Lionbridge Technologies (P) Ltd. v. Dy. CIT

SUBSCRIBE FOR FULL CONTENT


The Tax Publishers2012 TaxPub(DT) 2552 (Mum-Trib) : (2012) 137 ITD 0197 : (2012) 148 TTJ 0265 : (2012) 074 DTR 0001 INCOME TAX ACT, 1961 --Transfer pricing--Computation of ALPAdjustment of +/- 5 per cent range vis-a-vis comparables--Assessee-company was engaged in the development and sale of computer software and providing other related services. Assessing officer made a reference under section 92CA(1) to the transfer pricing officer (TPO) for the determination of arm's length price in relation to the international transactions, entered into by assessee with its Associated Enterprises (AEs). Assessee used Transactional Net Margin Method (TNMM) for the purposes of determination of ALP. Assessee had disclosed its actual margin as per the books of account at 12.53 per cent on overall basis, divided into 16.77 per cent from the international transactions with the AEs and 10.80 per cent from the transactions with non-AEs. In support of its ALP, assessee submitted that all international transactions with its AEs were put in one basket with respect to IT services, IT enabled services (hereinafter called ITES) and marketing and support services. The TPO observed that the price charged by assessee for providing IT/ITES was not determined in accordance with the provisions of section 92C(1) & (2). It worked out the average ratio of operating profit/total cost at 21.99 per cent from his chosen 33 comparable cases. If 5 per cent plus/minus margin was allowed in terms of section 92C(2), the arm's length service fee would come at Rs. 115.90 [100 + 21.99 -- 6.09 (5% of 121.99). Addition was made on account of transfer pricing adjustment under section 92CA(3). Held: The service-fee charged by assessee from international transactions with its AEs was more than the ALP determined by applying the PLI as found out by the TPO and, hence no addition/adjustment was called for. Income Tax Act, 1961, Section 92CA IN THE ITAT, MUMBAI 'B' BENCH R.S. SYAL, AM. & VIVEK VARMA, J.M. Lionbridge Technologies (P) Ltd. v. Dy. CIT ITA No. 9032/Mum/2010 A.Y. 2006-07 20 June, 2012 Income-tax Act, 1961, s. 92C; In favour of: Assessee Assesseeby : Percy Pardiwala & Ms. Aarti Sathe, Revenueby : Ajeet Kumar Jain, ORDER *R.S. Syal, A.M.* This appeal by the assessee is directed against the order passed by the Dy. CIT under section 143(3) rule with section 144C(13) of the Income Tax Act, 1961 (hereinafter called the Rs. Act) on 7-10-2010 in relation to the assessment year 2006-07. 2. The major issue in this appeal is against the confirmation of addition of Rs. 8,86,68,683 on account of transfer pricing adjustment under section 92CA(3) of the Act. Briefly stated the facts of the case are that the assessee is a company engaged in the development and sale of computer software and providing other related services. It filed its return on 21-10-2006 declaring total income of Rs. 87,64,611. Thereafter, the assessee e-filed revised return on 24-10-2006 declaring total income of Rs. 87,64,536. From the Form No. 3CEB submitted by the assessee along with the return of income, the AO observed that the assessee entered into various international transactions with its Associated Enterprises (hereinafter called 'AEs'). The assessing officer made a reference under section 92CA(1) to the Transfer Pricing Officer (hereinafter called 'TPO') for the determination of arms length price (hereinafter called 'ALP') in relation to the international transactions. The TPO noticed that the assessee entered into 10 types of international transactions with its AEs. The entire dispute in the present appeal revolves around the first type of transactions being 'Receipt of fees towards Information Technology (IT)/Information Technology Enabled Services (ITES)' reported by the assessee at Rs. 31,53,20,904. The assessee used Transactional Net Margin Method (hereinafter called 'TNMM') for the purposes of determination of ALP. In support of its ALP, the assessee furnished transfer pricing report. All international transactions with its AEs were put in one basket with respect to IT services, IT enabled services (hereinafter called ITES) and marketing and support services. The TPO observed that the main transactions were of the nature of IT and ITES. On the basis of search from Prowess and Capitaline Databases, the assessee identified 43 companies as comparables which have been tabulated on pp. 3 and 4 of the TPOs order. After considering the two years weighted average profit of such comparable cases, the assessee determined profit level indicator (operating profit/total cost) margin in respect of such comparable cases at 17.20 per cent. As against this benchmarked profit percentage, the assessee had disclosed its actual margin as per the books of account at 12.53 per cent on overall basis, divided into 16.77 per cent from the international transactions with the AEs and 10.80 per cent from the transactions with non-AEs. After exercising option under section 92C(2), it was declared that the price charged by the assessee from its AEs was at arms length. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 2552 (Mum-Trib) : (2012) 137 ITD 0197 : (2012) 148 TTJ 0265 : (2012) 074 DTR 0001

