2016 (9) TMI 1279

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....me of the Appellant. 2. That on facts and circumstances of the case and in law, Learned CIT(A) erred in rejecting the Transfer Pricing documentation prepared by the Appellant as required under the provisions of the Act and Income-tax Rules, 1962 ("the Rules"). 3. That on facts and circumstances of the case and in law. Learned CIT(A) ought to have appreciated that the Appellant is a captive service provider, carrying out limited functions and assuming limited risks. 4. That on facts and circumstances of the case and in law, Learned CIT(A) erred in confirming/upholding the comparable set selected by the Learned AC while conducting the benchmarking analysis. Learned CIT(A) ought to have appreciated that the Learned AO erred: By identifying fresh comparable companies and rejecting the search process carried out by the Appellant, without giving adequate reasons for the rejection. By rejecting certain functionally similar comparables considered by the Appellant. 5. That on facts and circumstances of the case and in law, Learned CIT(A) erred in upholding the action of the Learned AO by not providing back-up documentary evidence of the ....

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.... grounds are dismissed as "not pressed". 4. Grounds no.4, 6 and 11, relate to transfer pricing issues. 5. Brief facts are, the assessee an Indian company is engaged in providing software development service to its Associate Enterprises (A.E). For the assessment year under consideration assessee filed its return of income on 30th September 2009, declaring total income of Rs. 2,72,98,249. During the assessment proceedings, the Assessing Officer on verifying return of income filed by the assessee along with audit report in Form no.3CEB found during the relevant previous year assessee had earned revenue of Rs. 16,80,40,486 from international transaction in the nature of provisions of software development service to its A.E. He further found that the assessee has bench marked its international transaction with its A.E. by applying Transactional Net Margin Method (TNMM) as the most appropriate method with Operating Profit/Operating Cost as Profit Level Indicator (PLI). For comparative analysis, assessee had used 13 companies as comparables on the basis of multiple year data and the average margin of the comparable companies being 7.43% as against the margin of 8.64% shown by the as....

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....ed Commissioner (Appeals), assessee is in appeal before the Tribunal. 8. Learned Authorised Representative, Shri Ajit Jain, appearing for the assessee confined his argument to selection/rejection of certain comparables by the learned Commissioner (Appeals). Herein after we will deal with each of the comparables objected to by the assessee. Acropetal Technologies Ltd. 9. The learned Authorised Representative objecting to selection of this company submitted, the company is involved in development of product, hence, cannot be considered as comparable. In this context, the learned Authorised Representative referring to the audited financials of the company and more specifically to Balance Sheet of this company as at 31st March 2009, submitted that the company has shown inventories which implies that it is in manufacturing of products. Therefore, it cannot be treated as comparable to the assessee. In support of this contention, the learned Authorised Representative relied upon the decision of the Tribunal, Mumbai Bench, in Ness Technologies India Pvt. Ltd. v/s CIT, ITA no.7016/Mum./2012, dated 24th September 2014. The learned Authorised Representative further submitted, for the....

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....relied upon the observations of the Assessing Officer and the learned Commissioner (Appeals). 14. We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon. On a perusal of the annual report of this company for the financial year 2008-09, we have noted that as per director's report of the company, it is engaged in providing open and end to end web solution, off-shoring data management, data warehousing, software consultancy, design and development of solution, using the latest technologies. Thus, looking at the activities carried on by this company, it is evident, though, it has reported only one segment, namely, software development but it is involved in various activities including product development. However, it has not done segmental accounting for each of the activities. We have further noted that for the reason that the aforesaid company is involved in product development the Tribunal in the decisions relied upon by the learned Authorised Representative has excluded this company as a comparable. As these decisions of the Tribunal are for the very same assessment year, respectfully following the....

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....ude this company from the list of comparables. Soft Sol Ltd. 18. Objecting to selection of this company, the learned Authorised Representative submitted that related party transaction of the company for the relevant financial year amounted to 60.93% of the total sales. He submitted, though, this fact was demonstrated before the learned Commissioner (Appeals) and the Assessing Officer consequential relief has not been granted to the assessee. 19. The learned Departmental Representative fairly submitted, if the RPT of the company is more than the threshhold Limit of 25% it cannot be treated as a comparable. 20. We have considered the submissions of the parties and perused the material available on record. The specific grievance of the assessee even before the Departmental Authorities was, the RPT of this company as a percentage of sale is 61%, hence, it cannot be treated as comparable. Considering this submission of the assessee, the learned Commissioner (Appeals) directed the Assessing Officer to verify this aspect. We have noted, in response to query raised by the Assessing Officer in pursuance to the direction of the learned Commissioner (Appeals) on 1st February 2013,....

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.... adjudicate the issue arising out of exclusion of these loss making companies by the learned Commissioner (Appeals) as it is of mere academic interest. However, it will be open for the assessee to raise this issue in future, if need be, in an appropriate case. The Assessing Officer is directed to compute ARM'S LENGTH PRICE afresh in terms with our direction given above. 22. In view of our aforesaid decision, grounds no.6 and 11 having become infructuous need not be adjudicated upon. 23. In ground no.12, the assessee has challenged disallowance of Rs. 2,53,936, being provisions of expenditure. 24. Brief facts are, during the assessment proceedings, the Assessing Officer on verifying the accounts found that the assessee has made provisions of professional fees of Rs. 2,53,936 and claimed it as deduction. The Assessing Officer disallowed assessee's claim firstly on the ground that it has not been actually paid during the year and secondly the assessee has not deducted tax at source on such payment. The learned Commissioner (Appeals) also sustained the disallowance. 25. The learned Authorised Representative submitted before us that the assessee has offered the said amou....