in foreign currency only from the export turnover while it should have been reduced both from the export turnover and also the total turnover.
We have heard the rival submissions. In this regard, we find that the DRP had followed the judgment of Hon’ble jurisdictional High Court in the case of Tata Elxsi Ltd v. CIT [349 ITR 98], in directing exclusion of items which are deducted from export turnover also to be deducted from the total turnover also for working out the deduction u/s.10A of the Act. Since the DRP had rightly followed the judgment of the Hon’ble jurisdictional High Court in Tata Elxsi (supra), in giving such directions, we do not find any lacunae in the order of TPO / AO.
Ground no.19 is in respect of levy of interest u/s.234B and 234C, which is only consequential, it requires no adjudication.
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In the result, appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 19th day of October, 2017.