Income Tax Appellate Tribunal - Bangalore
Continuous Computing India Pvt. Ltd.,, ... vs Assessee on 7 March, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
"B" BENCH : BANGALORE
BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER
AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER
ITA No.1343/Bang/2010
Assessment year : 2006-07
M/s. Continuous Computing Vs. The Income Tax Officer,
India Pvt. Ltd., Ward 11(1),
4th Floor, Pane Valley, Bangalore.
Embassy Golf Link
Business Park,
Off Intermediate Ring Road,
Koramangala,
Bangalore - 560 071.
PAN : AACCC 3169M
APPELLANT RESPONDENT
Appellant by : Shri Mahaveer Jain, C.A.
Respondent by : Shri Etwa Munda, CIT-III(DR)
Date of hearing : 07.03.2012
Date of Pronouncement : 30.03.2012
ORDER
Per N.K. Saini, Accountant Member
This appeal by the assessee is against the order dated 06.10.2010 of the Assessing Officer passed u/s. 143(3) r.w. sec. 144C of the Income-
tax Act, 1961 [hereinafter referred to as "the Act" in short"].
ITA No.1343/Bang/10 Page 2 of 312. Following grounds have been raised in this appeal:
"Ground No. 1:
Treatment of Communication Expenses under section 10A: The learned Assessing Officer (hereinafter referred to as "AC") has grossly erred in law by not deducting the Communication Expenses amounting to Rs.19,60,808/- from the 'Total Turnover' while reducing the same from 'Export Turnover' for the purposes of computing deduction under section 10A, thereby reducing the claim of deduction under section 10A by Rs.1,46,131/- and the Hon'ble Dispute Resolution Panel (hereinafter referred to as "DRP") has erred in confirming the same.
Ground No. 2:
Re-computation of Arm's Length Price which has resulted in an addition of Rs. 98,20,024/-. Under this ground of appeal we have the following specific grounds of appeals:
a. The learned AC has erred in making a reference without recording any reasons based on which he reached the conclusion that it was 'expedient and necessary' to refer the matter to the Transfer Pricing Officer ("TPO") for computation of the arm's length price, as is required under section 92CA(1) and Hon'ble DRP has erred in upholding the same.
b. The learned TPO has erred on facts and law by rejecting the transfer pricing (TP) documentation maintained by the Appellant as per Rules and Hon'ble DRP has erred in upholding the same.
c. The learned TPO has erred on law by undertaking the fresh search for comparability analysis (FY 2005-06) as on December 03, 2008, which is beyond the date of compliance i.e. October 31, 2006 resulting in 'impossibility of performance' and against the premise of maintenance of 'contemporaneous documentation'. The same is also violates the law, Rule l0B(4) read with Read 10D(4) and Hon'ble DRP has erred in upholding the same.
d. The learned TPO has erred on facts by disregarding the functional and risk profile of the Appellant and comparing it with companies which have an entirely different functional and risk profile and Hon'ble DRP has erred in upholding the same.
e. The learned TPO has erred on facts by rejection of the filters applied by the Appellant in search for comparables, particularly the 'turnover filter' and Hon'ble DRP has erred in upholding the same.ITA No.1343/Bang/10 Page 3 of 31
f. The learned TPO has erred on law and facts by arbitrary adoption of the additional filters in the search process carried out by him, particularly the 'employee cost filter' and Hon'ble DRP has erred in upholding the same.
g. The Hon'ble DRP has grossly erred on facts and law by implicitly accepting the comparables having abnormal / super profits selected by the learned TPO.
h. The learned TPO has erred on facts and law by exercising his powers under section 133(6) to obtain selective information which was not available in the public domain and by relying on the same for comparability purposes, this being against the principals of natural justice and contrary to the OCED guidelines that advocate against the use of secret comparables and Hon'ble DRP has erred in upholding the same.
i. The learned TPO has erred on law by using single year data for computation of margin of comparable companies by rejecting the multiple year data used by the Appellant and Hon'ble DRP has erred in upholding the same.
j. The learned TPO has erred on facts by wrong computation of NCP, related party transactions and arithmetical errors even though the same was been bought to the notice of learned TPO.
k. The learned TPO has erred on facts and law by comparing the Appellant which is in the second year of operation with the established companies on the one hand and has not excluded the start up related cost of Rs.91.31 lakhs incurred by the Appellant from the operating cost while computing the NCP of the Appellant even though the same was excluded by the learned TPO from the operating cost while computing the NCP of the Appellant in the assessment year 2007-08.
l. The learned TPO has erred on facts by not appreciating the risk free nature of the Appellant and not granting adjustment on account of differential risk borne by the comparables. However, the learned TPO has allowed working capital adjustment of 2% considering the nature of risk free business of the Appellant in the assessment year 2007-08.
m. The learned TPO has erred on law by not granting the Appellant the option to chose a price that falls within +/- 5% range of the arithmetic mean of the comparables, as contemplated under the proviso to section 92C(2) as it stood at the time of preparing the TP documentation. Accordingly, this has resulted in ITA No.1343/Bang/10 Page 4 of 31 hardship for Appellant, having regard to the principle of natural justice and Hon'ble DRP has erred in upholding the same.
n. The learned TPO erred on facts by adding the amount of Rs.1,77,221/- to the operating cost, which was received as reimbursement on cost to cost basis from the associated enterprise towards cost directly incurred on behalf of the associated enterprise. Also the learned TPO has not given an opportunity of being heard to the Appellant on this matter, as the same was correctly treated by not including in the operating cost in the show-cause notice issued to the Appellant. The learned AO has grossly error by not following the directions given by the Hon'ble DRP before passing the final order.
That the above grounds of objection are without prejudice to each other.
The Appellant prays that the order under section 143(3) read with section 144C of the Act passed by the learned AO may please be set-aside in toto.
The Appellant craves leave to add, omit or alter grounds of appeal before or during the hearing of the appeal."
3. Grounds No.2 (l) and (n) were not pressed, so these are dismissed as not pressed.
4. Vide ground No.1, the assessee contended that the communication expenses are to be reduced from total turnover as well as from the export turnover.
5. The facts relating to this issue in brief are that the assessee filed return of income on 30.11.2006 declaring an income of Rs.40,911after claiming deduction u/s. 10A of the Income-tax Act, 1961 [hereinafter referred to as "the Act" in short"] amounting to Q 1,04,22,814. The said return was processed u/s. 143(1) of the Act. Later on, the case was selected for scrutiny. The Assessing Officer during the course of ITA No.1343/Bang/10 Page 5 of 31 assessment proceedings noticed that the assessee has deducted a sum of Q 37,57,530 to the profit & loss account towards communication expenses.
