International Transaction u/s 92(1) of the Income Tax Act

This ITAT Bangalore ruling addresses an appeal concerning international transactions under Section 92(1) of the Income Tax Act for AY 2016-2017. The assessee objected to the Transfer Pricing Officer's (TPO) proposed rejection of their chosen foreign parent company as the tested party for benchmarking software services. The TPO cited Rule 10B(2)(d) regarding market comparability, while the assessee provided counterarguments and case law. The appeal was partly allowed.

IN THE INCOME TAX APPELLATE TRIBUNAL
“A” BENCH : BANGALORE
BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND
SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
IT(TP)A No.187/Bang/2021
Assessment Year : 2016-17

M/s. Atmecs Technologies Private Limited,
Flat No.301, M J Towers, H-No.8-2-698,
Road No.12,
Banjara Hills, Hyderabad,
Telangana – 500 034.
PAN : AAMCA 0792 J

vs

The Income Tax Officer,
Ward -1(1)(1),
Bengaluru.

Appellant by : Shri. P.V.S.S.Prasad, CA
Respondent by : Shri. Arunkumar, CIT(TP-2)(DR)(ITAT), Bengaluru

Date of hearing : 14.12.2021
Date of Pronouncement : 20.12.2021

O R D E R

This appeal by the assessee is directed against the final Order of Assessment dated 30.3.2021 by the National E-Assessment Centre, Delhi, (hereinafter referred to as the Assessing Officer, “AO” in short) passed u/s.143(3) read with Section 144C(13) of the Income Tax Act, 1961 (Act) in relation to AY 2016-2017.

2. The Transfer Pricing Officer (TPO) to whom the question of determination of ALP was referred by the AO u/s.92C of the Act, issued a show cause notice dated 24/9/2019 wherein he proposed to reject TP study as the taxpayer had chosen its parent company as a foreign tested party and had benchmarked the international transaction relating to software company by applying TNMM. In response to this notice, the taxpayer has given a detailed reply dated 11/10/2019 stating that the assessee objects to the TPOs proposed rejection of choice of foreign AE as tested party by citing various reasons supported by several case laws.

3. The TPO also referred to Rule 10B 2(d) which specifies that the comparability of an international transaction with an uncontrolled transaction shall be judged with reference to condition prevailing in market in which the respective parties to the transaction operate including the geographic location and the size of the market, laws and government order in force, cost of labour and capital in the market. overall economic development and level of competition and whether the market are retail or wholesale.

4. The learned DR while relying on the decision of the Hon’ble Pune Tribunal in the case of Eaton Industrial Systems Pvt. Ltd., Vs. DCIT (2020) 113 taxmann.com 267 (Pune Tribunal) submitted that the ratio laid down in the aforesaid decision that foreign AE cannot be chosen as a tested party and the profit earned by the foreign parties cannot be compared with the price charged by the the Assessee and ALP determined by the Indian tax authorities. He placed reliance on the orders of the lower authorities.

5. In the result, appeal of the assessee is partly allowed. Pronounced in the open court on the date mentioned on the caption page.

Please find attached the enclosed file for the full judgement