GENESIS MICROCHIP (I) (P.) LTD. Vs. DEPUTY COMMISSIONER OF INCOME TAX
LAWS(IT)-2014-12-11
INCOME TAX APPELLATE TRIBUNAL
Decided on December 26,2014

Genesis Microchip (I) (P.) Ltd. Appellant
VERSUS
DEPUTY COMMISSIONER OF INCOME TAX Respondents

JUDGEMENT

P.MADHAVI DEVI, JM. - (1.) The appeal is filed by the assessee. The appeal is directed against the order of the Dy. Commissioner of Income -tax at Bangalore dated 17.09.2010. The appeal arises out of the assessment completed u/s 143 (3) r.w.s 144C of the Income -tax Act, 1961.
(2.) IN this appeal, the assessee is aggrieved by the order of the AO in denying the benefit u/s 10A of the Income -tax Act of Rs. 1,65,904/ - on the ground that the assessee has not satisfied all the stipulated conditions as per the provisions of sec. 10A of the Act. The assessee is also aggrieved by the order of the AO and the DRP in making the Transfer Pricing (TP) adjustments.
(3.) THE various grounds of appeal raised by the assessee are as under : 1.) "the order of the learned AO, based on directions of Hon'ble DRP, erred in assessing the total income at Rs.3,70,84,666/ - as against returned income of Rs.14,39,049/ - computed by the assessee. 2.) on the facts and in the circumstances of the case and in law, based on directions of DRP, the learned AO has erred in law by holding that the communication expenses (i.e internet charges) attributable to the delivery of computer software outside India should be reduced from export turnover while computing the deduction u/s 10A of the Act. 3.) on the facts and in the circumstances of the case and in law, the learned AO has erred in law by not considering that, if the communication expenses (i.e internet charges) attributable to the delivery of computer software outside India are reduced from export turnover, an equal amount should also be reduced from total turnover for computing the deduction u/s 10A of the Act. 4.) the learned AO/Transfer Pricing Officer (TPO) erred in making an addition of Rs.3,54,18,922/ - to the total income of the appellant on account of adjustment in the arm's length price of the software research and development services transaction entered by the appellant with its associated enterprise; 5.) the learned AO/TPO erred in disregarding the economic analysis undertaken by the appellant and conducting a fresh economic analysis for the determination of the arm's length price in connection with the impugned international transaction; 6.) the learned AO/TPO have erred in ignoring the fact that since that appellant is availing tax holiday u/s 10A of the Act, there is no intention toshift the profit base out of India, which is one of the basic intention of the introduction of transfer pricing provisions; 7.) the learned AO/TPO erred in determining the arm's length margin/price using only financial year 2005 - 06 data, which was not available to the assessee at the time of complying with the transfer pricing documentation requirements; 8.) the learned AO/TPO erred in rejecting certain comparables considered by the assessee in the comparability analysis by applying different quantitative and qualitative filters; a) the learned AO/TPO has erred by rejecting certain comparable companies identified by the assessee as having economic performance contrary to the industry behavior (e.g companies which showed a diminishing revenue trend); b) the learned AO/TPO erred in rejecting certain comparables considered by the assessee in the comparability analysis on the ground that the comparables were havingdifferent accounting year (other than March 31 or companies whose financial statements were for a period other than 12 months); c) the learned AO/TPO erred in rejecting certain comparables considered by the appellant in the comparability analysis using 'onsite revenues greater than 75% of the export revenue's as a comparability criterion; and d) the learned AO/TPO erred in rejecting certain comparables considered by the appellant in the comparability analysis using 'employee cost greater than 25% of the total revenues' as a comparability criterion. 9. the learned AO/TPO erred in by accepting certain companies using unreasonable comparability criteria; 10. the learned TPO erred in obtaining information which was not available in public domain by exercising powers u/s 133(6) of the Act and relying on the information for comparability analysis; 11. the learned AO/TPO erred in not considering the foreign exchange fluctuation gain (loss) as part of the operating income while computing the operating margin; 12. the learned AO/TPO erred in not considering the provisions written back as part of the operating income while computing the operating margin; 13. learned AO/TPO erred in not making suitable adjustments on account of differences in the risk profile of the appellant vis -a -vis the comparables, while conducting comparability analysis; 14) the learned AO/TPO erred in determining the adjustment in respect of the arm's length price without appreciating that the adjustment to arm's length price, if any, should be limited to the lower end of the 5% range as the appellant has the right to exercise this option under the proviso to sec. 92C of the Act. 15). the learned AO erred in levying interest of Rs.65,26,005/ - and Rs.10,536/ - u/s 234B and 234C of the Act respectively; 16). the learned AO erred, in law, and in facts, in initiating penalty proceedings u/s 271(1)(c) of the Act. Ground No.1 is general in nature. Coming to the ground Nos.2 and 3, we find that it is relating to the reduction of export turnover by communication expenses i.e internet charges attributable to the delivery of computer software outside India and not reducing the same from total turnover also. for the purpose of computing deduction u/s 10A of the Act.;


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