TaxTMI 
TaxTMI 
2011 (5) TMI 499
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....ociated enterprises. In the Transfer Pricing documentation the assessee determined the arm's length price of the international transactions of software development and related services by applying TNMM as most appropriate method. The assessee had benchmarked its international transactions with 10 comparable companies with an average operating profit ratio (OP/TC) of 9.31%. 3.1 The final list of comparable companies is as under:- S.No. Name of the company FY OP/TC 1. Birlasoft Ltd. 200503 -0.06% 2. Datamatics Ltd. 200409 -6.09% 3. Goldstone Technologies Ltd. 200503 -1.50% 4. Maaars Software International Ltd. 200603 3.18% 5. Melstar Infotech International Ltd. 200503 -9.17% 6. Prithvi Information Solutions Ltd. 200603 12.48% 7. Quintegra Solutions Ltd. 200603 13.51% 8. RS Software India Ltd. 200603 15.29% 9. Visualsoft Technologies Ltd. 200503 15.99% 10. Zenith Infotech Ltd. 200603 49.47% Mean 9.31% The operating profit margin (OP/OC) of the assessee was computed at 12.49%. Since the (OP/TC) earned by the assessee on t....
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....ean 22.19% Accordingly, the Transfer Pricing Officer in the order passed under section 92CA(3) of the Act computed an adjustment of Rs. 14,79,00,000 on account of the difference in the margin of the comparable companies and the appellant company. 4. Against the above order, the assessee is in appeal before us. 5. Assessee's submissions in this regard are summarized as under:‑ "(i) The TPO has considered Zenith Infotech even though when it earning supernormal profits and does not satisfy his own additional filters:‑ Zenith Infotech has remarked an abnormal high profit margin of 49.73% during the financial year 2005-06 and there has been sharp increase in profitability and sales. The OP/TC during the year is summarized as follows:- Year Mar-04 Mar-05 Mar-06 Mar-07 Sales in crores % sales in increase 18.28 21.90 35.37 66.97 over base year Mar 04 120% 193% 366% OP/TC 3.10% 22.27% 49.73% 87.88% % margins increase Over base year Mar 04 719% 16.05% 28.35% It may be pointed out that Zenith Infotech ....
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....io of the applicant at 65% and (ii) forex earning of said company is only 39% of the total revenue. It may be noted that the TPO has himself had rejected Melstar Information Technologies, inter alia, on the basis of low forex earnings without applying the same selection criteria while considering Zenith Infotech Ltd. as comparable company. Computation of margin of comparable after eliminating Zenith Infotech The average of operating profit over cost of the remaining three companies after eliminating Zenith Infotech Software is as follows: S. No. Name of the company FY OP/TC 1. Prithvi Information Solutions Ltd. 200603 12.65% 2. Visualsoft Technologies Ltd. 200603 12.67% 3. Quintegra Solutions Ltd. 200603 13.71% Arithmetic Mean 13.01 % Since the OP/TC of the appellant at 12.49% is within the safe harbour range of (+/-)5% as per the proviso to section 92C(2) of OP/TC margin of 3 comparable companies at 13.01%, no adjustment is warranted on account of difference in arm's length price of the international transaction. (ii) Rejection on the basis of additional filters. In addition to the....
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....sentative further claimed that assessee has raised perfunctory objection before the authorities below regarding exclusion of Zenith Infotech in the comparable. Hence the matter was not dealt with in detail by the TPO or the DRP. In the rejoinder, ld. counsel of the assessee has submitted that all the necessary documentation in this regard were before the TPO and the DRP. Ld. counsel of the claimed that if loss making companies were taken out by the TPO from the comparables, Zenith Infotech Ltd. which had shown super normal profits should also be excluded. Ld. counsel of the assessee further claimed that there is no estoppels against the assessee. Now assessee has claimed that Zenith Infotech is not comparable. Ld. counsel further claimed that there cannot be any motive to the assessee as the entire income is exempt under section 10A. 8. We have heard the rival contentions in light of the material produced and precedents relied upon. We find that TPO in his order has rejected the five comparables companies identified by the assessee. The TPO benchmarked the operating profit margin by the assessee-company with four profit making companies, which excluded Zenith Infotec....
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....g that Zenith Infotech should also be removed as it showed super profits. As submitted in the chart in preceding paragraph the average of operating profit over cost of the remaining three companies after eliminating Zenith Infotech Software is as follows: S. No. Name of the company FY OP/TC 1. Prithvi Information Solutions Ltd. 200603 12.67% 2. Visualsoft Technologies Ltd. 200603 12.67% 3 Quintegra Solutions Ltd. 200603 13.71% Arithmetic Mean 13.01 % Since the OP/TC of the appellant at 12.49% is within the safe harbour range of (+/-)5% as per the proviso to section 92C(2) of OP/TC margin of 3 comparable companies at 13.01%, no adjustment is warranted on account of difference in arm's length price of the international transaction. 8.2 The contention of the Ld. Departmental Representative that assessee has not vigorously agitated the issue of inclusion of Zenith Infotech before the authorities below is not acceptable, as all the necessary documents for assessee's contention in this regard were before the authorities below. 8.3 In the background of the aforesaid discussion, we delete the add....