AI Drafter 
TaxTMI 
TaxTMI 
2020 (7) TMI 645
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....engaged in the business of development and export of computer software and providing technical support and training services. It filed its return of income on 20.11.2003 declaring total income at Rs. 2,36,13,740/-. Since the assessee had entered into certain international transactions with its AE, the AO referred the matter to the TPO u/s 92CA(3) for determination of the Arm's Length Price (ALP) of the international transaction entered into by the assessee. The TPO, during the course of TP assessment proceedings noted that Cadence India is a 100% direct subsidiary of Cadence Design Systems, Inc. (CDS), US. The assessee Company is operating as a 100% Export Oriented Unit (EOU) from the Noida Export Processing Zone and primarily engaged in developing and exporting software to Cadence, USA. The company also provides technical support services to customers of Cadence, Ireland and technical training services from its Bangalore Office. He noted that the assessee, during the impugned assessment year has undertaken the following international transactions:- S.No. Description of transaction Method Value (in Rs.) 1. Provision of research and development services by the comp....
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....he arguments advanced by the assessee and submissions filed before him, the ld.CIT(A) directed the AO to grant working capital adjustment to the assessee on account of difference between the tested party vis-à-vis these comparables. He also directed the AO to exclude HCL Technologies Ltd. and HP Globalsoft Limited on account of huge related party transactions. So far as Satyam Computer Services Ltd., is concerned, the CIT(A) directed the AO to exclude the said comparable company on account of unreliable financials. The ld.CIT(A) also directed the AO to allow depreciation @ 60% for computer peripherals. 5. Aggrieved with such order of the CIT(A), the Revenue is in appeal before the Tribunal by raising the following grounds:- "1. The ld.CIT(A) has erred on facts and in law in deleting addition of Rs. 877,68,916/- made by the TPO on account of Arm's length price u/s 92CA(3) of the IT Act as : a) The ld.CIT(A) has erred in directing to apply working capital adjustment to account for differences between the tested party vis-avis comparables for the working capital adjustment employed by them. b) Ld.CIT (A) has erred in holding that M/s HCL Technologi....
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...." 6. After hearing both the sides and considering the fact that no new facts are required to be investigated for admission of these additional grounds, the additional grounds raised by the Revenue are admitted. 7. The ld. DR strongly challenged the order of the CIT(A) so far as granting of working capital adjustment is concerned. The ld. DR submitted that this computation should be best left to the AO. Since it is a mathematical computation and due verification is required by the AO of the computation given by the ld. AR. So far as exclusion of the comparable companies on account of RPT is concerned, the ld. DR submitted that this issue also should be restored to the file of the AO/TPO with a direction to verify RPT of HCL Technologies Ltd. and HP Globalsoft Ltd. So far as the exclusion of Satyam Computer Services Ltd. is concerned, the ld. DR relied on the order of the AO/TPO. Similarly, he also relied on the order of the TPO/AO on account of depreciation on computer peripherals @ 25% as against 60% allowed by the ld.CIT(A). 8. The ld. Counsel for the assesseee, on the other hand, heavily relied on the order of the CIT(A). So far as granting of working capital adjustme....
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....mputer peripherals is concerned, the ld. Counsel for the assessee, referring to the decision of the Tribunal in assessee's own case for A.Y. 2005-06, vide ITAs No.1632/Del/2012 and 1619/Del/2012, submitted that the Tribunal, following the decision of the Hon'ble Delhi High Court in the case of CIT vs. BSES Yamuna Power Ltd., vide ITA No.1267/2010, has allowed depreciation @ 60% on computer peripherals. He submitted that the Hon'ble Delhi High Court in the case of CIT vs. BSES Rajdhani Yamuna Powers Ltd. reported in 358 ITR 47, has also held that depreciation at higher rate is allowable on computer peripherals. He accordingly submitted that the order of the CIT(A) being in accordance with law should be upheld and the grounds raised by the Revenue should be dismissed. 10. We have considered the rival arguments made by both the sides and perused the orders of the AO/TPO/CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find, the original ground No.1 and additional ground No.3 relates to the grievance of the Revenue against the order of the CIT(A) for granting working capital adjustment to the assessee. From ....
