TMI Blog2017 (12) TMI 921X X X X Extracts X X X X X X X X Extracts X X X X ..... 9/Del/2015 - - - Dated:- 7-12-2017 - SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For The Assessee : Shri SD Kapila, Adv Shri SS Maurya, Adv For The Revenue : Shri Amrender Kumar, Sr. DR Shri Kumar Pranav, Sr. DR ORDER PER PRASHANT MAHARISHI, A . M . 1. The assessee is a company engaged in the business of designing of semi conductor products, software and electronic systems and providing sales and technical support services. It is providing services to its Associated Enterprise and is wholly owned subsidiary of Freescale Semiconductor Inc. USA. It has a Software Technology Park Unit at Noida and Bangalore. The assessee is also receiving remuneration based on the contractual low-end chip designing services based on agreement on cost plus model. During the year the assessee has entered into two kind of international transaction as under:- a. Provision of software development services ₹ 2645184314/- b. Provision of market support services ₹ 44294086/- 2. In the transfer p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of transfer pricing from ₹ 244513459/- to ₹ 330636502/- by including the impact of working capital adjustment and foreign exchange gain and losses to be treated as non operating items. Consequently the ld Assessing Officer passed the assessment order u/s 143(3) read with section 144C of the Act on 21.02.2014 determining total taxable income of the assessee at ₹ 594576033/-. Therefore, aggrieved, the assessee has raised the following grounds of appeal in ITA No. 2589/Del/2014 for the Assessment Year 2009-10 before us:- I . Transfer Pricing Grounds 1 . That on the facts and in the circumstances of the case and in law, the order passed by the learned Assessing Officer ( Ld . AO ) is bad in law and void ab - initio . 2 . a ) The Ld . DRP erred on facts and circumstances of the case in determining the arm s length adjustment to the Appellant s international transactions from Associated Enterprises ( AEs ) and thereby resulting in the enhancement of by Rs . 8,61,23,043 of income as per draft assessment order by making total TP adjustment of 33,06,36,502 as against adjustment of Rs . 24,45,13,459 mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a vis comparable companies for both the segment . 10 . The Ld . AO / Ld . TPO considered the current year ( i . e . financial year 2008 - 09 ) data for comparability despite the fact that at the time of comparison done by the Assessee, data for financial year 2008 - 09 was not available within the public domain . 11 . The Ld . AO / Ld . TPO did not appreciate the fact that the Assessee is a company incorporated under the provisions of the Companies Act, 1956 and enjoying the tax holiday benefits conferred under the tax holiday benefits as per the Software Technology Park of India ( herein after referred to as STPI ) Scheme Thus, there is no motive on the part of the Assessee to shift the profits to any other jurisdiction . Hence the case of the Assessee falls squarely within the ambit of aforementioned principle . 12 . On the facts and circumstances of the case, the Ld . AO has erred both in facts and in law in initiating penalty proceedings under section 271 ( 1 )( c ) of the Act . 7. At the outset the ld Authorised Representative submitted that it is contesting three comparables in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er where the above comparables have been rejected on qualitative grounds by the assessee that it is functionally not comparable. However, the ld TPO has included the same holding that it passes all filters and is a software developer therefore, a suitable comparable. Before us, the ld AR has contested the above comparable stating that it has a different accounting policy but could not show how it has impacted the profitability. Further, it was also not shown that how the unreliable results could be the basis for its exclusion. Further, it was stated that it owns several tools for data integration and ERP applications. The identical issue arose before us in assessee‟s own case for Assessment Year 2008-09, wherein we have set aside this comparable back to the file of the ld AO/ TPO with a direction to the assessee to show how the accounting policies of the comparable company has impacted the profitability of the comparable. With similar direction, we set aside the issue of exclusion of this comparable to the file of the ld TPO to decide the issue on the merits of the claim of the assessee. Further, in this year assessee has also contested its functional dissimilarity and theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this, we direct the assessee to demonstrate before the ld TPO that it crosses the RPT filter of 25%. If the ld TPO finds that it breaches the RPT filter then it deserves to be excluded. Otherwise, no interference is called for with respect to this comparable. Page | 7 8. Another grievance of the assessee is that ld DRP has directed ld TPO to compute the margins of the comparables as per Safe Harbour Rules. The ld AR , aggrieved, has stated that ld DRP has directed to compute the margins of the comparable companies in market support services as per the guidelines provided by the Safe Harbor notification dated 18.09.2013 relating to the items to be considered as operating expenses and operating income. The assessee has objected to this stating that direction of the ld DRP is devoid of any merit because the DRP has not issued any notice. Further, according to the direction of the ld DRP, the ld TPO has applied it to the market support services as well as software development services though; the directions were with respect to market support services. It was further stated that as stated by the CBDT in Circular No. 5 dated 03.06.2010 the above rules comes into effect from Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be read The above amendment has been made applicable with effect from 1st October, 2009 and shall accordingly apply in relation to all cases in which proceedings are pending before the Transfer Pricing Officer (TPO) on or after such date. (ii) in para 38.3 (page 333), for the date 1st October, 2009 , the following date shall be read 1st April, 2009 . On reading of the above circular with the corrigendum it is apparent that though the date of applicability stated in para no 38.3 is amended to 1-4-2009 from 1-10-2009, however its applicability with respect to assessment year remains the same i.e. AY 2010-11. Therefore, we are of the opinion that safe harbor Rules are applicable as per the Circular of CBDT, which is binding on all subordinate authorities. The ld DRP is not correct in directing TPO to compute margins as per the Safe harbor Rules for AY 2009-10. Therefore, we direct the ld TPO to examine margins computed by the assessee and if they are found in accordance with the law then it should be accepted. 11. Accordingly appeal filed by the assessee is partly allowed with respect to comparables in software development segment directing ld TPO /AO a. to exclude I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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