TMI Blog2017 (11) TMI 1473X X X X Extracts X X X X X X X X Extracts X X X X ..... einafter referred to as AO ) pursuant to the directions of the Hon'ble Dispute Resolution Panel (hereinafter referred to as DRP ) is bad in law and void ab-initio. Ground No.2: The learned AO/Transfer Pricing Officer (hereinafter referred to as TPO ) erred in computation of Arm's Length Price (hereinafter referred to as ALP ) which has resulted in a proposed addition of ₹ 1,07,20,111/- and the Hon'ble DRP in confirming the same. In doing so, they have grossly erred: a) by not appreciating the fact that none of the conditions set out in Section 92((3) of the Income Tax Act, 1961 (hereinafter referred to as Act ) are satisfied; b) by making a reference without recording any reasons based on which he reached the conclusion that it was 'expedient and necessary' to refer the matter to the learned TPO for computation of the arm's length price, as required under section 92CA(1) of the Act; c) by ignoring the fact that the Appellant is entitled to tax holiday under section 10A of the Act on its profits and therefore would not have any untoward motive of deriving a tax advantage by manipulating transfer prices of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t mechanically and without recording any adequate reasons for such initiation. 4. Briefly stated the facts necessary for adjudication of the controversy at hand are : M/s. Element K India Pvt. Ltd., the taxpayer is an IT Service provider to EK USA and claimed to have been providing design and development support services for online courseware to its parent company. The taxpayer provided services at an agreed cost plus mark up. During the year under assessment, the taxpayer entered into international transactions as under :- Provision of courseware development services 15,44,23,557 Cost recharges 12,11,863 5. The taxpayer in its TP study adopted Transactional Net Margin Method (TNMM) as Most Appropriate Method (MAM), Operating Profit / Total Cost (OP/TC) as the Profit Level Indicator (PLI) and computed its OP/TC at 12.36% by using current year data and found its international transactions qua provision of contract content / online courseware development services at arm s length. Ld. TPO selected 21 comparables for benchmarking the international transactions out of which the ld. DRP has r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. iGate Global Solutions Ltd. 13.7 9. Infosys Technologies Ltd. 40.81 10. Kals Information Systems 26.53 11. Quintegra Solutions Ltd. 20.65 12. R Systems Intl. (Seg.) 15.73 13. R S Software (India) Ltd. 8.97 14. Sasken Communication Technologies (Seg.) 9.19 15. Tata Elxsi 20.82 16. Thirdware Solutions 18.63 17. Wipro Ltd. 31.45 18. Softsol India Ltd. 25.57 19. Sonata Software Ltd. 24.84 Average 22.16 11. Consequently, TPO proceeded to compute the transfer pricing adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduct and incurring huge amount of its R D; and as such cannot be a suitable comparable for benchmarking the international transactions. The coordinate Bench of the Tribunal in taxpayer s own case for AY 2007-08 ordered to exclude Infosys from the final list of comparables to benchmark the international transactions by following CIT vs. Agnity India Technologies Pvt. Ltd. (2013) 219 Taxman 26 (Del.) . 16. Hon ble jurisdictional High Court in Agnity India Technologies Pvt. Ltd. (supra) has held Infosys as not a valid comparable keeping in view its giant size, in terms of risk profile, nature of services and huge turnover. Moreover, the taxpayer is a captive low risk IT Services provider in the field of software development to its parent company. So, we hereby ordered to exclude this comparable from the final set of comparables chosen by the TPO for benchmarking the international transaction. KALS INFORMATION SYSTEMS (KALS) 17. The taxpayer raised objection to take KALS as comparable on ground of functional dissimilarity as it is a product company. The coordinate Bench of the Tribunal in taxpayer s own case for AY 2007-08 has ordered to exclude this company on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account all the aforesaid factual matrix discussed in the preceding paras. All the parameters taken into account by the Hon ble High Court in Agnity India Technologies Pvt. Ltd. (supra) to exclude Infosys from the set of comparables are also applicable to WIPRO. 22. WIPRO has also to be excluded by the coordinate Bench of the Tribunal in Ciena India Pvt. Ltd. vs. DCIT in ITA No.783/Del./2015 order dated 22.03.2017, a similarly situated company as in the case of the taxpayer, by returning following findings :- 34. Coordinate Bench of ITAT, Delhi in assessee s own case ordered to exclude this company from the final list of comparables by making following observations :- 10.2. We have heard the rival submissions the perused the relevant material on record. It can be observed from the TPO s order itself that the facts and circumstances of Wipro Ltd., are somewhat similar to Infosys Technologies Ltd., inasmuch as he has proceeded to reject the assessee s objections by relying on the reasoning given by him for the inclusion of Infosys Ltd. It is further observed that Wipro Limited (Seg.) was considered as comparable by the TPO in the case of Toluna Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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