Income Tax Appellate Tribunal - Chennai
Polaris Software Lab Limited, Chennai vs Dcit, Chennai on 18 August, 2017
आयकर अपील य अ धकरण, 'डी' यायपीठ, चे नई
IN THE INCOME TAX APPELLATE TRIBUNAL
'D' BENCH, CHENNAI
ी एन.आर.एस. गणेशन, या यक सद य एवं ी संजय अरोड़ा, लेखा सद य केसम&
BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND
SHRI SANJAY ARORA, ACCOUNTANT MEMBER
आयकर अपील सं./ITA No.1218/Mds/2016
नधा)रण वष) / Assessment Year : 2010-11
&
आयकर अपील सं./ITA No.615/Mds/2016
नधा)रण वष) / Assessment Year : 2011-12
M/s Polaris Consulting & The Principal Commissioner of
Services Limited, v. Income Tax, Chennai-5,
No.244, Polaris House, The Deputy Commissioner of
Anna Salai, Chennai - 600 006. Income Tax, Corporate Circle 5(2),
Chennai - 600 034.
PAN : AAACP 4341 E
(अपीलाथ-/Appellant) (./यथ-/Respondent)
आयकर अपील सं./ITA No.765/Mds/2016
नधा)रण वष) / Assessment Year : 2011-12
The Deputy Commissioner of M/s Polaris Consulting & Services
Income Tax, v. Limited,
Corporate Circle - 5(2), No.244, Polaris House,
Chennai - 600 034. Anna Salai, Chennai - 600 006.
(अपीलाथ-/Appellant) (./यथ-/Respondent)
नधा)0रती क2 ओर से /Assessee by : Shri N. Venkatraman, Sr. Advocate
Shri V. Ubhaya Bharathi, Advocate
राज व क2 ओर से /Revenue by : Shri Pathlavath Peerya, CIT
सन
ु वाई क2 तार ख/Date of Hearing : 07.07.2017
घोषणा क2 तार ख/Date of Pronouncement : 18.08.2017
2 I.T.A. No.1218, 765 & 615/Mds/16
आदे श /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
I.T.A. No.1218/Mds/2016 filed by the assessee is directed against the order of the Principal Commissioner of Income Tax, Chennai-5, Chennai, dated 24.02.2016. The other two appeals are filed by the assessee and Revenue for the assessment year 2011- 12 against the order of the Dispute Resolution Panel-2, Bangalore, dated 30.12.2015. Since common issues arise for consideration in all these appeals, we heard these appeals together and disposing of the same by this common order.
2. There was a delay of 24 days in filing the appeal by the Revenue. The Revenue has filed a petition for condonation of delay. We have heard the Ld. Departmental Representative and Ld. Sr. counsel for the assessee. We find that there was sufficient cause for not filing the appeal before the stipulated time. Therefore, we condone the delay and admit the appeal filed by the Revenue. Let's first take I.T.A. No.1218/Mds/2016.
3. Shri N. Venkatraman, the Ld. Sr. counsel for the assessee, submitted that the assessee claimed deduction under Section 10A of the Income-tax Act, 1961 (in short 'the Act') to the extent of 3 I.T.A. No.1218, 765 & 615/Mds/16 `76,83,44,038/-. In fact, the Assessing Officer allowed the claim of the assessee. However, according to the Ld. Sr. counsel, the Principal Commissioner found that the assessee has two units, namely, 10A eligible unit and non 10A unit. The profit of the eligible 10A unit was 24.6% as against 5.42% in respect of non 10A unit. The Principal Commissioner also found that the assessee was not maintaining any separate books of account for eligible 10A unit. Therefore, according to the Ld. Sr. counsel, the Principal Commissioner concluded that the assessee has declared lesser profit in respect of non 10A unit by reducing the taxable profit by booking excessive expenditure.
4. The Ld. Sr. counsel for the assessee further submitted that the non 10A unit includes a branch at USA. In the US branch, the nature of the business was such that the profit was at a lower rate. According to the Ld. Sr. counsel, the profit and turnover of the US branch of the assessee cannot be considered, hence, the Principal Commissioner is not justified in exercising his revisional jurisdiction. According to the Ld. Sr. counsel, as far as the assessee's business is concerned, there was no distinction between eligible 10A unit and non-eligible 10A unit. According to the Ld. Sr. counsel, it is not 4 I.T.A. No.1218, 765 & 615/Mds/16 mandatory to maintain separate books one for eligible 10A unit and another for non-eligible 10A unit. The assessee being Indian multinational company, eligible for deduction under Section 10A of the Act, therefore, according to the Ld. Sr. counsel, the Principal Commissioner is not justified in applying average profit of assessee at 11.31%.
