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2015 (7) TMI 797 - ITAT DELHI

2015 (7) TMI 797 - ITAT DELHI - TMI - Transfer pricing adjustment - addition made on the basis of Arm’s Length Price - impugned action of the Ld CIT(A) to exclude M/s Satyam computers Ltd,from the list of comparables selected by the by the TPO,/AO questioned - CIT(A) delted the TPO addition - Held that:- CIT(A) has noted that in the case of Agnity Technologies Private Limited vs. Income Tax Officer, Ward 12(1), New Delhi [2010 (11) TMI 852 - ITAT DELHI] has upheld the decision of the DRP which h .....

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relied upon. So the financial result of the said company cannot be used by the TPO to compute the ALP, which has been rightly done by the ld. CIT (A), so we concur with his decision to exclude M/s. Satyam from the list of comparables, so the Revenue’s ground is dismissed.

Thus by excluding M/s. Satyam from the list of comparables, the mean of the assessee falls within ± 5% of 22.15%. Hence, we do not see any reason to interfere with the impugned order passed by the Ld. CIT(A), hence, .....

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. The grounds raised in the Revenue s appeal read as under:- 1. That the Commissioner of Income Tax (Appeals) erred in law and on facts of the case in deleting the addition of ₹ 74,80,644/- made on the basis of Arm s Length Price determined by the Transfer Pricing Officer u/s. 92CA(3) of the Income Tax Act, 1961. 2. That the Commissioner of Income Tax (Appeals) erred in law and on facts of the case in holding that the International Transactions of the assessee should be treated as at Arm s .....

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notice were issued. Later on this case was selected for scrutiny, since being connected with SK Gupta Group of Cases, in which search and seizure action took place on 12.1.2006, so was transferred u/s. 127 of the Act, to Central Circle-9, New Delhi. As a result of transfer of jurisdiction, fresh statutory notices were issued and the assessee responded to it before the AO. 4. The assessee s case was referred to the Transfer Pricing Officer (TPO). The assessee filed its computation of profitabili .....

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948,174 Less : Loss on sale of assets 20,078 Depreciation 17,598,916 Total Cost (TC) 130,285,506 Operating Profit (OP) 22,745,594 OP/TC 17.46% OP/TC Margin of the comparables The comparables as proposed to the assessee and their corresponding OP/TC margins are as under :- Sl.No. Name of the Company Data Source OP/TC (%) 1. Sonata Software Ltd. P 14.94% 2. Infosys Technologies Ltd P 43.05% 3. Geometric Software Solutions Co. Ltd. P 20.32% 4. Larsen & Toubro Infotech Ltd. P 10.30% 5. Satyam Co .....

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per the arm s length standards. As such the total cost related to the uncontrolled revenue is computed as under :- 26,714,558/ 1.232 = Rs.21,683,894 Cost related to international transactions = (130,285,506-21,683,894) = 108,601,612 Revenue at 23.2% operating profit On ₹ 108,601,612 (Arm s Length Revenue) = Rs.133,797,186 Revenue booked by the assessee = Rs.126,316,542 Difference = Rs.74,80,644 Difference as a percentage of ALP = 5.59% Accordingly, the Arm s length price of the internatio .....

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assessing officer shall accordingly increase the income of the assessee by ₹ 74,80,644/-. 5. In view of the said transfer pricing order,of the TPO, the assessee was asked some questions by the AO vide questionnaire dated 27.11.2008 as under:- 16. Please refer to the order TPO dated 29.10.2008 u/s. 92CA(3) of the I.T. Act, 1961 a copy of which has been issued to you by him. As per the said order the arms length price of the international transaction related to software development and desig .....

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4,80,644/-. 6. In response to the aforesaid questions, the assessee submitted his reply on 17-I2-2008. The relevant portion of which is reproduced as below: With regard to the said notice issued by your goodself on the company I would first of all like to bring to your goodself's kind attention, the fact during the F. Y 2004-05, it was entitled to tax holiday u/s 1OB of the Act in respect of the profit of its Export Oriented Unit ('EOU) which form a significant part of the ' Export S .....

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the addition of ₹ 74,80,644/- and assessed the income of the assessee at ₹ 22,97,300/- vide his order dated 23.12.2008 passed u/s. 143(3) of the Act. 8. Against the aforesaid order of the Assessing Officer, assessee appealed before the Ld. CIT(A), who vide impugned Order dated 30.5.2012 has allowed the appeal of the assessee by deleting the addition. 9. Now the Revenue is in appeal before us. 10. The sole issue is the impugned action of the Ld CIT(A) to exclude M/s Satyam computers .....

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d the records. We find that the assessee was incorporated in the year 2000, in India as a 100% Export Oriented Unit ('EOU'). The Company is a joint venture between Sumitomo Wiring Systems Ltd., Japan (33.89%), the Motherson Group, India (29.6%) and the remaining are held by others. The Company is engaged in providing customized software and engineering design services to its customers and caters to both domestic and export markets. The export sales of the Assessee are primarily from soft .....

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d 124,156,267 Design services 2,160,275 Reimbursement of expenses 201,739 12.2 The assessee had selected 87 comparables using Operating Profit/ Total Cost (OP / TC) as the Profit Level Indicator (PLI). The mean margin of the comparables was at 13% as against 17.46% of the assessee. TPO accepted the most appropriate method as Transactional Net Margin Method (TNMM) as done by the assessee and OP / TC as the PLI. The calculation of the profit margin of the assessee was also not challenged by the TP .....

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metric Software Solutions Co. Ltd. 20.32% 4. Larsen & Toubro Infotech Ltd. 10.30% 5. Satyam Computer Services Ltd. 28.41 % Average 23.20% 12.3. And thereafter TPO, computed the ALP and made an addition of ₹ 74,80,644/-. Before the CIT (A), the assessee has raised the inclusion of M/s. Satyam Computer Services Ltd. in the list of aforesaid comparables to compute the ALP. It was contended before the ld. CIT (A) that the financial results of M/s. Satyam Computer Services Ltd. cannot be re .....

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results are not reliable, for the relevant assessment year too, comes in that net. 12.5 The ld. CIT (A) has taken note of the Annual Report of M/s. Satyam Computer Services Limited for financial year 2009-10, - Corporate Governance Reports - makes a mention of the fact that the financial statements of preceding years should not be relied upon. An extract from page no. 23 of the report reads as follows:- "M/s Price Waterhouse, the erstwhile auditors of the Company communicated vide a letter .....

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of Accounting and Disclosure requirements relating to ASOP-A for which the Company is in the process of seeking condonation." 12.6 We further find that the Ld. CIT(A) has noted that in the case of Agnity Technologies Private Limited vs. Income Tax Officer, Ward 12(1), New Delhi decided by ITAT, Delhi 2010 (IDT2)GJX 1031 - TDEL has upheld the decision of the DRP which had excluded M/s. Satyam from the list of comparables. Ld. CIT(A) further observed that in view of this, M/s Satyam Computer .....

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tly done by the ld. CIT (A), so we concur with his decision to exclude M/s. Satyam from the list of comparables, so the Revenue s ground is dismissed. 12.7 Thereafter, we find that once M/s. Satyam was excluded. from the list of the comparables, the workings of the margin of the comparables are given in Table-3 below: Table - 3: Sl.No. Name of Company OP/TC Margin (March 2005) Working Capital Adjusted Margin 1. Sonata Software Ltd. 14.94% 13.15% 2. Infosys Technologies Ltd 43.05% 43.72% 3. Geome .....

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