2012 (6) TMI 388 - AT - Income Tax

Transfer Pricing - adjustment to ALP - dispute regarding selection of comparables - assessee engaged in the business of marketing products and technical support services and software development related services in India - Held that:- Analysis of comparable show that TPO has rightly included this comparable on reasons enumerated as follows: R Systems International Ltd (Segment) - TPO rightly excluded provision for doubtful debts and provision for doubtful advances to work out the operating profit of the comparable party since the same cannot be considered as normal expenses - Celestial Labs Ltd - rightly selected by TPO since 95% of the revenue is from services even though it is also engaged in development of products in the field of bio-technology, pharmaceutical - Flextronics Software Systems Ltd - though company is also involved in the development of the software product and is also involved in BPO services, however revenue sales from services constitutes almost 90% and the product sales is only 10%.

Following company cannot be taken as comparable on grounds - Lucid Software Limited - this company cannot be treated as having same function and profitability ratio, since company has employed heavy capital in product development expenditure - Infosys Technologies Ltd & Wipro Ltd.-IT Services Segment - cannot be taken as comparable due to size of the company in terms of the sales revenue, stage of business cycle and company's growth cycle - Tata Elxsi Limited - since it is engaged in development of niche product and development services, which is entirely different from the assessee company - Avani CincomTechnologies Ltd.('Avani Cincom') - segmental details of operating income of IT services and sale of software products have not been provided so as to see whether the profit ratio of this company can be taken into consideration for comparison.

Assessing Officer is directed to determine the profit ratio after taking the arithmetic mean of all the final tested parties (i.e. after excluding five entities as discussed above) and determine the ALP of the assessee company for international transactions.

Depreciation on UPS - 15% or 60% - Held that:- Since computer system can function independently without the UPS and even the UPS generally can be used to ensure uninterrupted power supply to other equipments besides computer. It is, thus, not the integral part of the computer system, hence depreciation to be provided @15% - Decided against the assessee.

Interest u/s 234C - Held that:- It is amply clear that there is no shortfall in any of the quarters and, therefore, no interest liability under Section 234C can be fastened upon the assessee.