The AO also noticed that the assessee had reduced an amount of Q 19,60,808 for lease line charges from export turnover as well as from total turnover for the purpose of computing deduction u/s. 10A of the Act. The AO held that the lease line charges of Q 19,60,808 attributable to the delivery of software outside India was to be reduced from export turnover only. He accordingly reworked the deduction u/s. 10A of the Act. Now the assessee is in appeal.
6. The learned Departmental Representative strongly supported the order of the Assessing Officer, while the learned counsel for the assessee reiterated the submissions made before the authorities below and further submitted that this issue is squarely covered in favour of the assessee by the decision of the ITAT, Chennai (Special Bench) in the case of ITO Vs. M/s.Sak Soft Ltd. (2009) 313 ITR (AT) 353 and judgment of Hon'ble Bombay High Court in the case of CIT Vs. Gem Plus Jewellery India Ltd.
(2010) 330 ITR 175 (Bom).
7. We have considered the submissions of both the parties and carefully gone through the material available on record. In the present case, it is not in dispute that the assessee claimed deduction under section 10A of the Act, however, the Assessing Officer while framing the assessment under section 143(3) of the Act computed the deduction under section 10A of the Act by reducing lease line charges from export turnover, but not from the total turnover.
ITA No.1343/Bang/10 Page 6 of 318. This issue now has been settled by the Special Bench of ITAT, Chennai in the case of ITO Vs. M/s.Sak Soft Ltd. (2009) 313 ITR (AT) 353 (Chennai (SB) by holding as under :
" To say that in the absence of any definition of "total turnover"
for the purpose of section 10B, there is no authority to exclude anything from the expression as understood in general parlance would be wrong, as there has to be an element of turnover in the receipt if it has to be included in the total turnover. That element is missing in the case of freight, telecom charges or insurance attributable to the delivery of the goods outside India and expenses incurred in foreign exchange in connection with the provision of technical services outside India. These receipts can only be received by the assessee as reimbursement of such expenses incurred by him. Mere reimbursement of expenses cannot have an element of turnover. It is only in recognition of this position that in the definition of "export turnover" in section 10B the aforesaid two items have been directed to be excluded. Secondly, the definition of export turnover contemplates that the amount received by the assessee in convertible foreign exchange should represent "consideration" in respect of the export. Any reimbursement of the two items of expenses mentioned in the definition can under no circumstances be considered to represent "consideration" for the export of the computer software or articles or things. Thus the expression "total turnover" which is not defined in section 10B should also be interpreted in the same manner. Thus the two items of expenses referred to in the definition of "export turnover" cannot form part of the total turnover since the receipts by way of recovery of such expenses cannot be said to represent consideration for the goods exported since total turnover is nothing but the aggregate of the domestic turnover and the export turnover. In the formula prescribed by section 10B(4) the figure of export turnover has to be the same both in the numerator and in the denominator of the formula. It follows that the total turnover cannot include the two items of expenses recovered by the assessee and referred to in the definition of "export turnover."
It has further been held that -
" The common thread running through sections 80HHC, 80HHE and 80HHF is that they are all provisions granting relief to the assessees in respect of profits derived from export. The difference between Chapter III in which section 10B falls, and Chapter VI-A in which these sections fall, is that while the ITA No.1343/Bang/10 Page 7 of 31 former excludes the income in question totally from the purview of total income and gives total exemption from tax, the latter gives deduction of a part of the profits and gains of the concerned business from the gross total income. Both, however, are chapters which give relief to assessees from taxation subject to the conditions bring fulfilled and in that sense they are of the same genre. The object of these sections is to encourage the earning of foreign exchange and provide incentive to promote exports. If some of the sections such as sections 80HHE and 80HHF provide for a formula for calculating the deduction which is identical with the formula prescribed by section 10B, it would be incongruous to interpret section 10B in a manner different from those two sections merely because there is no definition of "total turnover" in that section. "Export turnover"
as defined in these sections excludes freight, telecom charges or insurance attributable to the delivery of the computer software outside India or expenses, if any, incurred in foreign exchange in providing technical services outside India. Thus statutory parity is maintained between export turnover and total turnover in these sections. There is no reason why such parity cannot be maintained between export turnover and total turnover in section 10B just because "total turnover" has not been defined in that section."'
9. Similar view has been taken by the Hon'ble High Court of Bombay in the case of CIT Vs. Gem Plus Jewellery India Ltd. (2010) 330 ITR 175 (supra) wherein it has been held as under :
" Under sub-section 10A of the Income Tax Act, 1961, a deduction is allowed from the total income of the assessee of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years commencing from the assessment year relevant to the previous year in which the undertaking begins manufacture or production. Sub-section (4) of section 10A provides the manner in which the profits derived from the export of articles or things or computer software shall be computed. Under sub-section (4) the proportion between the export turnover in respect of the articles or things, or, as the case may be, computer software exported, to the total turnover of the business carried over by the undertaking is applied to the profits of the business of the undertaking in computing the profits derived from export. In other words, the profits of the business ITA No.1343/Bang/10 Page 8 of 31 of the undertaking are multiplied by the export turnover in respect of the articles, things or, as the case may be, computer software and derived by the total turnover of the business carried on by the undertaking. The expression "total turnover" has not been defined at all by Parliament for the purposes of section 10A. However, the expression "export turnover" has been defined. The definition of "export turnover" excludes freight and insurance. Since export turnover has been defined by Parliament and there is a specific exclusion of freight and insurance, the expression "export turnover" cannot have a different meaning when it forms a constituent part of the total turnover for the purposes of the application of the formula. A construction of a statutory provision which would lead to an absurdity must be avoided. Moreover, a receipt such as freight and insurance which does not have any element of profit cannot be included in the total turnover. Freight and insurance charges do not have any element of turnover. For this reason in addition, these two items would have to be excluded from the total turnover particularly in the absence of a legislative prescription to the contrary."
