TMI Blog2013 (9) TMI 1069X X X X Extracts X X X X X X X X Extracts X X X X ..... essing officer u/s 143(3) after seeking directions from DRP u/s 144C(13) of the Income-tax Act, 1961 ( the Act ). 1.1. Various grounds are raised. Apropos TP additions and other additons, Ld. Counsel for the assessee contends that following grounds would suffice in this behalf: I. The Ld. AO following the directions of the Ld. DRP, erred both on facts and in law in confirming the addition to the extent of ₹ 15,842,690/- to the income of the appellant out of the total addition of ₹ 22,101,445/- as proposed by the Ld. TPO/ AO in its draft assessment order u/s 143(3) read with section 144C of the Income tax act, 1961 ( the Act ) by holding that its international transactions pertaining to Contract Software Development ( CSD ) services do not satisfy the arm s length principle envisaged under the Act. In doing so, the Ld. DRP and the Ld. AO has grossly erred in agreeing with and upholding the Ld. TPO s action of Including certain companies that are not comparable to the appellant in terms of functions performed, assets employed and risks assumed; II. That the Ld. AO erred on facts and in law in disallowing ₹ 106,034/- under section 14A of the Act on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 6 Sagarsoft (India) Ltd. 6.33% No rejection reason gien in the TPO order 7 VMF Soft Tech Ltd. 3.92% Rejected on account of functionally dissimilarity Functionally comparable to the appellant (Pgs. 181 to 183 of the PB) 8 SQL Star International Ltd. (software development services segment) 0.90% Rejected on account of failing Export Sales Filter General submission against export filter (Pg. 518 and 519 of PB) 9 Reliance Infosolutions Pvt. Ltd. 5.30% Rejected on account of failing Export sales Filter General submission against export filter (Pgs. 518 and 519 of the PB). Arithmetic mean 12.01% 2.3. During the course of the proceedings, the Ld. TPO issued a show cause notice dated August 25, 2011, proposing to use the current ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perating profit margins accordingly. 2.9. In assessee s own case for A.Y. 2006-07 the ITAT vide order dated 4-11-2010, rendered in ITA no. 3856/Del/2010, upheld the exclusion of following comparables. S.No. Company Name Unadjusted OP/TC Working capital Adjusted OP/TC 1. Avani Cincom Technologies 21.65% 29.92% 2. Bodhtree Consulting Ltd. 19.14% 23.89% 3. Celestial Biolabs 87.94% 86.71% 4. e-zest Solutions Ltd. 28.95% 33.15% 5. Flextronies (Aricent) 8.07% 10.55% 6. iGate Global Soloution Ltd. 13.90% 16.39% 7. Infosys 40.4% 42.92% 8. Kals Information Systems Ltd. (seg) 41.94% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the transfer price of a captive software service provider i.e. the Appellant. ITAT in A.Y. 2006-07 excluded the above listed comparables from T.P. adjustments. This ITAT decision in the Appellant s own case was brought to the notice of the TPO, AO the DRP vide Objections filed under section 144C(2) of the Act. The gist of the same is as under: Reasons for Exclusion S. No. Company name Working capital Adjusted OP/ TC margin (as per the revised TPO order) Reasons for exclusion (non-comparability) 1 Avani Cincom Technologies Ltd. 32.70% (1) Functionally different product company owns software products like Dxchange, Travel Solutions, Insurance Solution, Customer Appreciation etc. products. (2) Non availability of segmental details Rejected in Tecordia Ruling 2 e-Zest Solutions Ltd. 34.01% Functionally different Diversified businesses like product engineering services, consulting services, enterprise solution etc. services. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thirdware Solution Ltd. 24.15% (1) Functionally different product company. (2) Non availability of segmental details. 11 Wipro Ltd. (seg) 33.77% (1) Dissimilar functional/ risk profitle (2) Ownership of branded/ proprietary products. (3) High turnover of ₹ 1,12,58.4 crores (i.e. 631 times) (4) Huge R D spend. (5) Rejcted in the recent ruling in case of Market Tools, Telcordia, Maersk Global Deloitte Consulting. 3.2. The Ld. TPO disregarded the above decision and directions of DRP by relying on the ruling in the case of ST Microelectronics which is not applicable to the assesseees case. 3.3. It is further pleaded that Hon ble Delhi High court has upheld the ITAT judgment in assessees own case for AY 2006-07, thus the issue about exclusion of these comparables while making the TP adjustments in it s case stands settled in view these decisions in its own case. 4. Ld DR is heard who supported the orders of AO/TPO and contends that DRP s directions have been given appropriate effect by them. 5. We have heard the riva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 6.2. Ld. Counsel reiterated the facts and contends that assessing officer has not held that any borrowed funds were utilized for the investment in mutual funds. For earning dividend no administrative set up is required as it is a mechanical process by which dividend warrants are received by the assessee. Therefore, there it cannot be held that any tangible administrative expenditure was incurred. In view of these facts application of Rule 8D is not justified. 7. Ld. DR supported the order of DRP/Assessing officer. 8. We have heard rival contentions on this issue. It has not been disputed that no borrowed funds were utilized for investment in mutual funds. Consequently, the average cost of investment almost becomes nil. However, various courts have held that the investment and consequent earnings have back up of the administrative infrastructure. Keeping in view the same, we are inclined to restrict the estimated disallowance u/s 14A in this behalf @ 10% of the dividend i.e. 57,580/-. This ground is partly allowed. 9. Apropos third ground i.e. charging of interest u/s 234B C, the same is held to be consequential. 10. In the result, assessee s appeal is partly ..... X X X X Extracts X X X X X X X X Extracts X X X X
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