TaxTMI 
TaxTMI 
2016 (8) TMI 1243
X X X X Extracts X X X X
X X X X Extracts X X X X
....ngth price ('ALP') and the methodical benchmarking process carried out by the appellant in the Transfer Pricing ('TP') documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ('Rules'); 3. requiring financial data of only the current year (FY 2007-08) of the comparable companies to be used for bench marking the Appellant's international transactions; 4. rejecting one comparable of the appellant (i.e. Neeman Medical Intl. (Asia) Ltd. Clinical Research) on the ground that it is having significant related party transactions; 5. identifying 4 fresh comparable companies (i.e. M/s Mindtree Limited- R&D segment, Transgene Biotek- Diagnostic Segment, IDC (India) Limited and M/s Celestial Labs Limited) which are functionally not comparable to the appellant. Ld. TPO has erred in making an incorrect comparison of the appellant's activities vis-a-vis those performed by the comparables; 6. the learned AO be directed to grant (+1-) 5% benefit as available under proviso to Section 92C(2) of the Act. 7. disregarding the claim of the appellant of Rs. 33,22,798/- to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee FY 2006-07 1 Business development and Procurement Services (Receipt) 2,02,84,887 TNMM 3,36,96,649 2 Contract Research and Testing Services (Receipt) 44,75,99,531 TNMM 39,80,98,772 3 Pharmacovigilance Related Support Services (Receipt) 23,23,561 TNMM NA 4 ECB Loan Interest (Payment) 86,15,111 CUP 2,18,14,215 5 Reimbursement of personnel, travel Expenses, Recovery of Interest on Security Deposit. Recovery of Depreciation and Interest on the car (Receipt) 1,91,71,387 CUP 1,80,36,874 Total 49,79,94,477 47,16,46,510 The assessee, in its Transfer Pricing Study Report, had benchmarked the second nature of transactions, that is, provision of contract research and testing services by adopting TNMM as Most Appropriate Method (MAM) and PLI as operating profit to total cost. For benchmarking the transaction, the assessee has carried out detailed search process and had identified 9 comparable companies with the following PLI of the financial year 2007-08:- S. No. Name of the Comparable Company Updated PLI for FY 2007-08 % 1 Alphageo (India) Ltd. 40.27 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... following the earlier precedence, same should be excluded. As regards Transegene Biotek Ltd. Diagnostic segment he submitted that, this comparable has IPR worth Rs. 99.6 crores whereas, the assessee is operating as a cost plus company and, therefore same cannot be taken as a comparable. 8. On the other hand, Ld. CIT DR, Mr. N.K. Chand submitted that, the services rendered by the assessee are high end services which involve providing high level research work, business development, technical services and various high end support services to its AE in the field of pharmaceuticals. Thus, the very nature of services undertaken by the assessee involves creation of IPR. The assets employed are for high end activities. Hence huge intangibles are created during the course of rendering of services to the AE which leads to creation of IPR to the AE. Thus, the submission of the ld. Counsel regarding Transegenic Biotek cannot be sustained. He further pointed out that Transgene Biotek Limited was a comparable chosen and included by the assessee in the earlier year as in that year its margin was at 10.78% and now in this year assessee is pleading for exclusion because in this year margin i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mpanies and has given a concrete conclusion for exclusion. The Tribunal first of all has analyzed the services and functions carried out by the assessee and, thereafter have analyzed the various comparables for accepting and rejecting the same. The relevant findings of the Tribunal with regard to these comparables are as under:- "3. IDC (India) Limited (IDC): IDC primarily undertakes research and survey services for products. IDC research documents cover areas like Enterprise Management Applications, Broadband, Internet and eBusiness, Mobile Usage, IT Service Exports and Continuous Market Review of Computing and Peripheral Products. Such research reports provide market forecasts, competitive analyses, vendor profiles, and information on customer requirements and buying patterns. Further, the areas of research include Communication Services Broadband Business, Network Services, IP based services, residential small business and wireless communications. The products and services of IDC consist of the following: - Customized Services: IDC delivers strategic and tactical research, and consulting services to support the development and implementation of business strateg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onsulting