TMI Blog2016 (6) TMI 1321X X X X Extracts X X X X X X X X Extracts X X X X ..... ed orders for the respective assessment years i.e. assessment years 2007-08 to 2009-10, under consideration. However, he admitted while passing the orders u/s 92CA of the Act for the assessment year 2010-11 that TNMM is most appropriate method for determining the Arm’s Length Price. We, therefore, deem it appropriate to set aside this issue relating to the assessment years 2007-08 to 2009-10 to the file of the TPO/AO to decide as to what is the most appropriate method by considering the facts and the guidelines available in the form of circular. As regards to the issue relating to the comparables for which the information u/s 133(6) of the Act were obtained by the TPO and which were not confronted to the assessee, we are of the view that this issue also deserves to be set aside to the file of the TPO/AO for fresh adjudication in accordance with law. Additional ground relating to deduction u/s 10A of the Act was not before the TPO/AO. The said grounds are purely legal grounds and raised first time before the Tribunal, so this issue raised in the additional grounds is remanded to the file of the TPO/AO to be decided along with another assessment years under consideration. - I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and circumstances of the case and in law in classifying the software development services rendered by the appellant as end-to end product development and has misinterpreted the phrase end-to-end to mean all the stages of the software development life cycle. 6. That on facts and in law, the Hon'ble DRP and Learned TPO/AO have erred in classifying the appellant as a risk bearing entirely which undertakes all risks pertaining to the software product development business, thereby completely ignoring the fact that the appellant receives a substantial cost plus mark-up remuneration from its AE, regardless of the success or failure of the products developed by it. 7. That on facts and in law, the Hon'ble DRP has erred in confirming the conclusion drawn by the Learned TPO/AO that the appellant has created significant intangibles and is the economic owner of such intangibles. 8. That on facts and in law, the Hon'ble DRP and Learned TPO/AO have failed to adopt a step by step scientific approach for identifying comparable companies based on a reliable Functional and Risk Analysis. 9. That on facts and in law, the Hon'ble DRP and Learned TPO/AO ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dice to each other. The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. 4. The assessee had also raised the additional grounds and requested for admission of the same by stating in the application dated 03.12.2015 as under: The above referred appeal for AY 2006-07 is fixed for hearing before your Honours for hearing on 14 December 2015. The Appellant has challenged the order of the learned Assessing Officer ( Ld. AO ) in respect of the adjustment made on account of difference in the arm's length price ( ALP ) of the international transaction pertaining to provision of software development services as determined by the Learned Transfer Pricing Officer ( Ld. TPO ) and the Appellant. In addition to the grounds of appeal filed, we wish to file the additional / supplementary ground of appeal. The additional ground does not need any verification of facts and is purely a legal issue. We therefore, request your Honours to kindly admit the additional ground and decide on merits. The Appellant wishes to humbly submit that the additional ground can b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admitted fact that the additional grounds raised by the assessee first time before the ITAT are purely legal grounds and do not need any verification of facts, so these deserve to be admitted. These grounds now raised by the assessee as additional ground were not available to the authorities below, so they have no occasion to adjudicate the same. We, therefore, deem it appropriate to set aside the issue raised by the assessee in the additional grounds to the file of the TPO/AO to be adjudicated afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee. 8. As regards to the other grounds raised by the assessee, it is gathered that ground nos. 1 to 15 relates to the addition made by the AO on account of Arm s Length Price adjustment. 9. Facts of the case in brief are that the assessee filed the return of income on 30.11.2006 declaring an income of ₹ 4,98,056/- which was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act). Later on, the case was se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made to page no.105 of the assessee s paper book which is the lists of the comparable having average arithmetic mean of 12.04% and reads as under: Margin Analysis Unadjusted margins of comparable companies Sl. No. Name of the Company Weighted average margins (%) 1 3 i Infotech Limited 6.42% 2 Akshay Software Technologies Limited 8.24% 3 Aztec Software Technology Services Limited 13.74% 4 Bangalore Softsell Limited 4.37% 5 Bristlecone India Limited -2.92% 6 Compucom Software Limited 15.97% 7 Datamatics Limited -5.87% 8 Encore Software Limited -33.94% 9 Flextronics Software Systems Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited 10.62% 34 V J I L Consulting Limited 6.47% 35 V M F Softech Limited 18.70% 36 Visualsoft Technologies Limited 29.02% Arithmetic mean 12.04% Maximum 52.87% Maximum -58.70% Lower Range 6.44% Upper Range 17.64% 11. It was further submitted that the TPO rejected the comparables for the reasons that the 13 comparables did not meet the comparability criteria and that the annual reports for another 5 comparables were not available. It was further submitted that the assessee itself excluded another 18 comparables and worked out the arithmetic mean of 12.80%. Therefore, the operating profit margin of the assessee was better than the average margin of the comparables a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation collected u/s 133(6) of the Act and without giving opportunity of being heard to the assessee while selecting the comparables. It was submitted that the opportunity was to be given to the assessee and than only a view has to be taken by the TPO as to whether the comparable selected by him were to be considered or not. 16. In his rival submissions the ld. CIT DR supported the orders of the authorities below and further submitted that if at all the case is to be set aside than it is to be considered afresh by the TPO/AO. However, he admitted that the TPO for the assessment years 2006-07 2010-11, considered the TNMM method as most appropriate method but only for the assessment years 2007-08 to 2009-10, the residuary profit split method was considered as most appropriate method. He also could not rebut this contention of the ld. Counsel for the assessee that the informations collected u/s 133(6) of the Act relating to the selected comparables were not confronted to the assessee. 17. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is noticed that the TPO applied the residuary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the present case, it is also relevant to discuss the guidelines and directions issued by the CBDT in the Circular No. 6/2013 dated 29.06.2013 which read as under: The CBDT has carefully considered the matter and lays down the following guidelines for identifying the Development Centre as a contract R D service provider with insignificant risk. 1. Foreign principal performs most of the economically significant functions involved in research or product development cycle either through its own employees or through its associated enterprises while the Indian Development Centre carries out the work assigned to it by the foreign principal. Economically significant functions would include critical functions such as conceptualization and design of the product and providing the strategic direction and framework; 2. The foreign principal or its associated enterprise(s) provides funds/ capital and other economically significant assets including intangibles for research or product development. The foreign principal or its associated enterprise(s) also provides a remuneration to the Indian Development Centre for the work carried out by the latter; 3. The Indian Deve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9-10, under consideration. However, he admitted while passing the orders u/s 92CA of the Act for the assessment year 2010-11 that TNMM is most appropriate method for determining the Arm s Length Price. We, therefore, deem it appropriate to set aside this issue relating to the assessment years 2007-08 to 2009-10 to the file of the TPO/AO to decide as to what is the most appropriate method by considering the facts and the guidelines available in the form of circular. As regards to the issue relating to the comparables for which the information u/s 133(6) of the Act were obtained by the TPO and which were not confronted to the assessee, we are of the view that this issue also deserves to be set aside to the file of the TPO/AO for fresh adjudication in accordance with law after providing due and reasonable opportunity of being heard to the assessee. In the present case, it was also the common contention of both the parties that the corporate issues if involved in any of the aforesaid assessment years those should also be decided by the TPO/AO along with the issues relating to the application of most appropriate method and the selection of the comparables and the additional ground relat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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