5. On the contrary, Sh. Pathlavath Peerya, the Ld. Departmental Representative, submitted that admittedly the assessee is an Indian based multinational company engaged in development of software. It is not in dispute that the assessee is having eligible 10A unit and non-eligible 10A unit. Referring to the impugned order of the Principal Commissioner, more particularly page 2, the Ld. D.R. submitted that 10A unit earned average profit of 24.6%, whereas the non 10A unit earned average profit of 5.42%. The total average comes to 11.31%. Therefore, according to the Ld. D.R., the Principal Commissioner found that in the absence of any separate books for 10A unit and non 10A unit, the profit declared for non 10A unit has to be averaged with reference to the profit of 10A unit and average profit comes to nearly 11.31% needs 5 I.T.A. No.1218, 765 & 615/Mds/16 to be uniformly applied for claiming deduction under Section 10A of the Act.
6. Referring to the order of the Assessing Officer, the Ld. D.R. submitted that the Assessing Officer without making any enquiry, has simply accepted the claim of deduction under Section 10A of the Act. The negligence/omission on the part of the Assessing Officer to make necessary enquiries would render the assessment order erroneous and prejudicial to the interests of Revenue. Therefore, according to the Ld. D.R., the Principal Commissioner has rightly invoked his jurisdiction under Section 263 of the Act and directed the Assessing Officer to modify the assessment by withdrawing the excess deduction claimed by the assessee under Section 10A of the Act to the extent of `37,10,94,443/-.
7. We have considered the rival submissions on either side and perused the relevant material available on record. It is not in dispute that the assessee-company is an Indian based multinational company engaged in the business of software development. During the year under consideration, the assessee claimed deduction to the extent of `76,83,44,038/-. The Principal Commissioner found that the assessee, by booking excessive expenditure in respect of 6 I.T.A. No.1218, 765 & 615/Mds/16 non 10A unit, reduced the taxable profit and increased the eligible 10A unit, thereby the assessee claimed excessive deduction under Section 10A of the Act to the extent of `37,10,94,443/-. It is not in dispute that the assessee has not maintained separate books of account for the eligible 10A unit and non 10A unit. The Ld. Sr. counsel for the assessee now contends before this Tribunal that non 10A unit includes the unit at USA. When the assessee has non 10A unit at USA, it is not understood as to how separate books were not maintained for USA branch.
8. In the grounds of appeal, more particularly at 7, it is claimed that separate statement of Profit & Loss account for each unit was maintained. However, it is not mandatory to maintain separate books for different units for claiming deduction under Section 10A of the Act. The Ld. Sr. counsel also claims that there is no mandatory requirement for maintaining separate books for eligible 10A unit. When the assessee submits that no separate books were maintained for eligible 10A unit and non 10A unit, as rightly observed by the Principal Commissioner, average profit has to be applied for the purpose of allowing deduction under Section 10A of the Act. However, this Tribunal is of the considered opinion that 7 I.T.A. No.1218, 765 & 615/Mds/16 when the assessee specifically claims that one of the non 10A unit was in USA, the expenditure incurred in USA has to be recorded in the separate books maintained in USA, even though the assessee- company is Indian based. Otherwise, the branch at USA may not be able to carry out its financial transaction as expected. Further, without maintaining separate books of account for the purpose of expenses, it is not known how they are able to prepare Profit & Loss account for each unit. Therefore, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly exercised its jurisdiction under Section 263 of the Act.
9. The fact that the Assessing Officer has not made any enquiry with regard to maintenance of books of account and reducing of profit in respect of non 10A unit shows that the order of the Assessing Officer is erroneous and also prejudicial to the interests of Revenue. Therefore, this Tribunal does not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. However, the Principal Commissioner directed the Assessing Officer to withdraw the excess deduction allowed to the extent of `37,10,94,443/- without verifying how the US branch of the assessee was able to carry out business without maintaining 8 I.T.A. No.1218, 765 & 615/Mds/16 separate books of account. Since this aspect has to be verified, this Tribunal is of the considered opinion that the Assessing Officer has to re-examine the matter. Accordingly, while confirming the order of the Principal Commissioner under Section 263 of the Act, we modify the order of the Principal Commissioner by directing the Assessing Officer to examine whether the assessee, in fact, is maintaining books for eligible 10A unit and non 10A unit and in case, no books were maintained for non 10A unit, including the so-called branch in USA, how the assessee was able to prepare separate Profit & Loss account for each unit. The Assessing Officer thereafter shall decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee.
