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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 ..... Inc., USA, and it is engaged in the business of development of software required by the parent company in the field of tele-communication. The return declaring total income of Rs. 8,31,720/- was filed on 30.11.2006. In the course of assessment proceedings, it was found that the assessee had undertaken international transactions with the "Associated Enterprise" ("AE" for short), the details of which were mentioned in the tax-audit report. The determination of fair market value of the international transactions was referred to the Transfer Pricing Officer ("TPO" for short), who suggested that the value declared by the assessee required upward adjustment of Rs. 3,73,74,985/- to bring it in line with arm's length value. The addition suggested ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Technologies Ltd. as a comparable case. Thus, he considered 20 cases with mean of 27.08%. Therefore, upward adjustment of about Rs.3.73 crore was suggested. Before the DRP, the assessee took following objections to the ratio:- * the ld. TPO failed to appreciate that the appellant is entitled to a tax holiday and hence has no untoward motive to shift profits out of India. * the ld. TPO erred in applying an arbitrary financial criterion of wages/sales filter of 45-65 per cent to reject companies which were otherwise comparable to the appellant. * the ld. TPO erred in rejecting companies which were otherwise comparable to the appellant on arbitrary/frivolous grounds of declining/fluctuating/static sales trend. * the ld. TPO failed to appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tand at Rs. 6,759/- crores. The expenditure on interest is Rs.1.00 crore and the current liabilities stand at Rs.642 crores against operating income of Rs. 928 crores. As against the aforesaid, the assessee's capital and reserves stand at about Rs. 8.44 crores. Its revenue amount to only about Rs. 16 crores. Therefore, the case is not comparable in terms of turnover or capital. It is also submitted that the risk assumed by Infosys Technologies Ltd. include inter-alia the market risk, which is borne by the parent of the assessee company and not by the assessee. This risk is significant and assumption of such risk leads to greater rewards. On this ground also, the two cases are not comparable. If this case is ignored, the results declared by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services command higher billable rates and consequently it would not be appropriate to compare the appellant which earns its entire income from offshore services with Infosys which earns morethan half of its service, income from onsite services. The appellant provides only offshore services (i.e., remotely from India) Expenditure on Advertising/Sales promotion and brand building Rs. 61 Crores Rs. Nil (as the 100% services are provided to AEs) Expenditure on Research & Development Rs. 102 crores Rs. Nil Other 100% offshore (from India). 4. In reply, the ld. DR drew our attention to paragraph no. 5.9 of the order of the TPO, in which it is mentioned that the comparable cases have been selected by the assessee and it has also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this working are as under:- Company Name-Prowess, Capitaline & Segmental Database Working capital adjusted OP/TC E Star Infotech Ltd. Prowess 15% Goldstone Technologies Ltd. Prowess 8% Larsen & Tubro Infotech Ltd. Prowess 9% Melstar Inforfmation Technologies Ltd. Prowess 4% Netvista Information Technology Ltd. Prowess 15% Orient Information Technology Ltd. Prowess 17% Pentamedia Graphics Ltd. Prowess 12% Satyam Computer Servioces Ltd. Prowess 29% Shree Tulsi Online.Com Ltd. Prowess -10% Sun Beam Infotech Ltd. (Hit Kit) Prowess 7% Transworld Infotech Ltd. Prowess 30% VJIL Consulting Ltd. Prowess 2% VMF Soft Tech Ltd. Prowess 1% Akshay Software Technologies Ltd. Capitaline 10% Kale Travel Technologies Ltd. C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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