TaxTMI 
TaxTMI 
TaxTMI 
2013 (1) TMI 801
X X X X Extracts X X X X
X X X X Extracts X X X X
....ome declaring total income of Rs. 40,436 after claiming deduction under s. 10A of the Act. The assessee being a captive service provider to its AE is remunerated on a cost plus mark-up basis for the services provided. During the financial year 2006-07 relevant to the assessment year under dispute, the assessee had the following international transactions:- (i) Provision of software services 15,04,42,057 (ii) Purchase of capital assets 32,78,884 (iii) Amount received on transfer of assets pursuant to global restructuring of Adaptec Group 1,83,61,894 4. During the scrutiny assessment proceedings, the AO made a reference under s. 92CA(1) of the Act to the Addl. CIT (Transfer Pricing) i.e., TPO for determining the ALP of the international transactions with its AE. For establishing the price received towards international transaction is within the arm's length, the assessee made a transfer pricing study. On the basis of FAR analysis, the assessee categorized it as a risk mitigated contract service provider and selected itself as the tested party. Transactional Net Margin Method (TNMM) was chosen as the most appropriate method for determining ALP. Operating profit/oper....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d two companies, the learned Authorised Representative has submitted that these companies are having turnover of more than 900 times the turnover of the assessee. These companies have emerged as market leaders and are IT giants performing additional functions, assuming risks and employing unique intangible assets. It was submitted the brands of these companies enjoy premium pricing and due to scale of operations, these companies enjoy economies of Scale in lower cost of infrastructural facilities and employees. It was further submitted, these companies are engaged in diversified activities including products, consultancy and solution. It was submitted that the financials of Wipro Ltd. are not audited, manually corrected and are collected from transfer pricing report and hence cannot be relied upon. The learned Authorised Representative submitted that the assessee is a service provider operating in a risk mitigated environment having a turnover of about Rs. 15 crores and as such cannot be compared with these two companies. In support of such contention, the learned Authorised Representative relied upon the following decisions of the Tribunal: (a) Capital IQ Information Systems (Ind....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e turnovers of Infosys and Wipro are Rs. 13,149 crores and Rs. 9,616 crores, respectively. When the TPO has applied the turnover filter by excluding companies having turnover of less than Rs. 1 crore, he should have applied the same logic to exclude companies having extraordinary high turnover compared to the assessee. So far as learned Departmental Representative's contention that the assessee itself has selected Infosys as a comparable is concerned, we find merit in the contention of the learned Authorised Representative that the TPO cannot adopt a pick and choose method while selecting comparables, when he has rejected the entire transfer pricing study report of the assessee. The Co-ordinate Bench of the Tribunal in the case of Capital IQ Information Systems (India) (P) Ltd. (supra) held as under:- "The assessee has objected for these three companies being taken as comparables mainly on the ground that these companies are industrial giants considering their turnover compared to that of the assessee, whose turnover is only Rs. 60 crores. In this context, the assessee has referred to the annual turnover of these three companies, which are as below:- Company Turnover (Rs. in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gies Ltd.; and inclusion of Satyam Computers Services Ltd. in spite of the fact that its data is not reliable as publicly known. On the basis of these arguments, the DRP excluded the case of Satyam Computers Services Ltd., thereby reducing the arm's length margin to 25.6 per cent. It is argued that the case of the assessee is not comparable with Infosys Technologies Ltd., the reason being that the later is giant in the area of development of software and it assumes all risks, leading to higher profit. On the other hand, the assessee is a captive unit of its parent company in the USA and it assumes only limited currency risk. Having considered these points, we are of the view that the cases of the aforesaid Infosys and the assessee are not comparable at all as seen from the financial data, etc. of the two companies mentioned earlier in the order. Therefore, we are of the view that this case is required to be excluded.' Similar view has also been expressed by the Hyderabad Bench of the Tribunal in the case of Trinity Advanced Labs (P) Ltd. (supra). In the case of Genisys Integrating Systems India (P) Ltd. (supra), the Bangalore Bench of the Tribunal has observed in the follo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....old that companies having turnover of Rs. 1 crore to Rs. 200 crores alone can be considered as comparable, in the case of the assessee." Similar view was again reiterated by the Tribunal, Hyderabad Bench in case of Brigade Global Services (P) Ltd. (supra). Following the aforesaid decisions of Co-ordinate Bench, we hold that the Infosys Technologies and Wipro Ltd. cannot be taken as comparables in the case of the assessee. Accordingly, we direct the AO to recompute the ALP after excluding Infosys Technologies Ltd. and Wipro Ltd. as comparables. Hence, grounds raised on this issue are partly allowed. 10. In ground No. 12, the assessee has challenged the reduction of communication charges from export turnover without reducing it from total turnover while computing deduction under s. 10A of the Act. 11. On a perusal of the orders of the lower authorities, it is seen that in the draft assessment order while computing deduction under s. 10A, the AO reduced the communication charges from the export turnover without reducing it from the total turnover. The assessee challenged the same before the DRP. The DRP though accepted assessee's contention that all the judicial pronouncements ....