10. A similar view has been taken by the Hon'ble jurisdictional High Court in the case of CIT Vs. Tata Elexi (2011) TIOL - 684 (Karn.) and the relevant finding given therein reads as under :
"The total turnover of the business carried on by the undertaking would consist of the turnover from export and the turnover from local sales. The export turnover constitutes the numerator in the formula prescribed by sub-section (4). Export turnover also forms a constituent element of the denominator in as much as the export turnover is a part of the total turnover. The export turnover, in the numerator must have the same meaning as the export turnover which is constituent element of the total turnover in the denominator. The legislature has provided a definition of the expression "export turnover" in Expln.2 to s.10A which the expression is defined to mean the consideration in respect of export by the undertaking of articles, things or computer software received in or brought into India by the assessee in convertible foreign exchange but so as not to include inter alia freight, telecommunication charges or insurance attributable to the delivery of the articles, things or software outside India. Therefore in computing the export turnover the legislature has made a specific exclusion of freight and insurance charges. The submission which has been urged on behalf of the revenue is that ITA No.1343/Bang/10 Page 9 of 31 while freight and insurance charges are liable to be excluded in computing export turnover, a similar exclusion has not been provided in regard to total turnover. The submission of the revenue, however, misses the point that the expression "total turnover" has not been defined at all by Parliament for the purposes of s.10A. However, the expression "export turnover"
has been defined. The definition of "export turnover" excludes freight and insurance. Since export turnover has been defined by Parliament and there is a specific exclusion of freight and insurance, the expression "export turnover" cannot have a different meaning when it forms a constituent part of the total turnover for the purposes of the application of the formula. Undoubtedly, it was open to Parliament to make a provision which has been enunciated earlier must prevail as a matter of correct statutory interpretation. Any other interpretation would lead to an absurdity. If the contention of the Revenue were to be accepted, the same expression viz. 'export turnover' would have a different connotation in the application of the same formula. The submission of the Revenue would lead to a situation where freight and insurance, though these have been specifically excluded from 'export turnover' for the purposes of the numerator would be brought in as part of the 'export turnover' when it forms an element of the total turnover as a denominator in the formula. A construction of a statutory provision which would lead to an absurdity must be avoided. Moreover, a receipt such as freight and insurance which does not have any element of profit cannot be included in the total turnover. Freight and insurance charges do not have any element of turnover. For this reason in addition, these two items would have to be excluded from the total turnover particularly in the absence of a legislative prescription to the contrary - CIT v Sudarshan Chemicals Industries Ltd. (2000) 163 CTR (Bom) 596: (2000) 245 ITR 769 (Bom) applied; CIT v Lakshmi Machine Works (2007) 210 CTR (SC) 1: (2007) 290 ITR 667 (SC) and CIT v Catapharma (India) (P) Ltd. (2007) 211 CTR (SC) 83: (2007) 292 ITR 641 (SC) relied on".
11. From the ratio laid down in the aforesaid judicial pronouncements by the Hon'ble jurisdictional High Court and Hon'ble High Court of Bombay, it is crystal clear that if an item is excluded from the export turnover, the same should also be excluded from the total turnover to maintain parity between the numerator and denominator while calculating the deduction ITA No.1343/Bang/10 Page 10 of 31 under section 10A of the Act. In view of the above, we set aside the order of the lower authorities on this issue and direct the Assessing Officer to reduce the lease line charges amounting to Rs.19,60,808 both from export turnover as well as total turnover.
12. The next issue vide ground No.2(a) to (k) relates to addition on account of recomputation of arms' length price (ALP). The facts relating to this issue in brief are that the AO during the course of assessment proceedings noticed that the assessee had international transactions during the financial year relevant to assessment year under consideration.
He therefore referred the case to the Transfer Pricing Officer (TPO) to determine the ALP after obtaining necessary approval from the ld. CIT, Bangalore-I, Bangalore u/s. 92CA of the Act and the TPO vide order dated 30.10.2009 informed the AO that an adjustment of Rs.98,83,653 is required to be made to the income of the assessee consequent to the determination of ALP as under:
Operating cost (Rs.11,17,26,443 Rs.11,19,03,664/-
+ Rs.1,77,221)
Arms length Margin 18.86% of the Operating
Cost
Arms Length Price (ALP) @ Rs.13,30,08,695/-
118.86% of operating cost
Price shown in the international Rs.12,31,25,042/-
transactions (Rs.12,29,47,821 +
Rs.1,77,221)
Shortfall being adjustment u/s. Rs.98,83,653/-
92CA
13. The Assessing Officer pointed out that the TPO had taken into consideration the facts of the case and the objections of the assessee before passing the order u/s. 92CA of the Act. The AO forwarded the draft ITA No.1343/Bang/10 Page 11 of 31 assessment order dated 10.12.09 to the assessee on 17.12.09. The assessee filed its objections before the Dispute Resolution Panel (DRP) on 15.01.2010 and the DRP directed the AO to complete the assessment after taking into consideration the detailed discussion on various issues vide its directions dated 27.09.2010 issued under sub-sec. (5) of section 144C r.w.
sub-sec.(8) of section 144C of the Act. The DRP directed the AO to modify the assessment order after reworking the Profit Level Indicator (PLI) at 51.73% as against 52.74% adopted in the draft assessment order. The AO thereafter requested the ADIT (TP)-IV to rework the PLI as per the directions of the DRP. Thereafter the DCIT(TP)-IV vide letter dated 04.10.2004 indicated the correct amount of adjustment to be adopted as Q 98,20,024 as against the earlier adjustment amount of Q 98,83,653. The AO accordingly completed the assessment and worked out the adjustment u/s. 92CA of the Act as under:
Cost incurred for software Rs.11,19,03,664/-
development activity
Arms length mark up on cost 18.80% of the Operating
(arithmetic mean PLI) Cost
Arms Length Income @ Rs.13,29,45,116/-
118.80% of cost
Income actually received Rs.12,31,25,092/-
Shortfall being adjustment u/s. Rs.98,20,024/-
92CA
14. Now the assessee is in appeal.
15. The ld. counsel for the assessee submitted that the assessee had furnished all the documents desired by the TPO and while conducting comparability analysis for the international transaction with its Associated ITA No.1343/Bang/10 Page 12 of 31 Enterprises (AEs), the assessee had relied on the data available in 'Prowess' and 'Capitaline' databases updated as on May 12, 2006 and had taken into consideration the financial results of the comparables having financial years ending during the period 31.03.2004 to 31.03.2006. It was further stated that the assessee selected Transactional Net Margin Method (TNMM) as the most appropriate method with operating profit to total cost as its Profit Level Indicator (PLI) for providing its software development services. It was further stated that the assessee applied the following quantitative filters for conducting the comparability analysis for software development services:-
"(a) Companies not having financial information for the above specified range of period are rejected.
(b) Companies having Nil sales or sales less than Rs.1 crore are rejected.
(c) Companies having sales more than Rs.200 crore are rejected.
(d) Companies operating in different industry/products /services are rejected.
(e) Companies having insufficient information about products or functions or financials, are rejected.
(f) Restructuring, sick and loss making companies are rejected.
