Last Date : 13/09/2013
Hiring The Consultancy Service / Auditing Work Of Chartered Accountant.
Address: Gujarat Telecom Circle, O/o. C G M T, 9th Floor-A wing, Telephone Bhavan, C G Road, Navrangpura, Ahmedabad-380006
Phone: 26480117
Wednesday, August 21, 2013
Calcutta Municipal Corporation - Empanelment
Last Date : 07/09/2013
Reputed CA firms for Assisting in internal audit job of KMC.
Address: Calcutta Municipal Corporation (The) Kolkata - West Bengal
Chhattisgarh State Power Transmission Company Limited - Empanelment
Last Date : 14/09/2013
Providing services of three qualified chartered accountants & one MBA professionals having one year experience in finalization of accounts of a limited company & exposure in working in SAP FICO, MM & HR modules for one year in chhattisgarh state power transmission company limited from HR consultant firms / CA firms
Address: Chhattisgarh State Power Transmission Company Limited-Vidyut Sewa Bhavan,Ground Floor,Danganiya,Raipur (C.G)
Phone: 2574321
BEPS & India : In search of a solution
The G20 leaders' Mexico summit of June'12 crafted the term 'Base Erosion & Profit Shifting' with an objective to prevent country's tax base getting eroded as a result of tax planning strategies adopted by Multinational Enterprises (MEs). Most MEs dubbed BEPS as a political reaction to growing public ire over tax planning rules, though, surely it resulted in mounting pressure on fiscal policy makers to pressurise MEs to pay 'fair share of tax' beyond the statutory tax . In response thereto, the OECD at the behest of G20 Finance Ministers unveiled an ambitious proposal last month to reform the current patchwork of international tax rules and treaties. The report titled OECD BEPS plan calls for a fundamental change in rules for taxability of cross-border profits and digital transactions.
Source : Business Standard
VAT is payable on transfer of right to use
The division bench of the Kerala High Court, in Malabar Gold Private Limited versus commercial tax officer, Commissioner of Central Excise and Customs and ors (2013-TIOL-512-HC-KERALA-ST) has overruled the judgement delivered by the single judge and held that the transaction of letting the franchise use the trademark owned by the franchiser without the right to transfer or sub-let the trademark to a third party cannot be considered as "transfer of right to use". Accordingly, the royalty amount received by the franchisor for letting the franchise to use its trademark cannot be held liable to value added tax (VAT) and the same would only be liable to service tax under the category of "franchise services".
Source : Business Standard
Falling rupee, a windfall for info-tech industry
The weakening rupee coupled with the pickup in demand for technology products and services is helping the cause of Indian companies. “It is good for the industry. There may be increase in hedging fee. But no company takes cover for 100 per cent revenues. Net-net, they benefit out of increase in dollar value,” said Ankita Somani, sector analyst at Angel Broking. Today, the rupee touched a new low, closing at Rs 63.13 against the U.S. dollar Somani believes that the situation today is better than what IT companies were facing same time last year. “There is better visibility in the demand pipeline. All companies are seeing a pickup in demand for core IT services,” she added. A dip of one per cent in value of rupee would add 30-40 basis points in EBIDTA margins of a company.
Source : The Hindu Business Line
Wherever you go, tax dept follows
A compliance management cell has been set up to monitor return filing and tax payment of the target segment. This information is now being made available to the jurisdictional assessing authorities through the online monitoring system for verification and issue of notices in relevant cases. While 140 million people have a PAN card each today, in India - a country of 1.2 billion people - there are only 34 million taxpayers. Many people who don't file return get a PAN as it works as an identity proof at many places. About 13-14 lakh new PAN cards are issued every year by the tax department and details of just 0.2% applicants (200 per one lakh) are verified by it.
Source : Business Standard
Prakash Jaichand Shah v.DIT (Investigations) (2013) 350 ITR 336/255 CTR 403 (Guj) (High Court)
S.132A:Powers -Requisition of books of account -Cash seized by police authorities, reasonable explanation
regarding cash, no evidence that amount would not be disclosed to income-tax authorities, Order of
requisition held to be not valid.
The assessee, a cotton broker, carried with him cash of Rs. 11 lakhs collected from A in respect of the sale of cotton through him. The cash was seized by the police authorities. The assessee furnished an explanation but the police authorities did not accept the explanation and seized the cash. An order was passed under section 132A and the amount was requisitioned by the income-tax authorities. The income-tax officials recorded the statement of the assessee wherein he stated that the amount had been arranged by RS through a shroff of Kalupur against purchase of cotton. The income-tax officials surveyed the business premises of RS and examined his books of account. RS corroborated the statement of the assessee. RS's accounts showed issuance of five cheques in favour of STC. The accounts of the shroff showed that the five cheques issued by RS had been deposited with them for discounting against which Rs. 11 lakhs in cash had been handed over to the assessee. The assessee requested for release of the cash but this was refused. On a writ petition :
Held, allowing the petition, that in view of the factual background, no reasonable person could have come to the
conclusion that the amount of Rs. 11 lakhs belonged to the assessee or that he would not disclose the amount to the income-tax authorities under the provisions of the Act. In the circumstances, on the basis of the material before him, the Director of Income-tax could not have formed the requisite opinion as required under section 132A of the Act. The warrant of authorisation issued by him, therefore, was vitiated as having been issued without the condition precedent for exercise of powers under section 132A being satisfied. The warrant of authorisation as well as the order under section 132A was liable to be quashed. The assessee was entitled to the seized amount along with interest.