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....ordingly allowed for statistical purposes. 12. Ground No.1(b) of the original grounds of appeal and additional ground No.2 relates to the grievance of the Revenue against the order of the CIT(A) in rejecting the two companies, namely, HCL Technologies Ltd. and HP Globalsoft Ltd. on account of substantial RPT. 12.1 From the various details furnished by the assessee, we find HCL Technologies Ltd. has got RPT of 71.09% and HP Global Soft Ltd., has got 87.44% RPT. Although the TPO at page 5 of the order has mentioned that the objection of the assessee regarding related party transactions were not substantiated with any account details, however, from the details furnished by the assessee in the paper book, we find the assessee had categorically mentioned before the TPO regarding substantial RPT. It has been held by the Delhi Bench of the Tribunal in the case of Agilant Technologies International (P) Ltd. vs. ACIT, reported in (2013) 36 CCH 187 (Delhi-Trib.) that a potential comparable having more than 25% of the related party transactions is to be ignored. The Delhi Bench of the Tribunal in the case of Nokia India Pvt. Ltd. vs. DCIT, reported in (2013) TIL-224-ITAT-DEL-TP has also....
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....2010 (IDT2)GJX 1031 - TDEL has upheld the decision of the DRP which had excluded M/s. Satyam from the list of comparables. Ld. CIT(A) further observed that in view of this, M/s Satyam Computers Services Ltd. should be taken out from the list of comparable companies. In the light of the aforesaid facts, ld. CIT (A) took the decision to exclude M/s. Satyam from the list of comparables, which we uphold since the financial results of the said company is the result of admitted financial irregularities and conspiracy hatched and committed by the directors and cannot be relied upon. So the financial result of the said company cannot be used by the TPO to compute the ALP, which has been rightly done by the ld. CIT (A), so we concur with his decision to exclude M/s. Satyam from the list of comparables, so the Revenue's ground is dismissed. " 14. The various other decisions relied on by the assessee in the case law compilation also support its case that Satyam Computer Services Ltd., cannot be considered as a comparable on account of unreliable financials. Under these circumstances, we do not find any infirmity in the order of the CIT(A) in directing the AO/TPO to exclude Satyam Compu....
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.... the contention of the assessee and held that the same is capital asset and allowed depreciation @ 25% on the same. Before the CIT(A), it was argued that these expenses were for upgradation and renewal of the existing software. The original purchase of the software was capitalized by the assessee. Relying on various decisions including the decision of the Hon'ble Delhi High Court in the case of GE Capital Services India Ld., reported in 300 ITR 420, it was argued that the same is revenue in nature. 21. Based on the arguments advanced by the assessee, the ld.CIT(A) directed the AO to allow the expenses as revenue in nature and, thereby, deleted the addition by observing as under:- "5.2. Reasons for decision: The software up-gradation expenses incurred by the appellant was not customized software giving enduring benefit to the assessee. Therefore, the facts of the case are similar to the case of GIT vs. GE Capital Services Ltd. decided by the Hon'ble High Court of Delhi (supra). The relevant portion of this judgment is reproduced below: "3. The only question that has arisen in this case pertaining to the assessment year 1997-98 is that expenditure incurr....
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....is the comparables has been carried out by the Ld.CIT(A). The Ld.CIT(A) has not computed the amount of adjustment to be made on account of working capital. b) Has given no findings as to why and on what points the arm's length price computed by the TPO/AO was incorrect. c) Inspite of accepting the comparables identified by the TPO and upholding the TPO's decision of using current year's data as compared to multiple years' data used by the assessee in the T.P.analysis, the Ld.CIT(A) has held that the international transactions of the assessee are at arm's length." 25. After hearing both the sides, we find the TPO, in the instant case, proposed an upward adjustment of Rs. 5,85,80,973/- being the difference in arm's length price and book value of the international transaction, the details of which are as under:- S.No. Description of transaction ALP Book Value (in Rs.) Difference 1. Provision of software research and development services 663,167,962 62,74,67,890 35,700,072 2. Provision of IT back office support services 19,32,55,609 17,70,33,264 1,62,22,345 3. Provision of pre-sales marketing and post-sale....
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.... 4. That the Hon'ble CIT(A) has erred in law in not accepting that the learned AO did not meet the preconditions for making reference to the learned TPO under section 92CA(1) of the Income Tax Act, 1961 ("the Act") and in not providing an opportunity of 'being heard' to the Respondent before referring the transfer pricing issues to the learned TPO. 5. That the Hon'ble CIT(A) has erred in not accepting the economic analysis undertaken by the Respondent in accordance with the provisions of the Act read with the Income Tax Rules, 1962 ("the Rules") and instead adopted comparable companies selected by the TPO to determine arm's length price of the international transactions of the Respondent. 6. That the Hon'ble CIT(A) has erred in rejecting the use of multiple year data. Furthermore, the Hon'ble CIT(A) did not give the Respondent an opportunity to submit a fresh comparable companies' search using latest available single year data without prejudice to the Respondent's contention that single year data should not be used to determine arm's length price. 7. The Hon'ble CIT(A) has erred in application of the turnover filter. The Hon'ble CIT(A) rejected companies....