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TMI Blog2010 (11) TMI 852X X X X Extracts X X X X X X X X Extracts X X X X ..... if no adjustment is made on account of capital etc. Therefore, it is held that no adjustment was required to be made to the results declared by the assessee company. In the result, the appeal is allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... ny. It was entitled to taxholiday u/s 10A of the Act. The assessee undertook controlled international transactions of the value of Rs.16.09 crore in this year. It applied the ratio of operating profit to total cost as profit-level indicator ('PLI' for short), which is about 17% in its case. For this purpose of justifying its PLI, the assessee furnished 23 comparable cases and their data for an earlier year whose mean was worked out at 10%. Thus, it was claimed that no adjustment was required to be made on the issue of transfer-price. The TPO excluded some cases on the grounds inter-alia that they were performing different functions or that the ratio of wages to sales was not comparable. He also considered the case of Infosys Technologies Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable. 3.1 Based on the above arguments/contentions, the DRP agreed with the appellant with respect to the rejection of Satyam Computers from the comparable set thereby reducing the arm's length margin to 25.6% and the resultant TP addition of Rs. 12,401,451 (refer page 15 of appeal set). However, the ld. DRP did not adjudicate on the other objections raised by the appellant. 3.2 It is further submitted that the main dispute in this case is regarding inclusion of the case of Infosys Technologies Ltd. This case has been included for the purpose of transfer pricing adjustments by the TPO. However, the case is not comparable at all as the assessee is a pigmy compared to giant Infosys Technologies Ltd. The latter's capital is Rs. 138 crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue Rs. 9,028 Crores Rs. 16.09 Crores Ownership of branded/proprietary products Develops/owns proprietary products like Finacle, Infosys ActiceDesk, Infosys iProwe, Infosys mConnect. Also, the company derives substantial portion of its revenue from sale of its proprietary products (including its flagship banking product suite 'Finacle') As per the annual report of the company, it has intangibles assets worth approx. Rs. 69,500 crores for the period ended March 31, 2006. Onsite Vs. Offshore -As much as half of the software development services rendered by Infosys are onsite (i.e., services performed at the customer's location overseas). RevenueSplit- Onsite (49.80%) and offshore (50.20%) (Refer page 117 of the paper book) -Typically, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld. DR on the basis of this discussion is that the comparables were selected by the assessee, the case of Infosys Technologies Ltd. is a comparable case and it does not require any adjustment on account of the capital. Therefore, it was agitated that the adjustment made by the AO may be upheld. 5. We have considered the facts of the case and submissions made before us. We find that there is no dispute on the issue that cost plus method is the most appropriate method for valuing controlled-internationaltransactions in this case. The assessee had selected 23 comparables and adjustment was made towards working capital. On this basis the mean of the comparables was worked out 10% against the margin of 17% shown by the assessee. The details o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o sales ratio; ignoring that the assessee is a limited risk company; inclusion of Infosys Technologies Ltd.; and inclusion of Satyam Computers Services Ltd. in spite of the fact that its data is not reliable as publicly known. On the basis of these arguments, the DRP excluded the case of Satyam Computers Services Ltd., thereby reducing the arm's length margin to 25.6%. It is argued that the case of the assessee is not comparable with Infosys Technologies Ltd., the reason being that the latter is giant in the area of development of software and it assumes all risks, leading to higher profit. On the other hand, the assessee is a captive unit of its parent company in the USA and it assumes only limited currency risk. Having considered these po ..... X X X X Extracts X X X X X X X X Extracts X X X X
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