A way to avoid tax disputes over transfer pricing
It is often said that while India obtained political independence in 1947, some degree of economic independence was obtained only in 1991 when the big-bang reforms agenda was unleashed. Foreign investors lost no time in latching on to the immense economic opportunities that we offered, and cross-border trade galloped. The Tax Department witnessed this silently for quite a while, before it realised that the value of international transactions would be a goldmine for revenue accretion. The first transfer pricing (TP) Rules were announced in 2001— a decade after Big Bang. Since then, a fair amount of grey hair has been split in the corridors of the Aayakar Bhavans which have formulated, amended, ruled and disputed the provisions on transfer pricing.
Source : The Hindu Business Line
Bhagirath Aggarwal v. CIT (2013) 351 ITR 143(Delhi) (High Court)
S.132(4): Search and seizure-Statement on oath-Retraction-No evidence to establish that admission was
incorrect in any way ,hence addition made on basis of statementwas held to be justified.
During the course of search the assessee surrendered a sum of Rs. 1 crore in respect of the financial year 2005-06 for buying peace of mind and to avoid litigation. He also requested the Income-tax Department not to initiate any penalty proceedings against him. After ten days, during the further search conducted by the Income-tax Department, the assessee made another statement on November 21, 2005, wherein he surrendered an additional sum of Rs. 75 lakhs on behalf of himself and all family members, family firms and the companies. The request for no penal measures was reiterated. In the statement, however, he indicated that after receiving all the seized documents from the Income-tax Department he would provide the break up of the voluntary disclosure of Rs.1.75 crores in various hands. He also promised to pay the due tax as soon as possible. The sum of Rs. 1.75 crores which was surrendered by the assessee was bifurcated by him into sums of Rs. 1.5 crores and Rs. 25 lakhs. The former sum was, according to him, to be treated as undisclosed business income in his hands whereas the latter sum of Rs. 25 lakhs was to be considered in the hands of different family members or business concerns of the assessee's group. The Tribunal reversed the decision of the Commissioner (Appeals) and sustained the decision of the Assessing Officer in making an addition of Rs. 1.75 crores on the basis of the statements made by the assessee under section 132(4). On appeal by the assessee the Court dismissing the appeal, held that it was incumbent upon him to show that he had made a mistake in making that admission and that the admission was incorrect. He had access to all the documents which had been seized inasmuch as copies had been supplied to him. However, he did not produce anything to establish that the admission was incorrect in any way. Thus, the assessee could not reconcile from his statements made on November 10,11, 2005, and November 21, 2005. The statements recorded under section 132(4) were clearly relevant and admissible and they could be used as evidence. In fact, once there was a clear admission, voluntarily made, on the part of the assessee, that would constitute a good piece of evidence for the Revenue. Appeal of assesse was dismissed.(A.Y.2006-2007 )
Madhu Gupta v. DIT(Inv (2013) 350 ITR 598/256 CTR 21/82 DTR 116/214 Taxman 246( Delhi) (High Court)
S.132. Search and seizure--Warrant of authorization—Reason to believe-Existence of tangible material a prerequisite- Mere reason to suspect not sufficient, articles seized to be released to assessee,
The assessee challenged the search action. Allowing the petition the court held that the so-called information was
undisclosed and what exactly that information was, was also not known. At one place in the affidavit of the Deputy
Director of Income-tax, it had been mentioned that he got information that there was a "likelihood" of the documents belonging to the DS group being found at the residence of the assessee. That by itself would amount only to a surmise and conjecture and not to solid information and since the search on the premises of the assessee was founded on this so-called information, the search would have to be held to be arbitrary. When the search was conducted on January 21, 2011, no documents belonging to the DS group were, in fact, found at the premises of the assessee. The warrant of authorization was not in the name of the DS group but was in the name of the assessee. In other words, the warrant of authorization under section 132(1) had been issued in the name of the assessee and, therefore, the information and the reason to believe were to be formed in connection with the assessee and not the DS group. None of clause (a), (b) or (c) mentioned in section 132(1) stood satisfied in the assessee's case and, therefore, the warrant of authorization was without any authority of law. Had the warrant of authorization been issued in the name of the DS group and in the course of the searches conducted by the authorized officer, the premises of the assessee had also been searched, the position might have been different. But that had not happened in the case of the assessee. The warrant of authorization was in the name of the assessee and, therefore, it was absolutely necessary that the pre-conditions set out in section 132(1) ought to have been fulfilled. Since those pre-conditions had not been satisfied, the warrant of authorisation would have to be quashed. Once that was the position, the consequence would be that all proceedings pursuant to the search
conducted at the premises of the assessee would be illegal and, therefore, the prohibitory orders would also be liable to be quashed. The jewellery/other articles/documents were to be unconditionally released to the assessee.
Aayushi Stock Brokers (P.) Ltd. v. ACIT (2013) 213 Taxman 192(All) (High Court)
S.124: Jurisdiction of Assessing Officer –Assessee participated in proceedings and filed return voluntarily at
Delhi, assessment order passed at Agra was held to be valid.
