9911796707
TMI Blog2013 (12) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... rdinate between AppLabs India and customers for the service delivery. The AEs are also responsible for collection of sale proceeds. Thus, in essence the AEs outsource the contracts to the assessee, which is responsible to deliver the services. The assessee is a 100% export oriented unit being registered under the software technology park of India scheme of the Government. For the assessment year under dispute, the assessee filed its return of income declaring an income of Rs.70,19,691/- under the normal provisions after claiming deduction under section 10A and book profit of Rs.6,94,02,058/- under section 115JB of the I.T. Act, 1961. Initially, the return was processed under section 143(1) of the Act. Subsequently, assessee's case was selected for scrutiny assessment. In course of scrutiny assessment proceedings, the Assessing Officer noticing that the assessee has entered into International Transactions with its A.E. made a reference to the Transfer Pricing Officer (in short "TPO") for determining the arms length price (in short "ALP"). In its T.P. Study Report the assessee had shown the revenue earned from international transaction with its AE at Rs.90,66,86,494/- for providing s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit of the entire group, the DRP took into view the decision of the Income-tax Appellate Tribunal Delhi bench in the case of Global Vintage Pvt. Ltd. Vs. DCIT ITA.No.2763 and 2764/Del/2009 wherein the Income-tax Appellate Tribunal held that the total adjustment made together with the ALP already reported cannot exceed the total revenue earned by the assessee and its AE from third party independent clients. Following the aforesaid view of the Tribunal, the DRP held that adjustments if any, cannot exceed the global profits earned by the group from those transactions. Otherwise, it will amount to imposing an impossible burden on the assessee which cannot be the intendment of the statute. The DRP observed that the essential purpose of TP legislation is only to protect the legitimate tax base of India from being shifted out but it cannot mandate an assessee to earn more than what it has actually earned from independent third parties. With the aforesaid finding the DRP disposed of the assessee's objection. In pursuance to the order passed by the DRP, the TPO passed a consequential order on the basis of which the final assessment order was passed by the Assessing Officer by adding the sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conformity with the direction of the DRP. 8. The learned D.R. also has no objection on remitting the issue to the file of Assessing Officer for deciding afresh in conformity with the direction of the DRP. 9. We have heard the submissions of the parties and perused the order of the DRP as well as other materials on record in this context. As can be seen, the DRP while considering this issue held as under : "10. In Ground 7, the applicant requests for considering the consolidated operating results of the AppLabs Group which had lower operating margins during A.Y. 2008-09. Accordingly, it is claimed by the applicant that adjustments if any, should be restricted to surplus available to AppLabs, USA for the year under consideration. The group operating profit margins are given by the applicant as under: Sl. Particulars Applabs Applabs Applabs No. India (INR) USA (USD) Group (INR) 1. Opening 97,87,75,973 36,907,001 313,06,73,842 Income (A) 2. Operating 87,07,75,843 35,566,694 288,80,75,569 Cost (B) 3. Operating 10,80,00,130 1,340,307 24,25,98,273 Profit (C) (A-B) 4. OP/OC(C/B) 12.40% 3.77% 8.40% It is the claim of the Tax payer that it has earned a margin of 12.40% as again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, cannot exceed the global profits earned by the group from 'those transactions'. It is further evident from para 11 of the order of the DRP that while summarising its finding the DRP has categorically held that it has allowed the assessee's ground with regard to restricting TP adjustment to the global profits of the group from the international transactions. Therefore, considering the submissions of the parties, in the light of the directions given by the DRP, we remit the issue back to the file of the Assessing Officer for deciding it afresh in confirmity with the direction given by the DRP in para 10 of its order extracted hereinabove. 11. The next issue as referred to in the summary of the argument submitted by the learned A.R. relates to selection of certain companies as comparables by the TPO and which were upheld by the DRP. We shall now consider the submissions of the parties in respect of each of the companies objected to by the assessee hereinbelow. 12. Avani Cincom Technologies : The learned A.R. objecting to the aforesaid company being treated as comparable submitted that the website of the said company indicates that it is engaged in sale of products and services. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CI Com India (P) Ltd. the same is not applicable to the facts of the present case as the assessee has not made out a case before us that because of a mistake on the part of the assessee it failed to object to the selection of the aforesaid company as a comparable. In fact, the assessee has not shown any reasonable cause as to why it did not object to the said company before the DRP. In this view of the matter, we are not inclined to accept the assessee's contention which is accordingly rejected. 15. INFOSYS LIMITED & WIPRO LIMITED (SEGMENT): Objecting to the aforesaid companies being treated as comparable, the learned A.R. submitted that Infosys cannot be treated as a comparable because of its brand value and huge turnover. It was submitted that not only Infosys Limited is a giant in the field of I.T. and I.T.E.S. Sector, but, it has its own brand value, economies of scale and cannot be compared with a software service provider like the assessee. It was submitted that Infosys assumes all risks and hence, its profit margin is also more. It also owns substantial intangibles which makes it non-comparable with the assessee. For the same reason the learned A.R. also wanted removal of W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s into provision of software development services as well as software products. It was submitted that as per page 16 of the annual report of the said company, inventories under the schedules to the financial statements discloses software development as inventory and work-in-progress which proves that it is not a purely software service provider but into development of software products also. He further submitted 'background' under schedule-16 to the financial statements clearly states that the company is engaged in development of software and software products since its inception. It was further submitted that as per the website of the said company, it had developed two products namely virtual insure and la-vision. He, therefore, submitted that the said company being engaged in development of software products cannot be compared to the assessee. He, therefore, submitted that unless adequate revenue/segmental break-up of software development services and software products are available the said company cannot be selected as a comparable. In support of such contention, the learned A.R. relied upon the following decisions : (i) Bind View India Pvt. Ltd. Vs. DCIT ITA.No.1386/PN/2010 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inding in case of another company viz., Avani Cincom Technologies hereinabove, in para 14 of the order, we are not inclined to entertain assessee's objection with regard to the aforesaid companies in view of the fact that the selection of the aforesaid company has attained finality on account of assessee not raising any dispute before the DRP. 25. The next issue raised by the assessee is with regard to rejection of certain companies selected by the assessee as comparables. The companies are as under : (i) ICRA Techno Analytics Limited (ii) Aditya Birla Minacs IT Services Ltd. (iii) Aditya Birla Minacs Technologies Ltd. (Birla Technologies) (iv) CG - VAK Software and Exports Limited (v) Indium Software (India) Limited (vi) Thinksoft Global Services Limited 26. The learned A.R. of the assessee fairly conceded that the assessee has not raised this issue before the DRP. However, the learned A.R. submitted that these companies are wrongly rejected by the Assessing Officer even though they are comparable to the assessee. 27. The learned D.R. on the other hand, strongly objecting to the assessee's contention submitted that the assessee cannot be permitted to raise an issue which h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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