TMI Blog2018 (1) TMI 885X X X X Extracts X X X X X X X X Extracts X X X X ..... ance with the provisions of section 92C and in the manner prescribed under the TNMM in good faith and with due diligence. The Hon'ble Delhi High Court in Principal CIT vs. Mitsui Prime Advanced Composites India (P) Ltd. (2017 (4) TMI 186 - DELHI HIGH COURT) has confirmed the deletion of penalty u/s 271(1)(c) which was imposed pursuant to the transfer pricing addition in somewhat similar circumstances. - Decided in favour of assessee. - ITA No.5200/Del/2011 And ITA No.1144/Del/2017 - - - Dated:- 11-1-2018 - SHRI R.S. SYAL, VICE PRESIDENT AND SHRI KULDIP SINGH, JUDICIAL MEMBER For The Assessee : Shri Nageshwar Rao, Advocate For The Department : Shri Kumar Pranav, Sr. DR ORDER PER R.S. SYAL, VP: These two appeals filed by the assessee one against the quantum and the other against the penalty imposed u/s 271(1)(c) of the Income-tax Act, 1961 (hereinafter also called the Act ) are in relation to the assessment year 2007-08. Quantum Appeal (ITA No.5200/Del/2011) 2. The only issue raised in the quantum appeal is against the transfer pricing addition of ₹ 53,27,302/- made in respect of Software development segment. 3. Briefly sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee under Software development segment. 6. The Transfer Pricing study report discloses that the assessee has certain self-developed data processing and data analytics software which are used for several internal purposes, including benefit design, benchmarking, claim processing, cost trading, marketing, managing relations and increasing efficiency and profitability. When we peruse the terms of the Service agreement between the assessee and its A.E, pursuant to which such services were rendered, it turns out that the assessee did :- 1. Development, testing and maintenance of internal Company software pursuant to Company software development life cycle (SDLS) process. a) Provide large scale shared services testing infrastructure capability. b) Provide development, testing and operations for specified data maps using best methods for extract, transform and load (EDL) data warehouse processes. 7. From the above services rendered by the assessee which have been set out in Exhibit to the Services agreement, it is clear that the assessee is engaged in development, testing and maintenance of internal company software in respect of testing infrastructure capability and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be excluded. 11. The ld. DR raised a preliminary objection to argue that once a company has been considered by the assessee as comparable in its TP documentation, the same cannot be challenged in the further appellate proceedings. He relied on the impugned order to contend that this company was rightly offered by the assessee in the list of comparables and, hence, the same should not be excluded. 12. We are disinclined to sustain the preliminary objection taken by the ld. DR that the assessee should be stopped from taking a stand contrary to the one which was taken at the stage of the TP study or during the course of proceedings before the TPO. It goes without saying that the object of assessment is to determine the income in respect of which the assessee is rightly chargeable to tax. As an income not originally offered for taxation, if otherwise chargeable, is required to be included in the total income, in the same breath, any income wrongly included in the total income, which is otherwise not chargeable, should be excluded. There can be no estoppel against the provisions of the Act. Extending this proposition further in the context of the transfer pricing, it transpires ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofitability of this company, considered at entity level. As such, we hold that the consolidated financials of this company cannot be compared with the assessee. Similar view has been taken by the Tribunal in the assessee s own case for the assessment year 2008-09. A copy of such order dated 28.08.2014 has been placed on record. This company is, therefore, directed to be excluded. (ii) Sasken Communications Technologies Ltd. 14. This was also the assessee s comparable which was not challenged before the TPO or the DRP. The ld. AR submitted that this company was wrongly included in the list of comparables and hence the same be excluded because of certain acquisitions done by it during the year. 15. After considering the rival submissions and perusing the relevant material on record, we find that the financial results of this company stand distorted due to certain acquisitions made by it during the relevant year. It is evident from the Annual report of this company which is available in the paper book. It has been categorically mentioned in its Annual report that during the year this company acquired Botnia Hitech Oy, Finland and its two wholly owned subsidiaries. It has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied out by the assessee in question is nowhere close to that of Tata Elxsi Ltd., we hold that this company cannot be included in the list of comparables. Accordingly, this company is directed to be excluded. 20. To sum up, we set aside the impugned order on the issue of transfer pricing addition in Software Development segment and remit the matter to the file of AO/TPO for fresh determination of its ALP in consonance with our above directions. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in such fresh proceedings Penalty Appeal (ITA No.1144/Del/2017) 21. The assessee in this appeal is aggrieved against the sustenance of penalty amounting to ₹ 17,93,169/- by the ld.CIT(A) u/s 271(1)(c) of the Act. 22. We have heard the rival submissions and perused the relevant material on record. It can be seen from the finally rectified order passed by the Assessing Officer that the only addition which has been made is on account of transfer pricing adjustment under Software development segment amounting to ₹ 53,27,302/-, which we have dealt with above while disposing of the quantum appeal of the assessee. While arguing the qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by it was computed in terms of section 92C and in a manner prescribed under the section and this exercise was done in good faith and due diligence. 25. Section 92C of the Act deals with the Computation of arm s length price. Sub-section (1) provides that the arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction etc., namely :- (a) comparable uncontrolled price method; (b) resale price method; (c) cost plus method; (d) profit split method; (e) transactional net margin method; (f) such other method as may be prescribed by the Board. Sub-section (2) provides that the most appropriate method referred to in sub-section (1) shall be applied for determining ALP in the manner as may be prescribed. Thus, it can be noticed that there are five methods specifically mentioned, in addition to clause (f) of section 92C(1) which refers to such other method as may be prescribed by the Board. The other method has been prescribed by the Board in terms of Rule 10AB with retrospective effect from 1.4.2012 applicable to assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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