TaxTMI 
TaxTMI 
2018 (1) TMI 1394
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....transactions undertaken by the assessee. The TPO during the course of TP assessment proceedings observed that the assessee company has entered into the following international transactions with its AE :- Nature of transaction Method selected Total value of transaction (Rs.) Provision of Software Development Services TNMM 14,913,278 Provision of Engineering design Services TNMM 195,214,578 Cost reimbursement received CUP 532,039 3. He observed that the assessee has used TNMM as the method and OP/TC as the PLI. He further observed that the assessee has arrived at a set of 6 comparables for its engineering design segment. The average margin of the comparables, using multiple year data is 5.03%. The assessee's margin in this segment is 8.9%. So far as software development segment is concerned, the assessee has arrived at a set of 18 comparables with an average margin of 13.43%. Since the assessee's margin is 21.47%, it was concluded that the transactions are at arm's length price. 4. The TPO, in order to benchmark the international transactions, rejected the application of multiple year data which was used by the assessee in som....
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....including the decision of the Hon'ble Supreme Court in the case of Pandian Chemicals Ltd. vs. CIT reported in 129 taxmann.com 539, he held that the other income is attributable to business but not derived from business and, therefore, the same has to be excluded from the profit eligible for deduction u/s 10A of the I.T. Act. The Assessing Officer, in view of the above, further held that the insurance charges amounting to Rs. 9,79,500/- has to be excluded from the export turnover. He accordingly recomputed the deduction u/s 10A of the I.T. Act. The Assessing Officer in the draft assessment order made addition of Rs. 2,44,840/- by restricting the depreciation on computer peripherals at 15% as against 60% claimed by the assessee. The Assessing Officer accordingly determined the total income of the assessee at Rs. 3,09,95,020/-. 7. The assessee approached the DRP who gave partial relief on account of reducing insurance charges from export turnover for calculating deduction u/s 10A and allowed depreciation at the rate of 60% on some of the parts of the computer peripherals. The rest other additions made by the Assessing Officer were sustained. 8. Aggrieved with such order of t....
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....ng margin earned by the Assessee with respect to its business segments and also with respect to sales made to its overseas group companies and to third parties within the IT enabled engineering design services segment. 2.8 erroneous application of related party transactions filter by the Ld. TPO. 2.9 denying the benefit of idle capacity adjustment. 2.10 disregarding prior year's data as used by the Appellant in the TP documentation and holding that current year (i.e. FY 2006-07) data for comparable companies should be used despite the fact that the same was not necessarily available to the Appellant at the time of preparing its TP documentation. 2.11 failed to consider and appreciate that the Appellant is entitled to the benefit of the option of +/- 5% as per the provisions of proviso to Section 92C(2) of the Act. 3. The Ld. AO erred in excluding leaseline expenses amounting to INR 232,264 from business income for computing profits eligible for deduction under section 10 of the Act. 3.1 The Ld. AO erred in not appreciating that leaseline expenses written back amounting to Rs. 232,264 were not considered for the purpose of comput....
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.... acquisition, processing and interpretation. Referring to page 21 of the said Paper Book, ld. counsel for the assessee drew the attention of the Bench to the service flow chart of the company which includes area reconnaissance, camp establishment, identification of drilling location, topographical survey, drilling, laying of cables and sensors, connecting the sensors to the recording instrument, interpreting and processing of data etc.. Referring to page 259 of the Paper Book, Volume - I, ld. counsel for the assessee drew the attention of the Bench to the scope of services to be provided to the AE as per the agreement. Referring to the same he submitted that these are all software driver activities and the assessee is not required to go to the site. Referring to page 260 of the Paper Book, he drew the attention of the Bench to the clause relevant to information technology. Referring to page 4 of the Annual Report compilation, he drew the attention of the Bench to the following clause :- "Our presence India's largest private sector company to offer seismic data acquisition, data processing, data interpretation services, reservoir studies and topographic survey serv....
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....mpany indicates that the company is also engaged in the sales of finished goods, software and spares which comprises approximately 23% of the total sales of the company. Further, segmental details of the company are not available in the audited financials. Therefore, this company also should be excluded from the list of comparables. 18. So far as TCE Consulting Engineers Limited is concerned, he submitted that this company is also functionally different, since apart from providing engineering services, the company is engaged in providing other services also such as preliminary planning, assistance in startup, testing and commissioning etc. which are not provided by the assessee. He submitted that the technical consultancy services are not functionally comparable to that of the assessee and, therefore, TCE Consulting Engineers Ltd. cannot be considered as comparable. He submitted that although it was submitted before the DRP that the above company is not comparable, however, the DRP has not given any comments as to why the above company should be considered as comparable. He accordingly submitted that the above five companies be excluded from the final set of comparables. 19. ....
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....he assessee and the comparable. Further, we also find that in view of the decision of the Tribunal in the case of Quark System Private Limited (supra), the assessee cannot be stopped from pointing out that M/s Alphageo had wrongly been taken as comparable. In view of above facts and circumstances, we are of the opinion that M/s Alphageo need to be excluded from the set of comparables being functionally dissimilar and difference in intensity of asset employed. Accordingly, we direct the Assessing Officer to exclude M/s Alphageo from the set of comparables chosen for computing arm's length of the international transaction and compute the transfer pricing adjustment accordingly." 21. The Tribunal apart from holding that the above companies are functionally different has also given a finding about the net fixed assets/sales ratio and difference in the asset between the assessee and that of the comparable. We, therefore, restore the issue relating Alphageo India Ltd. to the file of the Assessing Officer/TPO with the direction to give an opportunity to the assessee to substantiate the above details and decide the inclusion/exclusion of the same in the light of the decision of the Trib....
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....the export turnover. Although the DRP had directed the Assessing Officer to recalculate the deduction u/s 10A by not reducing insurance expenses from export turnover, the Assessing Officer, according to the ld. counsel for the assessee has not followed the direction of the DRP. We, therefore, direct the Assessing Officer to adjudicate the issue afresh as per fact and law and in the light of the direction given by the DRP. The grounds raised by the assessee are accordingly allowed for statistical purposes. 26. So far as ground no.4 is concerned, the same relates to depreciation on computer peripherals at the 15% allowed by the Assessing Officer as against 60% claimed by the assessee. 27. After hearing both the sides, we find the Assessing Officer rejected the claim of depreciation at the rate of 60% on computer peripherals such as UPS, Switches, Computer racks etc. and allowed 15% depreciation on the same treating these items as plant and machinery. The DRP in the order upheld the disallowance of depreciation proposed by the Assessing Officer in respect of UPS, switches, microwave, radio, camera, cable. They, however, directed the Assessing Officer to allow depreciation at the....