The petitioner, a share broker, was incorporated in U.P. After shifting its corporate office to Delhi, the petitioner, as per CLB order of 24-1-2003, also shifted its registered office. It was alleged that up to AY 2000-01, filing of income tax returns and assessment thereof were made at Agra. For the year 2002-03, the return was filed at Delhi. Through the instant writ petition, the petitioner prayed for quashing of the assessment order dated 28-3-2005 passed at Agra for AY 2002-03 and for issuing of directions to the respondents to restrain to proceed with penalty proceedings. The petitioner submitted that the writ was maintainable in as much as entire proceedings of assessment by the AO at Agra were without jurisdiction. On the facts, the petitioner could not have changed the place of his assessment and proceeded to file the return unilaterally at Delhi. He participated in the assessment proceedings and acquiesced to the jurisdiction of the Assessing Authority, Agra but it was only when the assessment order was made on protective basis against the company and on substantive basis against its director, who was found to have indulged in large scale fictitious and bogus transactions, that the petitioner filed writ petitions. The Court held that, section 124 provides for jurisdiction of AO. Sub-section (1) and (5) of section 124, when read together provide that where two or more AOs have territorial jurisdiction in respect of same income, they exercise concurrent jurisdiction in the matter of issuing notice to the assessee and where notices have been issued by any one office, it is unnecessary for the other office to issue the same notice again. In respect of petitioner, a survey was conducted under section 133A on 24-4-2001 in which a large number of incriminating documents were found. After enquiries, the AO found that there were serious defects in the books of
account. The director had created large number of fictitious concerns, which were not doing any business and therefore, the AO completed the assessment on protective basis. The director appeared and filed reply to the notice and clearly stated before the AO that his company was assessed to tax with Company Circle-1 (2) at Agra. The petitioner thus acquiesced to the jurisdiction, which the AO at Agra already possessed, and allowed him to complete the assessment proceedings for the assessment year 2001-02.In the circumstances, there was no error in exercise of jurisdiction by the ACIT, Circle-IV(1) Agra. The writ petition was accordingly, dismissed. (A.Y. 2002-03)
S.132:Search and seizure-Warrant of authorization-Satisfaction
S.132:Search and seizure-Warrant of authorization-Satisfaction-Authority entertaining belief that assessee
secreted certain documents relevant for purpose of investigation of matter relating to evasion of tax-Assessee
cannot stall proceedings on ground of lack of jurisdiction to issue warrant-Assessee to raise all grounds
available in his defense during enquiry and subsequent proceedings. ( Constitution of India, art. 226.)
The assessee challenged the action under section 132 of the Act by way of writ before the High Court.The Court
dismissed the petition by observing that there were materials available before the authority concerned, for the formation of his belief to issue such a warrant. Further, the authority had also reason to believe that such documents and things would not be produced by the persons concerned, in the normal course, to enable the Department to conduct necessary inquiries in the matter. Therefore, it was premature on the part of the assessees to stall further proceedings relating to the allegations of evasion of payment of tax by the assessees, by raising the issues relating to the jurisdiction of the Department to issue the search warrants. Of course, it would be open to the assessees to defend themselves by showing, at the appropriate stage of the proceedings, that they were not liable to pay the tax, as assessed by the authorities of the Department. The belief of the authorities that the assessees had secreted certain documents relevant for the purpose of investigation of the matter relating to the evasion of tax by the assessees, was based on materials available before the authorities. When serious allegations of tax evasion by the assessees, to the tune of several lakhs of rupees, have been made, it would not be appropriate for the court to scuttle the process by placing undue emphasis on the hyper technical pleas put forth on behalf of the assessees, with regard to the procedural formalities in the issuance of the search warrants. (Block period 1-4-1996 to 12-9-2002)
P.G. Viswanathan (Dr.)v. DIT(Inv. (2013) 351 ITR 217(Mad.) (High Court)
V.Muthulakshmiv.DIT (Inv.) (2013) 351 ITR 217(Mad.) (High Court)
K.Viaswanthan alias Kumar v.DIT (Inv.) (2013) 351 ITR 217(Mad.) (High Court)
Aruna Viswanthan(Dr.)v.DIT (Inv.) (2013) 351 ITR 217(Mad.) (High Court)
Anjana Viswanthan (Dr.)v.DIT (Inv.) (2013) 351 ITR 217(Mad.) (High Court)
Vikram Viswanathn(Dr.) v.DIT (Inv.) (2013) 351 ITR 217(Mad.) (High Court)
Trans Asian Shipping Services (P.) Ltd. v. Dy. CIT (2013) 55 SOT 1 (Cochin) (Trib.)
S.115VA: Shipping companies - Qualifying ships – Computation- Slot charter -Assessee is required to produce
'valid certificate in respect of such ships.