INCOME TAX ACT, 1961

--Transfer pricing--Computation of ALPAdjustment of +/- 5 per cent range vis-a-vis comparables--Assessee-company was engaged in the development and sale of computer software and providing other related services. Assessing officer made a reference under section 92CA(1) to the transfer pricing officer (TPO) for the determination of arm's length price in relation to the international transactions, entered into by assessee with its Associated Enterprises (AEs). Assessee used Transactional Net Margin Method (TNMM) for the purposes of determination of ALP. Assessee had disclosed its actual margin as per the books of account at 12.53 per cent on overall basis, divided into 16.77 per cent from the international transactions with the AEs and 10.80 per cent from the transactions with non-AEs. In support of its ALP, assessee submitted that all international transactions with its AEs were put in one basket with respect to IT services, IT enabled services (hereinafter called ITES) and marketing and support services. The TPO observed that the price charged by assessee for providing IT/ITES was not determined in accordance with the provisions of section 92C(1) & (2). It worked out the average ratio of operating profit/total cost at 21.99 per cent from his chosen 33 comparable cases. If 5 per cent plus/minus margin was allowed in terms of section 92C(2), the arm's length service fee would come at Rs. 115.90 [100 + 21.99 -- 6.09 (5% of 121.99). Addition was made on account of transfer pricing adjustment under section 92CA(3). Held: The service-fee charged by assessee from international transactions with its AEs was more than the ALP determined by applying the PLI as found out by the TPO and, hence no addition/adjustment was called for.

Income Tax Act, 1961, Section 92CA

IN THE ITAT, MUMBAI 'B' BENCH

R.S. SYAL, AM. & VIVEK VARMA, J.M.

Lionbridge Technologies (P) Ltd. v. Dy. CIT

ITA No. 9032/Mum/2010

A.Y. 2006-07

20 June, 2012

Income-tax Act, 1961, s. 92C; In favour of: Assessee

Assesseeby : Percy Pardiwala & Ms. Aarti Sathe,

Revenueby : Ajeet Kumar Jain,

ORDER

R.S. Syal, A.M.

This appeal by the assessee is directed against the order passed by the Dy. CIT under section 143(3) rule with section 144C(13) of the Income Tax Act, 1961 (hereinafter called the Rs. Act) on 7-10-2010 in relation to the assessment year 2006-07.

2. The major issue in this appeal is against the confirmation of addition of Rs. 8,86,68,683 on account of transfer pricing adjustment under section 92CA(3) of the Act. Briefly stated the facts of the case are that the assessee is a company engaged in the development and sale of computer software and providing other related services. It filed its return on 21-10-2006 declaring total income of Rs. 87,64,611. Thereafter, the assessee e-filed revised return on 24-10-2006 declaring total income of Rs. 87,64,536. From the Form No. 3CEB submitted by the assessee along with the return of income, the AO observed that the assessee entered into various international transactions with its Associated Enterprises (hereinafter called 'AEs'). The assessing officer made a reference under section 92CA(1) to the Transfer Pricing Officer (hereinafter called 'TPO') for the determination of arms length price (hereinafter called 'ALP') in relation to the international transactions. The TPO noticed that the assessee entered into 10 types of international transactions with its AEs. The entire dispute in the present appeal revolves around the first type of transactions being 'Receipt of fees towards Information Technology (IT)/Information Technology Enabled Services (ITES)' reported by the assessee at Rs. 31,53,20,904. The assessee used Transactional Net Margin Method (hereinafter called 'TNMM') for the purposes of determination of ALP. In support of its ALP, the assessee furnished transfer pricing report. All international transactions with its AEs were put in one basket with respect to IT services, IT enabled services (hereinafter called ITES) and marketing and support services. The TPO observed that the main transactions were of the nature of IT and ITES. On the basis of search from Prowess and Capitaline Databases, the assessee identified 43 companies as comparables which have been tabulated on pp. 3 and 4 of the TPOs order. After considering the two years weighted average profit of such comparable cases, the assessee determined profit level indicator (operating profit/total cost) margin in respect of such comparable cases at 17.20 per cent. As against this benchmarked profit percentage, the assessee had disclosed its actual margin as per the books of account at 12.53 per cent on overall basis, divided into 16.77 per cent from the international transactions with the AEs and 10.80 per cent from the transactions with non-AEs. After exercising option under section 92C(2), it was declared that the price charged by the assessee from its AEs was at arms length.