TMI Blog2017 (12) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... ) on 31.12.2013 u/s 254 read with section 143(3) and 144C of the Income-tax Act, 1961 (hereinafter also called the Act ) in relation to the assessment year 2006-07. 2. Succinctly, the facts of the case are that an assessment order was passed by the Assessing Officer on 16.09.2010 u/s 143(3) read with section 144C of the Act making an addition of ₹ 4,56,86,300/- on account of variation in the income as a consequence of the order passed by the Transfer Pricing Officer (TPO). The said order was challenged before the Tribunal. Vide order dated 25.02.2011, the Tribunal, in ITA No.5150/Del/2010, decided most of the issues. One of the filters applied by the TPO, as assailed in the appeal, was Wages to sale ratio between 30 to 60%. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s issue also to the DRP for carrying out verification and ascertaining if such contention of the assessee was correct and, further: whether the said party can be included in the list of comparables as per filtered criteria. The matter came up before the DRP for carrying out the exercise as directed by the Tribunal. Vide its order dated 20.09.2013, the DRP found from the Annual reports of Melstar Information Technologies Ltd. and Satyam Computer Services Ltd. that their Wages to sale ratio was 57.88% and 58.28% respectively. Since the same was within the range of 30% to 60%, these companies were directed to be included in the list of comparables. However, such ratio in the case of SQL Star International Ltd. was determined by the DRP at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ld. AR contended that in the calculation of Employee cost, the DRP included not only Salaries and bonus; Contribution to Provident Fund and other funds; and Staff welfare (hereinafter collectively called Rs. the Employee cost ) in respect of Direct costs incurred in providing software development services, but also included the Employee cost in respect of Research and development expenses, Selling and marketing expenses and Administrative and general expenses. The ld. AR contended that such Employee cost in relation to R D; Selling and marketing; and Administrative and general expenses ought to have been excluded from total the Employee cost in calculating the ratio of Wages to sales. It was contended that if such an exclusion of the Emp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion raised on behalf of the assessee. It is not disputed that if the Employee cost in respect of R D; Selling marketing; and Administrative general expenses is included, then, the calculation done by the DRP is unimpeachable. We, therefore, uphold the impugned order in excluding Sasken Communication Technologies Ltd. from the list of comparables. (ii) SQL Star International Ltd. 6. The DRP adopted the figure of Rs.Sales of this company at ₹ 31.70 crore which includes not only the revenues from Rs.Software and services but also Rs.Training course and Rs.Others . A copy of Profit Loss Account of this company is available at page 329 of the paper book, which gives the break-up of the figure of total Sales of ₹ 31.7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uter and Systems Ltd. 8. We have noticed above that the direction of the Tribunal was to verify if this company was in the first year of operation and, further, if it satisfies the other filters adopted by the TPO. The DRP verified the first aspect and found the assessee s contention correct inasmuch as it was not the first year of the company. As regards the other direction, the DRP observed that the : Wages/sales ratio is only 22.99%, which fails filter applied by TPO . That is how, this company got excluded from the final tally of comparables. The assessee is aggrieved against this exclusion. 9. Having heard both the sides and perused the relevant material on record, the Tribunal finds it as a factual position that this company w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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