The assessee-shipping company was operating its own ships and had also chartered in ships under 'slot charter' (part of ship) agreement. In order to avail benefit of Chapter XII-G, the assessee submitted the 'valid certificate' only for its own ships and not in respect of chartered ships, as according to it 'valid certificate' was required only for own ship and ships chartered in fully and there was no requirement to submit the 'valid certificate' in respect of ships chartered under 'slot charter' agreement, since income for full chartered ships was computed on basis of 'net tonnage' shown in valid certificate and income from ships chartered under 'slot charter' was computed on deemed tonnage. The Assessing Officer did not accept said submission and denied the benefit of Chapter XII-G to slot charter income. On appeal, the Commissioner (Appeals) upheld the denial. On second appeal the Tribunal held that The benefit of provisions of Chapter XII-G can be availed only by a 'tonnage tax company' (shipping company) in respect of the business of operating 'Qualifying ships'. 'Operation of Qualifying ships' is a mandatory condition for availing the benefit of Chapter XII-G. Undoubtedly, the assessee opting to avail the benefit of Chapter XII-G has to necessarily show that it has generated income from the business of operation of 'Qualifying ships'. It is necessary to show that the ships chartered in under 'Slot Charter' arrangement are also 'Qualifying ships' by producing the 'Valid certificate'. The assessee heavily placed reliance on the provisions of section 115VG,'Deemed tonnage' defined in section 115VA and 'Specific shipping trades' defined in section 115VI and also on clause 10 of Form No. 66 to contend that there is no necessity to furnish the 'Valid certificate' in respect of ships chartered in under 'slot charter' arrangement. The net result of the said contention is that the ship chartered in under 'slot charter' arrangement need not be a 'Qualifying ship'. (A. Y. 2005-06 & 2008-09)
Dy. CITv.CMA CGM Global India (P.) Ltd. (2013) 55 SOT 20(Mum.) (Trib.)
S.92CA: Avoidance of tax- Transfer pricing -Arm's length price-TNMM-CUP method-Matter sent back for
getting comparable.
Assessee, shipping agent of French holding company and Singapore AE, received commission container control fees, detention collection fees, intermodal container handling fees. It also recovered communication expenses and insurance premium paid in course of service.TPO applied CUP method.TPO merely compared data with that of a third party agent of holding company which worked for it earlier and made adjustment in respect of so called undercharged container control fees and recovery of communication expenses. TPO had neither examined comparables nor TNMM for benchmarking ALP in relation to international transactions.In appeal Commissioner (Appeals) had not called for comment upon comparable short listed by assessee. Tribunal held thatCUP method and data of erstwhile third party could not be applied.However ,since there was no occasion to examine comparables and applicability of TNMM, matter was to be restored back to file of TPO, who would require assessee to furnish comparables into similar line of business and activities and examine same for benchmarking ALP. Matter partly in favour of assessee. (A. Y. 2005-06)
Societe Generale v. Dy. DIT (IT) (2013) 21 ITR 606(Mum.) (Trib.)
S.115JB: Company-Book profit-Bank-Profit and loss account-Not to be altered -Net interest earned by assessee
from placement of funds with head office or other overseas branches is not covered by any of clauses (i) to (ix)
of Explanation to section 115JA hence Includible in computing "book profit". Foreign bank whether governed
by section 115JB-Contention raised for first time-Matter remanded. (S.115A )
For the purposes of section 115JA, the amount of net profit according to the profit and loss account is immune from alteration irrespective of whether the alteration is ventured by the Assessing Officer or the assessee. Just as the Assessing Officer has no authority to go beyond the profit and loss account prepared by the assessee and tinker with the figure of profit so disclosed, this is equally true for the assessee as well. Once an amount as shown to the credit side of the profit and loss account of the assessee and it is not covered by any of the clauses (i) to (ix) of the Explanation to section 115JA, it cannot be reduced.
Accordingly the Tribunal held that that the interest earned by the assessee from its head office or overseas branches was part and parcel of the credit side of the profit and loss account of the assessee. This amount was not covered by any of the clauses from (i) to (ix) of the Explanation. The net interest earned by the assessee from placement of funds with the head office or other overseas branches amounting was includible in computing the "book profit" for the purposes of section 115JA of the Act. Appeal of assessee was dismissed. Before the Tribunal for the first time on the basis of Judgment of Tribunal in Krung Thai Bank PCL (2012) 49 SOT 70 (Mum) (URO) the assessee has raised the issue stating that the assessee being foreign bank is it is not required to draw its profit and loss account as per Companies Act very applicability of provision of section 115JAis not valid. As the issue was raised for the first time the matter was directed to the Assessing Officer to decide accordance with law. (A.Y. 2000-2001) (1998-1999 to 2003-2004)
ACIT v. SRA Systems Ltd. (2013) 22 ITR 205(Chennai) (Trib.)
S.92CA: Avoidance of tax-Transfer pricing-Arm's length price-List of comparable companies relied on by
assessee rejected by Transfer Pricing Officer without stating any reason. Factual matrix exactly the same in all
years heldArm's length price adjustment is not justified.
