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TaxTMI 
TaxTMI 
TaxTMI 
2017 (3) TMI 1315
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....ircular No.12 dated 23-08-2011. 2. For these and such other reasons as may be urged at the time of hearing, the order of the Ld.CIT(A) may be vacated and that of the Assessing Officer be restored. 3. The appellant craves leave to add, amend, alter or delete any of the above grounds of appeal during the course of appellate proceedings before the Hon'ble Tribunal." 4. The only issue raised by the revenue in its appeal is against the order of CIT(A) in allowing the benefit of +/-5% on Arms Length Price. 5. Both the authorized representatives fairly admitted that the issue now stands covered against the assessee by the order of the Special Bench in M/s. IHG IT Services India Private Ltd. Vs. ITO in ITA No.5890/Del/2010 relating to A.Y. 2006-07 order dated 30-04-2013. 6. The Special Bench of the Delhi Bench of the Tribunal has held as under: "13. Coming back to the provisions of the Income-tax Act, we are of the opinion that after the retrospective amendment to the second proviso to section 92C(2) by the Finance Act, 2012, there remains no ambiguity that the benefit of tolerance margin is available only when the variation between the arm's length price as determined under secti....
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....he software development services of the Appellant, by rejecting companies that are otherwise functionally comparable to the Appellant and by inclusion of companies that otherwise fail the test of comparability. (c) Ignoring the limited risk nature of the services provided by the Appellant as detailed in the TP documentation and in upholding the conclusion of the learned AO that no adjustment on account of risk differential is required while determining the Arm's Length Price of the international transaction of the Appellant. (d) Not appreciating the nature of costs of the pre-operative expenses and upholding the approach followed by the learned AO regarding inclusion of pre-operative expenses as part of operating costs for the purpose of computation of return on total cost. 4. The learned CIT (Appeals) erred in upholding the charging of interest under section 234B and 234C of the Act. 10. Now coming to the appeal filed by assessee wherein various grounds of appeal have been raised, the Ld. AR for the assessee at the outset pointed out that the grounds of appeal No.1 and 3(a) are general in nature and hence the same are dismissed. Further, ground of appeal No.3(c) was claime....
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....g tax holiday under section 10A of the Act, was rejected by the Assessing Officer. 14. The next issue was in respect of rejection of certain comparable companies identified by assessee, wherein in the show cause notice, 15 companies out of 36 companies selected by the assessee were rejected by the Assessing Officer. The assessee raised objection to the exclusion of the said concerns which has been dealt in by the Assessing Officer elaborately. However, we are not making reference to the said decision in view of the confession of the assessee during the course of arguing present appeal, wherein it has only pleaded the exclusion of Infosys Systems Ltd. from the final set of comparables on the basis of turnover filter. The Ld. Authorised Representative for the assessee in this regard pointed out that the total turnover of the assessee was Rs. 2.18 crores whereas the turnover of Infosys Systems Ltd. was Rs. 69,522 crores and the brand name had a valuation of Rs. 915 crores, hence the said concern was not functionally comparable to the assessee. 15. The next aspect which was adjudicated by the Assessing Officer was the pre-operative expenses which were excluded by assessee for calcula....
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....me would go to the benefit of the company in the long run. Further, the administrative expenses on rent for premises, communication expenses, printing and stationery, legal and professional and other expenses including insurance charges, repairs and maintenance except preliminary expenses written off were held to be operating expenses and were to be included as integral part of the cost while determining operating profits of the assessee. The assessee had claimed that expenses incurred prior to the date of approval from STPI and commencement of its operations for rendering software development services to its parent company was the material date from which the AE had reimbursed the assessee's cost with markup. The said plea of the assessee was rejected and where the assessee was captive service provider, the Assessing Officer held it to be a risk mitigated. There was no merit in the exclusion of pre-operating expenses which were going to benefit its operation in India. Referring to the terms of the contract, the Assessing Officer pointed out that the term, cost, was to exclude non-operating expenses and not preoperating expenses. Another aspect noted by the Assessing Officer was th....
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.... the turnover of the said concern was huge as against the total turnover of the assessee at Rs. 2.18 crores the said concern was not functionally comparable. 18. The Ld. Authorised Representative for the assessee elaborately took us through the terms of agreement entered into between the assessee and its AE wherein it was provided that the agreement would be operational only from the date of approval from the STPI and it was also provided that the cost which is to be reimbursed to the assessee with markup by its AE, would not include pre-operative expenses. The Ld. Authorised Representative for the assessee pointed out that the STPI approval was w.e.f. 01-07-2005 and the assessee started doing its work w.e.f. 01-07-2005. He further pointed out that the statement of work entered between the assessee and its AE though dated 01-07-2005 but was executed on 28-09-2005. The Ld. Authorised Representative for the assessee pointed out that there was no dispute of dates. Our attention was drawn to the list of pre-operative expenses placed at page 40 of the assessment order and he pointed out that the assessee had set up its business which had started but the assessee did not render any serv....
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.... S-Software Development Services for Rs. 2.18 crores. The assessee claimed that it was providing Software Development Services to its Associated Enterprises based on service agreements which were entered into between the assessee and Amberpoint Inc., USA and was being compensated on total cost plus markup. 23. The Ld. Authorised Representative for the assessee pointed out that the Transfer Pricing adjustment was made by the Assessing Officer by picking up fresh comparables resulting in adjustment of Rs. 60,44,269/-. The limited plea which was raised before us during the course of argument was that in case the margins of Infosys Technologies Ltd. are excluded from the final list of comparables, then the margins shown by the assessee are within +/-5% and no adjustment is to be made in the hands of the assessee accordingly. The case of the assessee before us is that in case the turnover filter is applied, then Infosys Technologies Ltd. having huge turnover cannot be compared with the assessee. The turnover of the assessee for the year under consideration was Rs. 2.16 crores as against the turnover of Infosys Systems Ltd. at Rs. 69,522 crores and the valuation of the branch was Rs. 91....
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....to its Associated Enterprises only from 01-07-2005, and was reimbursed the said cost with markup from 01-07-2005, then the said cost becomes the operating cost of the assessee for working the PLI of the assessee for the year under consideration. 27. A perusal of the agreement reflect that the term "projects" is defined by clause 1.1.7 to meant the working as described in a particular statement of working. Clause 1.1.8 defines services to mean production of computer software, design, analysis etc. which 'services' and duties were to be provided to Amberpoint Inc., USA under the agreement, and in a statement of working issued under this agreement. Clause 1.1.6 defines the 'margins' to be 11% as markup of cost. Further, cost is defined under clause 1.1.2 of the agreement to mean the total cost, including foreign exchange gain/loss, operating expenses incurred by Amberpoint Inc., USA in respect of projects but excluding tax and non operating expenses. The agreement between the parties were to come into effect on the receipt of registration under the STPI scheme as per clause 1.2.4 of the agreement. 28. The assessee before us was incorporated in January 2005 but it started providing s....