TMI Blog2011 (11) TMI 476X X X X Extracts X X X X X X X X Extracts X X X X ..... well as the DRP and the same have not been dealt with by proper speaking order. Issue remitted back to the file of the AO who inturn will remit the issue to the TPO for his consideration in the light of adjudication as above - Decided in favor of assessee by way of remand. - IT Appeal NO. 4648 (Delhi) OF 2010 - - - Dated:- 17-11-2011 - A.D. JAIN, SHAMIM YAHYA, JJ. Dr. Rakesh Gupta for the Appellant. Raj Tandon for the Respondent. ORDER Shamim Yahya, Accountant Member This appeal by the assessee directed against the order of AO dated 09.09.2010 and pertains to the A.Y. 2006-07. 2. The grounds raised in the appeal read as under: - "That on the facts and circumstances of the case, and in law: 1. The draft assessment order passed by the ld. AO is bad in law and void-ab-initio. 2. The ld. Dispute Resolution Panel ("Ld. DRP") and the ld. Assessing Officer ("Ld. AO") (following the directions of the ld. DRP), erred both on facts and in law in confirming the addition of Rs. 7,56,83,173/- to the income of the appellant proposed by the ld. Transfer Pricing Officer ("Ld. TPO") by holding that its international transactions pertaining to provision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant; ITES business segment (sub-grounds 2.11 to 2.14) Failing to apply the wages/sales ratio filter (as applied vis- -vis the software development segment) and thereby failing to appreciate that the said wages/sales ratio was arrived at on a company-wide basis and, therefore, should be applied consistently vis- -vis both segments including the ITES segment (and not selectively vis- -vis only the software development segment); Erroneously retaining one company viz Allsec Technologies Ltd. in the final comparable set, thereby failing to appreciate that it is functionally/qualitatively uncomparable to the appellant; Arbitrarily disregarding certain comparable companies identified by the appellant on the alleged ground that they are functionally/qualitatively not comparable to the appellant; Substituting appellant's turnover filter of Rs. 1 crore with turnover filter of Rs. 5 crores; Denying the appellant the benefit of a working capital adjustment; Denying the appellant the benefit of a risk adjustment by completely ignoring the business/commercial reality that since the appellant is remunerated on an arm's length cost plus basis, i.e. it is compensated for all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Particulars Software development services IT enabled services Comparables' mean margin 12.69% 14.68% Appellant's margin 13.57% 12.44% Conclusion At arm's length At arm's length 3. TPO's approach: Particulars Software development services IT enabled services No. of comparables (as considered based on updated current year data) 50 12 Less: Comparables rejected on the grounds of significant related party transactions ('RPT' i.e. RPT 15%) 19 4 Less: Comparables rejected on the ground of them failing the wages/sales filter of 50-70% (Refer Notes 1 and 2 below) 20 - Less: Comparables rejected on the ground of them having insufficient data 3 - Less: Comparables rejected on the grounds of them failing the turnover filter of Rs. 5 crores (Refer Note 3 below) - 2 Less: Comparable rejected on the ground of them being functionally/ qualitatively dissimilar 4 2 Comparable companies finally selected 4 2 Comparables' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For Software Development Service 1,86,64,069 For IT Enabled Services 5,70,25,104 7,56,83,173 Assessed Income 8,18,58,538 Tax Payable on above Tax (Including Surcharge) 2,75,53,583 Interest 1,37,56,475 Total Demand (including interest) 3,92,31,430 4. Against the above order and demand assessee is in appeal before us. 5. We have heard the rival contentions in the light of material produced and precedents relied upon. 6. At the outset ld. Counsel for the assessee contended that there has been incorrect inclusion of functionally, size wise, risk wise uncomparable company i.e. Infosys Technology Ltd. in the final comparable set. It has been claimed that TPO DRP have grossly erred in selecting the Infosys Technology Ltd. in the final comparable set for determining the arms length margin of the software development services of the assessee as the Function Asset Risk (FAR) profile of this company is materially different from assessee's provision of captive software development services. The assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the TPO as well as the DRP and the same have not been dealt with by proper speaking order. The DRP order in this case is very laconic the operating portion of which reads as under: - "While reaching to the above conclusions, the TPO has made following observations: (i) TNMM as adopted by the assessee to benchmark the international transactions has been accepted. OP/OC has been accepted as the profit level indicator. (ii) The assessee had used data for the years ending March, 2004, 2005 and 2006 in the case of comparables. However, only the instant years data has been taken into consideration for comparables. (iii) The assessee has selected 50 comparables in the Software Development Segment. These comparables were examined by the TPO and it was found that 46 companies used were not comparable. Detailed reasons for the same have been discussed in the body of the Transfer Pricing Order. Finally only 4 comparables have been used to benchmark the international transactions in the Software Development Segment. No fresh search was carried out. (iv) The assessee had selected 14 comparables in the ITES Segment. These comparables were examined and it was found that 10 compani ..... X X X X Extracts X X X X X X X X Extracts X X X X
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