S. 92C


CIT v M/s CUSHMAN AND WAKEFIELD (INDIA) PVT LTD [ITA No.475/2012 dated 23.05.2014] (Delhi HC) Background: The assessee, an Indian company, is engaged in the business of rendering services connected to acquisition, sales and lease of real estate and other services. The assessee reported following transactions under Section 92B: (a) Payment of referral fee of Rs. 1,73,26,631/- by the assessee to several foreign AEs for referring clients, and (b) Payment of Rs. 1,06,39,865/- as reimbursement to CWS (Singapore entity) and CWHK (Hong Kong entity) for costs incurred by them for certain coordination and liaison services in respect of their client, IBM. No benchmarking or a transfer pricing analysis was conducted by the assessee. In this respect, the transfer pricing study submitted by it stated: “A cost sharing agreement is a commercial decision of the company and helps the company liaise with international clients; it helps create a better understanding of client needs and disseminate information of the real estate market in India. The effort of these individuals is not a full marketing effort but provides a liaison and market access basis for the Company. The strong international presence of the Cushman and Wakefield group places it is a better position to identify and engage such a professional in a more cost effective manner than for the Company to do so directly with its own efforts.” In respect of the reimbursement of costs to the AEs, the TPO disallowed deduction of the expenditure. Additionally, the AO disallowed the referral fees as a deductible expenditure, stating that no benefit was derived by the assessee from the referral fees paid to the AEs. The assessee preferred objections before the Dispute Resolution Panel (“DRP”), against both findings. The DRP concurred with the AO, leading to a final assessment order under Section 143(3) read with Section 144C. The assessee then appealed to the ITAT, which held in its favour.  

Reimbursement of costs to AE without markup cannot be treated as ALP in the absence ...


Motif India Infotech (P.) Ltd. v  ACIT [IT APPEAL NO. 3043 (AHD.) OF 2010 dated 25.03.2014] – Ahmedabad ITAT Background: Assessee is an offshore business process outsourcing service provider whereby it renders data support services. Before the Transfer Pricing Officer (“TPO”), the assessee submitted that Transfer Pricing Laws are not applicable to the assessee as its income was exempt under section 10A. The assessee relied on the decision of the Bangalore Tribunal in the case of Philips Software Centre (P.) Ltd. v. Asstt. CIT [2008] 26 SOT 226. TPO did not accept the contention of the assessee stating that proviso to section 92C clearly provides that no deduction u/s 10A or section 10AA or sec 10B or Chapter VI A shall be allowed in respect of the amount of income by which total income of the assessee is enhanced after computation of ALP. TPO held that The TPO held that the assessee had disclosed its profit derived from the said business at the rate 17.89%, whereas on the basis of some comparable cases TPO determined the same at 34.26%. 

Transfer pricing adjustment not required for 10A unit where exempt income declared is lower than ...


Nortel Networks India (P.) Ltd. v Addln CIT [ITA No 4765 (DELHI) OF 2011 & 427 (DELHI) OF 2013 dated 25.02.2014] – Delhi ITAT Background: Assessee entered into a service agreement for the provision of marketing and after sales support services on a cost plus mark-up basis. By this agreement, assessee provides marketing and after sales support services to AEs in relation to sale of telecommunication equipments, software and other IT products to customers in India. The assessee considered TNMM as the most appropriate method and has benchmarked the transaction taking Operating profit/ Operating cost (“OP/OC”) as PLI.  TPO though accepted assessee’s TNMM method as appropriate method for the ALP, however reworked the same by applying inapplicable comparables as under: In its transfer pricing analysis, the assessee has considered seven comparable companies, whose average unadjusted margin comes to 11.57%, TPO held two out of seven as not comparable. The Capital Trust Limited was held as not a comparable because of low revenue as and Cyber Media Events Limited because of related party transaction exceeding 25% and having diminishing revenue. DRP upheld TPOs order on the ground that the turnover of the comparable in the relevant segment is Rs. 25 Lakh and cannot be compared with the company whose revenue from business support services is more than Rs. 134 Crores. 

TP: Companies with lower turnover can also be considered if they are functionally comparable – ...



Maersk Global Centres (India) Pvt. Ltd vs. ACIT (ITAT Mumbai Special Bench) Transfer Pricing: Companies in ITES cannot be classified into low-end BPO services and high-end KPO services for comparability analysis but have to be classified based on the functions performed. Comparables with abnormal profit margins cannot be discarded per se but must be examined to determine whether the high margins are due to normal business conditions or not 

TP: Potential comparables cannot be excluded merely on the ground that their profit is abnormally ...


