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TMI Blog2015 (11) TMI 1508X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing grounds in the appeal:- 1. "The Assessing Officer ("AO")/ Dispute Resolution Panel ("DRP") /Transfer Pricing Officer [TPO) has erred in making an addition of Rs. 45,525,896 to the total income of the appellant on account of various transfer pricing adjustments. 2. The AO/DRP has erred by not accepting the economic analysis undertaken by the appellant in accordance with the provisions of the Act read with the Income Tax Rules, 1962 ("the Rules"). 10. The AO/DRP has erred in wrongly rejecting certain companies and adding certain companies to the final set of comparable companies for the software development services transaction on an adhoc basis. 11. The AO/TPO has erred in not giving effect to the DRP directions in respect of the following:- a. TPO is directed to verify whether Quintegra Solutions Limited has export sales of 95.06% of revenues and include it if it is found to be correct. b. TPO is directed to work out the working capital adjustment by apporting the debtors/ creditors on the basis of the segments of the assessee and provide working capital adjustment and re-compute margins accordingly. 14. The AO / DRP / TPO has erred by holding inter-company receivabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of Rs. 5,31,25,920/-. The return was processed u/s 143(1). After issuance of notice u/s 143(2)/142(1) etc. the assessment was closed at an income of Rs. 9,81,51,816/- consequent to the additions made on account of arm's length price on international transaction totaling to Rs. 4,55,25,896/-. 4.1. A reading of the transfer pricing study specific pages 279 to 280 and internal page 2 of the TPO's order would show that the following international transactions were entered into by the assessee (these have been culled out in the synopsis in the following manner):- S.No. Summary of International Transactions Transaction Value Methodology used Software distribution segment 1. Import of software 10,04,04,589 TNMM with OP/OR a PLI 2. `Payment of royalty 4,73,69,738 3. Payment of Corporate service fee 3,28,53,581 4. Waiver of Liability 3,37,97,619 Software development services 5. Provision of software development services 10,54,94,286 TNMM with OP/OC as PLI 6. Purchase of fixed assets 6,53,016 7. Reimbursement of expenses 10,62,267 Other transactions 8. Payments received from AE's towards software purchased from customers in India 10,73 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent). Further the agreement also stipulated that the appellant shall be invoiced on quarterly basis and shall be paid within 30 days as per ht instructions in the invoice. (Copy of agreement is enclosed as ANNEXURE-A of this synopsis). During the year under consideration, TNMM was applied as the most appropriate method and OP/OC of the Appellant was taken to be the Profit Level Indicator ("PLI") (pg 317 of the TP Study-PB-1). The method has not been disputed by the TPO. THE PLI calculation of the Appellant is mentioned at pg. 325 of the TP-Study-PB-1 and PLI for the year under consideration of the Appellant is 12.09%. The arithmetic mean of the comparables finally selected by the Appellant was 14.13% (pg 325 read with 385 of PB-1). The TPO determined the ALP at 20.97% with a final set of 14 comparables (pg.165 of appeal set) ." 7.1. Addressing the prayer set out in (a) above the Ld. AR submitted that the directions given by the DRP are at internal page 10 of the order in para 3.12. 7.2. In the said background the Ld. AR inviting attention to the past history on the issue submitted that pursuant to similar directions given by the DRP in 2007-08, 2008-09 & 2010-11 assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and circumstances of the case in the face of the above quoted speaking directions the TPO in judicial propriety had no occasion to ignore the directions of the higher forum and was bound to follow the directions issued by the DRP whatever his personal opinion may be. The issue accordingly is restored back to the TPO/AO with the direction to decide the issue in terms of the speaking direction of the DRP and pass a speaking order in accordance with law after giving the assessee a reasonable opportunity of being heard. 7.6. Addressing the next grievance of the assessee wherein the directions given by the DRP qua the inclusion of Quintegra Solutions Ltd. which have not been carried out by the TPO, we find on facts that the said comparable was taken by the assessee in its transfer pricing study; this fact is borne out from page 385 of the Paper Book. On a reading of the TPO's order it is seen that the TPO proposed various filters including the filter to exclude those comparables companies whose revenues from exports of software segment was less than 75% of their total sales. This fact is borne out from internal page 51 of the TPO's order of the appeal set wherein rationale for intro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee in the present proceedings in support of its prayer has relied upon the decision dated 24.04.2015 in the case of Cienna India Pvt. Ltd. of the Co-ordinate Bench in ITA No.1453/Del/2014 pertains to 2009-10 assessment year. 8.1. A perusal of the said order shows that the assessee was a wholly owned subsidiary of Cienna Corporation, USA and was engaged in the business of provision of software development services and marketing support services to its overseas group companies. In the facts of the said case also apart from other comparables Bodh Tree Consulting Ltd. and Infosys Technology Ltd. with OP/TC of 40.94 & 68.63 respectively were selected as comparables companies in its software development services segments. The exclusion of the said comparable sought by the assessee was not agreed to either by the TPO or by the DRP. The issue travelled to the ITAT and the Co-ordinate Bench in the facts of that case directed the exclusion of the Infosys Technologies Ltd. as a comparable vide para 8.2 of the order. The same is extracted hereunder for ready-reference:- 8.2. "We have considered the rival submissions and perused the relevant material on record. It can be seen that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts or any contrary argument assailing the claim of similarity of material facts in the case of the assessee with Cienna India Pvt. Ltd. we hold that Infosys Technology Ltd. as a comparable company has to be excluded from the list of comparables. 