The assessee-company provided computer system consultancy services to private sector, public sector, Government and other organisations, undertaking studies on matters relating to feasibility of computerisation, evaluating and selecting appropriate hardware and software, installing and assisting in using mainframe, mini and microcomputers, etc. For the assessment years 2003-04 and 2004-05, the question of determining the arm's length price of its international transactions with its associated enterprise was referred to the Transfer Pricing Officer under section 92CA(1) of the Act, The assessee filed a detailed transfer pricing study report in which it had adopted the transactional net margin method as the most appropriate method to arrive at the arm's length price. It had selected a list of 6 comparable companies and had determined arm's length price on the basis of the ratio of operating profit to total cost of the assessee-company worked out at 18.04 per cent., the average profit level indicator of the six companies. The Transfer Pricing Officer approved the transactional net margin method adopted by the assessee-company and agreed with the assessee-company's adoption of the ratio of operating profit to total cost as the profit level indicator. The Transfer Pricing Officer, however, made his list of comparable companies and worked out the ratio of operating profit to total cost at 27.52 per cent. This revised profit level indicator worked out by the Transfer Pricing Officer brought out an operating profit of Rs. 8.73 crores. But
the operating profit returned by the assessee was Rs. 4.15 crores. The Assessing Officer made an addition of Rs.4.58 crores, the differential amount, to the income of the assessee towards arm's length price adjustment. On appeal, the Commissioner (Appeals) deleted the said arm's length price addition of Rs. 4.58 crores and directed the Assessing Officer to allow exemption under section 10A of the Act. The Commissioner (Appeals) also confirmed the disallowance of dividend tax delay charges, interest for delay in remitting tax deducted at source, expenses incurred for delay in UTI dividend payments, and directed the Assessing Officer to allow the claim of expenses towards development of software as allowable business expenditure. On appeals by the Department and cross-objections by the assessee ,the Tribunal held that (i) that the list of comparable companies relied upon by the assessee-company had been rejected by the Transfer Pricing Officer without stating any reason, even though the Transfer Pricing Officer had, by and large, agreed with the general premises on which the assessee had computed its arm's length price. The Transfer Pricing Officer had not made any finding that the price charged or paid in the transactions entered into with the associated enterprise was not in accordance with rules. The Transfer Pricing Officer had no case that the assessee-company had not maintained proper information and documentation relating to the international transactions. There was also no dispute on the information and data used in the computation of arm's length price, which related to the financial year 2002-03. The arbitrary selection of comparables had in fact inflated the operating profit in the computation made by the Transfer Pricing Officer. There was no factual basis for the addition of the differential amount of Rs. 4.58 crores worked out by the Transfer Pricing Officer and adopted by the Assessing Officer. Moreover, for the immediately succeeding assessment
year 2004-05, the Commissioner (Appeals) had held in the assessee's own case that the Transfer Pricing Officer should not have rejected the arm's length price disclosed by the assessee and in the subsequent assessment year 2005-06, the Transfer Pricing Officer himself had accepted the arm's length price returned by the assessee-company. For all these assessment years, the factual matrix of the case remained exactly the same. Therefore, the Commissioner (Appeals) was justified in deleting the arm's length price addition of Rs. 4.58 crores. (A.Y.:2003-2004, 2004-2005)
CIT v. Amadeus India Pvt. Ltd. (2013) 351 ITR 92(Delhi) (High Court)
S.92CA: Avoidance of tax- Transfer Pricing-Powers-No power to determine arm's length of transaction not
referred to him-Provision empowering Transfer Pricing Officer to determine arm's length price of any
international transaction other than that referred to him is prospective in operation.
The activity of the assessee is to provide connectivity to the host system by its computer programmes online. The
assessee entered into international transactions with associated enterprises. The Assessing Officer referred only the international transactions mentioned in Form 3CEB but not the issue of advertisement, marketing and promotion expenses to the Transfer Pricing Officer. The Transfer Pricing Officer took upon himself the consideration of the question as to whether the advertisement, marketing and promotion expenditure was in the nature of an international transaction. Having concluded that it was an international transaction, he adjusted an amount of Rs. 32,92,83,589 attributable to the difference. On a question whether the Transfer Pricing Officer could have determined the arm's length price in respect of an international transaction which was not specifically referred to him by the Assessing Officer, the Tribunal took the view that the Transfer Pricing Officer could not have done so. On appeal by revenue the Court dismissing the appeal, held that(i) that it was not within the domain of the Transfer Pricing Officer to determine whether a particular transaction, which had come to his notice, but which had not been referred to him, was or was not an international transaction and then to go on and determine the arm's length price thereof.
