TMI Blog2022 (12) TMI 526X X X X Extracts X X X X X X X X Extracts X X X X ..... er with a direction to the assessee to substantiate that it is not a research and development service provider but a contract software development service provider. The assessee is at liberty to produce such documents as well as cost incurred in provision of the services, work force employed, certificate of work, and various other material such as contract papers, engagement letters etc to substantiate the same. Assessee is also directed to show benchmarking analysis of these transactions. AO/ TPO are directed to examine nature of services provided by the assessee and then, determine its arm‟s length price in accordance with the law. - ITA No. 2067/Mum/2017 , ITA No. 7398/Mum/2018 - - - Dated:- 26-7-2022 - SHRI PRASHANT MAHARISHI, AM AND SHRI PAVAN KUMAR GADALE, JM Assessee by: Shri M. P. Lohia Shri Mihir Chitalia, ARs‟ Revenue by:Ms. Vatsalaa Jha, CIT DR ORDER PER PRASHANT MAHARISHI, AM: 01. These two appeals are filed by the assessee against the orders [Assessment Orders] passed by Dy. Commissioner of Income Tax, Central Circle 7(3) (2), Mumbai, (the learned Assessing Officer) for A.Ys. 2012-13 2014-15 dated 20th January, 2017 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requirements) and rejecting the use of multiple year data by the appellant not Erroneous re-characterization of the appellant's functional profile: 6. erred in characterizing the appellant as contract R D service provider instead of contract software development service provider, wherein erred in ignoring substance of the impugned transactions and merely relied on determining the substance of the impugned transaction on the basis of mere nomenclature mentioned in the inter-company agreement and financial statements, 7. erred in determining the appellant as the economic owner of the Intangible Property (IP) as a result of research and development services provided by the appellant to its AE; 8. erred in erroneously rejecting the comparable companies selected by the appellant in its transfer pricing documentation, maintained under Rule 10D(4) of the Income tax Rules, 1962 ( Rules ) for the international transactions undertaken with the AE's; 9. erred in proposing his own comparable set by cherry picking of the below mentioned 2 comparables for the impugned transaction on an ad-hoc basis. Acropetal Technologies Limited (Segmental) Eclerx Ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15 has raised following grounds of appeal:- On the facts and circumstances of the case and in law, the learned Assessing Officer (AO) has erred in passing the assessment order under section 143(3) read with section ( rows ) 144C of the Income-tax Act, 1961 (the Act) after considering the adjustments proposed by the learned Transfer Pricing Officer(TPO) in his order passed under section 92CA(3) of the Act and subsequently confirmed by the Hon'ble Dispute Resolution Panel ('DRP'). Each of the ground is referred to separately, which may kindly be considered independent of each other. On the facts and circumstances of the case and in law, the learned AO/TPO/ Hon'ble DRP have: General ground: 1. erred in determining the total taxable income of the appellant for AY 2014-15 at INR 16,61,59,297 as against INR 4,43,99,441 as reported in the return of income filed by the appellant on 28 November 2014; Transfer pricing ground: 2. erred in making an addition of INR 12,17,59,856 to the total income of the appellant in respect of international transaction pertaining to provision of contract software development services by the appellant to its associa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaken by the appellant on a scientific basis for identifying companies engaged in providing research and development services; Risk adjustment: 10. erred in not making suitable adjustments to account for differences in the risk profile of the appellant vis- -vis the comparable companies. Interest under Section 234A of the Act: 11. erred in erroneously levying interest of INR 6,27,750 under section 234A of the Act while completely disregarding the provisions of the Act, Interest under Section 234B of the Act: 12. erred in levying interest of INR 1,72,63,125 under Section 234B of the Act while completely disregarding the provisions of the Act; and Erroneous initiation of penalty proceedings: 13. erred in initiating penalty proceedings under section 27101Xc) read with section 274 of the Act. 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. The appellant prays for appropriate relief based on the said grounds of appeal and the facts and circumstances of the case. 03. Brief fact of the case shows that the assessee is engaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment order was passed on 29th March 2016, wherein above adjustment was made. 07. Assessee filed objection before the learned Dispute Resolution Panel. Assessee submitted that it does not take any function of research and development as well as of Engineering Design Services but of software development services. It was further stated that the learned Assessing Officer has merely looked at nomenclature of the transactions based on title of agreement and not on evidences. Assessee submitted that it is engaged only in bug fixing activities but learned Transfer Pricing Officer has noted that the service agreement with the Associated Enterprises is for provision of research and development services, therefore, he proceeded to benchmark the international transactions accordingly. Ld Dispute Resolution Panel noted that as per title of agreement , assessee is engaged as a contractor to perform research and development services. It that even bugs fixing activity cannot be termed as routine software development services. Accordingly, the order of the learned Transfer Pricing Officer was upheld. Thus, assessee was characterized by Revenue authorities to be a research and development ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yees, log book of bug fixing activities, SEZ tax forms, organization structure and the certificate of activities conducted by the assessee was provided. He further referred to the advance pricing agreement entered into by the assessee for financial year 2015-16 to 2019-20, wherein also the assessee is classified as provider of software development services. He further referred to the inter group services and inter group agreement to show that services provided by the assessee is not of contract research and development services but of software development services. He therefore, was grossly aggrieved by re- characterization of the services of the assessee. 010. The learned Departmental Representative vehemently supported the order of the learned Transfer Pricing Officer and learned Dispute Resolution Panel. He referred to the agreement, which is titled as research, and development service agreement . He also referred to the order of the learned Dispute Resolution Panel wherein bug-fixing activities were also held to be part of research and development activities. 011. We have carefully considered the rival contentions and perused the orders of the lower authorities. The only ..... X X X X Extracts X X X X X X X X Extracts X X X X
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