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TMI Blog2015 (7) TMI 239X X X X Extracts X X X X X X X X Extracts X X X X ..... 97,273/- made by the AO u/s. 92CA(4) on account of TP adjustment. 3.1 The Ld. CIT(A) ignored the finding recorded by the TPO & AO and the fact that the comparable adopted by the assessee are not in accordance with the prevailing market trends. 4. The appellant craves leave to add, to alter, or amend any grounds of the appeal raised above at the time of the hearing." 3. The brief facts of the case are that the assessee filed its return of income on 27.10.2005 declaring a total income of Rs. 6,41,476/- which was processed u/s. 143(1) of the Income Tax Act, 1961 (hereinafter called "the Act") on 22.3.2007 wherein a refund of Rs. 1,63,000/- was determined. Later on the case was selected for scrutiny. 4. The assessee company is a domestic company incorporated on 27.2.1998 under the Companies Act, 1956. The assessee is a subsidiary of IKOS Systems Inc., a company incorporated in USA. Later on, the company was merged with Mentor Graphics (India) Pvt. Ltd. The assessee company provides software development and related services to Mentor Graphics, Ireland that manufactures and distributes the products of the ultimate parent company to the markets outside America. In addition to above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Ld. CIT(A), now the Revenue is in appeal before the Tribunal. 9. Ld. DR relied upon the order of the AO and reiterated the contention raised in the grounds of appeal raised by the Revenue. With regard to disallowance of Rs. 2,597,918/- on account of depreciation on computer accessories and peripherals is concerned, he submitted that there was enough rationale in the intent of legislature to provide for depreciation for computers @60%. The rate of obsolescence is very high as technological changes in this field are extremely fast and rapidity of change is enormous. Hence what is bought today becomes obsolete or technologically outdated within a very short time. This is specially too for computers and this obvious fact needs no elaboration. Therefore, he submitted that the rate of depreciation provided for computers is exceptionally high i.e. 60% whereas the same does not hold good for plant and machinery. He also submitted that the networking equipments are just cables inter connecting or joining instruments that facilitate connectivity across computers. They do not get obsolete and rather endure for a very long time. In fact, it‟s role can be taken as akin to that of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rables before the TPO. However, TPO applied the filter of wages to sales between 30% to 60%. Having done so, the TPO brought down the comparables to twenty five companies from eighty seven companies originally selected by the assessee. From these twenty five companies, the TPO further rejected fifteen companies citing reasons, such as, low foreign exchange revenue, declining sales/negatives net wealth, different financial year ending, related party transactions, functionally different companies etc. Thereafter, TPO arrived at a set of ten companies and after taking the objections of the assessee, three more companies were removed from the list of comparables and the TPO finally arrived at a set of seven companies with an OP/TC of 21.60% for comparison computing an addition of Rs. 23,197,273/- to the taxable income of the assessee. Therefore, the TPO ordered as follows :- "The Arm's length price of international transactions relating to software development services, referred by AO is determined at Rs. 28,69,50,838/-. The book value of these international transactions is Rs. 26,37,53,585/-. Therefore, the book value of international transactions is understated by Rs. 2,31,97,273/-. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is a limited risk company; inclusion of Infosys Technologies Ltd.; and inclusion of Sat yam 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 Sat yam 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 points, we are of the view that the case of aforesaid Infosys and the assessee are not comparable at all as seen from the financial data etc. of the two companies mentioned earlier in this order. Therefore, we are of the view that this case is required to be excluded. Once that is done, it is the accepted position of both the parties that the results of the assessee are in line with the mean margin of comparable cases even if no adjustment is made on account of capital etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned order is upheld. Satyam Computer Services Ltd. 18. On a perusal of the Annual Report of the company for FY 2004-05, it is evident from the Annual Report of the company that Sat yam Computer Services Ltd. provides a much wider range of services, performs extensive functions, undertakes diversified business activities and assumes significant risks as compared to routine software development service providers like the appellant. Further, the company undertakes substantial R&D on its own account leading to creation of valuable non-routine IPRs and has also incurred significant advertisement and marketing expenses. 19. Further, the ld. AR has also submitted that it is common knowledge that the annual accounts of this company are not reliable and the company's auditors have themselves admitted this fact; and the criminal proceedings have been initiated for serious fraud committed by the directors of the company. 20. So we take note that M/s. Satyam Computer Services Ltd. is a diversified company, undertakes substantial advertising/ sales promotion and brand-building activities and carries out significant R&D activities, and is very huge in size/ volume as compared to th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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