CIT v. Patni Computer Systems Ltd.

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The Tax Publishers2013 TaxPub(DT) 1576 (Bom-HC) : (2013) 215 TAXMAN 0109 Income Tax Act, 1961 --Transfer pricing --Arm's length price Adjustment in respect of loss on allowing excess credit period to AE without charging interest --Assessee allowed excess period of credit to the associated Enterprises without charging any interest during such credit period. Tribunal held that loss suffered by assessee by allowing excess period of credit to the Associated Enterprise without charging any interest would not amount to international transaction. Revenue filed appeal against the order of Tribunal as section 92B(1) referred to 'any other transaction having a bearing on the profits, income, losses or assets of such enterprises.' *Held:* In view of the amendment to section 92B(1) by Finance Act, 2002 with retrospective effect from 1-4-2002, the issue was restored to the file of the Tribunal for fresh decision in light of amendments. Income Tax Act, 1961 Section 92B(1) Income Tax Act, 1961 --Transfer pricing --Computation of ALP Allocation of consultancy charges--The Tribunal deleted the adjustment made on allocation of the consultancy charges paid by assessee to its Associated Enterprises on the ground that there was no mutual agreement between assessee and the Associated Enterprises for incurring the cost and that no tangible or concrete benefit had accrued to the Associated Enterprises. Revenue filed appeal against the order of Tribunal and sought to justify the inclusion of consultancy charges paid to Associated Enterprise as an international transaction on the ground that there was an arrangement between assessee and its Associated Enterprise. *Held:* Tribunal held that there was no material to support the conclusion that there was an arrangement between assessee and its Associated Enterprises and the entire case was based on mere presumption. Therefore, the Tribunal concluded that the order of the Transfer Pricing Officer (TPO) was without any evidence. The Tribunal further held that even if any benefit accrued to the Associated Enterprises, it was merely incidental to the consultancy obtained by assessee from Associated Enterprises. Besides, the Tribunal held that even if it was assumed that certain benefit accrued to the Associated Enterprises and they were to compensate assessee, the ALP would have to be determined. That could only be determined on finding out the consultancy charges paid by similarly situated and comparable independent entities. In the absence of any comparison, the Tribunal held that the action of TPO could not be upheld. Therefore, the Tribunal was correct in deletion of adjustment made on allocation of the consultancy charges. Income Tax Act, 1961 Section 92C Income Tax Act, 1961 --Deduction under section 10A--Undertaking in a free trade zone Eligibility--Assessee established three units at Chinchwad, Akruti and Millennium. Revenue denied the benefit of section 10A in respect of three units on the basis of the approval letter issued by Software Technology Park in India that the three units were to be considered as part of the existing unit. Tribunal held that assessee was eligible for deduction under section 10A as the sold units were not mere expansion of the existing units. *Held:* The Tribunal held that all the three units fulfilled the conditions prescribed under section 10A(2). The three units were separate and independent production units and the same could not be treated as mere expansion of the existing units. Thus, assessee was entitled to claim for deduction under section 10A. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 1576 (Bom-HC) : (2013) 215 TAXMAN 0109

Income Tax Act, 1961

--Transfer pricing --Arm's length price Adjustment in respect of loss on allowing excess credit period to AE without charging interest --Assessee allowed excess period of credit to the associated Enterprises without charging any interest during such credit period. Tribunal held that loss suffered by assessee by allowing excess period of credit to the Associated Enterprise without charging any interest would not amount to international transaction. Revenue filed appeal against the order of Tribunal as section 92B(1) referred to 'any other transaction having a bearing on the profits, income, losses or assets of such enterprises.' Held: In view of the amendment to section 92B(1) by Finance Act, 2002 with retrospective effect from 1-4-2002, the issue was restored to the file of the Tribunal for fresh decision in light of amendments.

Income Tax Act, 1961 Section 92B(1)

Income Tax Act, 1961

--Transfer pricing --Computation of ALP Allocation of consultancy charges--The Tribunal deleted the adjustment made on allocation of the consultancy charges paid by assessee to its Associated Enterprises on the ground that there was no mutual agreement between assessee and the Associated Enterprises for incurring the cost and that no tangible or concrete benefit had accrued to the Associated Enterprises. Revenue filed appeal against the order of Tribunal and sought to justify the inclusion of consultancy charges paid to Associated Enterprise as an international transaction on the ground that there was an arrangement between assessee and its Associated Enterprise. Held: Tribunal held that there was no material to support the conclusion that there was an arrangement between assessee and its Associated Enterprises and the entire case was based on mere presumption. Therefore, the Tribunal concluded that the order of the Transfer Pricing Officer (TPO) was without any evidence. The Tribunal further held that even if any benefit accrued to the Associated Enterprises, it was merely incidental to the consultancy obtained by assessee from Associated Enterprises. Besides, the Tribunal held that even if it was assumed that certain benefit accrued to the Associated Enterprises and they were to compensate assessee, the ALP would have to be determined. That could only be determined on finding out the consultancy charges paid by similarly situated and comparable independent entities. In the absence of any comparison, the Tribunal held that the action of TPO could not be upheld. Therefore, the Tribunal was correct in deletion of adjustment made on allocation of the consultancy charges.

Income Tax Act, 1961 Section 92C

Income Tax Act, 1961

--Deduction under section 10A--Undertaking in a free trade zone Eligibility--Assessee established three units at Chinchwad, Akruti and Millennium. Revenue denied the benefit of section 10A in respect of three units on the basis of the approval letter issued by Software Technology Park in India that the three units were to be considered as part of the existing unit. Tribunal held that assessee was eligible for deduction under section 10A as the sold units were not mere expansion of the existing units. Held: The Tribunal held that all the three units fulfilled the conditions prescribed under section 10A(2). The three units were separate and independent production units and the same could not be treated as mere expansion of the existing units. Thus, assessee was entitled to claim for deduction under section 10A.