16. After application of all the above filters, the assessee selected 32 companies as broadly comparable companies. The weighted average Net Operating Profit on Cost (NCP) margins of those broadly comparable companies ranged from 11.83% to 30.36% with arithmetic mean of 8.54% translating the arms' length range of 3.54% to 13.54%. It was explained ITA No.1343/Bang/10 Page 13 of 31 that the assessee earned NCP margin of 19.80% (after excluding start-up cost from the total cost) / 10.04% (before excluding the start-up cost from the total cost) which exceeds / was within the arms' length range of 3.54% to 13.54%. Therefore the international transaction with the AEs were at arms' length. It was contended that the TPO rejected all the assessee's comparables except 3 comparables and selected fresh 17 comparable companies and based on the NCP of the above 20 comparable companies arrived at an adjusted arithmetic mean of 18.86% and consequently proposed to adjustment of Rs.98,83,653 to the arms' length price. It was contended that the TPO while computing the NCP made arithmetical errors and when the assessee brought to his notice, it was not considered while passing the transfer pricing order. The following instances were quoted:-
Sl. Company Name NCP as Revised Remarks
No. per TPO NCP
1 Sasken Communication Amortisation of
Technologies Ltd (Seg.) 13.90% 13.44% expenses in the
segmental P&L is
not allocated
2 Tata Elxsi Ltd. (Seg.) 27.65% 22.75% 'Unallocated
expenditure' in the
segmental P&L is
not allocated
17. It was further submitted that the TPO while selecting the comparable viz., "Megasoft Limited", obtained information using the power u/s. 133(6) of the Act, wherein the NCP of "BlueAlly" Division was 16.97%. It was further submitted that another comparable selected by the TPO viz., Accel Transmatic Ltd. which was into many businesses and the related party transactions for the service segment were in excess of 25% being the ITA No.1343/Bang/10 Page 14 of 31 threshold for rejecting companies having related party transactions adopted by the TPO. Therefore this company should also have been excluded. If that was to be done, then the average NCP would come down from 18.62% to 17.28% before giving effect of working capital adjustment.
18. It was further submitted that the TPO while deciding upon the sales turnover as a quantitative filter had adopted the minimum turnover as the threshold limit whereas ignoring the maximum turnover limit altogether which had led to a situation where the comparables as identified by the TPO consisted of companies which had turnover ranging from Q 1.02 crore to Q 9,028 crores as against the turnover of the assessee at Q12.29 crores.
Therefore by non-consideration of maximum turnover limit, the TPO had overlooked one of the most important criteria of comparability - scale of operations.
19. It was contended that the TPO had classified companies by relying on the study conducted by Dun and Bradstreet in the following manner:-
- Companies with turnover greater than Q 2000 crores as large firms.
- Companies with turnover between Q 2000 crores to Q 200 crores as medium sized firms.
- Companies with turnover less than Q 200 crores as smaller firms.
The average NCP of 20 comparable companies selected by the TPO when indexed on the basis of the said study clearly depicted that the scale of operations had clear nexus with the operating margin as under:-
- Large firms (One) 40.38%
- Medium firms (Five) 19.13%
- Small firms (Fourteen) 17.06%
ITA No.1343/Bang/10
Page 15 of 31
But the assessee's case was of a categorically small sized company since the turnover of the assessee was Q 12.29 crores. Therefore 7 companies having turnover of more than Q 200 crores should have been excluded in which case the average NCP would come down from 17.28% to 14.13% before giving effect of working capital adjustment.
20. It was explained that the TPO had given adjustment for working capital to the extent of 1.89% of NCP, however if the 8 companies are rejected, then the working capital adjustment would work out to 2.18% and consequently the final NCP after considering the effect of working capital adjustment would be computed as per the following details:-
Sl Company Name . Final NCP
1 Bodhtree Consulting Ltd. 15.99%
2 Geometric Ltd. 6.70%
3 R S Software (India) Ltd. 15.69%
4 Kals Information Systems Ltd. 39.75%
5 R Systems International Ltd. 22.20%
6 Aztecsoft Ltd. 18.09%
7 Mediasoft Solutions Pvt. Ltd. 6.29%
8 SIP Technologies Ltd. 3.06%
9 Synfosys Business Solutions Ltd. 10.61%
10 L G S Global Ltd. 5.27%
11 Megasoft Ltd. 16.97%
12 Lucid Software Ltd. 8.92%
Average 14.13%
Working Capital adjustment 2.18%
Average - WC Adustment 11.95%
21. It was further stated that the assessee is in its second year of operation and the TPO had compared the assessee with the established companies which were in existence for a long period of time ranging from 6 years to 25 years i.e. upto 2006 averaging to 14 years and the assessee was in its nascent stages and had incurred some start-up cost to the extent ITA No.1343/Bang/10 Page 16 of 31 of Q91.31 lakhs which was not reduced from the operating cost by the TPO. It was pointed out that the exclusion of the start-up cost from total cost to arrive at operating cost for the purpose of computation of NCP was accepted by the TPO in the succeeding assessment year i.e., 2007-08, but the same was not allowed in the year under consideration, therefore the TPO had been inconsistent and if the start-up cost is excluded then the NCP of the assessee would be 19.80%.
22. It was further pointed out that the TPO arbitrarily adopted employee cost filter since the assessee's ratio of employee cost to sales was around 60% and the software industry employee cost ratio came to 48%, while the TPO had adopted employee cost filter at 25% of sales. Similarly, the TPO had not excluded abnormally high profits like Accel Transmatic Ltd. and Kals Information Systems Ltd. where the NCP was 44.07% and 39.75% respectively. It was also contended that the TPO had not considered risk free nature of the assessee while dealing with the issue of risk adjustment.
It was contended that all comparable companies performed marketing functions having an average marketing spend of 3.87%, whereas the assessee did not perform any marketing function.
23. It was contended that the AO had not recorded any reasons to reach the conclusion that it was expedient and necessary to refer the matter to the TPO for computation of the ALP. It was further contended that the TPO considered the fresh search for comparability analysis as on 03.12.2008 which was beyond the date of compliance i.e., 31.10.2006 resulting in impossibility of performance and against the premise of maintenance of contemporaneous documentation and also exercised his power u/s. 133(6) ITA No.1343/Bang/10 Page 17 of 31 of the Act to obtain selective information which was not available in the public domain. Furthermore, the TPO used single year data for computation of margin of comparable companies and rejected the multiple year data used by the assessee.
