TaxTMI 
TaxTMI 
2016 (4) TMI 1223
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....g Officer made reference to ld. TPO u/s 92CA of the Income Tax Act for determining ALP of following international transactions:- No Nature of transaction Approach to taxpayer Value of transaction 1. Provision of software development TNMM OP/OC 652368738 2. services Payment of outsourcing costs TNMM OP/OC 188540410 3. Availing of management services BNR NA 8463788 4. Payment of lease rent BNR NA 5103182 5. Purchase of fixed assets CUP NA 267189 6. Reimbursement of expenses to AEs BNR NA 7256398 7. Payment of royalty for using brand name CUP NA 772629 3. Vide order dated 18.01.2013 ld. TPO computed Arm's length price with respect to software development services of Rs. 651522156/- at Rs. 736907605/- and proposed an adjustment of Rs. 85385449/-. The assessee filed an objection before DRP on 30.04.2013 against the draft assessment order passed by ld. Assessing Officer on 28.03.2013. Ld. DRP issued directions u/s 144C(5) of the Act on 20/12/20....
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....ccepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Income Tax Rules'1962 ("IT Rules"), and conducting a fresh economic analysis for the determination of the arm's length price ("ALP") of the Appellant's international transactions and holding that the international transactions are not at arm's length. 3.5 That the TPO/ DRP erred on facts and in law by arbitrarily applying turnover filter of Rs. 5 crores for selecting / rejecting the comparable companies. 3.6 That the TPO / DRP erred on facts and in law in adopting additional filter of export sales lessthan 75% of total sales without demonstrating the difference in profits earned by the/Com parable companies operating in Japan vis-a-vis other geographies. 3.7 That the DRP has failed to provide reasons for concluding that use of diminishing revenue trend as a rejection criterion by the TPO is appropriate, thereby ignoring the detailed submissions of the Appellant. 3.8 That the TPO/ DRP erred by applying employee cost greater than 25 percent of the total operating costs as a comparability criterion. 3.9 That ....
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.... / DRP erred on facts and in law by disregarding thefunctional profile of the comparable companies and resorting to cherry picking of the comparable companies in the final set of comparablecompanies and resorting to selection of companies which are functionally different to the Appellant. 3.17 That the TPO / DRP have erred by selecting certain companies which are earning super normal profits as comparable to the Appellant. 3.18 That the TPO / DRP erred on facts and in law in not considering foreign exchange gains or loss as part of the operating income or expense for computation of operating profit margin for undertaking benchmarking analysis applying TNMM. 3.19 That the TPO / DRP erred on facts and in law in arbitrarily considering- incorrect profit margin of certain comparable companiesas well as the Appellant. Name of the company Margin considered by TPO Actual margin Sasken Communication Technologies 51.44 27.74 Thirdware Solution 37.27 28.33 Goldstone Technologies Ltd. 10.28 -23.26 LGS Global Limited 18.79 18.05 Thinksoft Global Services Limited 16.56 16.27 ....
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....etween any expenditure incurred and exempt dividend income. 5. That the assessing officer erred on facts and in law in levying interest under Section 234B and Section 234c of the Act. The appellant craves leave to add, amend, alter or vary, any of the aforesaid grounds of appeal before or at the time of hearing of the appeal and consider each of the grounds as without prejudice to the other grounds of appeal. 5. Ground Nos.1 and 2 are general in nature and therefore they are dismissed. 6. Ground No.3 to 3.24 are related to transfer pricing issue with respect to adjustment of Rs. 60772255/-. 7. Brief facts of the case is that in the TP Study report assessee has determined arm's length price of its international transactions applying TNMM method as the most appropriate method and selected 20 comparables adopting operating profit/ cost as the PLI where the arithmetic mean of comparables was 14.13% compared with PLI of the assessee which is 14.23%. . Therefore according to the appellant international transactions were at arm's length. Subsequently, TPO selected 16 comparables whose arithmetic mean of PLI OP/TC was computed at 28.74% and determined adjustment at R....
