2019 (10) TMI 986

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.... The order passed by the Ld. TPO for giving effect to the specific and stated directions issued by the Honourable Income Tax Appellate Tribunal (Hon'ble ITAT) is non-speaking in nature as it does not contain any observation on the specific contentions raised by the Appellant before the Ld. TPO with respect to rejection of Infosys Technologies Limited and mPhasis BFL Limited, in accordance with the directions issued by the Hon'ble ITAT. 3. The order passed by the Ld. TPO for giving effect to the directions issued by the Hon'ble ITAT contains observations made by the Ld. TPO on a matter which was neither restored back to the file of the Ld. TPO by the Hon'be ITAT nor was contended by the Appellant before the Ld. TPO. 4. Without prejudice to the other grounds of objections, the Appellant objects to the proposed enhancement of the income of the Appellant by Rs. 218,850,219/- by the Ld. AO/Ld. TPO by holding that the international transaction of the Appellant pertaining to provision of software development and support service do not satisfy the arm's length principle envisaged under the Act and in doing so have grossly erred by: 4.1. disregarding the Arm's ....

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....al reality that since the Appellant is remunerated on an arm's length cost plus basis, i.e. it is compensated for all its costs plus a pre-agreed mark-up based on a benchmarking analysis, the Appellant undertakes minimal business risks as against comparable companies that are full fledged risk taking entrepreneurs, and by not allowing a risk adjustment to the Appellant on account of this fact. 5. The Ld. AO has grossly erred in initiating penalty under section 271(1)(c) of the Act mechanically and without recording any satisfaction for its initiation. 3. The only issue raised in the present appeal filed by the assessee is against the order of the AO/DRP/TPO in making transfer pricing adjustment of Rs. 21,88,50,219/-. 4. The ld. AR for the assessee at the outset pointed out that this is the second round of litigation before Tribunal. He further referred to the earlier order of the Tribunal and pointed out that while applying the TNMM method, for benchmarking the international transaction undertaken by the assessee, the issue was set aside to the file of TPO with regard to the selection of two concerns i.e. Infoysys Technologies Limited and mPhasis BFL Limited (hereinafter re....

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.... 7. The ld. DR for the Revenue however strongly opposed the submissions put in by the ld. AR for the assessee and the pointed out that the Revenue earned from the proprietary products, by Infosys Technologies Limited, was negligible. 8. We find merit in the plea of the assessee that Infosys Technologies Limited is not to be included in the final list of comparables, firstly on account that the Tribunal in assessee's own case in Assessment Years 2003-04 and 2004-05 vide order dated 9.9.2015 has directed its exclusion. Further, we also find that the Infosys was engaged in diversified fields and it performed various functions as against the profile of the assessee wherein it was only providing Software Development Services to the group companies of Lucent Inc. Another aspect which needs to be kept in mind is the ownership of the branded / proprietary products by Infosys Technologies Limited, as against the facts that the assessee owns no intangible product company, even if it had meagre income cannot be compared with a non product company. Such is the proposition laid down by the Hon'ble Delhi High Court in Rampgreen Solutions Pvt. Ltd. vs. Commissioner Of Income Tax, 377 ITR 533 (D....

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.... not. The first step is to see whether the concern is functionally similar or not. The case of the assessee before us is that mPhasis is not functionally similar to the assessee as the activities conducted by the said concern were diversified, wherein it offers business process operations, application development and maintenance, product engineering and customer support services, provides brokerage services such as trade execution, account opening and order processing to clients. It also provided financial services. As against this, the assessee was only engaged in providing contract Software Development Services to the group companies of Lucent inc The perusal of the annual report of the said concern reflects the Business activities at page 7 & 8 that Application Development & Integration; Application Management; Testing Services; Usability Engineering; Quality Consulting and Advisory Services. At page 13 of the Annual Report it is also provided that 'Mframe' is Mphasis cross channel application integration framework, which helps customers rapidly develop a new generation of world-class solutions for sales and service business processes in a measurably cost effective manner. Mfra....