Marubeni India Pvt. Ltd. v DIT (ITA 1042/2011 dtd 25.04.2013) Delhi High Court Background: The assessee is a private limited company incorporated in India under the Companies Act, 1956. It is a 100% subsidiary of Marubeni Corporation, Japan(MCJ). It carries on mainly two types of business – agency and market research business. The assessee filed a return of income on 31.10.2002 declaring “nil” income for AY 2002-03. In the course of the assessment proceedings, the assessee’s case was referred to the transfer pricing officer (TPO). The TPO proposed an addition of Rs 2,60,49,881/- on the ground that the commission and service fees received by the assessee from MCJ did not represent arm’s length price. The TPO treated the interest income of Rs 1.72 crores received by the assessee as non-operating income. Because of this treatment accorded to the interest, the profits of the companies which were taken for comparison purposes were found to be more than the profits earned by the assessee. The TPO was further of the view that in respect of the services rendered by the assessee, it should be remunerated on a cost-plus basis and the total costs should be made the basis of computing its earnings and not merely the commission and fixed feespaid to it. 

Interest being non-operating income & other non-operating expenses to be excluded from computing ALP – ...


Cotton Naturals (I) Pvt. Ltd. v DCIT (I.T.A. No. 5855/Del/2012 dtd 8/2/2013) Delhi ITAT Background: The assessee is a company engaged in the business of manufacturing & export of Ready made Garments. The assessee had entered into international transactions with with its associated enterprise (‘AE’) during the year 2007-08. It had provided loan amounting to USD 10,50,000 to its AE at the rate of 4%. As per Form 3CEB, CUP method was chosen to bench mark the interest received on loan. The assessee has contended that since it has received interest at a rate of 4% which is comparable with the export packing credit rate obtained from independent Banks in India, the interest is at arm’s length price. The TPO by making comparison with uncomparables like government bonds and the amount advanced by the Indian banks in foreign currency to entities in India and by making arbitrary additions of transaction cost, security and risk etc. to such rate determined the arm’s length rate of interest at 17.26% per annum and proposed an addition of RS.68,02,619.  The assessee carried the matter to DRP. The DRP ignored all the contentions and held that loan is in Indian currency hence LIBOR is not the relevant rate and ordered that PLR (Prime Lending Rate of RBI for FY 2007-08 be applied. AO accordingly applied the PLR of 13.25%..

LIBOR to be considered for benchmarking intra-group loan transactions – Delhi ITAT



Petro Araldite P Ltd v DCIT (IT APPEAL NO. 6217 (MUM.) OF 2012 dtd 18.1.2013) Mumbai ITAT Background: Assessee is a concern engaged in the manufacture of `Specialty Chemicals’. Its main product is Epoxy Resins. The chemicals manufactured by it are used in the industries operating in Paints, Civil engineering applications, Structural composites, Electrical insulation material, Adhesive and Tooling material. The assessee followed Transactional Net Margin Method (TNMM) to benchmark its international transactions in a composite way for all such transactions taken together. It adopted Profit Level Indicator (PLI) as Operating Profit / Sales which was shown at 4.20%.

TP Update: Mumbai ITAT lays down rules for functional comparability


Welspun Zucchi Textiles Ltd. v ACIT [ITA No 6539 (MUM.) OF 2009 & 898 (Mum.) of 2010] dtd 11.1.2013 Background: During the year under consideration, the assessee company had exported bathrobes to its associated enterprises in Italy. The said transactions were benchmarked by the assessee using CUP method as the most appropriate method. In order to determine the arms length price of these transactions, a reference was made by the AO to the TPO u/s 92CA(1) of the Act. Before the TPO, the assessee submitted the comparative chart of sales to AEs and non AEs. It was submitted that out of the total bathrobes exported to non AEs, about 95% bathrobes were exported to Wallmart USA at an average unit price of US Dollars 6.42 while the average unit price of export made by the assessee to its AEs in Italy was US Dollars 8.80. It was contended that since the price charged to AEs was more than the price charged to non AEs, the international transactions with AEs involving export of bathrobes should be considered at arms length.

CUP method fails where there are differences in location, market size and product prices sold ...