24. It was further contended that the TPO while deciding upon the sales turnover as a quantitative filter had only considered minimum turnover as being valid and had not kept any limit on the turnover for comparability which had led to a situation where the comparable set as identified by the TPO consisted of companies which had a turnover range from Q 1.02 crores (Lucid Software Ltd.) to Q 9028 crores (Infosys Technologies Ltd.) as against the turnover of the assessee at Q 12.29 crores, which indicated that the TPO had overlooked one of the most important criteria of comparability - scale of operations. It was contended that the ITAT, Bangalore Bench in the case of Genesis Integrating Systems Pvt. Ltd. v.
DCIT in ITA No.1231/Bang/2010 remanded back the matter to the TPO with a clear direction to recompute the average NCP of the comparable turnover of more than Q 1 crore and less than Q 200 crores, therefore, the TPO was not justified while selecting the comparable of large turnover company like Infosys Technologies Ltd. having turnover of Q 9028 crores.
It was further stated that the TPO exercised the power u/s. 133(6) of the Act selectively i.e., out of total number of companies available in Prowess and Capitaline database, the TPO sent notices only to 167 companies, which clearly showed that the TPO had not followed 'objectivity' in his search process, but had used selective means of collecting the information as per his discretion. It was submitted that the selected informations ITA No.1343/Bang/10 Page 18 of 31 obtained by the TPO were not available in the public domain. Therefore relying on the same for comparability purposes was against the principles of natural justice and contrary to OCED guidelines which advocates against the use of secret comparables. It was further submitted that even the details received vide enquiries made u/s. 133(6) of the Act by the TPO on certain companies were not in conformity with the statutory filings made by such companies. It was contended that the TPO while selecting the set of 20 companies had included several companies with controlled transactions and had stated that in case the comparables had controlled transactions upto 25% on their turnover, they can be accepted as comparables. It was pointed out that the TPO selected M/s. Accel Transmatic Ltd. as a comparable despite the fact that it had related party transaction in excess of 25%. It was contended that the TPO had just relied on the data provided by the company in its reply u/s. 133(6) of the Act and had completely ignored the financials, had the related party transactions been relevant to any other segment, it would have been specified accordingly. It was pointed out that in the list of probable comparables, one company "Sundaram Infotech Solutions Ltd." had been rejected on the ground that it is incorporated in the financial 2005-06 and had been incurring losses, while for the year under consideration the assessee had to incur a lot of traveling expenses on training its staff in USA and also incurred heavy expenditure on training and recruitment, which were peculiar only to a start-
up company and not to be found in any established company, if the start-up expenses were excluded, then the NCP of the assessee would have been 19.80%, but the TPO ignored the start-up cost. It was pointed out that the ITA No.1343/Bang/10 Page 19 of 31 TPO rejected certain comparables selected by the assessee, had the analysis been modified incorporating the comparables selected by the assessee, the result ALP would increasingly skew in favour of the assessee.
25. Reliance was placed on the following case laws:
(a) DCIT v. Quark Systems (P) Ltd. [ 2010-(132)-TTJ-0001- TCHDS]
(b) DHL Express (India) Pvt. Ltd. v. ACIT, Mumbai in ITA No.7360/Mum/2010
(c) DCIT v. Delloitte Consulting India Pvt Ltd. in ITA No.1082/Hyd/2010
(d) Agnity India Technologies Pvt. Ltd. (2010) ITA No.3856/Del/2010
(e) CIT v. Rakhra Technologies Pvt. Ltd. (ITA No.169 of 2011 (P&H)
(f) South Eastern Ltd. v. Jt. CIT (2003-(260)-ITR-001-ITAT)
(g) ITO v. LIC (2001-(079)-ITD-0278-ITCAL)
(h) ACIT v. Jindal Irrigation Systems Ltd. (1996-(056)-ITD-0164- THYD)
(i) Quark System v. DCIT (2010) 38 SOT 307
(j) Adobe System India (P) Ltd. v. ACIT: ITA No.5043/Del/2010
(k) Mentor Graphics (Noida) Pvt. Ltd.: 109 ITD 101
(l) E-Gain Communication Pvt. Ltd. v. ACIT: 119 TTJ 721
(m) ITO v. Sunay Jewels Pvt. Ltd. ITA No.5758/Mum/2007
(n) Sapient Corporation Pvt. Ltd. v. DCIT ITA No.5263/Del/2010
26. In his rival submissions, the ld. CIT(DR) strongly supported the order passed by the AO and reiterated the observations made in the assessment order. He further submitted that only after considering the objections of the assessee the DRP worked out the arms' length price, therefore the addition made by the AO was justified.
27. We have considered the submissions of both the parties and carefully gone through the material available on record. In the present case, it is noticed that a similar issue having similar facts has been ITA No.1343/Bang/10 Page 20 of 31 adjudicated by this Bench of the Tribunal in the case of M/s. Insilica Semiconductors India Pvt. Ltd. v. ITO in ITA No.1399/Bang/2010 for the A.Y. 2006-07, order dated 29.02.2012 and the issue has been remanded back to the AO / TPO. The relevant findings are given in paras 18 & 19 of the said order which read as under:
"18. We have considered the submissions of both the parties and carefully gone through the material available on record. In the present case, it is noticed that the assessee selected 10 comparables out of which 2 viz., Visual Soft Technologies Ltd. and VJIL Consultancy Ltd. were rejected by the TPO. However, the TPO included another company M/s. Infosys Technologies Ltd. which was claimed to be 906 times bigger than the assessee. In our opinion the said company being significantly dissimilar in size should not have been considered as comparable. In the present case, the TPO included certain companies as comparable on the basis of information obtained by way of notice u/s. 133(6) of the Act, but without providing an opportunity of being heard to the assessee, the TPO issued a show cause notice dated 30.04.09 copy of which is placed on pages 95 to 125 of the assessee's PB and proposed to redetermine the ALP on the basis of 20 comparables and subsequently issued another notice on 20.07.09 and proposed to adopt 14 companies as comparables, but in the final order the TPO selected 22 companies as comparables. In other words, 8 additional companies were considered as comparables apart from those which were proposed in the notice dated 20.07.09, copy of which is placed at pages 305 to 355 of the assessee's compilation. It therefore appears that new companies were adopted by the TPO as comparables without affording opportunity to the assessee to present its objections to their adoption. It is well settled that nobody should be condemned unheard as per the maxim audi alteram partem, but in the present case nothing is brought on record to substantiate that the TPO/AO while adopting additional comparables had provided opportunity of being heard to the assessee. Therefore this issue deserves to be set aside to be decided afresh at the level of the Assessing Officer. For the aforesaid view, we are fortified by the order dated 31.01.2012 of the ITAT 'A' Bench Bangalore in the case of Genesis Microchip (I) Pvt. Ltd., Bangalore v. DCIT, Circle 11(3), Bangalore in ITA No.1254/Bang/2010 for the A.Y. 2006-07.ITA No.1343/Bang/10 Page 21 of 31
19. In the present case, the AO adopted M/s. Infosys Technologies Ltd., KALS Information System Ltd., Accel Transmatic Ltd. and Tata Elxsi Ltd. as comparables on the basis of data which was obtained by him in response of the notices issued u/s. 133(6) of the Act, however no opportunity of being heard was provided to the assessee for rebuttal, therefore the Assessing Officer was not justified in considering those comparables while working out the ALP in assessee's case. In that view of the matter, we deem it appropriate to set aside this issue back to the file of the Assessing Officer, to be adjudicated afresh in accordance with law, after providing due and reasonable opportunity of being heard to the assessee. The AO/TPO is also directed to allow the opportunity to cross-examine the comparables whose replies were obtained u/s. 133(6) of the Act and were sought to be used against the assessee, if the assessee so desires."
