AI Drafter 
TaxTMI 
TaxTMI 
2016 (7) TMI 1445
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....with section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the 'Act'), in pursuance of the directions issued by the Hon'ble Dispute Resolution Panel (hereinafter referred to as the 'Hon'ble DRP'). On the facts and in the circumstances of the case and in law, the learned AO/ Deputy Commissioner of Income-tax - Transfer Pricing 11(10) (hereinafter referred to as the 'learned TPO')l Hon'ble DRP: General 1. erred in making an addition of Rs. 82,0 1,497 to the total income of the Appellant; Rejection of economic analysis 2. erred in making an addition of Rs. 8,45,126 by not accepting the economic analysis undertaken by the Appellant for the international transaction of provision of IT and network support services provided to its AE; 3. erred in rejecting companies considered as comparable by the Appellant without providing sufficient opportunity to be heard; Undertaking fresh economic analysis and use of contemporaneous data; 4. erred in undertaking fresh comparability analysis post specified date; 5. erred in collating and relying on the information obta....
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....d in considering incorrect taxable income for computing interest under section 234A of the Act." 3. Ground no.1 being general in nature, no specific adjudication is required. 4. At the instructions of the assessee, learned Authorised Representative did not press grounds no.14 and 15. Hence, these grounds are dismissed as "not pressed". 5. Out of rest of the grounds, grounds no.2 to 12 are arising out of transfer pricing adjustment relating to information technology and network support service (soft development services). 6. Brief facts relating to this issue are, assessee an Indian company is a wholly owned subsidiary of M/s. UCB-SA, Belgium. Assessee is primarily engaged in the business of manufacturing and distribution of pharmaceutical products. It also provides information technology and network support services to its Associate Enterprises (A.E). Since the dispute in the present appeal is confined to the transfer pricing adjustment in relation to provisions of information technology and network support services, we will limit our discussions to that issue alone. As stated herein before, the assessee during the relevant previous year had provided information technol....
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....see and proceeded to determine arm's length price independently. Though, the Transfer Pricing Officer accepted TNMM as most appropriate method with OP/OC as PLI, however, by applying some fresh set of filters, he searched data bases to select comparables. The search in data bases conducted by the Transfer Pricing Officer yielded 23 companies as comparables with arithmetic mean of 24.99% as against margin shown by assessee at 13.97%. By applying arithmetic mean of the comparables to the operating cost, the Transfer Pricing Officer determined the arm's length price of the I.T. relating to provisions of international transaction and software support services to A.E. at Rs. 95,84,221, as against the price charged by the assessee of Rs. 87,39,095. Resultant shortfall of Rs. 8,45,126 was treated as I.T. adjustment. In terms with the order passed by the Transfer Pricing Officer, the Assessing Officer framed the draft assessment order by adding the amount of Rs. 8,45,126. Being aggrieved of such addition assessee filed his objections before the DRP. 7. DRP, as per the reasons recorded in Para-4.3 of its order, upheld the transfer pricing adjustment save and except the obse....
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....velopment of products. In this context, he referred to the Profit & Loss account of the company. Further referring to the Balance Sheet of the company learned Authorised Representative submitted, the company has shown brand value as its intangible asset. The company has significant R&D activity leading to creation of intellectual property right. He, therefore, submitted under no circumstances, it can be treated as a comparable. He submitted, even otherwise also, as the company is having a turnover of Rs. 15,653 crore it is a giant company, hence, cannot be compared to a captive service provider like the assessee. For such proposition, he relied upon the following decision:- i) IBM India P. Ltd. v/s JCIT, IT(TP)A no.1543/Bang./2012, order dated 20.12.2013; ii) Barclays Technology Centre India Pvt. Ltd. v/s ACIT, ITA no.2279/Pn./2012, dated 30.10.2014; iii) Adaptec India P. Ltd. v/s ACIT, ITA no.206/Hyd./2014, dated 25.03.2015; iv) 3DPLM Software Solutions Ltd. v/s DCIT, ITA no.1303/Bang./ 2012, dated 28.11.2013; v) Capgemini India P. Ltd. v/s ITO, ITA no.7099/Mum./2012, 10.12.2015; vi) Net Cracker Technology Solutions (I) P. Ltd.....
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....ion contained in website of the company a copy of which is at page-473 of the paper book. In support of his contention, he relied upon the following decisions:- i) Barclays Technology Centre India Pvt. Ltd. v/s ACIT, ITA no.2279/Pn./2012, dated 30.10.2014; ii) 3DPLM Software Solutions Ltd. v/s DCIT, ITA no.1303/Bang./ 2012, dated 28.11.2013; iii) Net Cracker Technology Solutions (I) P. Ltd. v/s ACIT, ITA no.86/Hyd./2013, 17.6.215; KALS INFORMATION SYSTEMS LIMITED 14. Objecting to selection of this company, the learned Authorised Representative submitted that this company is into provision of software development services as well as sale of software products. In this context, he referred to note to the financial statement forming part of annual report of the company. He submitted, segmental details are also not available. Learned Authorised Representative referring to the Balance Sheet of the company as at 31st March 2008, submitted the very fact that it has shown inventories signifies development of products. To substantiate such contention, he also referred to the information submitted in the website of the company a screenshot of which is at Page-....