(ii) That there is nothing in the statute to indicate that sub-section (2A) was introduced in section 92CA in a manner so as to operate with retrospective effect. Sub-section (2A) expands the jurisdiction of the Transfer Pricing Officer by empowering him to determine the arm's length price of any international transaction other than an international transaction referred to him by the Assessing Officer under sub-section (1) of section 92CA. This is clearly an expansion of the jurisdiction of the Transfer Pricing Officer and, therefore, sub-section (2A) can only have prospective effect from June 1, 2011, and would have no application to the assessee's case which was in respect of the assessment year 2006- 07.Order of Tribunal is affirmed. (A. Y.2006-2007 )
Monday, August 19, 2013
Veer Gems v. ACIT (2013) 351 ITR 35(Guj.) (High Court)
S.92CA: Avoidance of tax-Transfer pricing-Arm's length price-Powers-Reference to Transfer Pricing Officer
valid-Assessing Officer need not consider objections of assessee-The Transfer Pricing Officeris not called
upon to and is not competent to decide the issue which is sole jurisdiction of the Assessing Officer. (S.144C)
The assessee is engaged in the business of purchasing rough diamonds, manufacturing of polished diamonds and
sale/export of such polished diamonds. During the assessment proceedings for the assessment year 2008-09, the
Assessing Officer issued a notice under section 142 stating that on a perusal of the assessment records for the
assessment year 2007-08, it was observed that the assessee had filed an audit report in the prescribed form as required under section 92E of the Act as there were international transactions with an associated concern, BG. The assessment proceedings for the assessment year 2007-08 were in progress. The audit report showed that during the previous year relevant to the assessment year 2008-09, the assessee had international transactions with the associated concern amounting to Rs. 78.63 crores. However, the record did not show that the assessee had filed the audit report under section 92E of the Act in the prescribed form. There was correspondence between the assessee and the Assessing Officer. The Assessing Officer referred the matter to the Transfer Pricing Officer. On a writ petition challenging the reference to the Transfer Pricing Officer and also the notice from the Transfer Pricing Officer,the Court dismissing the petition, held that,admittedly, between the assessee and the associated enterprise there was an international transaction in the preceding year and the assessee had admittedly filed a report under section 92E of the Act. In the current year also the assessee had entered into transactions worth Rs. 78.63 crores. In the affidavit-in-reply it was further stated that the assessee had made substantial purchases from the associated enterprise. The partners of the assessee were three brothers and their wives/sons together holding the entire partnership stake. The fourth brother along with his wife and his son controlled the entire shareholding of the associated enterprise, the fourth brother and his son being directors of the assessee. It was clear that both the entities were being controlled by the same family of four brothers and their close relatives. It was clear that the associated concern was closely related with the assessee and fell within the parameters of section 92A(2) (j), (k) and (m). Therefore, it was not necessary or appropriate to judge, in the present petition, whether there was any international transaction between the assessee and the associated enterprise during the previous year relevant to the assessment year 2008-09 and such issue must be left to be judged by the competent authority while framing the final assessment. (A.Y. 2008-2009)
Capgemini India Private Limited v. ACIT (Mum) (Trib).
S.92C:Avoidance of tax-Transfer Pricing: Important principles on “turnover filter” & comparison
explained.
The Tribunal had to consider the following important transfer pricing issues: (i) whether a one-time and
extraordinary item of expenditure (ESOP cost) debited to the assessee’s P&L A/c has to be excluded
while comparing the margins, (ii) whether for the purpose of comparison of margins, the consolidated
results of comparables having profit from different overseas markets can be considered? (iii) whether
extreme profit and loss cases should be excluded or in case extreme profit cases are included, the case of
losses should also be included? (iv) whether a turnover filter can be adopted to exclude companies with
extremely high turnover? (v) whether the assessee can seek to exclude its own comparables? (vi) whether
an adjustment for working capital is permissible? (vii) whether if the assessee can show that because the
AE is in a high tax jurisdiction and that there is no transfer of profit to a low tax jurisdiction, a transfer
pricing adjustment need not be made? HELD by the Tribunal:
(i) A comparison of margin between the assessee and the comparables has to be made under identical
conditions. As the comparables had not claimed any extraordinary item of expenditure on account of
ESOP cost, for the purpose of making proper comparison of the margin, onetime ESOP cost incurred
by the assessee has to be excluded. There is nothing in the Rules that prohibits adjustment in the margin
of the assessee to remove impact of any extraordinary factors (Skoda Auto India(P) Ltd. v. ACIT (2009)
30 SOT 319 (Pune), Demag Cranes & Components (India) (P) Ltd. (2012) 49 SOT 610 (Pune),
Transwitch, Toyota Kirloskar Motors followed);
(ii) Under Rule 10B(2) (d), the comparability of transactions has to be considered after taking into
account the prevailing market conditions including geographical locations, size of market and cost of
capital and labour etc. Therefore, consolidated results which include profit from different overseas
jurisdictions having different geographical and marketing conditions will not be comparable. Only
standalone results should be adopted for the purpose of comparison of margins (American Express
followed);
(iii) Comparable cases cannot be rejected only on the ground of extremely high profit or loss. In case
the companies satisfy the comparability criteria, and do not involve any abnormal business conditions,
the same cannot be rejected only on the ground of loss or high profit. The OECD guidelines also
provide that loss making uncontrolled transactions should be further investigated and it should be
rejected only when the loss does not reflect the normal business conditions;
(iva) In certain Tribunal decisions, various reasons have been given for applying the turnover filter for
comparison of margins such as economy of scale, greater bargaining power, more skilled employees and
higher risk taking capabilities in cases of high turnover companies, which increase the margins with rise
in turnover. However, in these decisions, no detailed examination has been made as to how these factors
increase the profitability with rising turnover. The concept of economy of scale is relevant to
manufacturing concerns, which have high fixed assets and, therefore, with the rise in volume, cost per
unit of the product decreases, which is the reason of increase in margin as scale of operations goes up
because with the same fixed cost there is more output when the turnover is high. The same is not true in
case of service companies, which do not require high fixed assets. In these cases employees are the main
assets, who in the case of the assessee are software engineers, who are recruited from project to project
depending upon the requirement. The revenue in these cases is directly related to manpower utilized.