10. In the result, the assessee's appeal for assessment year 2010-11 is partly allowed.
11. Now let's come to Revenue's appeal for assessment year 2011-12 in I.T.A. No.765/Mds/16.
12. The first issue arises for consideration is with regard to convertible foreign exchange not received in India by the due date. 9 I.T.A. No.1218, 765 & 615/Mds/16
13. We have heard Sh. Pathlavath Peerya, the Ld. Departmental Representative and Shri N. Venkatraman, the Ld. Sr. counsel for the assessee. During the course of hearing, both the Ld. D.R. and Ld. Sr. counsel for the assessee submitted that this issue is covered against the assessee by order of this Tribunal for assessment year 2008-09. In view of the above, this Tribunal does not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
14. The next issue arises for consideration is with regard to exclusion of telecom expenses, travelling, software development charges, etc. from total turnover also.
15. Sh. Pathlavath Peerya, the Ld. Departmental Representative, submitted that the Assessing Officer excluded the expenditure incurred by the assessee in foreign currency towards telecom expenses, travelling, software development charges, etc. in respect of overseas project from the export turnover. However, the same was not excluded from the total turnover. Referring to Explanation 2(iv) to Section 10A of the Act, the Ld. D.R. submitted that export turnover does not include freight, telecommunication charges, insurance expenses incurred in foreign exchange in 10 I.T.A. No.1218, 765 & 615/Mds/16 providing technical service outside India, therefore, according to the Ld. D.R., the Assessing Officer has rightly excluded the same from export turnover.
16. We have heard Shri N. Venkatraman, the Ld. Sr. counsel for the assessee also. When the export turnover does not include telecommunication charges, travelling, software development charges for providing technical service outside India, the same shall also be excluded from total turnover. In other words, the export turnover and total turnover shall be of the same factor. The denominator and numerator shall consist of same factor. Once the freight, telecommunication charges, travelling, software development charges, etc. are excluded from export turnover, the same shall be excluded from total turnover also. In view of the above, this Tribunal is of the considered opinion that the Dispute Resolution Panel has rightly excluded the same from total turnover also. Hence, this Tribunal does not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
17. In the result, appeal of the Revenue is dismissed. 11 I.T.A. No.1218, 765 & 615/Mds/16
18. Now coming to the assessee's appeal in I.T.A. No.615/Mds/2016, even though the assessee has raised so many issues before this Tribunal, the Ld. Sr. counsel for the assessee confined himself only to the selection of tested parties.
19. Shri N. Venkatraman, the Ld. Sr. counsel for the assessee, submitted that the assessee-company engaged in providing software development and related services. The assessee owns subsidiary companies in UK, Germany, Japan, Australia, Singapore, Canada, USA, Switzerland, etc. The assessee has also provided software services to some of the overseas subsidiary companies during the year under consideration. Citibank group has also become assessee's subsidiary company on account of merger of Citibank with Polaris India. However, from 07.05.2010, Citibank ceased to be Associate Enterprise of the assessee since Polaris India dropped its stake below 26% threshold. Citibank projects are generally awarded to various vendors based on competitive bidding irrespective of the Associate Enterprise relationship.
20. The Ld. Sr. counsel for the assessee further submitted that for benchmarking international transaction with overseas subsidiary, the assessee considered Transaction Net Margin Method as the 12 I.T.A. No.1218, 765 & 615/Mds/16 most appropriate method. The assessee considered itself to be a tested party. According to the Ld. Sr. counsel, the assessee selected 22 comparable companies in the transfer pricing documentation with weighted average of operating cost/operating profit at 13.60%. In respect of Citibank group, the assessee benchmarked the international transaction till the time it was related to the assessee. During the assessment proceeding, according to the Ld. Sr. counsel, the assessee revised its segmentation and provided the details of profit of all the three segments. In fact, in respect of subsidiary segment, the assessee has disclosed `41,49,97,806/- and in respect of Citibank group segment, the assessee has disclosed `91,86,73,385/-. In respect of third party segment, the assessee has disclosed ` 82,44,81,358/-. In fact, the additional profit of `1,96,93,518/- was allocated to the subsidiary segment.
