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2015 (5) TMI 352 - ITAT DELHITransfer pricing adjustment - international transaction of ‘Provision of contract R&D services.’ - inclusion/exclusion of certain companies as comparables - Held that:- Infosys Technologies Ltd. directed to be excluded from the list of comparables as the extant assessee is a captive service provider with a limited number of employees at its disposal and also not owning any branded products but, rendering only offshore services with no expenditure on R&D etc and giantness of Infosys Ltd., in terms of risk profile, nature of services, number of employees, ownership of branded products and brand related profits, etc. Bodhtree Consulting Ltd. do not represent fair profitability on year to year basis, this company loses its tag of an effective comparable. We, therefore, order for the exclusion of this company from the final list of comparables. Tutis Technologies Ltd. no logic in not placing it in the final set of comparables as TPO inadvertently omitted to include it in the final set. There is no discussion either in the TPO’s order or the direction given by the DRP as to why this company was being considered as incomparable. It implies that the TPO though treated this company as comparable, but, erroneously omitted to include it in the final set of comparables. Goldstone Technologies Ltd. is not comparable with the assessee company and has been rightly excluded by the authorities below as company is also engaged in providing services comprising on-site and offshore operations. Apart from that, it added two more new divisions during the current year, being, Media Division and IPTB Division. By no standard this company on entity level can be considered as comparable with the assessee company. In so far as the export filter applied by the TPO for rejecting this company is concerned, we find that it fails on geographical factors. VJIL Consulting Ltd., Think e-global Services Ltd., and RS Software (India) Ltd. - There is no mention of the assessee’s objections about these three companies in the direction given by the DRP. As such, we find that the assessee did urge the inclusion of these three companies in the list of comparables before the TPO as well as the DRP, but, both of them chose not to comment on their comparability. Under such circumstances, we direct the AO/TPO to determine the comparability or otherwise of the above three companies and then take steps for including them in the list of comparables, if found to be comparable. - Decided in favour of assessee for statistical purposes. ALP of the international transaction of `Provision of software development serves’, is about not allowing risk adjustment - As the assessee is wholly dependent on its AE for securing business, its entire existence also depends on the same AE. If such AE runs out of business or its business is reduced, the assessee is bound to bear severe jolts. Since the ld. AR has failed to objectively demonstrate the relatively higher risks undertaken by the comparables on an overall basis, we are disinclined to grant any risk adjustment. No other aspect of the computation of ALP of the international transaction of `Provision of software development services’ has been challenged by the assessee in the present appeal. The impugned order is ergo set aside on the question of determination of the ALP of the `Software development services’ segment and the matter is remitted to the file of AO/TPO for computing ALP of the international transaction of this segment afresh in consonance with our above directions. Needless to say, the assessee will be allowed a reasonable opportunity of being heard. - Decided in favour of assessee for statistical purposes. International transaction of `Purchase of capital goods’ - Held that:- It is illogical to compute the ALP of the transaction of purchase of fixed assets and consequently reduce or nullify the amount of depreciation allowance de hors the consideration of international transaction of the revenue from AE, which is equal to depreciation as claimed with mark-up. Both the transactions of claim of depreciation allowance and revenue of depreciation with mark-up have to be seen jointly. The TPO in the present case has simply reduced the amount of deprecation allowance to Nil without simultaneously considering the revenue side of this transaction. If we consider these closely linked transactions of deduction for depreciation allowance and revenue due to depreciation in unison, the position which follows is that no further addition can be made on account of transfer pricing adjustment due to one-sided consideration of depreciation allowance at Nil. Rather, the determination of ALP of the international transaction of purchase of fixed assets, in the facts and circumstances of the instant case, is tax neutral. As such, we order for the deletion of addition made by disallowing or reducing the amount of depreciation on the assets purchased from AE. This ground is allowed. - Decided in favour of assessee.
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