TMI Blog2020 (11) TMI 869X X X X Extracts X X X X X X X X Extracts X X X X ..... D. VERSUS DCIT, CIRCLE 3, GURGAON [ 2016 (1) TMI 1260 - ITAT DELHI] - ITA No. 5665/Del/2016 - - - Dated:- 25-11-2020 - SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER Assessee by : Shri Ravi Sharma, Adv Revenue by: Shri H. K. Chourdhary, CIT DR ORDER PER PRASHANT MAHARISHI, A. M. 1. This appeal is filed by Orange business services India solutions private limited (earlier known Equant solutions India private limited) (assessee/appellant ) against the order of The Deputy Commissioner Of Income Tax, Circle 3, Gurgaon passed u/s 143 (3) read with Section 144C of The Income Tax Act 1961 (The Act) dated 31st of August 2016 wherein the return filed by the assessee on 31 October 2007 declaring a taxable income of ₹ 769,642 was assessed at ₹ 75,977,580/ wherein the addition on account of the arm s-length price of the international transaction was of ₹ 75,207,938/ in pursuance of the direction of the learned Dispute Resolution Panel I, New Delhi (the learned DRP) is made. 2. Assessee aggrieved with that order has preferred this appeal raising following grounds of appeal:- 1. The Learned Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out in section 920(3) of the Act are satisfied in the present case; 4.2. ignoring the fact that the Appellant is entitled to tax holiday under section 10A of the Act on its profit and therefore would not have any untoward motive of deriving a tax advantage by manipulating transfer prices of its international transactions; 4.3. disregarding the functional analysis submitted by the Appellant in the Transfer Pricing ( TP ) documentation with respect to ITeS segment and classified the Appellant as a Knowledge Process Outsourcing ( KPO ) service provider; 4.4 disregarding the Arm s Length Price ( ALP ) as determined by the Appellant in the TP documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ( Rules ) as well as fresh search; and in particular modifying/ rejecting the filters applied by the Appellant; 4.5. disregarding multiple year/ prior years data as used by the Appellant in the TP documentation and holding that current year (i.e. FY 2006-07) data for comparable companies should be used despite the fact that the same was not necessarily available to the Appellant at the time of preparing its TP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income other than manufacturing and trading income) to sales greater than 50% were accepted; 4.7.8. companies with net worth less than zero were rejected; 4.7.9. companies having research development costs to sales less than 3% were accepted; and; 4.7.10.companies having advertising, marketing and distribution costs to sales less than 3% were accepted. 4.8. without prejudice to the Appellant s other contentions, failing to apply the employee cost to sales ratio filter to the ITES segment [as applied vis-a-vis the CSD segment] and thereby adopting an inconsistent stand between ITES and CSD comparables and applying this filter selectively only to the CSD segment; more so when the said filter was applied to the ITES segment in the previous assessment year i.e. AY 2006-07 and thus acting in an inconsistent and arbitrary manner; 4.9. including companies having high margin / volatile operating profit margins in the final comparables set for benchmarking a low risk captive unit such as the Appellant (disregarding judicial pronouncements on the issue), thus demonstrating an intention to arrive at a pre-formulated opinion without complete and adequate applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eveloping software application for use within the group. 4. The assessee filed its return of income on 31/10/2007 declaring a taxable income of ₹ 769,642/ . During the course of assessment proceedings it was found that assessee has entered into certain international transaction and therefore the reference was made to the learned transfer pricing officer to determine the arm s-length price of those international transactions assessee reported following international transaction in its Form no 3CEB report. Serial number nature of transaction amount in rupees 1 software development services/IT enabled services 97,11,94,161 2 purchase of fixed assets 3,42,43,723 3 interest on loan 1,60,71,371 4 reimbursement of expenses paid 4,73,41,015 5. The assessee benchmarked these international transactions by adopting the transactional net margin method as the most app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red an appeal before the coordinate bench which remanded the matter back to the learned Dispute Resolution Panel for fresh adjudication. Consequent to that the learned Dispute Resolution Panel has issued a direction u/s 144C (5) on 29th of June 2016 in case of the assessee and directed the TPO to recompute the transfer pricing adjustment after making the revised calculations. The learned transfer pricing officer then revised conclusion wherein for software development services, he selected 25 comparables whose average mean of the profit level indicator was 23.55% and after granting working capital adjustment the adjusted mean was derived at 20.97% and according to that the arm s-length price was derived at ₹ 176,455,689 and adjustment based on the direction of the learned Dispute Resolution Panel was ₹ 1 30,52,682/ . Similarly for ITeS segment the average mean of PLI was determined at 27.69% of 25 comparables and after granting working capital adjustment of 3.07% the adjusted mean was derived at 24.62% and thereafter the adjustment of ₹ 6,38,55,256/ was made. The learned Transfer Pricing Officer passed an order in pursuance to the direction of the Dispute Resolut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordingly we direct the learned assessing officer/TPO to exclude Infosys technologies Ltd from the comparability analysis. 13. With respect another comparable Wipro Ltd s turnover is ₹ 9668 crores against the assessee s total sales and turnover is of ₹ 17 crores. The turnover of the comparable is more than 500 times the size of the assessee. The honourable Bombay High Court in case of CIT versus Pentair water India private limited [2016] 69 taxmann.com 180 (Bombay)[16-09- 2015] has held that where comparable has multiple times of turnover over the size of the assessee, same is not comparable. This particular comparable was excluded in that particular case where the turnover was ₹ 939 crores of the comparable company against the turnover of the assessee of only ₹ 11 crores. Therefore respectfully following the decision of the honourable Bombay High Court we direct the learned transfer pricing officer/assessing officer to exclude Wipro Ltd as a comparable company from the comparability analysis. 14. With respect to persistent Systems Ltd in assessee s own case for assessment year 2000 11 this comparable company was rejected in ITA number 1202/del/2015 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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