8.3. Since even for the purposes of exclusion of Bodh Tree Consulting Ltd. the reliance had been placed on the decision of the Co-ordinate Bench in the case of Cienna India Pvt. Ltd. it is seen that the discussion is available at para 9.4 to 9.6 of the aforesaid order wherein after a detailed discussion the Co-ordinate Bench was pleased to hold that the profits of Bodh Tree Consulting Ltd. do not represent fair profitability on a year to year basis and thus the said comparable was held to have lost its tag of being an effective comparable and consequently its exclusion was directed. In the absence of any arguments to the contrary in the face of jurisprudence available we find the exclusion of the said comparable is warranted on facts. The relevant discussion is reproduced hereunder:- 9.4. "The ld. AR submitted that Bodhtree Consulting Ltd. cannot be considered as comparable because of a different model of revenue recognition. He invited o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the years, namely, the first and the second, will not give a fair view. 9.6. Coming back to the facts of the instant case, we find from Schedule 12 that there is a mention of Significant accounting policy at Sl. no.3, which provides that : "Revenue from software development is recognized based on software development and billed to clients." If some software development project is incomplete at the end of the year, this Note may entail two situations , viz., the first, in which the expenses incurred in respect of such software development may be capitalized, which appears to be a more rational manner of depicting the true and fair view of the profitability of the enterprise; and the second, in which such expenses may be straightway taken as revenue cost for the year of its incurring itself, which may not reflect a true and fair view of the profits on year to year basis. The contention of the ld. AR is that whereas Bodhtree fell into the second situation, the assessee was in the first situation. Though this contention about Bodhtree accounting for expenses in the year of incurring but considering income only on the conclusion of the project in the subsequent year sounded a little ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceivables shown by the assessee as unsecured loans and after obtaining information u/s 133(6) of the Income Tax Act, 1961 from M/s Cirisil Limited imputed that the interests rate @ 15.77%. Carrying us through the objections advanced on behalf of the assessee assailing this before the DRP wherein it was argued that the assessee does not charge any interests on receivables from the AE where the assessee was captive service provider the Ld. AR made various submissions assailing the departmental stand. 9.1. Reliance was placed on the order dated 31.03.2015 in the case of Kusum Health Care in ITA No.6814/Del/2014. At the same time attention was invited to a contrary view taken in order dated 14.08.2015 in ITA No.2010/Del/2014 & 2575/Del/2014 in the case of Amriprise India Pvt. Ltd. wherein though Kusum Health Care was relied upon, however the Co-ordinate Bench held it to be a case of international transaction. It was his submission that since on facts the departmental appeal was dismissed the issue was not agitated by the assessee. Thus it was his submission that if the Bench is not in agreement with the main submissions advanced then the alternate argument would be to consider on fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted to days in excess of 107 days and not 30 days as stipulated in the agreement. 10. The Ld. CIT DR relying on the order of the ITAT in Ameriprise India Pvt. Ltd. submitted that as per the Amendment made by Finance Act, 2012 in terms of insertion of Explanation to Section 92B with retrospective effect from 01.04.2003 considering "any other debt arising during the course of business" and relying on the order dated 06.07.2015 in Techbooks International Pvt. Ltd. vs DCIT [ITA No.240/Del/2015] has correctly held it to be a separate international taxation. Accordingly it was his submission that the decision of the Hon'ble Bombay High Court in Indo-American Jewellery relied upon by the assessee is of no relevance as the Amendment has not been considered therein. 11. We have heard the rival submissions and perused the material available on record. On a consideration of the entire factual matrix where the issue of Amendment by Finance Act, 2012 in terms of insertion of Explanation to Section 92B with retrospective effect from 01.04.2003 as considered by the Co-ordinate Bench in the decision of Ameriprise India Pvt. Ltd. is relied upon by the ld. CIT DR and considering the proposition o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay be restored or considering the facts and evidences on record relief may be granted at this Forum itself. 14. Ld. CIT DR relying upon the TPO and DRP's order submitted that the assessee has not provided the facts and figures on record. The following details as per page 413 which as per record the assessee was maintaining it was submitted have not been provided and the assessee may be directed to place on record:- * A copy of the actual fee calculation; * Detail of the calculation of allocation factors; and * A narrative of the actual services that were provided. 15. We have heard the rival submissions and perused the material available on record. On consideration of the discussion on the issue in the transfer pricing order and the Objections made before the DRP demonstrate we find on facts that the issue necessarily has to be restored back to the TPO. On considering the evidences filed, we hold that the evidence relied upon in the Paper Book before us cannot be said to be sufficient and complete to address the issue and as per the agreement dated NIL stated to be effective from 01.01.2001 found placed at pages 411-412 it is seen that the documents described as "copy of Inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in determining the comparable Uncontrolled Price method as the most appropriate method without rejecting Transactional Net Margin method ("TNMM") adopted by the Appellant to benchmark the international transaction pertaining to availing of intra-group services." 18. Since it was the stand of the parties before the Bench that the arguments addressed in 2009-10 assessment year would address the issues herein also, however the Ld. AR submitted that the view taken by the authorities in the earlier years would decide the issue. It was clarified on query that herein also evidences were filed before the TPO & the DRP and the deficiency in the evidences pointed out in page 413 in the earlier Paper Book is also there. The Ld. CIT DR relied upon the arguments advanced in ITA No.6161/Del/2013. 19. Having heard the submission and perused the material available on record, we are of the view that for the reasons set out in the earlier order the issue herein also with similar direction is restored to the file of the TPO/AO. The TPO/AO shall accept fresh evidences filed by the assessee and pass a speaking order in accordance with law after giving the assessee a reasonable opportunity of being h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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