Transfer Pricing – Pygmies Not Comparable With Giants

DCIT Vs Deloitte Consulting India Pvt. Limited (ITAT Hyderabad)- Risk adjustment disallowed, impact of intangibles on pricing negated, taxpayer estopped from subsequently pointing facts having material bearing, application of export earnings filter approved, etc. The Tribunal ruled upon several matters including allowance of risk adjustment, impact of intangibles on profit, use of turnover criteria for selection of com-parables, use of current year data, use of export sales criteria for selection of com-parables, whether or not a taxpayer can point out facts (not brought out earlier) which have a material bearing on the case, benefit of +/- five percent, etc.

IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH ‘A’, HYDERABAD

DCIT Vs Deloitte Consulting India Pvt. Limited

 ITA No. 1082/Hyd/2010

Asst. Year: 2004-05

ORDER

Per Akber Basha, Accountant Member:

These cross appeals are directed against the order of the CIT (A)-III, Hyderabad dated 31-5-2010 and they pertain to the assessment year 2004-05.

2. Brief facts of the case are that the assessee is a company which derives income from Software  Development and IT Enabled Services. For the assessment year under consideration, it has filed the return of income on 20-10-2004 showing income of Rs.4,68,64,880/-. During the previous year, the assessee has entered into International transactions with its associated enterprises. For determining the arm’s length price of such transactions, the assessing officer has made a reference under section 92CA (1) of the Act to the Addl. CIT (Transfer Pricing). In response to this, the TPO vide his order dated 21-12-2006, passed under section 92CA (3) of the Act, while adopting Transactional Net Margin Method (TNMM in short) as the most appropriate method, has determined the ALP of the transactions in respect of IT Enabled Services (BPO Segment) at Rs. 25,66,92,632/- as against Rs.20,96,64,974/- shown by the assessee, thereby suggesting for adjustment of Rs. 4,70,27,658/- on that account. Further, he determined the ALP of the transactions relating to Software Development Services at  Rs. 33,40,15,302/- as against Rs. 31,61,40,091/- shown by the assessee thereby suggesting for adjustment of Rs. 1,78,75,211/- under that head. Later, on basis of such order of the TPO, the assessing officer has made additions of Rs. 6,49,02,869/- and after allowing deduction of Rs. 4,65,50,115/- under section 10A of the Act, completed the assessment under section 143(3) of the Act determining total income at Rs. 6,68,13,850/-. Being aggrieved by the order of the assessing Officer, the assessee went in appeal before the CIT (A). On appeal, the CIT (A) after elaborately discussing the grounds raised by the assessee before him held that the TPO was justified in directing the assessee to conduct a fresh search of com parables during the transfer pricing proceedings and also justified in adhering to the  data of the current financial year 2003-04 for determining the ALP. It was also held that the assessing officer has to compute the total income of an assessee in conformity with the ALP as determined by the TPO.