28. Since the facts of the present case are similar to the facts involved in the aforesaid referred to case of M/s. Insilica Semiconductors Pvt. Ltd. in ITA No.1399/Bang/2010 for the A.Y. 2006-07, so respectfully following the aforesaid referred to order, we remand this issue back to the file of the Assessing Officer for fresh adjudication in accordance with the law, after providing due and reasonable opportunity of being heard to the assessee.
29. Vide ground 2(n), grievance of the assessee relates to granting the option to choose the price that falls within +/- 5% range of arithmetical mean of the comparables.
30. The facts related to this issue in brief are that the assessee had international transactions during the financial year 2005-06, therefore the case was referred to the TPO to determine the ALP. The TPO vide order dated 30.10.2009 stated that an adjustment of Rs.98,83,653 was required to be made to the income of the assessee, consequent to determination of the ALP. The AO forwarded the draft order dated 10.12.09 to the assessee ITA No.1343/Bang/10 Page 22 of 31 to file its objections before the DRP. The DRP directed the AO to complete the assessment after taking into consideration the detailed discussion on various issues vide directions under sub-sections (5) & (8) of section 144C of the Act dated 27.09.10. The DRP directed the AO to modify the assessment order after reworking the correct margin at 51.73% as against 52.74% adopted in the draft assessment order. The AO adopted the adjustment at Rs.98,20,024 as against the earlier adjustment of Rs.98,83,653. Now the assessee is in appeal.
31. The ld. counsel for the assessee submitted that the assessee should have been given a standard deduction of 5% as provided under proviso to section 92C(2) of the Act before making adjustment for the transfer price. Reliance was placed on the following case laws:
1. M/s. Genisys Integrating Systems (India) Pvt. Ltd. v.
DCIT ITA No.1231/Bang/2010
2. M/s. Tatra Vectra Motors Ltd. v. DCIT ITA No.1284/Bang/2010 dtd. 31.01.2012.
32. The ld. counsel for the assessee contended that the contention of the assessee was rejected by the DRP on the ground that amendment to proviso to section 92C was clarificatory in nature and therefore retrospective in effect. It was contended that the amendment to proviso to section 92C was not retrospective as clarified by the CBDT by way of letter No.F.142/13/2010-SO(TPL) dated 30.09.2010. It was further contended that a deeming provision has been created to adopt an arms' length price if the price actually undertaken by the assessee does not exceed 5% of the amount at which international transaction has actually been undertaken instead of reckoning the price which is determined by the TPO which was the position under unamended proviso to section 92C(2) of the Act. It was ITA No.1343/Bang/10 Page 23 of 31 accordingly submitted that the benefit of standard deduction of 5% should have been given to the assessee.
33. In his rival submissions, the ld. CIT(DR) submitted that no benefit of 5% be given to the assessee particularly when the proviso to section 92C(2) of the Act has been amended w.e.f. 1.10.2009.
34. After considering the submissions of both the parties and material on record, it is noticed that a similar issue has been adjudicated by the ITAT 'A' Bench Bangalore having the same constitution in the case of M/s. Tatra Vectra Motors Ltd. v. DCIT, ITA No.1284/Bang/2010 for the A.Y. 2006-07 wherein the relevant finding has been given in paras 12 to 17 of the order dated 31.01.2012, which read as under:
"12. We have considered the submissions of both the parties and carefully gone through the material available on record. In the present case, the assessee has not disputed the adjustments u/s. 92CA of the Act, but challenging the working of ALP without giving benefit of the option available under the erstwhile proviso to section 92C(2) of the Act, so it becomes relevant to discuss the provisions contained in the erstwhile proviso to section 92C(2) of the Act, which was inserted by Finance Act, 2002 w.e.f. 1-4-2002 and reads as under:
"Provided, that where more than one price is determined by the most appropriate method, the arm's length price shall be taken to be the arithmetical mean of such prices, or, at the option of the assessee, a price which may vary from the arithmetical mean by an amount not exceeding five per cent of such arithmetical mean."
13. From the plain reading of the above proviso, it is clear that the option is available to the assessee for adjustment of +/- 5% variation for the purposes of computing ALP. As per the said proviso, where more than one price is determined by the most appropriate method, the ALP shall be taken to be the arithmetical mean of such prices, or, at the option of the assessee, a price which may vary from the arithmetical mean by an amount not exceeding five per cent of such arithmetical mean. In our ITA No.1343/Bang/10 Page 24 of 31 opinion, the benefit of option i.e., adjustment of +/- 5% variation, as provided in proviso to section 92C(2) of the Act is available to the assessee.
14. On a similar issue, the ITAT Delhi Bench in the case of Sony India Pvt. Ltd. v. DCIT (2009) 315 ITR (AT) 150 has held as under:
" The proviso to section 92C(2) of the Act consists mainly of two parts:
(a) where more than one price is determined by the most appropriate method, then the arm's length price shall be taken to be the arithmetical mean of such price; or (b) at the option of the assessee, a price which may vary from the arithmetical mean by an amount not exceeding 5 per cent of such arithmetical mean. The first limb of the proviso has general application. There is no option with nor any sort of concession allowed to the assessee. The arm's length price so determined may be accepted or contested by the assessee or by any aggrieved person in accordance with the statutory provisions. It is a statutory levy without any option. The second limb of the proviso gives "an option" to the assessee to take the arm's length price which may vary from the arithmetic mean by an amount not exceeding 5 per cent of such arithmetic mean.
