9911796707
TMI Blog2020 (4) TMI 319X X X X Extracts X X X X X X X X Extracts X X X X ..... and is engaged in business of software development and filed its return of income for year under consideration on 30/11/11 declaring income of Rs. 18,38, 27,713/-. Return was processed under section 143 (1) of the Act and statutory notices under section 143 (2) along with questionnaire was issued to assessee. 2.1. Ld.AO observed that, assessee had international transactions with its associated enterprises for more than Rs. 15 crores. Accordingly, reference to Ld.TPO was made for determination of correct arms length price. 2.2. On receipt of reference, Ld.TPO called for economic details of international transaction entered into by assessee with its associated enterprises. As per TP documentations filed by assessee, it caters to four techn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9% 22. Evoke Technologies Pvt. Ltd. 16.61% Arithmetic mean 7.15% As average margin of comparables was 7.15%, assessee held the international transaction to be at arms length. 2.4. Ld.AO rejected most of the comparables selected by assessee by applying various filters and shortlisted following final set of comparables with 13 comparables having an average margin of 22.82%. S.No. Name of Comparables Margine 1. Acropetal Technologies Ltd 31.98% 2. e-zest Solutions 21.03% 3. E-Infochips Ltd 56.44% 4. Evoke 8.11% 5. ICRA techno analytics Ltd 24.83% 6. Infosys Ltd 43.39% 7. R.S Software (India) Ltd 8.65% 8. Mindtree Ltd (SEG) 10.66% 9. Persistent systems and solutions Ltd 22.12% 10. Persistent system ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing principles. DRP also disallowed sum of Rs. 15,77,76,840/-being provision for doubtful advances (that is provision on service tax refund receivable) created by assessee as not qualifying for expenditure under section 37 of the Act. 4. On receipt of DRP directions, Ld.AO passed final assessment order determining arms length price of international transaction from AE after making adjustment of Rs. 27,56,53,609/-. Ld.AO also added provision of doubtful advances created by assessee to the extent of Rs. 4,93,66,601/- and Rs. 15,77,76,840/- being excess of service tax liability which was anticipated to be refunded by service tax authority, by holding it to be not in accordance with principles of accounting. Aggrieved by additions made by Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Ld.CIT.DR submitted that, DRP while excluding certain comparables did not carry out FAR analysis. She also submitted that DRP provided risk adjustment at 1% on ad hoc basis without having a scientific approach. She submitted that there are various factors that needs to be considered for providing risk adjustment which assessee has to establish in its case having regards to the comparables finally selected. She submitted that, order passed by DRP on all these issues are very cryptic. 7. We have perused submissions advanced by both sides in light of records placed before us. We have perused order passed by Ld.TPO and DRP in great detail. The contentions raised by both sides are found to be true. It is observed that Ld.TPO has considered e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te working capital adjustment in actual, and to consider the same for purposes of computing arm's length margin. 7.2. As regards the risk adjustment on ad hoc basis at 1%, it is observed that there is no scientific manner which has been applied by DRP. Assessee is a low risk bearing company and therefore while computing risk adjustment risks assumed by the comparables for earning revenue in the particular segment needs to be analysed. Assessee is directed to provide for necessary details in respect of all the comparables finally selected. Ld.AO/TPO shall then compute the risk as adjustment in accordance with law. 7.3. In the light of aforestated observations and directions, the transfer pricing issues raised by assessee is set aside to Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X
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