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TMI Blog2015 (3) TMI 1226X X X X Extracts X X X X X X X X Extracts X X X X ..... ld by McKinsey & Co., Inc. The Assessee was incorporated in India to provide various support services in the area of export computer software, IT-enabled services including data processing, customization of data, back office operations and acting as a support center to provide research analysis and information to various McKinsey entities/holdings across the globe. The Assessee is duly registered as a unit exporting computer software under the Software Technology Parks (STP) scheme of the Ministry of Communication and Information Technology, by the Government of India on 20.04.1999 and launched commercial operations on 01.03.2000. It filed its return of income declaring a total income of Rs. 69,49,857/- which was processed under Section 143(1) of the Act and selected for scrutiny. A statutory notice under Section 143(2), dated 26.11.2007 was issued and served upon the Assessee. The Assessee filed an objection against the draft of the proposed order dated 18.12.2009 before the Dispute Resolution Panel ("DRP") on 29.01.2010 and later withdrew the same on 23.02.2010. After accepting the withdrawal, the Assessing Officer ("AO") was allowed to pass the order as per law. The Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T enabled and the role of networked software within the provision is seen as vital. Emphasis is drawn to the nature of the service and the value added to the customer is taken into account and the assessment order reflects IT enabled services as being equal to solutions whose added value for the customer is generated significantly through the use of information and communication technologies that used networked software. It was contended that the use of networked software in the case of the Assessee is limited to transmission of customized data to its parent company. 6. The Assessee placed reliance upon several factors, i.e that it is a duly established STP unit which is engaged in the provision of IT-enabled services to the parent company acting as its back office and thereby entitled to the benefit under the expanded definition of the term „computer software‟. Its activities are in the nature of data processing, customization of data, acting as the back office of the parent company and acting as support center to the parent company. The AO in the order questioned the Assessee‟s eligibility for the said deduction and relied upon the decisions in Rao Bahadur Rava ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the end product, which is not software within the meaning of Section 10A is being exported outside India and thus not making services of a similar nature as such services can only be rendered on real time basis electronically to qualify for the purpose of Section 10A. Also, the TPO, by his order of 92CA(3) dated 09.10.2009 advised the concerned officer to make an upward adjustment of Rs. 59,09,890/- to the total income declared and the AO allowed the adjustment. Apart from holding that the Assessee company has furnished inaccurate particulars (the report of the auditor considered non est) with a view to evade the tax, the AO also initiated penalty proceedings under section 271(1) (e) of the I.T. Act, 1961 for filing inaccurate particulars and concealment of income. 9. Aggrieved by the Assessment Order, the Assessee appealed against that to the CIT (A) who thereby held that by making the disallowance, the AO erroneously concluded that the appellant is engaged in the business of analysis of financial and business information and not in the business of data processing. CIT (A) in its findings, notes that it is evident that the appellant is customizing data, what is accessed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere has been no change either in the facts or the circumstances of the case of the appellant accordingly, in view of the foregoing the appellant is eligible to claim the deduction under section 10A of the Act being the sixth year of claim. Therefore, the CIT (A) was of the opinion that the claim of the assessee that all of its business income or profits from business or profession are exempt under section 10A of the Act is correct and the assessee is entitled to exemption and thereby reversed the finding of the AO and directed him to allow the exemption to the whole of assessee‟s profit as computed under the said head 'profit and gains of business.‟ In the present case, the ITAT held that, "There is no dispute on the services provided by Assessee. The modus operandi of Assessee, as noted earlier while considering the submissions made before ld. CIT(A), makes it very clear that the assessee was acting as a back office of its parent company by providing customized electronic data as per request received by it from parent company. It is clear from the modus operandi that what was accessed by the assessee at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are‟. Its activities are in the nature of data processing, customization of data, acting as the back office of the parent company and acting as support center to the parent company. Clearly it could not have been deprived of the benefit of Section 10A, as is argued by the revenue. This contention is accordingly rejected as unmerited. 13. So far as the Arms Length Price (ALP) determination and the Transfer Pricing upward adjustments, are concerned, in its TP documentation, the assessee determined Transactional Net Margin Method (TNMM) as the most appropriate method to determine the ALP of the international transaction pertaining to the provision of IT support services. The TPO in the order accepted only 7 out of the 11 comparable companies and rejected the rest based on reasons that one of them, Fortune Infotech Ltd. ("FIL") had a different financial year ending, the other two - Kirloskar Computer Services Ltd ("KCSL") and Mercury Outsourcing Management Ltd. ("MOML") had a turnover of less than `1 Crore and finally, Genesis International Corporation Ltd ("GICL") was rejected because it seemingly had a negative growth graph. 14. The Revenue is in appeal before this Court ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions ; (d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and the Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail. (e) the extent to which reliable and accurate adjustments can be made to account for differences, if any, between the international transaction or the specified domestic transaction and the comparable uncontrolled transaction or between the enterprises entering into such transactions; (f) the nature, extent and reliability of assumptions required to be made in application of a method." Rule 10B (3) stipulates the third step, and spells out when the TPO is obliged to hold an uncontrolled transaction as comparable with others. This provision reads as follows: " (3) An uncontrolled transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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