With rise in volume cost goes up proportionately. Therefore, the concept of economy of scale cannot be
applied to service oriented companies. On facts, it is shown by the department that in the case of the
comparables selected by the assessee, there is no linear relationship between margin and turnover and
that that the margin has come down with the rise in turnover in some cases. Such detailed study was not
available before the various Benches of the Tribunal which have applied the turnover filter and
consequently those decisions cannot be followed;
(ivb) Under Rule 10B(2), comparability of international transactions with uncontrolled transactions has
to be judged with reference to functions performed, asset employed and risk assumed. The functions
performed by all comparable companies are same as it is because of same functions they have been
selected by the assessee as comparables. The asset employed has two dimensions i.e. quantity and
quality. More employees would mean more turnover, but there is no linear relationship between margin
and turnover. As regards quality of employees, this will depend upon the nature of projects and since
the comparables are operating in the same field having similar nature of work, and employee cost being
more in case of more skilled manpower, it will not have much impact on the margins. As for the
bargaining power, the assessee is part of a multinational group and well established in the field and,
therefore, it cannot be accepted that it has less bargaining power than any of the Indian Companies,
however big it may be. Therefore, it would not be appropriate to apply turnover filter for the purpose of
comparison of margins. However, for the purpose of comparison, the turnover would be relevant only
from the limited purpose to ensure that the comparable selected is an established player capable of
executing all types of work relating to software development as the assessee is also an established
company in the field (Genesis Integrating Systemnot followed);
(v) The assessee had selected Infosys and Wipro as comparables on the basis of its own transfer pricing
study after being fully aware of its work profile. The assessee raised no plea either before the TPO or
DRP for excluding these comparables though it had added some more comparables. The assessee,
therefore, cannot raise any grievance before the Tribunal to exclude these comparables, without giving
any cogent and convincing reason. The reasons given by the assessee (turnover filter) are not found
convincing and so it cannot be permitted to exclude Infosys and Wipro (Kansai Nerolac Paint followed)
(vi) Working capital adjustments are required to be made because these do impact the profitability of the
company. Rule 10B(2) (d) also provides that the comparability has to be judged with respect to various
factors including the market conditions, geographical conditions, cost of labour and capital in the
market. Accounts receivable/payable effect the cost of working capital. A company which has a
substantial amount blocked with the debtors for a long period cannot be fully comparable to the case
which is able to recover the debt promptly. The average of opening and closing balance in the account
receivable/payable for the relevant year may be adopted which may broadly give the representative level
of working capital over the year. Even if there is some difference with respect to the representative
level, it will not affect the comparability as the same method will be applied to all cases. Working capital
adjustment cannot be denied to the assessee only on the ground that the assessee had not made any
claim in the TP study if it is possible to make such adjustment. Working capital adjustment will improve
the comparability.
(vii) The argument that no adjustment need be made because the parent company is situated in US where
tax rate is high and that there was no reason for the assessee to transfer profit to the parent company is
not acceptable. The arm’s length price of an international transaction has to be calculated with respect
to similar transaction with an unrelated party as per the method prescribed and the revenue is not
required to prove tax avoidance due to transfer of profit to lower tax jurisdiction. Arguments such as
that the parent company was incurring loss or had shown lower margin are not relevant (Aztek Software
& Technology Service Ltd. v. A CIT (2007)107 ITD 141 (SB) &24/7 Customers.com followed) (A. Y.
2007-08)
IHGITServices(India)Pvt.Ltd.v.ITO(SB) (Delhi(Delhi) (Trib.)
S.92C:Avoidance of tax-Transfer pricing: Scope of +/- 5% tolerance adjustment to ALP
explained.
The Special Bench was constituted to consider whether prior to the insertion of the second proviso to s.
92C(2), the benefit of 5% tolerance margin as prescribed under proviso to s. 92C(2) for the purposes of
determining the arm’s length price of an international transaction is allowable as a standard deduction in
all cases, or is allowable only if the difference is less than 5%. In the meanwhile the second proviso to s.
92C(2) was amended by the Finance Act, 2012 with retrospective effect from 1.4.2002. The assessee
claimed, relying on Piagio Vehicle P. Ltd. vs. DCIT that even after the retrospective amendment by the
Finance Act, 2012, it was entitled to the benefit of adjustment of +/- 5% variation while computing the
ALP. It was also argued that the amendment was unconstitutional. HELD by the Special Bench:
There was a controversy on whether +/- 5% tolerance adjustment was a standard deduction or not.
After the retrospective amendment to the second proviso to s. 92C by the Finance Act, 2012 with
retrospective effect from 1.4.2002, it is evident that if the variation between the arm’s length price and
the price at which international transaction was actually undertaken does not exceed the specified
percentage, then only the price at which the international transaction has actually been undertaken shall
be deemed to be arm’s length price. Thus, the benefit of tolerance margin would be available only if the
variation is within the tolerance margin. Once the variation exceeded the tolerance margin, then there
would be no benefit even up to tolerance margin. Then, the ALP as worked out under s. 92C(1) shall be
taken as ALP without any benefit of tolerance margin. The view taken in Piagio Vehicle was without
considering the amendment and is per incuriam and not good law. The challenge to the constitutional
validity of the retrospective amendment cannot be made before the Tribunal as it is a creation of the Act
and not a constitutional authority. (A. Y. 2006-07)
Onward Technologies Ltd v.Dy.CIT (Mum.)(Trib.)
S.92C:Avoidance of tax-Transfer pricing: Foreign AE cannot be the tested party. TP additions
can exceed overall group profits.
