Transfer Pricing: Unaudited segmental accounts can be relied upon for comparing profitability of controlled transactions with uncontrolled transactions. While size is relevant in entity level comparison, it is not relevant in transaction level comparison within the same entity

(i) In applying the Transactional Net Margin Method (TNMM) under Rule 10B(1)(e) it is not necessary that the net profit computations, in the case of internal comparables (i.e. assessee’s transactions with independent enterprise), have to be based on the audited books of accounts or the books of accounts regularly maintained by the assessee. All that is necessary for the purpose of computing arm’s length price, under TNMM on the basis of internal comparables, is computation of net profit margin, subject to comparability adjustments affecting net profit margin of uncontrolled transactions, on the same parameters for the transactions with AEs as well as Non AEs, i.e. independent enterprises, and as long as the net profits earned from the controlled transactions are the same or higher than the net profits earned on uncontrolled transactions, no ALP adjustments are warranted. It is not at all necessary that such a computation should be based on segmental accounts in the books of accounts regularly maintained by the assessee and subjected to audit

No S. 14A/ Rule 8D disallowance if primary object of investment is to hold controlling stake in group concern and not to earn tax-free income

We find merit and substance in the contention of the assessee that no expenditure had been incurred by the assessee for earning the exempt income on this point because the investment has been made by the assessee in the group concern and not in the shares of any un-related party. Therefore, the primary object of investment is holding controlling stake in the group concern and not earning any income out of investment. Further the investment were made long back and not in the year under consideration. Therefore, in view of the fact that the investment are in the group concern we do not find any reason to believe that the assessee would have incurred any administrative expenses in holding these investments. The AO has not brought on record any material to show that the assessee has incurred any expenditure in relation to the income which does not form part of the total income

Salary income accrues at the place where the services are rendered and not where the appointment letter is received. If salary, after accrual abroad, is brought into India, it is not taxable on receipt basis. S. 6(5) which deals with residential status is redundant

The next objection of the Assessing Officer is that the money was received in India, since, beyond any dispute or controversy, the salary cheques were credited to the assessee’s account with HSBC, Mumbai. So far as this aspect of the matter is concerned, the law is trite that ‘receipt’ of income, for this purpose, refers to the first occasion when assessee gets the money in his own control – real or constructive. What is material is the receipt of income in its character as income, and not what happens subsequently once the income, in its character as such is received by the assessee or his agent; an income cannot be received twice or on multiple occasions. As the bank statement of the assessee clearly reveals these are US dollar denominated receipts from the foreign employer and credited to non resident external account maintained by the assessee wi th HSBC Mumbai . The assessee was in lawful right to receive these monies, as an employee, at the place of employment, i .e. at the location of its foreign employer, and it is a matter of convenience that the monies were thereafter transferred to India. These monies were at the disposal of the assessee outside India, and, it was in exercise of his rights to so dispose of the money, that monies were transferred to India

S. 195 TDS obligation depends on law prevailing on date of payment and is not affected by retrospective amendment. No s. 40(a)(i) disallowance can be made if that law did not require TDS to be deducted

In accordance with the law laid down in Ishikawajma-Harima Heavy Industries, which was good law at the time of the remittance, unless the services are rendered in India, the same cannot be brought to tax as ‘fees for technical services’ u/s 9. Though the law was amended retrospectively, so far as tax withholding liability is concerned, it depends on the law as it existed at the point of time when payments, from which taxes ought to have been withheld, were made. The tax deductor cannot be expected to have clairvoyance of knowing how the law will change in future. A retrospective amendment in law does change the tax liability in respect of an income, with retrospective effect, but it cannot change the tax withholding liability, with retrospective effect. As there is no material whatsoever to establish that the design and development services were rendered in India, the assessee did not have any liability under s. 195 r.w.s. 9(1)(vii) to deduct tax at source from these payments. As a corollary thereto, no disallowance can be made in respect of these payments u/s 40(a)(i)

S. 263: CIT cannot revise the TPO’s transfer pricing order passed u/s 92CA(3). CIT also cannot revise s. 143(3) order because such order is not erroneous if it follows binding order of TPO

The Commissioner cannot exercise revisionary jurisdiction u/s 263 on the transfer pricing order passed u/s 92CA(3) by the TPO. As regards the assessment order, it cannot be said to be “erroneous” because the AO is bound by the transfer pricing order u/s 92CA(4) is binding on the AO. Consequently, the CIT’s order is without jurisdiction (Essar Steels Ltd 152 TTJ 265 (Mum) followed)