The Tax Publishers2021 TaxPub(DT) 0683 (Karn-HC) : (2021) 431 ITR 0307

INCOME TAX ACT, 1961

Section 92C

Since assessee had earned profit in a technical service segment in contracts other than contracts with SKF, therefore, the TPO should not have loaded the mark-up on the costs/ expenses incurred in meeting the obligations under contracts, other than the contracts with SKF on which the assessee had earned a profit on operating cost as making an adjustment to the entire segment as it would lead to unintended consequences which would give rise to unnecessary load being created on a segment which was otherwise profitable.

Transfer pricing - Computation of ALP - Adjustment for providing IT services -

Assessee in pursuance of the Master Service Agreement entered into a local/domestic contract with SKF India for providing IT services. TPO by an order considered the loss of 14.76% in the entire technical consultancy services agreement and was of the view that since, independent parties had an average margin of 17.02% therefore, there ought to be an adjustment. Thus, an adjustment was made by applying transaction net margin method. Held: CIT(A) has recorded a finding that since the assessee had earned profit in a technical service segment in contracts other than contracts with SKF and therefore, TPO should not have loaded the mark-up on the costs / expenses incurred in meeting the obligations under contracts other than the contracts with SKF on which the assessee had earned a profit on operating cost as it would lead to unintended consequences which would give rise to unnecessary load being created on a segment which was otherwise profitable. The aforesaid findings were findings of fact, which have been arrived at by the CIT(A) as well as the Tribunal on the basis of meticulous appreciation of evidence on record. Thus, in view of preceding analysis, the substantial question of law framed was answered against the revenue and in favour of assessee.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2004-05



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