TaxTMI 
TaxTMI 
2017 (4) TMI 1462
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....essment year 2010-11 on 24/09/2011 declaring total income of Rs. 25,55,666/-. The assessee-company also reported the following international transaction with its AE in Form 3CEB: Sl. No. Type of transaction Amount 1 Provision of software development services 109,36,86,188 2 Reimbursement of expenses received by SMS India 69,16,775 3. The assessee-company sought to justify the consideration received for the international transaction entered with its AE to be at arm's length. The assessee-company had also submitted transfer pricing study report adopting the operating profit to total cost (OP/TC) as a profit level indicator for the transfer pricing study. For the purpose of TP study, the assessee-company applied Transactional Net Margin Method [TNMM] which was considered to be the most appropriate method for purposes of bench marking the international transactions. The assesseecompany's profit margin was computed at 15.79% and the assessee-company claimed that the same was comparable with other companies rendering software development service IT enabled Services. For the purpose of transfer pricing study, the assessee-company had c....
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....djustment of 0.23% the arithmetic mean PLI was determined at 26.63%. On the above said basis, the TPO computed the transfer pricing adjustment as follows: 6. The AO passed draft assessment order u/s 143(3) r.w.s. 144C vide order dated 14/3/2014 incorporating the above TP adjustments and also restricting the deduction u/s 10A by reducing telecommunication expenses, insurance expenditure in foreign currency from export turnover without reducing from total turnover. 7. After receipt of draft assessment order, the assessee-company filed objections before the DRP contending inter alia that the TPO was not justified in rejecting TP study report and ought to have applied upper limit of turnover filter of Rs. 2 crores to all the comparables, ought not to have rejected the employee cost filter of 25% of revenue. It was also contested the doubtful debts should be treated part of operating cost and risk adjustment should have been granted to the assessee-company as it is only on captive service provider to its only AE. 8. The DRP, after considering the submissions of the assesseecompany issued directions dated 12/12/2014 wherein the DRP upheld reje....
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....is Integrating Systems (India) Pvt. Ltd. (cited supra) held that turnover is a relevant factor for accepting/rejecting the comparable. However, without going into the turnover factor, we hold that Infosys Ltd., cannot be considered as comparable with that of the assessee-company since Infoysis Ltd. is a giant in the area of software development and it assumed all risks leading to higher profit. On the other hand, the assessee-company is a captive unit of its parent company in US and assumed only limited risk. In the similar circumstances, the Hon'ble Delhi High Court in the case of CIT vs. Agnity India Technologies P.Ltd. held that Infosys cannot be treated as a comparable. Even several co-ordinate benches of Tribunal held that Infosys Ltd. cannot be considered as comparable as it is having high intangibles and goodwill. Accordingly, Infosys cannot be considered as a comparable. 24. We now deal with each of these companies. Before adverting to the comparables, it is worth mentioning here that there are divergent decisions of the Tribunal whether high turnover is a relevant for accepting/rejecting a comparable in the case of a se....
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.... u/s 10A by reducing telecommunication expenditure and insurance incurred in foreign currency from export turnover. On receipt of this 154 petition, DRP vide order dated 26/02/2015 had directed the AO to reduce this expenditure from export turnover as well as total turnover for the purpose of calculating benefit u/s 10A in the light of the decision of the Hon'ble Karnataka High Court in the case of CIT vs. Tata Elxsi Ltd. (349 ITR 98). The AO passed modification order to the assessment order dated 31/3/2015 giving effect to the DRP direction. 14. Being aggrieved, revenue is in appeal before us in the present appeal. The revenue raised the following grounds of appeal: 15. The issue sought to be raised in the above grounds is covered in favour of the assessee by the decision of the Hon'ble Karnataka High Court in the case of Tata Elxsi Ltd. (supra). Since the DRP has only followed the decision of the jurisdictional High Court in the cased of Tata Elxsi Ltd. (supra), we do not find any merit in the appeal raised by the revenue, hence dismissed. Order pronounced in the open court on 04th April, 2017. ===========....