2013 (9) TMI 1069

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....are Development ('CSD') services do not satisfy the arm's length principle envisaged under the Act. In doing so, the Ld. DRP and the Ld. AO has grossly erred in agreeing with and upholding the Ld. TPO's action of - Including certain companies that are not comparable to the appellant in terms of functions performed, assets employed and risks assumed; II. That the Ld. AO erred on facts and in law in disallowing Rs. 106,034/- under section 14A of the Act on account of expenditure incurred relating to exempt income; III. That the Ld. AO erred on facts and in law in charging interest under section 234A, 234B, 234C and 234D of the Act mechanically and without rcording any satisfactory reasons for the same. 2. Brief facts are: Agnity India Technologies Private Limited ('Agnity India' or 'the Company' or 'the appellant') is a wholly owned subsidiary of Bay Packets Inc., USA (hereinafter referred to as 'BayPackets USA') providing software development services to its overseas associated enterprises ('AEs') and operates as a limited risk bearing captive service provider. In return for rendering these services, the appellant is remunerated on an arm's length cost plus basis i.e. it is compe....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....he appellant in the TP study and proposed to substitute the results of appellant's economic analysis with the results of a fresh search undertaken by the Ld. TPO by applying own set of quantitative and qualitative filters. 2.5. In response to the show-cause notice, the appellant filed a detailed submission dated September 28, 2011 setting out its arguments/contentions against the approach proposed to be followed by the Ld. TPO and specific comments against inclusion/exclusion of certain comparables in response to the show-cause notice 2.6. Rejecting the detailed submissions of the appellant, the ld. TPO in a summary manner arrived at a set of 19 comparables with a working capital adjusted average OP/TC margin of 29.38% in the order and accordingly proposed an adjustment of Rs. 22,101,445/- to the transfer price of the appellant. The final set of comparables as per the TPO is given in his order. 2.7. The Ld. AO, in conformity with the TP order upheld the adjustment and proceeded to issue the draft assessment order u/s 144C(1) of the Act on December 30, 2011. Aggrieved assessee carried the matter to Dispute Resolution Panel (DRP) where detailed submissions were filed. 2.8. The DR....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....equesting him to give effect to directions issued by the DRP which is still pending. 3. Ld counsel for the assessee Shri Pawan Kumar submits as under: Inclusion of functionally different companies and companies engaged in development of software products by the Ld. TPO/ DRP 3.1. The Appellant places reliance on the decision of the Delhi Tribunal in its own case dated November 4, 2010 in ITA No. 3856 (Del)/2010 for the AY 2006-07, wherein the Tribunal has excluded software product, functionally dissimilar and full fledged risk bearing entrepreneur company (i.e. Infosys) as a comparable, in analysing the arm's length nature of the transfer price of a captive software service provider i.e. the Appellant. ITAT in A.Y. 2006-07 excluded the above listed comparables from T.P. adjustments. This ITAT decision in the Appellant's own case was brought to the notice of the TPO, AO & the DRP vide Objections filed under section 144C(2) of the Act. The gist of the same is as under: Reasons for Exclusion  S. No. Company name Working capital Adjusted OP/ TC margin (as per the revised TPO order) Reasons for exclusion (non-comparability) 1 Avani Cincom Technologies Ltd. 32.70% (1) Funct....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....r functional/ risk profitle (2) Ownership of branded/ proprietary products. (3) High turnover of Rs. 1,12,58.4 crores (i.e. 631 times) (4) Huge R&D spend. (5) Rejcted in the recent ruling in case of Market Tools, Telcordia, Maersk Global & Deloitte Consulting.   3.2. The Ld. TPO disregarded the above decision and directions of DRP by relying on the ruling in the case of ST Microelectronics which is not applicable to the assesseees case. 3.3. It is further pleaded that Hon'ble Delhi High court has upheld the ITAT judgment in assessees own case for AY 2006-07, thus the issue about exclusion of these comparables while making the TP adjustments in it's case stands settled in view these decisions in its own case. 4. Ld DR is heard who supported the orders of AO/TPO and contends that DRP's directions have been given appropriate effect by them. 5. We have heard the rival contentions and perused material on the record. The issue about exclusion of above list of comparables while making the TP adjustments in assessees case has been settled by Hon'ble Delhi High court. It has been unequivocally held that those companies ( like Infosys and others) are full fledged risk bearing c....