TaxTMI 
TaxTMI 
2019 (11) TMI 1183
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....ervices to its group companies. The services provided by the assessee are broadly categorized in two segments i.e. : i. Software Development; and ii. Application Lifestyle Management (ALM) Services. 2.1 The assessment year 2005-06 is the first year of operation of assessee company. During the period relevant to assessment year 2005-06 the assessee entered into following international transactions with its group companies : Nature of the transactions Amount (Rs.) Provision of software development services to T-systems Group entities 3,22,82,358 Provision of application lifecycle management services to T-systems International 2,56,84,165 Provision of consultancy services by T-systems International on behalf of T-systems India 19,58,465 Procurement of IBM laptops from T-systems Singapore 17,20,795 Reimbursement of expenses and set up costs for the EPCOS project to T-systems Singapore 40,94,404 Payment of apartment rental fees to T-Systems International 1,35,075 Payment of guarantee fees to T-systems International 10,000 Procurement of licenses for software from T-systems International 4,41,352 Knowledge tran....
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....d by the TPO from Syntel India is not available in public domain. Therefore, use of such information secretly is against the provisions of the Act. The ld. AR further submitted that the services rendered by the assessee to its group companies cannot be compared with Syntel India as the level of operation of both the companies is at variance. The ld. AR vehemently reiterated the contentions raised in paras 3.1 to 3.10 of the appeal against rejection of CUP as the most appropriate method. For the sake of ready reference we are reproducing the same : "3.1 Ignoring the fact that differences in volume of fixed assets and turnover between the Appellant and Syntel India did not materially affect its prices in the market and therefore use of CUP was appropriate; 3.2 Ignoring the significance of the average software industry billing rates published by software industry bodies and the comparability of such billing rates with the billing rates of the Appellant; 3.3 Concluding that the billing rates in the master service agreement between the Appellant and T- Systems Enterprise Services Gmbh ('T - Systems Germany') should have been determined by factoring fir....
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....n Syntel India and T-Systems Germany (instead of comparing the Master Service Agreement between the Appellant and TSystems Germany and between the master service agreements; and 3.10 Not considering the certificate provided by T-Systems Germany certifying that the software development services provided by the Appellant and Syntel India to T-Systems Germany are similar in nature." 5. In respect of ALM Services, the ld. AR submitted that the assessee had selected 19 companies as comparables in the TP study having average arithmetic mean of 6.08%. The TPO in transfer pricing proceedings accepted only two companies from the list of 19 companies selected by the assessee i.e. Sasken Network Systems Limited and VMF Softech Limited. The TPO selected two more companies i.e. Asian CERC Information Technology Limited and Bodhtree Consulting Ltd. The final set of comparables as per TPO are as under : Sr. No. Name of the company PBIT/Operating Cost 1 Asian CERC Information Technology Limited 30.39% 2 Bodhtree Consulting Ltd. 24.01% 3 Sasken Network Systems Limited 16.19% 4 VMF Soft Tech Limited 35.70% ARITHMATIC MEAN 26.57....
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....has allowed adjustments on account of under utilization of capacity in the first year of operation. To support of his contentions the ld. AR placed reliance on the following decisions : i. Skoka Auto India (P) Ltd. Vs. Assistant Commissioner of Income-tax, 30 SOT 319 (Pune); ii. Ariston Thermo India Limited Vs. Dy. Commissioner of Income Tax in ITA No. 1455/PN/2010 for assessment year 2006-07 decided on 25- 06-2013; iii. Ventura (India) Pvt. Ltd. Vs. Asst. Commissioner of Income Tax in ITA No. 1788/PUN/2014 for assessment year 2009-10 decided on 09-03- 2018; iv. M/s. Saggezza India P Ltd. Vs. DCIT in ITA No. 3323/Mds/2016 for assessment year 2012-13 decided on 22-03-2017. 5.4 The ld. AR further submitted that the CIT(A) in Appellate proceedings has rejected assessee's claim of adjustment on the ground that if at all adjustment is to be made, it should be made to the comparables and not the tested party. The ld. AR submitted that even if adjustment is applied to the comparables, the assessee would be within the tolerance limits. The ld. AR contended that in so far as quantum of travel cost and salary expenditure is concerned they have not been ....
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....les that need to be included/excluded in the final list of comparables. Accordingly, ground Nos. 6 and 7 of the appeal are dismissed. 10. In ground Nos. 8 and 9 of the appeal the assessee has assailed the method of computation of operating profit margin. The contention of assessee is that the authorities below have failed to grant adjustment on account of travel cost and salary cost of the employees. The assessment year under appeal is the first year of operation. The assessee has incurred substantial expenditure on training and travel of employees. The expenditure on training and travel has not been disputed by the Department. It is allowability of adjustment that has been denied to the assessee by the authorities below. 11. The Co-ordinate Bench of Tribunal in the case of Ariston Thermo India Limited Vs. Dy. Commissioner of Income Tax (supra) has allowed adjustment in the operating margin of assessee for low capacity utilization and high fixed operation cost in the initial year of operation. Similarly, in the case of Ventura (India) Pvt. Ltd. Vs. Asst. Commissioner of Income Tax (supra), the Co-ordinate Bench has granted capacity utilization adjustment in the initial year o....