TaxTMI 
TaxTMI 
2012 (10) TMI 1025
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.... 3. The facts in brief are that in its return of income the assessee declared income at NIL under the head "profit and gains of business or profession" after claiming deduction u/s 10A of the Act amounting to Rs. 65,896,497. Book profits of the company were computed under section 115JB of the Act at Rs. NIL and 7.5 % of such book profits amounting to Rs. Nil. The assessment was framed u/s 143 (3) and the AO made addition of Rs. 16967314/- on account of adjustment u/s 92CA(3) on provision of IT enabled back office services and contract software development services. The aggrieved assessee preferred first appeal against the said addition on the issue of transfer pricing. Ld. CIT(A) after discussing the issue in detail has held that the assessee's international transactions are proved to be at arm's length. In the result the addition made by the AO has been deleted. This action of the Ld. CIT(A) has been questioned in the present appeal by the revenue. 4. In support of the ground the Ld. DR has basically placed reliance on the order of the transfer pricing Officer (in short TPO). He has referred contents of page No. 4, 6 & 14 of the order of the TPO. At page No. 4 in para N....
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....ssessee before the authorities below and placed at page Nos. 67 to 154 of PB(A). At page No. 75 of the PB(A) has been placed the overview of group and the company. In para No. 2.2.3 thereof it has been stated that during the current financial year, COLT India was essentially engaged in providing IT input company services and contract software development services to its group companies. At page 94 of the PB (A) has been made available about the functions performed by COLT India. In para No. 4.2.10 thereof, has been stated that the services provided by COLT India during the current financial year, under the SW segment essentially entailed provision of applications development support and maintenance support. It has been further stated that these services were only in relation to systems and applications used within the COLT group. In para No. 4.2.11 thereof has been stated that the company is being remunerated by its group companies for the rendering of IT enables back office services and contracts software development services on a cost plus basis ( i.e the remuneration prices on cost incurred in rendering the respective services other than interest and taxes on income was plus ....
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....ded March 31, 2005 has been shown at 4.44% of total revenue. The Ld. AR also placed reliance on the following decisions :- E-Gain Communication Pvt. Ltd. Vs. ITO, 2008 - 118 - TTJ 354 - TPUN 2) Philips Soft Ware Center Pvt. Ltd. Vs. ACIT, 2008 - 119 - TTJ - 721 - TBAL 3) SAP Laps India Pvt. Ltd. Vs. ACIT 2010 - TTJ - 44 - ITAT - BANG - TP. 6. The Ld. AR also referred page No. 116 of PB(A) wherein a summary of the data based searches employing the search criteria has been provided. He also referred page No. 167 of PB (A) i.e. copy of extracts from annual report of exensys software solutions Ltd. for FY 2004-05. Ld. AR also placed reliance on the decision in the case of ST Micro electronis Pvt. Ltd. Vs. CIT, 2011 - T11 - 63 - ITAT - DEL - TP. 7. The Ld. AR also placed emphasis on the submission that the assessee is not doing high end work. He reiterated that functional similarities is important to look into the comparables and not the trading. He submitted that no risk is involved in the case of assessee who works on lower margin of profit. He submitted further that there is no involvement of any brand etc. 8. Ld. DR rejoined with this assertion that assessee....
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.... Order, the Transfer Pricing Officer ('TPO') made an adjustment of Rs. 12,785,576) and Rs. 4,181,738 to the income from ITES and SW segments respectively while all the other transactions were accepted to be at arm's length. However, further to the rectification application u/s 154 dated February 6, 2009 filed by the assessee, the adjustment to the ITES segment was deleted by the TPO vide order dated July 22, 2009 under section 154 r/w 92CA(5) of the Act. Hence, the TP dispute remained is in relation to the TP adjustment of Rs. 4,181,738 made by the TPO / AO to the SW segment. 12. To determine the arm's length price the TPO initially took 19 comparables as discussed by him at page No. 4 to 6 and 14 of his order and finally selected 12 therefrom. Out of these 12 comparables the assessee contended that the four companies like exensys Software Solutions Ltd., Sankhya Infotech Ltd., Thirdware Solutions Ltd., and Visual Soft Technologies Ltd. are not comparables with the assessee. The assessee however accepted the other comparables selected by the TPO. These comparables with the stand of the assessee are being reproduced hereunder for a ready reference:- S.No. TPO Companies ....
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....ata and software services and testing services. It was contended that the associated enterprises are responsible for identifying and retaining clients and therefore the market risk would lie with them. In relation to contract software development by the assessee, the final products are primarily for captive consumption , therefore, there is no marketing function performed by the assessee. However the assessee assumes limited market risks to the extent that a fall in the business of the associated enterprise would also lead to a fall in the business of the assessee. Service delivery risk is caused by nonconformity of the service performed with client specifications. Any default in services rendered may lead to penalties being imposed on the service provider. To avoid technology risk the assessee has to ensure that this software development centers are completely updated that state of the art infrastructure and its technical personnel are aware of the latest process, information etc. The associated enterprises face limited risk since they depend completely on assessee for their software development needs. Regarding foreign exchange it was submitted that the assessee earns its revenue....
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.... Ltd. it was submitted that the said company has a diversified functional professional profile and is also engaged in sale of software licenses. They invest in R&D and also provides / sells software licenses and there are no segmental results available in its audited financials to segregate profitability from provision of software development services and from sale of software licences.. These informations were supported by the annual report for Financial year 2004-05 of the said company. In its annual report a generic disclosure was made that the company is involved in trading of software and provision of IT services. Schedule 14 of the Financial statement of the said company provide information on details of purchases as per which the total purchase cost incurred by the company was about Rs. 56871743/- as against the total cost of Rs. 175527264/- which is about 32% of the total cost. Besides the said company earned abnormally high OP / TC margin of 66.11% during Financial Year 2004-05 indicating risk dissimilarity vis a vis the assessee which claimed to be a cost plus low risk captive which cannot be expected to earn such high profitability. Regarding Visual Soft Tech Ltd. (seg) ....
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....) the assessee tried to establish that the role of the assessee in producing semiconductor (IC) was limited qua the role performed by ST group which was not accepted by the Tribunal with this observation that the assessee had employed more than 1600 persons and it was having one of the largest design centres out of the Europe and thus the operations carried out by the assesee within India were tobe compared with other assesses and not with ST group. Thus the assessee failed to establish that this case was not comparable with the ST group. The Tribunal observed further that the assessee could have produced the report of an expert indicating the work performed by it was negligible in comparison to other software development companies. Similarly in the case of Symantec Software Solutions Pvt. Ltd. (supra) relied upon by the Ld. DR the Tribunal did not find any merit and substance in the submission of the assessee for adjustment in respect of risk and functional differences. The Tribunal held that what is relevant is the margin/profit the assessee earned from international transaction and comparison of the same with the uncontrolled transactions. The Tribunal held that if net revenu....