21. The Ld. Sr. counsel for the assessee further submitted that the Transfer Pricing Officer rejected the benchmarking done by the assessee in the transfer pricing documentation. The TPO accepted Transaction Net Margin Method as most appropriate method in benchmarking the international transaction. However, the TPO 13 I.T.A. No.1218, 765 & 615/Mds/16 rejected the segmentation provided by the assessee. According to the Ld. Sr. counsel, the TPO has also rejected the transfer pricing analysis made by the assessee and undertook fresh search in external comparables. In fact, the TPO selected 12 comparables with average profit margin of 18.94%. The Transfer Pricing Officer compared the margin of subsidiary segment at 3.51% with margin of external comparability at 18.94% and made an adjustment of `39,43,73,743/- to the subsidiary segments. In this case, according to the Ld. Sr. counsel, the overseas companies are subsidiary companies of the assessee, which are to be considered as tested party. The Ld. Sr. counsel further pointed out that the assessee being an Indian based multinational company, all its global income is taxable in India, therefore, the assessee may not get any benefit by shifting the profit to any of its subsidiary company in overseas countries.
22. Referring to the decision of Delhi Bench of this Tribunal in Ranbaxy Laboratories Ltd. v. ACIT in I.T.A. No.196/Del/2013, the Ld. Sr. counsel submitted that when the Associate Enterprise assumes lesser risk than the assessee and based on financial analysis, the Associate Enterprises have less complex operations 14 I.T.A. No.1218, 765 & 615/Mds/16 and bare minimum risk without owning any intangible property or unique asset, the Associate Enterprise has to be selected as tested party for the purpose of transfer pricing analysis. Therefore, according to the Ld. Sr. counsel, in this case, the assessee- company shall not be taken as tested party. Only the Associate Enterprise which has least complex has to be selected as tested party. Hence, when the Associate Enterprise at overseas, which has least complex, is to be treated as tested party, there should not be any transfer pricing adjustment. The Ld. Sr. counsel further submitted that even the OECD guidelines and the United Nations Transfer Pricing guidelines also provide that least complex entity should be selected as tested party. Once the Associate Enterprise in overseas country being the least complex party is selected as comparable, according to the Ld. Sr. counsel, there is no need for any adjustment for determining the arm's length price.
23. On the contrary, Sh. Pathlavath Peerya, the Ld. Departmental Representative, submitted that under the scheme of Income-tax Act, the transaction of assessee with Associated Enterprise outside the country has to be tested and compared with transaction of other comparable company. Referring to Rule 10B(1) 15 I.T.A. No.1218, 765 & 615/Mds/16
(e) of Income-tax Rules, 1962, the Ld. D.R. submitted that the net profit margin realized by the enterprise from an international transaction entered into with an Associated Enterprise needs to be computed in relation to cost incurred or sales effected or assets employed by the enterprise or having regard to any other relevant base. The enterprise referred in Rule 10B(1)(e) always refers the assessee-company in India and it cannot be equated with Associated Enterprise outside the country. Referring to the decision of Mumbai Bench of this Tribunal in Aurionpro Solutions Ltd. v. Addl. CIT (2013) 33 taxmann.com 187, the Ld. D.R. submitted that under the Transfer Pricing Regulation, the tested party for the purpose of determination of arm's length price is always the assessee and not the Associated Enterprise. Therefore, according to the Ld. D.R., the tested party cannot be Associated Enterprise of the assessee, which is outside the jurisdiction of our country. Hence, according to the Ld. D.R., the Assessing Officer has rightly taken the assessee as a tested party.
24. We have considered the rival submissions on either side and perused the relevant material available on record. The only issue that arises for consideration is whether the assessee-company has 16 I.T.A. No.1218, 765 & 615/Mds/16 to be taken as tested party for the purpose of determination of arm's length price or by applying the least complex theory, the Associated Enterprise outside the country has to be taken as tested party? For the purpose of determining the tested party, it needs to be examined the scheme of transfer pricing as provided in Indian Income-tax Act. Section 92B of the Act defines "international transaction". "Associated Enterprise" is defined in Section 92A of the Act. Rule 10B of Income-tax Rules, 1962 provides most appropriate method for determination of arm's length price. Rule 10B(1)(e) provides method for determination of arm's length price by adopting Transaction Net Margin Method, which reads as follows:-
"Determination of arm's length price under section 92C 10B. (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely:-
(a) ..... ..... ...... ...... ...... ...... ...... ..... ...
