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TMI Blog2013 (12) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... itted to raise objection - The assessee has not shown any reasonable cause as to why it did not object to the said company before the DRP - Decided against assessee. Differential ALP adjustment - Held that:- The assessee has not raised this issue before DRP, we are not inclined to entertain this issue raised for the first time before us without there being a valid reason by the assessee to show the reason for not raising this issue before DRP - Decided against assessee. - ITA. No. 94/Hyd/2013 - - - Dated:- 22-11-2013 - Shri Chandra Poojari, A.M. And Shri Saktijit Dey, J.M.,JJ. For the Appellant : Shri S. Raghunathan (AR) For the Respondent : Smt. Subashree Anant Krishnan (CIT/DR) ORDER Per Saktijit Dey, J. M. This appeal of the assessee is directed against the assessment order dated 26.12.2011 passed under section 143(3) read with section 144C of the Income Tax Act, 1961 on the directions of the Disputes Resolution Panel (in short "DRP") pertaining to the assessment year 2008-2009. 2. The assessee, a company registered under the Indian Companies Act is engaged in the business of providing testing services. The assessee-company has two wholly owned subsidi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20%. Since the assessee's operating margin shown at 12.00% was not within the acceptable range, the TPO proposed an adjustment of Rs.14,29,00,905/- in the order passed by him under section 92CA(3) of the Act. In consequence of the Order passed by the TPO, the Assessing Officer passed a draft assessment order by incorporating the adjustment proposed by the TPO. Further, the Assessing Officer also made certain adjustments/disallowances while computing deduction under section 10A of the Act. 4. The assessee filed objection against the draft assessment order before the Disputes Resolution Panel (in short "DRP"). Before the DRP, the assessee challenged the findings of the TPO with regard to various issues relating to selection of comparables as well as the TPO not restricting the adjustment to the global profits of the group from the international transactions. The DRP after hearing the submissions of the assessee, so far as the comparables selected by the TPO are concerned, rejected the contention of the assessee excepting in case of 2 of the comparables i.e., Celestial Bio-Labs Limited and Softsol India Limited. While in the case of Celestial Bio-Labs Limited, the DRP held that this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R. that though the issue was raised before the DRP but inadvertently, there was an omission on the part of the assessee to raise the ground which has now been raised by way of additional ground. Considering the submissions of the assessee and also keeping in view the fact that the additional ground raised materially affects the ultimate adjustment that is required to be made, we admit the additional ground and proceed to decide the same as under. 7. It was contended by the learned A.R. that though the DRP while disposing of assessee's objection had accepted the assessee's contention that the adjustment if any, cannot exceed the global profits earned by the group from 'those' transactions but such direction of the DRP has not at all been implemented by the TPO in the consequential order passed by him in pursuance to the order of the DRP. In this context, the learned A.R. also submitted a sworn affidavit of Sri Ashish Khera, Director of the assessee-company. In the said affidavit it has been averred that the DRP in its order had directed that the adjustment cannot exceed the global profit of Rs.5,39,20,551/- earned by the group from the impugned international transaction. Whereas t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and is involved in complex operations of developing proprietary technologies. It is assisted by Applabs Group for business development. Applabs India bears all the significant business and entrepreneurial risks of product acceptability and performance in the market. On the other hand, Applabs group has limited risk in these intangibles and is a mere distribution services. In view of the above, it is claimed by the applicant thatthe adjustment if any, should have been restricted to the global operating profits and by the Applabs group as a whole. In its support, the applicant has strongly relied on teh decision of Hon'ble ITAT, Delhi in the case of Global Vantedge Pvt. Ltd. Vs. DCIT (ITA Nos. 2763 2764/Del/2009). In this decision, the Hon'ble ITAT held that the total adjustments made together with the ALP already reported cannot exceed the total revenue earned by the appellant and its AEs from third party independent clients. We concur with the assessee on this issue that the adjustments if any, cannot exceed the global profits earned by the group from those transactions. Or else, it amounts to imposing an impossible burden on the assessee which the law does not contemplate. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness Software India Pvt. Ltd. Vs. DCIT, ITA.No.1054/Bang/2011. 13. The learned D.R. on the other hand strongly refuting the contentions of the learned A.R. submitted that the assessee having not objected to the aforesaid company being treated as comparable in the proceeding before DRP, it cannot re-agitate the issue again before the Tribunal. The learned A.R. in a rejoinder to such contention of the Departmental Representative, submitted that even if the assessee has not objected to certain comparables, it is not estopped from pointing out a mistake in the assessment order. In support of such contention, the learned A.R. relied upon the decision of the Income-tax Appellate Tribunal, Delhi Bench in the case of DCIT vs. MCI Farm India (P) Ltd. 19 ITR 42. 14. We have heard submissions of the parties and perused the material available on record as well as the orders of the revenue authorities. Undisputedly, the assessee has not raised any objection with regard to selection of aforesaid company as a comparable before the DRP. It is for the first time that the assessee has objected to the aforesaid company being treated as comparable before us. Once the assessee has accepted the af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfosys turnover during the impugned assessment year was Rs.15677 crores compared to the assessee's turnover of about Rs.91 crores during the year. Similarly, the turnover of Wipro Limited (Segment) for the relevant financial year was reported at Rs.11258 crores. The Coordinate Bench of this Tribunal in the case of Capital IQ Information Systems India Ltd. vs. DCIT (Int. Taxation), Hyderabad in ITA.No.1961/Hyd/2011 dated 23.11.2011 as well as in many other decisions while considering the issue of selection of aforesaid companies as comparables, had categorically held that not only these companies have high turnover but various other factors like brand value, economies of scale, assumption of risks, owning of intangible make them non- comparable to software development service companies like assessee. 18. Moreover, the Hon'ble Delhi High Court in a recent judgment dated 10.7.2013 in the case of CIT V/s. Agnity India Technologies P.Ltd. in ITA NO.1024/2011 affirmed the order of the Income-tax Appellate Tribunal Delhi Bench holding that the companies like Infosys Technologies Ltd. cannot be treated as comparable. In view of the ratio laid down by the Hon'ble Delhi High Court as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom being treated as comparable on the ground that it is engaged in development of software products. The same view has also been taken by the Income-tax Appellate Tribunal, Bangalore Bench in the case of M/s. Triology E-Business Software India Pvt. Ltd. vs. DCIT in ITA.No.1054/Bang/2011 dated 23.11.2012 by holding that the company cannot be treated as comparable with a software service provider as it is engaged in development of software products. Therefore, following the view adopted by the Income-tax Appellate Tribunal, Pune Bench and Income-tax Appellate Tribunal, Bangalore Bench as referred to hereinabove, we also direct the Assessing Officer/TPO to remove the aforesaid company from the list of comparable for determining the arms length price. 22. PERSISTENT SYSTEMS LTD. TATA ELXSI LTD. : The learned A.R. at the outset fairly submitted that the assessee has not objected to the aforesaid two companies being treated as comparable by raising any objection before the DRP. However, the learned A.R. submitted that the said companies cannot be treated as comparable to the assessee on various grounds. 23. The learned D.R. on the other hand, submitted that since the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t must be restricted to the extent of transactions with AE. The learned A.R. however, fairly submitted that this issue was not raised before the DRP. 30. Considering the fact that the assessee has not raised this issue before DRP, we are not inclined to entertain this issue raised for the first time before us without there being a valid reason by the assessee to show the reason for not raising this issue before DRP. We, therefore, dismiss this ground of the assessee. 31. In view of our aforesaid observations, we direct the Assessing Officer/TPO to compute the arms length price in accordance with the observations made by us hereinabove. 32. In ground No. 3.1 along with its sub-grounds, the assessee has raised various issues with regard to claim of deduction under section 10A of the Act. However, on perusal of the order of the DRP and other materials on record, it is seen that the assessee has not raised any of the issues relating to the aforesaid grounds before the DRP. The assessee has also not shown any reasonable cause before us why such new grounds would be entertained for the first time before this Forum/Tribunal. In aforesaid view of the matter, we are not inclined to en ..... X X X X Extracts X X X X X X X X Extracts X X X X
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