AI Drafter 
TaxTMI 
TaxTMI 
2020 (9) TMI 1052
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.... the manner passed by them. The orders being bad in law are liable to be quashed. 2. The learned AO has erred in making a reference to TPO for determining arm's length price without demonstrating as to why it was necessary and expedient to do so. The DRP has erred in confirming the action of the Assessing officer. 3. The lower authorities have erred in: a. Making transfer pricing adjustment of Rs. 1,65,61,543/-; b. Passing the orders without demonstrating that the Appellant had motive of tax evasion and not appreciating that no addition can be made under Chapter X as Transfer pricing adjustment under Chapter X is not included in the definition of 'income' uls 2(24) or under Chapter IV of the IT Act, 1961. The orders passed by the lower authorities are therefore bad in law and liable to be quashed. GROUNDS RELATING TO COMPUTATION OF ALP 4. The lower income tax authorities have erred in: a. Rejecting comparables selected by the Appellant and Conducting a fresh transfer pricing analysis despite absence of any defects in the transfer pricing analysis submitted by the Appellant; b. Adopting inappropriate....
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....excessive." "ADDITIONAL GROUNDS OF APPEAL 9. The lower authorities have erred in rejecting the segmental results prepared by the Appellant on unjustifiable grounds and allocating costs between the Associated Enterprise and Non- Associated Enterprise segment on the basis of revenue, which is not appropriate in the fact and circumstances of the case. The Appellant submits that each of the above grounds/ sub-grounds are independent and without prejudice to one another. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing, of the appeal, so as to enable the Income-tax Appellate Tribunal to decide the appeal according to law. The Appellant prays accordingly." Brief facts of the case are as under: 2. Assessee is a private limited company and filed its return of income for year under consideration declaring total income at 'nil'. The case was selected for scrutiny and notices under section 143(2) and 142(1) of the Act was issued, in response to which, representative of assessee appeared before Ld.AO and submitted details as called for. On pe....
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....dentified by assessee and approach adopted were not appropriate. Ld.TPO thus undertook fresh economic analysis and rejected certain comparable companies identified by assessee based on various filters. Ld.TPO computed average net margin of comparable companies at 16.49% on operating cost as against gross margin of 19.23% under CPM computed by assessee in TP documentation report. 10 new comparables identified by Ld.TPO were as under: SN Name of the taxpayer OP/OC 1 Datamatics Global Services Ltd. 14.57% 2 Genesys International Corpn. Ltd. 30.09% 3 C R A Tech no Analytics Ltd. 17.24% 4 Infosys Ltd. 43.10% 5 Larsen & Toubro Infotech Ltd. 25.47% 6 Mindtree Ltd. 15.01% 7 Persistent Systems Ltd. 27.47% 8 R S Software (India) Ltd. 12.15% 9 Sasken Communication Technologies Ltd. Spry Resources India Pvt. Ltd. 26.18% 10 Average 22.63% 6. Ld.TPO thus computed proposed adjustment being shortfall under section 92CA at Rs. 1,65,61,543. 7. Ld. AO while passing draft assessment order, further made addition in the hands of assessee amounting to Rs. 11,25,151/- being employees contribution to PF....
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....rcumstances of the case. The Appellant submits that each of the above grounds/ sub-grounds are independent and without prejudice to one another. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing, of the appeal, so as to enable the Income-tax Appellate Tribunal to decide the appeal according to law. The Appellant prays accordingly." 16. Referring to revised grounds of appeal filed by assessee, Ld.AR submitted that, Ground No. 1-3,5 are general in nature and therefore do not require adjudication 17.1 Ground No.4 is in respect of comparables y selected by Ld.TPO. Many sub grounds have been raised on this issue by assessee. However, Ld.AR submitted that if, sub ground (c) is considered on functionality, the other grounds would be academic in nature. Ld.AR Submitted that assessee seeks exclusion of 4 comparables in sub ground (c) being: Genesis International Corporation Ltd Infosys Ltd Larsen and Toubro Infotech Ltd Persistent Systems Ltd 17.2 It has been submitted by Ld.AR that these comparables have been considered b....