The word "option" is synonymous with "choice" or "preference". Therefore, it is the choice of the assessee to take the arm's length price with a marginal benefit and not the arithmetical mean determined as the most appropriate method. There is nothing in the language to restrict the application of the provision only to marginal cases where the price disclosed by the assessee does not exceed 5 per cent of the arithmetic mean. The arm's length price determined on application of the most appropriate method is only an approximation and is not a scientific evaluation. Therefore, the Legislature thought it proper to allow marginal benefit to assessees who opt for such benefit. In the case of an assessee who exercises the option and accepts the arm's length price even exceeding 5 per cent of the arithmetic mean determined by the tax authority as correct and is ready to pay tax on the difference between the price disclosed by him and the arm's length price the application of the proviso is not excluded. The legal position cannot be different in a case where minor variation of 5 per cent is not accepted and the arm's length price is further challenged in appeal.
ITA No.1343/Bang/10 Page 25 of 31The mere fact of acceptance or non-acceptance of the arithmetic mean cannot be taken to be the determining factor relating to the right to contest the arm's length price in appeal. Such inference is not supported by the language of the provision. Both in the first as also in the second limb, the implications of the determined the arm's length price are the same except for the marginal benefit allowed to the assessee under the second limb. Hence, the second limb of the proviso is applicable even to cases where the assessee intends to challenge the arm's length price taken as arithmetic mean and determined through the most appropriate method. Therefore, the benefit of second limb is available to all assessees irrespective of the fact that the price of international transaction disclosed by them exceeds the margin provided in the provision."
15. In the present case, it appears that the benefit of +/- 5% adjustment has not been given to the assessee for the reason (as mentioned by the TPO) that sales made by the assessee to third parties were higher in comparison to the rates of sale by AEs to the assessee. But nothing is brought on record to substantiate the aforesaid observations of the TPO. The AO had accepted the recommendation of the TPO in his report dated 30.8.2000 and made the addition of Rs.1,76,56,164, however, while doing so, he did not allow the benefit of the adjustment as provided in the proviso to section 92C(2) of the Act and the contention of the ld. CIT(DR) was that since the impugned assessment was made after 1.10.2009, the amended proviso to section 92C(2) of the Act shall apply in this case, which are applicable from w.e.f. 1.10.2009. and shall accordingly apply to the cases in which the proceedings were pending before the TPO on or after such date. Therefore, the benefit of +/- 5% intended by the erstwhile proviso to section 92C(2) of the Act was not available to the assessee. Accordingly the ld. CIT(DR) had strongly defended the assessment framed by the AO and his method of determining the ALP.
16. As regards to the applicability of the amended provisions in proviso to section 92C(2) of the Act which is applicable w.e.f. 1.10.2009 is concerned, it is noticed that this issue has been adjudicated by the ITAT Pune Bench "A", Pune in ITA No.1350/PN/2010 in the case of Starnet Networks (India) P. Ltd. v. DCIT (supra), wherein the relevant findings has been given in paras 20 to 23 of the order dated 03.10.2011 and read as under:
"20. We have carefully considered the rival submissions. In this case, a pertinent issue which has been vehemently agitated by the appellant is with regard to its ITA No.1343/Bang/10 Page 26 of 31 claim of seeking benefit of the option available under the erstwhile proviso to section 92C(2) of the Act. The erstwhile proviso which was inserted by Finance Act, 2002 with effect from 1.4.2002 read as under:
"Provided that where more than one price is determined by the most appropriate method, the arm's length price shall be taken to be the arithmetical mean of such prices, or, at the option of the assessee, a price which may vary from the arithmetical mean by an amount not exceeding five percent of such arithmetical mean."
As per the said Proviso, an option is available to the assessee for adjustment of +/-5% variation for the purposes of computing ALP. As per the Proviso, where more than one price is determined by the most appropriate method, the arm's length price shall be taken to be the arithmetical mean of such prices or at the option of the assessee, a price which may vary from the arithmetical mean by an amount not exceeding 5% of such arithmetical mean. The point made out by the assessee is based on the latter part of the Proviso whereby an option is given to the assessee to take an ALP which may vary from the arithmetical mean by an amount not exceeding 5% of such arithmetical mean. Firstly, the claim of the Revenue is that such benefit is not available to the present assessee, because the price of international transaction disclosed by the assessee exceeds the margin provided in the Proviso. This aspect of the controversy, in our view, is no longer germane in view of the plethora of decisions of our co- ordinate Benches, namely, Sony India (P) Ltd. (supra); Electrobug Technologies Ltd. (supra), and Development Consultant P Ltd v DCIT 115 TTJ 577 (Kol.) wherein it has been observed that the benefit of the option contained in the latter part of the Proviso to section 92C(2) is available to all assessees, irrespective of the fact that price of the international transaction disclosed by them exceeds the margin prescribed in the Proviso.
21. So, however, the other argument set up by the Revenue and which has been more potently argued is to the effect that the benefit of such Proviso is not available to the assessee in the instant case, because the said Proviso has been amended by the Finance (No 2) Act, 2009 with effect from 1.10.2009 which reads as under:
ITA No.1343/Bang/10 Page 27 of 31"Provided that where more than one price is determined by the most appropriate method, the arm's length price shall be taken to be the arithmetical mean of such prices:
Provided further that if the variation between the arm's length price so determined and price at which the international transaction has actually been undertaken does not exceed five per cent of the latter, the price at which the international transaction has actually been undertaken shall be deemed to be the arm's length price."
The case set up by the Revenue is that the amended Proviso shall govern the determination of ALP in the present case, inasmuch as the amended provisions were on statute when the proceedings were carried on by the Transfer Pricing Officer (TPO). As per the Revenue, the amended Proviso would have a retrospective operation and in any case, would be applicable to the proceedings which are pending before the TPO on insertion of the amended Proviso, which has been inserted by the Finance (No. 2) Act, 2009 with effect from 1.10.2009 and, in this case, the TPO has passed his order on 30.10.2009. The learned Departmental Representative has also referred to the CBDT Circular No 5/2010 (supra) read with Corrigendum dated 30.9.2010 issued by the CBDT in this regard. Per contra, the stand of the assessee is that the amended Proviso would be applicable prospectively and would not apply in respect of the stated assessment year, which is prior to the insertion of the amended Proviso with effect from 1.10.2009.