(b) ..... ..... ..... ...... ....... ...... ...... ..... ...
(c) ..... ..... ..... ..... ..... ..... ...... ..... ....
(d) ..... ..... ..... ..... ..... ..... ...... ..... ....
(e) transactional net margin method, by which,-
(i) the net profit margin realised by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs 17 I.T.A. No.1218, 765 & 615/Mds/16 incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base ;
(ii) the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base ;
(iii) the net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market ;
(iv) the net profit margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-
clause (iii) ;
(v) the net profit margin thus established is then taken into account to arrive at an arm's length price in relation to the international transaction."
25. In this case, Transaction Net Margin Method is the most appropriate method adopted both by the assessee and Transfer Pricing Officer. A bare reading of Rule 10B(1)(e) shows that the net profit margin realized by an enterprise from international transaction entered into with an Associated Enterprise has to be computed in relation to cost incurred or sales effected, etc. The main object is to compute the net profit margin realized by the enterprise from 18 I.T.A. No.1218, 765 & 615/Mds/16 international transaction. The comparison shall be with regard to the transaction of unrelated enterprise from comparable uncontrolled transaction. Therefore, the net profit margin of the enterprise shall be computed in the international transaction by comparing comparable uncontrolled transaction. The word "enterprise" is defined in Section 92F (iii) of the Act. We have also gone through Section 92F (iii) of the Act which reads as follows:-
"92F (iii) "enterprise" means a person (including a permanent establishment of such person) who is, or has been, or is proposed to be, engaged in any activity, relating to the production, storage, supply, distribution, acquisition or control of articles or goods, or know-how, patents, copyrights, trade-marks, licences, franchises or any other business or commercial rights of similar nature, or any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process, of which the other enterprise is the owner or in respect of which the other enterprise has exclusive rights, or the provision of services of any kind, or in carrying out any work in pursuance of a contract, or in investment, or providing loan or in the business of acquiring, holding, underwriting or dealing with shares, debentures or other securities of any other body corporate, whether such activity or business is carried on, directly or through one or more of its units or divisions or subsidiaries, or whether such unit or division or subsidiary is located at the same place where the enterprise is located or at a different place or places ;"
26. A bare reading of definition of "enterprise" as provided in Section 92F(iii) of the Act shows that an enterprise is nothing but a 19 I.T.A. No.1218, 765 & 615/Mds/16 unit which carries on activity or business or proposed to be engaged in any activity relating to production, storage, copyrights, trademarks, licences, franchises or any other commercial rights, etc. of which the other enterprise is the owner or in respect of which the other enterprise has exclusive rights, etc. A combined reading of Section 92F(iii) of the Act and Rule 10B(1)(e) of the Income-tax Rules, 1962 shows that the net profit margin of the enterprise which is in India, has to be determined by applying the Transfer Pricing Regulation. In fact, Mumbai Bench of this Tribunal in Aurionpro Solutions Ltd. (supra) examined this issue and found that the tested party for the purpose of determination of arm's length price is always the assessee and not the Associated Enterprise. In fact, the Mumbai Bench at 8.7 of its order observed as follows:-
"8.7 Under the Transfer Pricing Regulations, an international transaction has to be compared with an uncontrolled transactions between unrelated parties which means that an international transaction is tested with the transaction, if the assessee could have entered into a similar transaction with unrelated third party and thereby the income of the assessee would have earned from a similar transaction with an uncontrolled party. Thus, the same income is expected or deemed to have been earned from the transaction with the AEs. The underlining principle of determining the ALP is based on the transaction between the unrelated parties. The income of the assessee should not be effected as reduced and therefore, the same is compared with the income or expenditure as the case may be earned or incurred by the 20 I.T.A. No.1218, 765 & 615/Mds/16 assessee, if it would have been between the assessee and the unrelated parties. Therefore, tested party for the purpose of determination of ALP is the assessee and not the AEs."
27. We have also gone through the decision of Delhi Bench of this Tribunal in Ranbaxy Laboratories Ltd. (supra). At para 19 of its order, the Delhi Bench has observed as follows:-
"19. Generally, in transfer pricing comparability analysis, the tested party is usually the party participating in a transaction for which profitability most reliably can be ascertained and for which the reliable data of comparables can be found and the tested party will typically be the party with least intangibles."
