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TMI Blog2012 (1) TMI 208X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 declaring income of Rs.17,35,487/-. The return was processed u/s 143(1). Subsequently the case was selected for scrutiny as per guidelines issued by the Board and notice u/s 143(2) was issued and served on the assessee. In response to the notice, the Manager of the assessee-company appeared and produced books of account and furnished details called for. After examining the books of account and the details filed, the assessment was completed. The AO noticed that during the relevant financial year, the assessee had international transactions exceeding Rs.15 crores. Therefore, with the prior approval of the CIT, Bangalore-1, reference was made to the Transfer Pricing Officer (TPO) to determine the Arms' Length Price (ALP) as per the provisions of sec.92CA of the Act. The assessee filed an application before the Dispute Resolution Panel (DRP). The DRP issued directions under sub-sec.(5) of sec.144C read with sub-section (8) of sec.144C which was received by the AO on 31-8-2010. In conformity with the directions of the DRP, the AO has completed the assessment by making the following additions: i) Adjustment u/s 92CA Rs.1,84,11,998/- ii) Excess claim of deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree Consulting Pvt. Ltd. - Annual report extract for the financial year 2005-06 82-96 vi) TVS Infotech Ltd. - reply to notice u/s 133(6) and extract from Annual report 97-102 vii) Goldstone Technologies Ltd. - reply to notice u/s 133(6) and extract from Annual report 103-111 Viii) VMF Softech Ltd.- reply to notice u/s 133(6) and extract from Annual report 112-124 ix) Orient iNformation Technology Ltd. 125-136 x) Computing Systems Ltd. - reply to notice u/s 133(6). 137-142 xi) iGate Global Solutions Ltd. - reply to notice u/s 133(6). 143-146 Besides paper books I and II, the learned AR has also filed detailed written submissions. The learned CIT-DR has also filed detailed submissions. Apart from the detailed submissions, as desired by the Bench, both the assessee's AR and the ld. CIT-DR have filed concise synopsis of their arguments wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omparables in addition to those proposed in notice without giving opportunity to the assessee to present its objections. iii) During the course of proceedings before the DRP, the assessee submitted that computation of ALP, considering cash profit to assets employed and operating profits to asets employed as PLI, as an alternative justification of the international transactions being at arms' length. DRP has not made any comments on this aspect in its order. iv) Even under TNMM, considering turnover range of Rs.1 crore to Rs.200 crores and Rs.1 crore to Rs.500 crores and rejecting certain comparables selected by TPO, the assessee's transactions are at arms' length. The two tables incorporating the above are as under: TURNOVER RANGE 1 TO 200 CRORES WC Sl. Name of the company Operating Operating Adjusted No. Revenues Margin on Operating cost Margin on Cost 1 Aztec Software Ltd. 1,286,136,000 18.09% 19.45% 2 Geometric Software Ltd. (seg) 985,957,838 6.70% 6.42% 3 .KALS Information Systems Ltd 19,690,390 39.75% 42.07% 4 R Systems International Ltd(Seg) 794,194,053 22.20% 21.05% 5 Tata Elxsi Ltd. (seg.) 1,888,125,000 27.65% 28.40% 6 Lucid Software Limited 10,191, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The TPO in her remand report (as extracted in DRP order, page 12) states that it is intentional. She further states that even the DRP has to seek information from her in case it wants the same. vii) Copies of subsequent notices u/s 133(6) issued by the TPO and replies received there-from not given to the assessee. TPO in her remand report (as extracted in DRP order page 12) states that same is not relevant. viii) Difference between replies received u/s 133(6) and annual report tabulated by the assessee. No comments either by the TPO or DRP. Assessee sought an opportunity to cross examine in case replies u/s 133(6) were relied upon. No opportunity to cross examine granted. ix) The assessee had made detailed submissions for rejection of KALS as a comparable. However, TPO and DRP have not commented on assessee's submissions. x) At page 74 of the TP order it is stated that Megasoft was rejected as comparable in the show cause notice on the ground that it fails RPT filter and employee cost filter. On page 61 of the TP Order it is stated that if a company fails RPT filter or employee cost filter, no notice is issued. However, notice was issued to Megasoft. xi) In ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DeI/2010 6) M/s. TNT India Pvt. Ltd Vs ACIT ITA No.1442/BNG/08 7) M/s. Deloitte Consulting India Pvt. Ltd Vs. DClT ITA No.1084/Hyd/2010 8) M/s. Honeywell Automation India Ltd. Vs. DCIT ITA No.4/PN/08 9) M/s. Howarth (India) Pvt. Ltd. Vs DClT (2011) ITA No.534/Del/2010. 10) M/s. Panasonic India Pvt. Ltd. Vs. ITO .'2010) 43 SOT 68 (Delhi-ITAT 11) M/s. Geodis Overseas (P) Ltd Vs. DC IT (2011) 57 DTR (Del)(Trib)191 ii) Rejecting the cost plus method as the most appropriates method on unjustified reason. Reason of rejection discussed at page no 9 to 14 the TPO and the DRP rejected the assessee CPM method by holding that; a) Absence of reliable data on functional comparability (some or similarity) of comparable companies i.e, degree of comparability existing between the international transaction and the uncontrolled transaction and between the enterprises entering into such transactions. b) Absence of reliable gross margin data of comparable companies necessary for application of the method. Case laws relied up on: i) ACIT Vs. Tara Ultimo Private Limited (ITA No 5098/Mum/2010) ii) Geodis Ovearseas (P) Ltd vs. DClT (ITA No.4243/DeI/2010 ) iii) M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only one opportunity of personal hearing by the DRP on 27-7-2009. (ii) It is stated that the assessee did not raise the issue of cross-examination before the TPO/DRP. In this regard, the assessee submits that it has made specific request for cross examination before TPO as well as DRP. (pages 121, 116 129 of paper book-I). (iii) It is stated that in case of KALS, Rs.1.27 crores which was contended by the assessee as inventory is actually receivable from customers (reliance placed by learned DR on Annexure A of Note). In this regard, the assessee submits that as per annual report, Rs.1.27 crores is inventory. Sundry debtors are separately mentioned in the annual report. (iv) It is stated that the assessee did not raise the issue of conversion of warrants in case of Mindtree before the TPO/DRP. The assessee submits that the same is incorrect and made the submissions both before the TPO and DRP (refer page 127 324 of paper book-I). 8. In a nut-shell, learned AR submitted that in similar facts and circumstances, the Tribunal, by its order dated 5-8-2011 in ITA No.1231/Bang/2010 in the case of M/s.Genesis Integrating Systems (India) Pvt. Ltd., remitted the matter b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry India Ltd. (330 ITR 175) and the order of the Special Bench of the Tribunal in the case of Sak Soft (313 ITR 353). In the case of M/s.Tata Elxsi Ltd. Others (supra) the Hon'ble High Court of Karnataka has observed as under: ...........Section 10A is enacted as an incentive to exporters to enable their products to be competitive in the global market and consequently earn precious foreign exchange for the country. This aspect has to be borne in mind. While computing the consideration received from such export turnover, the expenses incurred towards freight, telecommunication charges, or insurance attributable to the delivery of the articles or things or computer software outside India, or expenses if any incurred in foreign exchange, in providing the technical services outside India should not be included. However, the word total turnover is not defined for the purpose of this section. It is because of this omission to define 'total turnover', the word 'total turnover' falls for interpretation by this Court; ........In section 10A, not only the word 'total turnover' is not defined, there is no clue regarding what is to be excluded while arrivin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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