2011 (6) TMI 1035

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....re development and related services. It has filed its return of income on Ist of November 2004 declaring an income of Rs.7,82,54,384. The software related business was being carried out by the assessee from Software Technological Park (STP), Scheme notified by the Government of India in the Ministry of Commerce and Industries. The undertakings were operational at three different address, namely, (i) Birlasoft Software Technology Park Block-III, 2nd Floor Ganga Shopping Complex, Sector-29, NOIDA-201303 (ii) Birlasoft (GE-GDC) Software Technology Park Block-III, 3rd Floor, Ganga Shopping Complex, Sector 29, Noida-201303 (iii) Birlasoft 36, Vijayaraghava Road, 3 T. Nagar, Chennai. The assessee had a branch office in Australia and Singapore which were also engaged in the business of developing and supplying customized computer software and related software services to both associated enterprises and other unrelated enterprises outside India. On scrutiny of the accounts, Assessing Officer found three international transactions undertaken by the assessee with its associ....

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....ethod required to be adopted for determination of ALP as provided in sec. 92C of the Income-tax Act, 1961 read with rule 10B of the IT Rules. Section 92C provides five main methods and one residuary method. These are (a) comparable controlled price method; (b) resale price method; (c) cost plus method; (d)profits split method; and (e) transactional net margin method and the residuary method is; such other method as may be prescribed by the board. In the present year, on an analysis of the international transaction with the associate parties and data of comparables, assessee has selected TNMM, using net profit margin based on cost as PLI. This method is not disputed by the TPO hence we can say that both sides are in agreement on the method. 6. The next area of dispute is use of current year data versus multiple year data. The assessee has used multiple year data but TPO has used current year data. This controversy has been sliced in a number of judgments, namely, M/s. Aztel Software & Tech. Services Vs. ACIT reported in 294 ITR (AT) 32 and Mentorgraphic (Noida) Pvt. Ltd. Vs. DCIT reported in 109 ITD 101 etc. 7. We have duly considered the rival contention and gone through the ....

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....bmitted that assessee has transaction with unrelated parties also, therefore, for the purpose of benchmarking its internal comparables are one of the best comparables. He pointed out that this issue has arisen in assessment year 2006-07 also where Hon'ble Bench has upheld the internal bench marking analysis undertaken by the assessee while justifying the ALP of international transaction for software development services. Learned DR at the time of hearing pointed out that internal comparison needs to be refined to account for geographical differences between internal and external segments. According to him, there can be various reasons for requiring adjustment and these factors are strength of currency, labour cost etc. in different geographical conditions. He pointed out that a service sold in India for some price the same service would fetch different price in Europe and America etc. Therefore, for taking up the internal benchmarking, an adjustment be made for eliminating the geographic condition effecting the value of such services. 10. Before adverting to the facts whether as a stand alone, unit for the purpose of determining the ALP relating to international transaction is r....

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.... by existing comparables. In other words, learned TPO has totally ignored the unity of the business, administrative control and unity of funds etc. The independent FAR analysis of each unit with existing comparables is practically not possible because there is a common management, interlacing of the funds etc. 14. Thus, on due consideration of the order of the Learned CIT(Appeals), we are satisfied that Learned First Appellate Authority rightly did not concur with the conclusion of the TPO for segregating the each STP Unit and considering the result of each STP Unit as a stand alone for the purpose of determining the ALP relating to international transaction. 15. In assessment year 2006-07, ITAT has upheld the benchmarking of internal international transactions with unrelated parties for testing the ALP of assessee with its related parties. We have a glance over such result compiled at page 158 of the paper book, the operating profit margin with respect to unrelated transaction is minus 14.10% whereas the assessee is showing operating profit with related parties at 14.33%. The overall result shown by the assessee is 10.91%. Even if we examine this result within the right of t....