with our Ayurvedic consultants. It provides excellent platform for trading of herbal products, with identification of raw herbs, scientific data, market & trade data, monographs, policy, laws, good manufacturing practices, DNA finger printing etc. It facilitates contacts with suppliers, manufacturers and dealers of herbal Pharma industry. The activities undertaken Celestial Labs are in the nature of providing host of IT related services and some trading activity which is not comparable to the Assessee. Hence it is clear that it is not comparable to the functional profile of the Company and accordingly ought not to be considered a comparable The learned D.R. however drew our attention to page- 389 of the paper book which is an extract from the Directors report which reads as follows: "The Company has developed a de novo drug design tool "CELSUITE" to drug discovery in, finding the lead molecules for drug discovery and protected the IPR by filing under the copy if right/patent act. (Apprised and funded by Department of Science and Technology New Delhi) Based on our in silico expertise (applying bioinformatics tools). The Company has developed a molecule to tr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....The relevant extract has been provided below for ready reference: "The diversified focus in the R&D Services Business into various verticals, such as Communication, Industrial Automation, Automotive and Avionics. Storage and Systems, Semi Conductor, Wireless and Consumer Electronics had shown results in 2006-07 as well" As per the website of the company, the services in this segment consist of the following departments: IP Led Services - The department offers research that focuses on creating long term technology innovation and licensable intellectual properties with applicability across industry groups. Semiconductor and Hardware Engineering - The department provides product realization and feasibility services, as well as high-speed interface design, helping its clients assess the right electronic architectures and design high-speed hardware interfaces. It helps its customers at any stage of ASIC/SoC development from concept to silicon. These services offered on an individual as well as on a turnkey basis. Software Engineering - The department set of skills spanning from embedded software to application software needed for product realization. This, couple....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee has challenged the disallowance of 'Microsoft License fee' by treating it as capital expenditure. 14. Brief facts qua the issue are that, the assessee has debited an amount of Rs. 41.95 lakhs under the head "Annual Software License Fees". During the course of the assessment proceedings, the assessee was required to furnish the details of the said expenditure along with copies of bills/invoices. In response, the assessee vide letter dated 13.10.2011 had furnished the party-wise details along with the amount and the purpose for which the payment was made. However, the AO initially noted that no bills and invoices were enclosed. He further noted that, the major expense has been incurred for making the payment to one party namely, M/s Nirmal Computers, the details of which were as under:- Sr. No. Name Amount Purpose 01 Nirmal Computers 31,54,666 Desktop Pro Lic/ SA Pack OVL 02 Nirmal Computers 62,400 MS Win 2003 Svr Std R2 OVL 03 Nirmal Computers 21,146 Ms Exchange 2003 Std Svr OVL 04 Nirmal Computers 84,586 M/s Share point server software TOTAL 33,22,798 He observed th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....irst time then how software which has been purchased onetime can be treated as revenue expenditure. If any license of software is made on annual basis and thereafter it is renewed then it can be reckoned as revenue expenditure but not on onetime license fee payment. 18. We have heard the rival submissions and perused the relevant material on record. We find that, assessee has made payment for procurement of Microsoft Licenses and the license cost was apportioned for period of 3 years and this was the first year in which the amount of Rs. 33,22,798/- was incurred. Three types of licenses were taken which were used for Server, Desktop computers, laptops etc. the details of these license given before the authorities below were as under: "1.4 Under Item No.1 of invoice, 250 official Microsoft Enterprises 6 licenses were been taken for Pro Desktop listed Licenses / SA Pack MVL. It is for the most current versions of MS Office Professional Windows Desktop, including of Windows NI Workstation and the BackOffice Client Access for the existing Desktop Computers and Laptops, which were procured and installed in the earlier years and used in the Research & Analytical Labs, Develop....