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TMI Blog2017 (12) TMI 421X X X X Extracts X X X X X X X X Extracts X X X X ..... .2003 wherein the income declared was Rs. 16,43,091; after claiming deduction of Rs. 1,31,84,858 under Section 10B of the Act. The case was selected for scrutiny and thereafter the Assessing Officer made a reference to the Transfer Pricing Officer (TPO) under Section 92CA of the Act for determination of the Arm's Length Price (ALP) in respect of the international transactions reported by the assessee in Form 3CEB. The TPO passed an order under Section 92CA dt.16.3.2005, proposing a TP Adjustment of Rs. 3,17,60,790 in respect of the software development services segment of the assessee's operations. After receipt of the TPO's order, the Assessing Officer completed the order of assessment for Assessment Year 2002-03 under Section 143(3) of the Act vide order dt.28.3.2003 wherein the assessee's income was determined at Rs. 3,72,94,620 which included the TP Adjustment of Rs. 3,17,60,790. 2.2 Aggrieved by the order of assessment dt.28.3.2003 for Assessment Year 2002-03, the assessee preferred an appeal before the CIT (Appeals) - IV, Bangalore, who disposed off the appeal vide order dt.11.10.2013, allowing the assessee partial relief. 3. Both Revenue and the assessee being aggr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal transactions entered into by the appellant; 7. The Ld. CIT (A) has erred in not passing a speaking order specifying the functionally dissimilar companies while giving directions that the functionally dissimilar companies ought to be excluded; 8. The Learned CIT (A) erred in not providing adjustments for the differences in risks undertaken by the appellant and the comparable companies; 9. The Learned CIT (A) erred in concluding that there is no necessity of providing any further adjustment after providing for working capital adjustments; 10. The Ld. CIT (A) is erred in not allowing the benefit of range of +/- 5% as provided in proviso to Section 92C (2) of the Act to the Appellant, while determining the arm's length price; 11. The Appellant craves leave to add, to alter or amend the aforementioned grounds of appeal. 3.2 Revenue has raised the following grounds in its appeal : 1. The order of the Learned CIT (Appeals) is opposed to law and the facts and circumstances of the case. 2. The Ld.CIT (A) erred in directing the TPO to exclude companies which are functionally dissimilar subject to the guidelines laid down by the Delhi Bench of the Tribunal in Actis Advi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rage industry hourly rate as under : (i) $ 18 per man hour for offshore work; and (ii) $ 58 per man hour for on-site work. Based on the above, the TPO proposed a TP Adjustment of Rs. 3,17,60,790, which was incorporated by the Assessing Officer in the order of assessment for Assessment Year 2002-03. 4.5 On appeal by the assessee, the learned CIT (Appeals) vide order dt.11.10.2013 granted the assessee partial relief. In the impugned order, the learned CIT (Appeals) has struck down the CUP method adopted by the TPO as the MAM and instead directed the TPO to apply TNMM as the MAM in the case on hand, by quoting the decision of the Hon'ble Apex Court in the case of DIT (International Taxation) Vs. Morgan Stanley & Co. (292 ITR 416) (SC). Having applied TNMM as the MAM, the learned CIT (Appeals) applied the list of comparable companies adopted in the case of Sun Microsystems India P. Ltd.; for the same assessment year 2002-03. After selecting the same set of comparables as was taken in the aforesaid case (supra) to be the set of comparable companies to the assessee in the case on hand, the learned CIT (Appeals) directed the TPO to - (i) exclude companies having turnover in ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Co. is in the business of providing IT Enabled Services (ITES). Therefore, it is contended that the learned CIT (Appeals) has erred in comparing an ITES company with that of the assessee in the case on hand, which is in the business of provision of software development services to its AE; (iii) In para 5.1 of the impugned order, the learned CIT (Appeals) states that "The assessee is involved in the manufacture of computer software which is an IT Enabled Service." Evidently, there is a mistake of characterization of the assessee by the learned CIT (Appeals), thus rendering the entire decision of the learned CIT (Appeals) as incorrect and invalid. (iv) The learned Authorised Representative also assailed the decision of the learned CIT (Appeals), in adopting the set of comparables adopted by the TPO in the case of Sun Microsystems India P. Ltd. for Assessment Year 2002-03 as arbitrary, for the following reasons :- a) It has been done without conducting any FAR analysis. b) Without conducting any search process for selection of comparable companies. c) Without specifying any filters for identification of comparable companies; and d) Without even giving any valid reason o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year to decide the Most Appropriate Method to be adopted, filters to be applied and the comparable companies to be selected. In our view, it is not appropriate to merely quote a particular judicial pronouncement in order to decide the MAM to be adopted (supra) or to cite another to decide the final set of comparable companies (supra). The least the learned CIT (Appeals) ought to have done is to mention how the facts of the cited / relied upon judicial pronouncements are similar to that of the assessee in the case on hand, to warrant such an application of the decision in those cases to the assessee's case. We find that this fundamental exercise has not been carried out. Further, as pointed out by the learned Authorised Representative of the assessee, there appear to be errors in the classification of the services rendered by the assessee while applying the judicial pronouncements; i.e. whether it provides software development services or ITES. We also observe, as mentioned in the grounds of appeal, that the directions issued by the learned CIT (Appeals) to the TPO/A.O. amount to setting aside the issues for determination by them which are beyond the mandate of the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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