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....volved in providing SWD services to its AE and the TPO had chosen 16 comparable companies out of which 6 companies chosen by the TPO in the case of the Assessee for the purpose of comparability were the same. His submission was that .the decision rendered by the Tribunal in the case of Agilis Information Technologies India (P.) Ltd. (supra) would be equally applicable to the Assessee in the present case also. The learned DR. submitted that the DRP in its directions has merely accepted with the reasoning of the IPO and therefore the issue of exclusion of these companies should be directed to be examined afresh by the DRP. 29. We have considered the rival submissions. In the case of Agilis Information Technologies India (P.) Ltd. (supra), this Tribunal considered the comparability of the 3 companies which the Assessee seeks to exclude from the final list of comparable companies chosen by the TPO. The functional profile of me Assessee and that of the Assessee in the case of Agilis Information Technologies India (P.) Ltd. (supra), is identical inasmuch as the said company was also involved in providing SWD services to its AE and the TPO had chosen some comparable companies whi....
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....remand of the issue to the DRP on the ground that the DRP has not given any reasons in its directions cannot be accepted. The DRP bas endorsed the view of the TPO in its directions and therefore the reasons given by the TPO should be regarded as the conclusions of the DRP. 31. The learned DR. next submitted that Genesys International Corporation Ltd., should be excluded from the list of comparable companies. The comparability of this company with the Assessee has been discussed by the TPO in page-11 of his order. The Assessee objected to inclusion of this company in the list of comparable companies for the reason that this company is functionally different and owns intangible assets which are peculiar only when the Assessee owns software products. The objections of the Assessee are contained in its letter dated 22.12.2015 addressed to the TPO and in annexure-B to the said letter. The relevant portion of the objection is at pages 711-713 of the Assessee's paper book. According to the Assessee this company is engaged in providing Geographical Information Services comprising of Photogrammetry, Remote Sensing, Cartography, Data Conversion, state of the art terrestrial and ....
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.... brought to the notice of the TPO by the Assessee that this: company renders mapping and geospatial services. In rendering such services it develops software. But that does not mean that this company is in the business of software development. The business profile of this company as per the annual report does not show that this company is into software development service. The only line of business that this company carries on is rendering GIS based services and this is clear from the annual report which specifies that since the company carries on only one line of business viz., GIS based services there is no need to give any segmental results. In the circumstances, we are of the view that there is no basis for the TPO to conclude that this company is predominantly into software-development services. The presence of intangible assets is indicative of the fact that this company is not in software development services business. The TPO has overlooked this aspect and proceeded on the basis that the presence of intangible assets would not be significant. Rule 10B(2) of the Income Tax Rules, 1962 (Rules) specifically provides that for the purposes of sub-rule (1) of Rule 10B, t....
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....dressed in great detail. Referring to page 195 of paper book Ld.AR submitted that, each cost has been allocated by assessee under specific head, which has not been considered by Ld.AO/TPO/DRP. He thus objected for reworking of Cost allocation carried out by Ld. TPO. 18.2 On the contrary Ld. CIT DR submitted that, issue may be sent back to authority is below for verification in accordance with submissions/evidences filed by assessee. 18.3 We have perused submissions advanced by both sides in light of records placed before us. At page 4 of order passed by Ld.TPO under 92CA, we note that, assessee filed revised statement of cost allocation, however, the same was not considered by Ld.TPO/DRP, for the reason that, basis of such allocation was not submitted/explained by assessee. In the interest of Justice we deem it appropriate to remand the issue to DRP for verifying the same. Assessee is directed to file all necessary documents to substantiate the basis of such allocation in ascertaining margin of assesse in respect of international transaction undertaken by assessee with its associated enterprise. DRP shall then pass a reasoned order by granting proper opportunity of being h....