22. We have carefully examined the rival stands on this aspect. The amended Proviso has been brought on the statute by the Finance (No. 2) Act, 2009 with effect from 1.10.2009. The Explanatory Notes to the provisions of Finance (No 2) Act, 2009 contained in circular No 5 of 2010 (supra) provides the objective behind the amendment of the Proviso. The Legislature noticed the conflicting interpretation of the erstwhile proviso by the assessee and the income-tax Department. The assessee's view was that the arithmetical mean should be adjusted by 5% to arrive at ALP, whereas the departmental view was that no such adjustment is required to be made if the variation between the transfer price and the arithmetical mean is more than 5% of the arithmetical mean. With a view to resolving this controversy, the Legislature sought to amend the proviso to section 92C(2), which has been reproduced by us in the ITA No.1343/Bang/10 Page 28 of 31 earlier part of this order. In the said Circular, it has also been elaborated that the above amendment has been made applicable with effect from 1.4.2009 and will accordingly apply in respect of assessment year 2009-10 and subsequent years. In any case, the Proviso contains a prescription to determine the ALP and quite clearly it is a substantive provision encompassing the eventual determination of an assessee's tax liability. Thus, it can be said that the Proviso is not a procedural piece of legislation and therefore, unless it is so clearly intended, the newly amended proviso cannot be understood to be retrospective in nature. In fact, it is a well-settled proposition that the statutory provisions as they stand on the first day of April of the assessment year must apply to the assessment of the year and the modification of the provisions during the pendency of assessment would not generally prejudice the rights of the assessee.
Furthermore, we are fortified by the intention of the Legislature as found from circular No 5 of 2010 (supra) whereby in para 37.5, the applicability of the above amendment has been stated to be with effect from 1.4.2009 so as to apply in respect of assessment year 2009-10 and subsequent years. In this regard, we also find that the Delhi Bench of the Tribunal in the case of ACIT v UE Trade Corporation India (P) Ltd. vide ITA No 4405(Del)/2009 dt 24.12.2010 has observed that the proviso inserted by the Finance (No 2) Act, 2009 would not apply to an assessment year prior to its insertion. In this view of the matter, we therefore find no justification to deny the benefit of +/-5% to the assessee in terms of the erstwhile Proviso for the purposes of computing the ALP.
23. However, before parting we may also refer to a Corrigendum dated 30.9.2010 by the CBDT by way of which para 37.5 of the circular No 5/2010 (supra) has been sought to be modified. The Corrigendum reads as under:
" CORRIGENDUM In partial modification of Circular No. 5/2010 dated 03.6.2010,
(i) In para 37.5 of the said Circular, for the lines "the above amendment has been made applicable with effect from 1st April, 2009 and will accordingly apply in ITA No.1343/Bang/10 Page 29 of 31 respect of assessment year 2009-10 and subsequent years."
the following lines shall be read;
"the above amendment has been made applicable with effect from 1st October, 2009 and shall accordingly apply in relation to all cases in which proceedings are pending before the Transfer Pricing Officer (TPO)on or after such date."
(ii) In para 38.3, for the date "1st October, 2009, the following date shall be read: "1st April, 2009".
In terms thereof, it is canvassed that the amended proviso has been made applicable with effect from 1.10.2009 and shall apply even to cases where proceedings were pending before the TPO on or after such date, irrespective of the assessment year involved and, therefore, in the instant case the benefit of the erstwhile proviso cannot be extended to the assessee. We have carefully pondered over the assertion made by the appellant that the Corrigendum is untenable in the eyes of law. Firstly, the said corrigendum does not bring out any preamble so as to throw light on the circumstances and the background in which the same has been issued. Secondly, it is well understood that the Explanatory Notes to the provisions of a Finance Act passed by the Parliament seeks to explain the substance of the provisions of the Act as intended by the Legislature. In fact, the Hon'ble Supreme Court in the case of K.P Varghese v ITO 131 ITR 597 (Ker) emphasized the sanctity of the statements contained in the Explanatory Notes of the provisions and stated that the interpretation placed in such documents is binding interpretation of law. The contents of the Corrigendum are quite inexplicable. Notwithstanding the aforesaid and without going into the validity of the Corrigendum dated 30.9.2010 (supra), we are of the view that the same would not operate to the detriment of the assessee since at the relevant point of time the contents of the Circular No 5/2010 (supra) were in operation. In other words, the withdrawal of the interpretation placed in circular No 5 /2010 (supra) on the applicability of the amended proviso is sought to be done away by the Corrigendum dated 30.9.2010 and, therefore, such withdrawal shall be effective only after 30.9.2010, even if such Corrigendum is accepted as valid. We may note here that the appellant has assailed the validity of the Corrigendum itself on which we have not made any determination. Therefore, ITA No.1343/Bang/10 Page 30 of 31 the Corrigendum dated 30.9.2010, in our considered opinion, has no bearing so as to dis-entitle the assessee from its claim of the benefit of +/-5% in terms of the erstwhile proviso to section 92C(2) of the Act. In coming to the aforesaid, we have been guided by the parity of reasoning laid down in the judgments of the Hon'ble Bombay High Court in the cases of BASF (India) Ltd. v CIT 280 ITR 136 (Bom); Shakti Raj Films Distributors v CIT 213 ITR 20 (Bom); and, Unit Trust of India & Anrs. v ITO 249 ITR 612 (Bom). The Hon'ble High Court has opined in the case of BASF (India) Ltd. (supra) that the circulars which are in force during the relevant period are to be applied and the subsequent circulars either withdrawing or modifying the earlier circulars have no application. Moreover, the circulars in the nature of concession can be withdrawn prospectively only as held by the Hon'ble Supreme Court in the case of State Bank of Travancore v CIT 50 CTR 102 (SC). Considering all these aspects, we therefore find no justification in the action of the lower authorities in disentitling the assessee from its claim for the benefit of +/-5% to compute ALP in terms of the erstwhile proviso to section 92C(2) of the Act. We order accordingly."
17. We therefore considering the totality of the facts and respectfully following the aforesaid referred to orders of the co- ordinate benches of the ITAT at Delhi & Pune, direct the Assessing Officer to allow the benefit of +/-5% to the assessee while computing the ALP in terms of the erstwhile proviso to section 92C(2) of the Act."
35. Since the facts of the present case are similar to the facts involved in the aforesaid referred to case of M/s. Tatra Vectra Motors Ltd. v. DCIT in ITA No.1284/Bang/2010 order dated 31.01.2012, so respectfully following the said order, we direct the AO to allow the benefit of +/- 5% to the assessee while computing the ALP.
36. In the result, the appeal is partly allowed for statistical purposes.
ITA No.1343/Bang/10 Page 31 of 31Pronounced in the open court on this 30th day of March, 2012.
Sd/- Sd/-
( GEORGE GEORGE K. ) ( N.K. SAINI )
Judicial Member Accountant Member
Bangalore,
Dated, the 30th March, 2012.
Ds/-
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, Bangalore.
6. Guard file
By order
Assistant Registrar
ITAT, Bangalore.