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TMI Blog2015 (2) TMI 319X X X X Extracts X X X X X X X X Extracts X X X X ..... letter dated 5.8.2011, a copy of which is available on page 4 to 6 of the paper book. Such details appear to have escaped the attention of the DRP. It was claimed that Shri Ratindra R. Puri was sent by its foreign AE as Managing Director of the assessee-company, whose salary etc. was paid through its foreign AE and the same was reimbursed as such without any mark-up. Since the necessary details in this regard were not filed before the TPO and the DRP also chose not to comment upon the same, we are of the considered opinion that the ends of justice would meet adequately if the impugned order on this issue is also set aside and the matter is restored to the file of TPO/AO. - Decided in favour of assessee for statistical purposes TP adjustment in IEC Segment - selection of comparable - Held that:- Following the order in the case of Toluna India (2014 (10) TMI 424 - ITAT DELHI), we hold that the companies Avani Cimcon Technologies Ltd.,E-Zest Solutions Ltd., Ishir Infotech Ltd. and Thirdware Solutions Ltd. are comparable, while the others are not. In the final analysis, we set aside the impugned order on this issue and send the matter back to the file of TPO/AO for the determination ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d parties and charged to the assessee on the same basis. The second part of such overall costs was stated to be the costs relating to the maintenance costs for certain CAD/CAE softwares used by it, the licenses for which were owned by group companies. Out of the total licenses, the group companies set aside a fixed number of licenses as per the request of the assessee for its use, for which annual maintenance charges were paid to third parties software vendors on a per license basis. The assessee claimed that all the costs allocated by group companies to the assessee represented the amounts paid by group companies to third parties depending on the actual utilization of softwares by the assessee. The assessee sought to benchmark this international transaction on the basis of Comparable Uncontrolled Price (CUP) method under which the price paid by the group companies to the third parties was considered as a comparable instance. The TPO treated such payments as towards intragroup services and observed that the deduction could be allowed only when the factum of the assessee having actual received such services was proved. In the absence of the assessee providing any details of invoices ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer pricing adjustment for international transaction of Cost Recharges . The facts of this ground are that the assessee incurred certain costs/expenses through group companies towards third parties and reimbursed the same on cost to cost basis. On being show caused to explain the character of this international transaction, the assessee stated that these expenses were in the nature of reimbursement of salary costs of expatriate personnel deputed to the assessee on full time basis, rent and other miscellaneous expenses. The assessee s explanation that such costs were charged by group companies to the assessee without any mark-up was found by the TPO to be not substantiated with any evidence such as, sample copies of debit notes raised by AEs on the assessee, copies of ledger accounts showing the booking of relevant expenses/invoices in the assessee s books of account and other relevant documents, despite necessary time allowed for doing the needful. In this backdrop of the facts, the TPO held that the said payment was unjustified and accordingly took the ALP of this transaction at Nil. This resulted into an addition of ₹ 1.85 crore. The assessee is aggrieved against this add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng certain inclusions and exclusions in/from the list of comparables, the TPO selected 26 companies as comparable which have been listed on pages 157 and 158 of his order. By considering the arithmetic mean margin of these comparables (after allowing working-capital adjustment) at 24.46%, the TPO computed adjustment to the tune of ₹ 1,90,92,020/-. That is how the addition was made, against which the assessee is aggrieved before us. 4.3. We have heard the rival submissions and perused the relevant material on record. At the outset, we want to make it clear that the assessee has only assailed the inclusion of fourteen companies in the list of comparables by contending that their functional profile is different. Apart from that no other aspect of the TP adjustment has been challenged. As such, we will confine ourselves only to examining as to whether the companies so challenged are, in fact, comparable or not. 4.4. Before embarking upon the exercise of making comparison, it is crucial to first consider the nature of work done by the assessee under this segment. On the entity level, the assessee has two factories in Nasik, one factory in Halol, one factory in Chennai, one P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in stages c) and d) alone. In other words, the other stages in the provision of design and engineering services by the Lear Group to its customers are performed by the AEs independent of the assessee s help. To put it simply, whereas the group companies understand the total requirements/specifications of the customer and conceptualise the designs, the assessee, based on such specifications, prepares the designs, tests and simulates to ensure the proper functioning of the product when all its components would be assembled. The work done by the assessee goes back to the AE, who then gets such designs approved from the final customers and, thereafter, prototypes are made as per the designs which are tested for functionality and then approved by the customer. Once the prototypes are approved, the AEs get manufactured tools and moulds for the purposes of manufacturing components as per the designs finally approved by the customer. Such tools and moulds are then approved by the customers and, thereafter, the actual manufacturing starts. Thus, it can be seen that in the overall framework of designs and engineering of components, the assessee s role is limited to preparing software for de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... classified the assessee, and rightly so, as providing software development services. In our considered opinion, the model of remuneration cannot be decisive of the nature of activities carried out by the assessee. The fact that the assessee in question has been compensated at an hourly rate, and remuneration in the case of Toluna (supra) is at cost plus 15%, cannot make them functionally different on this score. When we keep the fine distinction between the software related services and software development services in mind, it becomes noticeable that the scope of the activity of Toluna is wider than that of the assessee inasmuch as Toluna India Pvt. Ltd., is both a software related service provider and also a software developer. On the other hand, the assessee is only engaged in providing software development services. Seen from that angle, it becomes manifest that the activity done by the assessee is a part of the activities carried on by Toluna India Pvt. Ltd. If a particular case is held to be not comparable to Toluna India Pvt. Ltd., that case would be incomparable to the assessee also unless it is shown that such comparable was engaged either in providing exclusive software r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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