28. The assessee contended before Delhi Bench of this Tribunal that the Associated Enterprise assumes lesser risk and less complex operation, etc. After referring to OECD guidelines which provides that tested party normally should be the least complex party to the controlled transactions, the Delhi Bench concluded that the overseas Associated Enterprise being the least complex party, has to be accepted as tested party. It is obvious from the order of the Delhi Bench in Ranbaxy Laboratories Ltd. (supra) that the provisions of Income-tax Act and Rule 10B(1)(e) of Income-tax Rules, 1962 were not brought to the notice of Delhi Bench of this Tribunal. Therefore, the Delhi Bench of this Tribunal has proceeded on the basis of OECD guidelines.
21 I.T.A. No.1218, 765 & 615/Mds/16
29. Furthermore, the determination of least complex party and functions performed by the Associated Enterprise outside the country are not available on record. It is also not known the amount of risk assumed by the Associated Enterprise and its capital employed and the complexity of the functions performed by it. In the absence of any such documentation with regard to assumption of risk, complex functions, capital employed, etc., the decision of Delhi Bench of this Tribunal cannot be applied in the case of the assessee. Unless it is established with material evidence that the Associated Enterprise outside the country performed less complex operation with a minimum risk, this Tribunal is of the considered opinion that the decision of Delhi Bench of this Tribunal is not applicable to the facts of the case.
30. We have also gone through the decision of Ahmedabad Bench of this Tribunal in General Motors India Pvt. Ltd. v. DCIT in I.T.A. No.3096/Ahd/2010 dated 02.08.2013. After referring to some of the decisions of this Tribunal, the Ahmedabad Bench found that in order to determine the most appropriate method for determining arm's length price, first it is necessary to select tested party and such a selected tested party should be least complex and should 22 I.T.A. No.1218, 765 & 615/Mds/16 not be unique so that prima facie cannot be distinguished from potential uncontrolled comparables. So, what the Ahmedabad Bench of this Tribunal found is that the selected party should be the least complex party and should not be unique.
31. For the purpose of selecting tested party being a least complex party, as already observed, the functional risk assumed by the Associated Enterprise has to be established by producing material evidence. In this case, the assessee miserably failed to establish functional risk assumed by the Associated Enterprise. Under the scheme of Indian Income-tax Act, the transaction of the assessee, more particularly the international transaction of the assessee, has to be compared with that of other company's transactions in comparable uncontrolled transactions. The main object of comparison is to determine the net profit margin of the assessee-company. Therefore, the transaction of assessee- company with Associated Enterprise outside the country has to be compared with that of the transaction of the comparable uncontrolled transaction of other companies. In view of the above, in the absence of any material on record with regard to risk assumed by the Associated Enterprise, the assessee-company has 23 I.T.A. No.1218, 765 & 615/Mds/16 to be taken as tested party for the purpose of transfer pricing adjustment. Therefore, this Tribunal does not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
32. Even though the assessee has raised certain grounds with regard to comparison of comparable companies, no argument was advanced at the time of hearing. Therefore, this Tribunal finds that the TPO has correctly selected the comparable companies. In view of this, this Tribunal does not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
33. In the result, the assessee's appeal for assessment year 2011-12 is dismissed.
34. To sum up the result, both the appeals of the assessee for the assessment year 2010-11 and 2011-12 and the Revenue's appeal for the assessment year 2011-12 are dismissed. 24 I.T.A. No.1218, 765 & 615/Mds/16
Order pronounced on 18th August, 2017 at Chennai.
sd/- sd/-
(संजय अरोड़ा) (एन.आर.एस. गणेशन)
(Sanjay Arora) (N.R.S. Ganesan)
लेखा सद य/Accountant Member या यक सद य/Judicial Member
चे नई/Chennai,
th
7दनांक/Dated, the 18 August, 2017.
Kri.
आदे श क2 . त8ल9प अ:े9षत/Copy to:
1. नधा)0रती /Assessee
2. Assessing Officer
3. Principal CIT, Chennai-5, Chennai
4. CIT(TP), Chennai
5. Secretary, DRP-2, Bangalore.
5. 9वभागीय . त न ध/DR
6. गाड) फाईल/GF.