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....wess' and they are not as per the balance sheets of the comparables. Before us he has submitted a chart wherein he has demonstrated that many of the figures taken by the ld. TPO are not according to the balance sheet of the comparable company. Therefore he submitted that working capital adjustment should be allowed based on the balance sheets of the comparables for the relevant period. c. Regarding the comparable of Goldstone Technologies Ltd he submitted that this comparable should be excluded and for this he relied on the order of Hon'ble Delhi High Court dated 28.09.2015 in case of Principal CIT Vs. Pitney Bowes Software India Pvt. Ltd. wherein it has been held that this comparable is to be excluded for the reason that it shows segmental results of its US operation and secondly the basis for allocation of cost and computation of profit of segments are not clear and therefore this comparable is inappropriate. Therefore he submitted that this comparable should be excluded. 10. The ld DR on the above issue relied on the orders of ld. TPO and ld. DRP. 11. We have carefully considered the rival contentions and our decision and their reasons are as under:- 12....
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....he assessee. 15. The assessee has objected to the selection to the comparable of Goldstone Technology Ltd relying on the decision of Hon'ble Delhi High Court in case of Principal CIT Vs. Pitney Browess Software India ltd. ITA No.681/2015 wherein it has been held with respect to this comparable for the AY 2009-10 that is the same assessment year as under:- "7. Having considered the above submissions and having examined the orders of the TPO the DRP as well as the ITAT, this court is not persuaded that the impugned order of the ITAT suffers from any illegality. The view taken by the ITAT that markets in the IS and the India were fundamentally different and, that the results of the Indian segment of the US operations of Goldstone Technologies constituted an inappropriate a comparable cannot be said to be perverse. The view of the ITAT that basis of allocation of costs and, therefore, the working of the profits was also not clear, is another aspect on which the court is unable to hold that the impugned order of the ITAT is perverse. The ITAT has passed the impugned order after examining all the relevant materials." 16. In view of the decision of Hon'ble Delhi Hig....
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....satisfaction if he was unsatisfied with any incorrect claim of the assessee including non-disallowance. If he failed to record such a finding then it cannot be said that he rightly invoked provision of section 14A of the act for application of rule 8D.In view of above judicial pronouncement of Hon'ble Delhi High court we direct LD AO to delete the disallowance of Rs. 237585/- u/s 14A of the Act. Therefore ground no 4 of the appeal of the assessee is allowed. 22. Ground No 5 of the appeal of the assessee is against the charging of interest u/s 234B and 234C of the act which are consequential in nature and hence this ground of appeal is dismissed. 23. In the result appeal of the assessee in ITA No 926/ Del /2014 is partly allowed. 24. Now we come to the Appeal of the Assessee in ITA No.2776/Del/2015 which is filed against the order u/s 154 of the Income Tax Act dated 20.04.2015. The brief facts of the case is assessee moved an application before the ld. DRP u/s 154 of the Act on 02.04.2014 requesting rectification of its directions issued on 20.12.2013 of the Act. The mistake apparent from the record pointed out by the assessee and therefore ld. DRP passed an order u/s 1....
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.... Software Technologies Ltd 9.23% 9.12% Aztechsoft Ltd 28.59% 25.95% Cat Technologies 35.19% 11.76% Goldstone technologies 11.54% -36.30% Infosys Technologies Ltd 40.61% 39.48% Larsen & Toubro Infotech Ltd 22.54% 20.45% LOS Global Ltd 15.10% 13.08% Mindtree Ltd 28.52% 25.92% Persistent Systems Pvt Ltd 38.48% 37.46% RS Software India Ltd 11.96% 11.94% Sasken Communication Technologies 28.26% 26.40% Tata Consultancy Services 32.70% 29.43% Tata Elxsi 20.03% 16.10% Thinksoft Global Services Ltd 15.08% 14.13% Thirdware Solutions Ltd 36.85% 35.96% Average 24.98% 18.73% 2.3 That the TPO / DRP erred on facts and in law by failing to appreciate the commercial expediencies surrounding the international transaction pertaining to provision of software development services. 2.4 That the TPO / DRP erred on facts and in law by failing to appreciate the corroborative analysis performed using Comparable Uncontrolled Price ("CUP....