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TMI Blog2013 (9) TMI 1069X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2008-09passed by the assessing officer u/s 143(3) after seeking directions from DRP u/s 144C(13) of the Income-tax Act, 1961 ("the Act"). 1.1. Various grounds are raised. Apropos TP additions and other additons, Ld. Counsel for the assessee contends that following grounds would suffice in this behalf: I. The Ld. AO following the directions of the Ld. DRP, erred both on facts and in law in confirming the addition to the extent of ₹ 15,842,690/- to the income of the appellant out of the total addition of ₹ 22,101,445/- as proposed by the Ld. TPO/ AO in its draft assessment order u/s 143(3) read with section 144C of the Income tax act, 1961 ('the Act') by holding that its international transactions pertaining to Contract Software Development ('CSD') services do not satisfy the arm's length principle envisaged under the Act. In doing so, the Ld. DRP and the Ld. AO has grossly erred in agreeing with and upholding the Ld. TPO's action of - Including certain companies that are not comparable to the appellant in terms of functions performed, assets employed and risks assumed; II. That the Ld. AO erred on facts and in law in disallowing ₹ 106,034/- under section 14A o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Pvt. Ltd. 5.30% Rejected on account of failing Export sales Filter General submission against export filter (Pgs. 518 and 519 of the PB). Arithmetic mean 12.01% 2.3. During the course of the proceedings, the Ld. TPO issued a show cause notice dated August 25, 2011, proposing to use the current year data alone (i.e. FY 2007-08) of comparables for the purpose of determining the arm's length margin. Besides the TPO undertook a fresh search using arbitrary quantitative and qualitative filters and proposed a set of 26 comparables in case of contract software development services with mean margin of 32.07%. 2.4. TPO also proposed to reject the economic analysis carried out by the appellant in the TP study and proposed to substitute the results of appellant's economic analysis with the results of a fresh search undertaken by the Ld. TPO by applying own set of quantitative and qualitative filters. 2.5. In response to the show-cause notice, the appellant filed a detailed submission dated September 28, 2011 setting out its arguments/contentions against the approach proposed to be followed by the Ld. TPO and specific comments against inclusion/exclusion of certain comparables in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sasken Communication Technologies Ltd. (seg) 13.44% 16.95% 16. Softsol India Ltd. 42.15% 44.03% 17. Tata Elxsi (seg) 18.97% 22.86% 18. Thirdware Solution Ltd. 18.01% 19.96% 19. Wipro Ltd. (eg) 28.38% 33.67% Average 26.27% 29.39% 2.10. The Appellant filed a letter before the Ld. TPO on the basis of observations made by the DRP in its order. However, the Ld. TPO gave partial effect to these directions, did not follow ITAT order and made an adjustment of ₹ 1,58,42,960 which was upheld by the Ld. AO in the final order u/s 143(3). 2.11. In this regard, the Appellant has filed a rectification application on November 09, 2012 before the Ld. AO requesting him to give effect to directions issued by the DRP which is still pending. 3. Ld counsel for the assessee Shri Pawan Kumar submits as under: Inclusion of functionally different companies and companies engaged in development of software products by the Ld. TPO/ DRP 3.1. The Appellant places reliance on the decision of the Delhi Tribunal in its own case dated November 4, 2010 in ITA No. 3856 (Del)/2010 for the AY 2006-07, wherein the Tribunal has excluded software product, functionally dissimilar and full fle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 Softsol India Ltd. 25.54% (f) Functionally different - High End services/ Diversified operations; products company. (2) Non availability of segmental details. (3) Highly volatile margins. (4) Erroneous margin computation. 9 Tata Elxsi (seg) 22.86% (1) Engaged in diversified business including the software products. (2) High turnover of ₹ 343 crores i.e. approx 19 times. (3) Fails the R&D filter i.e. 3.39% (4) Fails net fixed assets filter i.e. apprrox 246$ (5) Rejected in Telcordia Ruling. 10 Thirdware Solution Ltd. 24.15% (1) Functionally different - product company. (2) Non availability of segmental details. 11 Wipro Ltd. (seg) 33.77% (1) Dissimilar functional/ risk profitle (2) Ownership of branded/ proprietary products. (3) High turnover of ₹ 1,12,58.4 crores (i.e. 631 times) (4) Huge R&D spend. (5) Rejcted in the recent ruling in case of Market Tools, Telcordia, Maersk Global & Deloitte Consulting. 3.2. The Ld. TPO disregarded the above decision and directions of DRP by relying on the ruling in the case of ST Microelectronics which is not applicable to the assesseees case. 3.3. It is further pleaded that Hon'ble Delhi High court has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4A by applying Rule 8D. Assessee objected the same on following grounds: (i) The assessee has not utilized borrowed funds for the investment (ii) No expenditure has been incurred during the year to earn dividend income. 6.1. Assessing officer however disallowed an amount of ₹ 106034/- u/s 14A, which was confirmed by DRP. Aggrieved assessee is before us. 6.2. Ld. Counsel reiterated the facts and contends that assessing officer has not held that any borrowed funds were utilized for the investment in mutual funds. For earning dividend no administrative set up is required as it is a mechanical process by which dividend warrants are received by the assessee. Therefore, there it cannot be held that any tangible administrative expenditure was incurred. In view of these facts application of Rule 8D is not justified. 7. Ld. DR supported the order of DRP/Assessing officer. 8. We have heard rival contentions on this issue. It has not been disputed that no borrowed funds were utilized for investment in mutual funds. Consequently, the average cost of investment almost becomes nil. However, various courts have held that the investment and consequent earnings have back up of the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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