TaxTMI 
TaxTMI 
2017 (11) TMI 1473
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.... The learned AO/Transfer Pricing Officer (hereinafter referred to as "TPO") erred in computation of Arm's Length Price (hereinafter referred to as "ALP") which has resulted in a proposed addition of Rs. 1,07,20,111/- and the Hon'ble DRP in confirming the same. In doing so, they have grossly erred: a) by not appreciating the fact that none of the conditions set out in Section 92((3) of the Income Tax Act, 1961 (hereinafter referred to as "Act") are satisfied; b) by making a reference without recording any reasons based on which he reached the conclusion that it was 'expedient and necessary' to refer the matter to the learned TPO for computation of the arm's length price, as required under section 92CA(1) of the Act; c) by ignoring the fact that the Appellant is entitled to tax holiday under section 10A of the Act on its profits and therefore would not have any untoward motive of deriving a tax advantage by manipulating transfer prices of its international transactions; d) by undertaking the fresh search for comparability analysis as on November 25, 2010, which is beyond the date of compliance resulting in 'Impossibi....
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....nt K India Pvt. Ltd., the taxpayer is an IT Service provider to EK USA and claimed to have been providing design and development support services for online courseware to its parent company. The taxpayer provided services at an agreed cost plus mark up. During the year under assessment, the taxpayer entered into international transactions as under :- Provision of courseware development services 15,44,23,557 Cost recharges 12,11,863 5. The taxpayer in its TP study adopted Transactional Net Margin Method (TNMM) as Most Appropriate Method (MAM), Operating Profit / Total Cost (OP/TC) as the Profit Level Indicator (PLI) and computed its OP/TC at 12.36% by using current year data and found its international transactions qua provision of contract content / online courseware development services at arm's length. Ld. TPO selected 21 comparables for benchmarking the international transactions out of which the ld. DRP has rejected two comparables and computed the OP/OC at 22.16% and made transfer pricing adjustment at Rs. 1,07,20,111/-. In compliance to the order passed by TPO/directions issued by ld. DRP, AO computed the assessment. 6. The taxpayer carried the matter by way....
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....16% Less : Working capital adjustment (Annexure-C) : (1.05%) Adj. Arithmetic mean PLI : 27.21% 22.6 Price received vis-à-vis the Arm's Length Price : The price charged by the tax payer to its Associated Enterprises is compared to the Arms Length price as under :- Arms Length Price @ 127.21% of operating cost Rs.171,970,580 Price charged in the international transaction Rs.154,423,557 Shortfall being adjustment u/s 92CA Rs.17,547,023 The above shortfall of Rs. 17,547,023 is treated as transfer pricing adjustment u/s 92CA." 12. Now, we would examine the suitability of comparables viz. Infosys Technologies Limited, Kals Information Systems, Tata Elexi Ltd. and Wipro Limited for benchmarking the international transactions qua provision of contract content/online courseware development services one by one. 13. Ld. AR for the taxpayer contended that all the four comparables now sought to be excluded for benchmarking the international transactions were ordered to be excluded by the coordinate Bench of the Tribunal in taxpayer's own case for AY 2007-08 order dated 14.11.2014 by following the order passed by T....
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....ny having same profile as that of the taxpayer on the same ground. So, following the order passed by the coordinate Bench of the Tribunal in taxpayer's own case for AY 2007-08, we hereby order to exclude KALS from the final list of comparables. TATA ELXSI LTD. (SEG.) (TATA) 19. The taxpayer sought exclusion of TATA on the ground that it is into creation of intellectual properties and its R&D expenses account for 3.39% of sales which does not pass the R&D filter applied by the taxpayer in its TP study. The TATA is having turnover of Rs. 4015.51 crores and net fixed assets of Rs. 9881.91 crores which is 246% of the size of the taxpayer. TATA also come up for scrutiny as a comparable in taxpayer's own case for AY 2007-08 and the coordinate Bench of the Tribunal ordered to exclude the same from the final list of comparables on account of its distinct activities as it is into development of hardware and software for embedded products, such as multi media and some other electronic etc.; and it is also engaged into making some programmes developing technology and is having huge intellectual property. So, keeping in view the distinct activities being carried out by the TAT, it cannot....