2016 (1) TMI 306

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....eed no separate adjudication. 4. Ground No. 3 is not pressed and accordingly it is dismissed as not pressed. 5. Ground No. 4, 5 & 6 relate to the Transfer Pricing Adjustment made by the TPO. 5.1. The TPO alleged that the assessee engaged in providing contract research and development service to its associated enterprises, though the claim of the assessee is that it is engaged in contract software development service. The entire dispute revolves around this issue relating to the nature of business as claimed by the assessee and as concluded by the TPO. With its nature of business, the assessee has selected 19 comparables in its TP study report whose arithmetic mean comes to 11.47%. The assessee has shown its operating margin for the....

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....9 Prior period income 37,14,056 Total Operating Income 16,40,99,545 EXPENDITURE   Administrative, sales promotion and other expenses 3,57,17,522 Personal expenses 9,25,75,200 Foreign Exchange loss 56,62,994 Depreciation 36,93,991 Fringe Benefit tax 16,00,000 Prior period expenses 32,29,614 Less: Non operating expense (1,36,988) Total Operating Expenses 14,25,58,269 Operating Profit 2,15,41,376 OP/OC(%) 15.11   5.4. During the course of the proceedings before the TPO, the assessee was asked to explain why the comparable companies selected by it should not be rejected and why the comparable companies selected by the TPO should not be adopted to bench....

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....posed to any business risks. Hence, it is compensated on a cost plus basis. Therefore, it was pointed out that profit split method is not applicable in the instant case. 5.6. The assessee's submission was considered by the TPO but was not accepted for the simple reason that in Form No. 3CEB as well as in the agreement, the assessee has stated its services as Research & Development Services. Further drawing support from the Annual Financials of the assessee, the TPO was convinced that the assessee is rendering R&D services to the AE and as per the agreement, the assessee is an economic owner of such IP development. 5.7. The comparable selected by the assessee were outrightly rejected by the TPO who proceeded by taking his own comparabl....

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....nd Development activities which is also a sub- domain of Knowledge Process Outsourcing (KPO) activity. The DRP after receiving the remand report confirmed the order of the TPO. 7. Aggrieved by which the assessee is before us. 8. The Ld. Counsel for the assessee reiterated what has been stated during the course of the Transfer Pricing proceedings and also before the DRP. The Ld. Counsel straightaway drew our attention to the copies of Softex form filed by the assessee with the STPI authorities. It is the say of the Ld. Counsel that this evidence clearly show that the services are merely in the nature of Software Development Services. In support of his contention, the Ld. Counsel filed a complete set of documents to substantiate his cla....

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....preciated by the Revenue authorities. Had these documents been examined qua the nature of business of the assessee, the resultant product would have been different. Therefore, in the interest of justice and fair play, we restore this issue to the file of the TPO. The TPO is directed to re-examine the entire issue by denovo assessment. The TPO is directed to decide the issue on the basis of Softex Form filed with the STPI authorities and related orders of the STPI authorities. The assessee is directed to furnish necessary details and the TPO is directed to examine the same after giving reasonable opportunity of being heard to the assessee. Needless to mention, the TPO shall also decide all other related issues with the TP adjustments relatin....