The Tribunal had to consider the following important transfer pricing issues: (i) whether the foreign AE
can be taken as the tested party & if the sale price received by the foreign AEs from the services
ultimately sold to customers is equal to that charged by the assessee from its AEs, it would show that
the international transaction between the assessee and the AEs is at ALP? (ii) whether the transfer
pricing additions can result in the overall profit of the group of AEs being breached? & (iii) whether if
the assessee has consistently followed a method for determination of the ALP and the same has been
accepted by the TPO in the past, he cannot reject that method for the current year? HELD by the
Tribunal:
(i) The argument that the foreign AE should be selected as the tested party and the profit earned by the
foreign AE from outside comparables should be compared with the price charged by the assessee from
the AE to determine whether they are at ALP is not acceptable because under the scheme of s. 92C, the
profit actually realized by the Indian assessee from the transaction with its foreign AE has to be
compared with that of the comparables. There is no question of substituting the profit realized by the
Indian enterprise from its foreign AE with the profit realized by the foreign AE from the ultimate
customers for the purposes of determining the ALP of the international transaction of the Indian
enterprise with its foreign AE. The scope of TP adjustment under the Indian taxation law is limited to
transaction between the assessee and its foreign AE. The contention that the profit earned by the
foreign AE should be substituted for the profit of the comparables is patently unacceptable. The fact
that this may be permissible under the US and UK transfer pricing regulations is irrelevant;
(ii) The contention of the assessee that the authorities cannot go beyond the overall profit of the group
of AEs in determining the ALP of the international transaction is also not acceptable because it will
constitute a new method/ yardstick for determining the ALP. The transfer pricing adjustments made in
India may result in the overall profit earned by all the AEs taken as one unit being breached;
(iii) The contention that as the assessee consistently followed the same method for determination of the
ALP and it was accepted by the TPO in the past, he cannot take a different view is not acceptable. A
delicate balance needs to be maintained between the principle of consistency and the rule of res judicata.
There is no estoppel against the provisions of the Act. As the method employed by the assessee for
determining the ALP is contrary to the statutory provisions, the inadvertent acceptance of the wrong
method by the TPO in an earlier year does not grant a license to the assessee to continue calculating the
ALP in the grossly erroneous manner in perpetuity. It needs to be discontinued forthwith. (A. Y. 2006-
07)
Aurionpro Solutions Ltd v. ACIT (Mum). (Trib.)
S.92C:Avoidance of tax-Transfer pricing-Business advances- Even business advances have to be
benchmarked on Libor ALP.
The assessee, an Indian company, gave loans of Rs. 15.65 crores to its AEs in USA, Singapore and
Bahrain. It claimed that the said loans were “working capital advances” given for commercial
consideration to secure business and that no interest was recoverable on it. The TPO applied the CUP
method and determined the ALP of the advances at LIBOR plus 3% mark up. The DRP held that only
inbound loans (ECBs) taken by the Indian entities from outside India could be benchmarked with
LIBOR and that outbound loans had to be benchmarked on the interest rate prevailing in India on
corporate bonds. It treated the advance as an unrated bond having very high risk and enhanced the
assessment by directing the TPO to adopt 14% as the ALP rate. On appeal by the assessee, HELD
reversing the DRP:
The assessee’s argument that the non-charging of interest on the working capital advances to AEs from
whom the assessee was getting good business was justified by commercial considerations and that no
transfer pricing adjustment is warranted is not acceptable because the existence or non-existence of
commercial consideration between the assessee and the AEs is not a required condition for applicability
of the TP regulations Further, the advance was not the credit period extended to the AEs in respect of
business transactions but was a transaction of advancing loans to the AEs which falls under the ambit of
“international transaction” u/s 92B. In principle, the DRP is justified in its view that the ALP should be
determined on the basis of the interest rate that would have been earned by the assessee by advancing
loans to an unrelated third party (in India) such as a Fixed Deposit with the Bank. However, since
LIBOR has been accepted by the Tribunal in other cases, the ALP should be determined on the basis of
LIBOR + 2% (Siva Industries & Holding Ltd.v. ACIT (2011) 59 DTR 182 (Che), Dy. CIT Tech
Mahindra Ltd. (2011) 46 SOT 141 (Mum) &Tata Autocomp Systems 73 DTR 220 (Mum) referred). (A. Y.
2007-08)
ACIT v. Handy Waterbase India (P.) Ltd. (2013) 140 ITD 112 (Chennai) (Trib.)
S.92C: Avoidance of tax- Transfer pricing –Computation of Arm’s Length Price – Sale Price realized from AE
much higher than ALP fixed by TPO – No recommendation by TPO for adjustment – AOis not required to
make any adjustment. (S.10B(7), 80IA (10)
The Assessee is engaged in sale and export of pasteurized crab meat. The Assessee entered in to international transactions with its associated enterprise and showed sale price at Rs 24 Crores. TPO on reference made by the Assessing Officer, fixed arm’s length price of goods at Rs 18 Crores. Assessing Officer opined that receipts of the assessee from sales to AE were in excess of arm’s length price and such excess was nothing but income from other sources. The Assessing Officer relying on provisions of section 10B(7) read with section 80IA (8) and 80(IA) (10) added excessive receipts to income of assessee. On appeal Commissioner (Appeals) deleted the addition. On appeal by revenue, the Tribunal held that, where sale price realised from AE was much higher than ALP fixed by TPO and there was no recommendation by TPO for making any adjustment, Assessing Officer was not at all required to make any adjustment in ALP. Accordingly the appeal of revenue was dismissed. (A.Y. 2007-08)
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