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....oftware Solutions Ltd. v/s DCIT, ITA no.1303/Bang./ 2012, dated 28.11.2013; iii) Capgemini India P. Ltd. v/s ITO, ITA no.7099/Mum./2012, 10.12.2015; iv) Net Cracker Technology Solutions (I) P. Ltd. v/s ACIT, ITA no.86/Hyd./2013, 17.6.215; v) LGS Global Ltd. v/s ACIT, ITA no.1885/Hyd./2011, dated 27.6.2014; vi) Adaptec India P. Ltd. v/s ACIT, ITA no.1758/Hyd./2012, dated 21.3.214 17. Learned Departmental Representative raising preliminary objection in respect of assessee's objection to Infosys Technologies Ltd., submitted, this company was selected by the assessee in transfer pricing study as well as on the basis of single year updated margin before the Transfer Pricing Officer. He submitted, at no stage, assessee objected the selection of Infosys Technologies Ltd. Therefore, without raising an additional ground in terms of rule 11 of I.T. (AT) Rule, 1963, it cannot raise the issue at this stage. He submitted, the assessee while selecting comparables in its transfer pricing study has not applied the turnover filter which is evident from the fact that the assessee itself selected Infosys Technologies Ltd. Learned Departmental Representative subm....
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....Representative in relation to the website information submitted in paper book, learned Authorised Representative submitted, not only they are available in public domain and must have been in the records of the Transfer Pricing Officer but the Transfer Pricing Officer also collected information under section 133(6) from these companies which were never confronted to the assessee. He further submitted, the information obtained from the website of the comparables were relied upon by the assessee before the DRP and the data contained therein are contemporaneous. He, therefore, submitted, the objection of the learned Departmental Representative being without any basis is not acceptable. 19. We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon. The contention of the learned Authorised Representative is twofold. Firstly, he has submitted that companies having turnover of more than Rs. 20 crore should be excluded as the assessee has turnover of Rs. 87,39,095 only. The second contention of the learned Authorised Representative is certain companies being involved in development of products, cannot be treat....
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....ubt, the assessee in the transfer pricing study and even in the course of proceedings before the Transfer Pricing Officer has selected Infosys Technologies Ltd. as a comparable. However, fact remains the transfer pricing study report as well as the updated margin submitted by the assessee in the course of proceedings before the Transfer Pricing Officer were rejected. It is further evident, after rejecting the transfer pricing study report, the Transfer Pricing Officer undertook a search process himself by applying certain filters which yielded certain comparables including Infosys Technologies Ltd. Therefore, it cannot be said that Infosys Technologies Ltd. is a comparable selected by the assessee. The observations made by the Transfer Pricing Officer in Para-5.3 of his order clearly prove that Infosys Technologies Ltd., was proposed as comparable by the Transfer Pricing Officer after search in data base. Moreover, we have noted that not only before the Tribunal but before the DRP also the assessee had objected to wrong application of turnover filter by the Transfer Pricing Officer. This is evident from Para-4.2 of DRP's order. Therefore, as borne out from the record, for the first....
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....any as a comparable as it is engaged in the clinical research and manufacture of bio products and other products. The same view was again reiterated by the Tribunal, Bangalore Bench, in DPLM Software Solutions Ltd. (supra). As these decisions pertain to the very same assessment year respectfully following the same, we hold that Celestial Biolabs Ltd. cannot be treated as a comparable. Kals Information Systems Limited 25. On a perusal of the annual report of this company for the assessment year under consideration, it is noticed that the company itself has admitted that it derives revenue from software services and software products. However, it has not maintained segment-wise details. The inventories shown in the Balance Sheet signifies development of products. The information contained in the website of the company also reveals that the company is developing product. Considering the aforesaid aspect, the Tribunal, Pune Bench, in Barkley Technology Centre India P. Ltd. (supra) excluded this company from being treated as a comparable. The other Benches of the Tribunal also expressed similar view in the following cases:- i) IBM India P. Ltd. v/s JCIT, IT(TP)A no.....
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....e comparable to a purely captive software development services provider. In this context, we refer to the following decisions:- i) IBM India P. Ltd. v/s JCIT, IT(TP)A no.1543/Bang./2012, order dated 20.12.2013; ii) 3DPLM Software Solutions Ltd. v/s DCIT, ITA no.1303/Bang./ 2012, dated 28.11.2013; iii) Capgemini India P. Ltd. v/s ITO, ITA no.7099/Mum./2012, 10.12.2015; iv) Net Cracker Technology Solutions (I) P. Ltd. v/s ACIT, ITA no.86/Hyd./2013, 17.6.215; v) Adaptec India P. Ltd. v/s ACIT, ITA no.1758/Hyd./2012, dated 21.3.214 29. Therefore, following the decision of the Co-ordinate Bench of the Tribunal which are relating to the same assessment year, we direct exclusion of Wipro Ltd. Infosys Technologies Limited 30. After perusing information contained in annual report of this company as well as other documents placed before us we are convinced that this company under no circumstances can be treated as comparable to the assessee as not only it has diversified activities and involved in development of software as well as products which is evident from the intangible owned but economies of sales, brand value R&D activities of th....
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....t & Loss account towards e-connectivity charges. When called upon to justify the deduction claimed and why it should not be treated as capital expenditure as it resulted in providing enduring benefit, it was submitted by the assessee that the expenditure incurred was not capital in nature as it was not for acquiring software. It was submitted by the assessee that the expenditure incurred was for facilitating assessee's trading operations and for enabling the management and control of the business to be carried on more efficiently and profitably leaving fixed capital untouched. Hence, the expenditure incurred is revenue in nature. The Assessing Officer, however, did not find merit in the submissions of the assessee. He was of the view that acquisition of e-connectivity amounts to acquiring an asset which is capital in nature as it is likely to provide benefit of enduring nature. Accordingly, he capitalised the entire expenditure on e-connectivity charges amounting to Rs. 79,41,152 and allowed depreciation @ 60% thereon. Thus, balance amount of Rs. 31,76,461 was disallowed. 34. Though, the assessee objected to such disallowance, DRP having noted that similar disallowance was made ....