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TMI Blog2016 (8) TMI 1243X X X X Extracts X X X X X X X X Extracts X X X X ..... marking process carried out by the appellant in the Transfer Pricing ('TP') documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ('Rules'); 3. requiring financial data of only the current year (FY 2007-08) of the comparable companies to be used for bench marking the Appellant's international transactions; 4. rejecting one comparable of the appellant (i.e. Neeman Medical Intl. (Asia) Ltd. Clinical Research) on the ground that it is having significant related party transactions; 5. identifying 4 fresh comparable companies (i.e. M/s Mindtree Limited- R&D segment, Transgene Biotek- Diagnostic Segment, IDC (India) Limited and M/s Celestial Labs Limited) which are functionally not comparable to the appellant. Ld. TPO has erred in making an incorrect comparison of the appellant's activities vis-a-vis those performed by the comparables; 6. the learned AO be directed to grant (+1-) 5% benefit as available under proviso to Section 92C(2) of the Act. 7. disregarding the claim of the appellant of Rs. 33,22,798/- towards software license fees as revenue expenditure and capitalizing the same under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TNMM 39,80,98,772 3 Pharmacovigilance Related Support Services (Receipt) 23,23,561 TNMM NA 4 ECB Loan Interest (Payment) 86,15,111 CUP 2,18,14,215 5 Reimbursement of personnel, travel Expenses, Recovery of Interest on Security Deposit. Recovery of Depreciation and Interest on the car (Receipt) 1,91,71,387 CUP 1,80,36,874 Total 49,79,94,477 47,16,46,510 The assessee, in its Transfer Pricing Study Report, had benchmarked the second nature of transactions, that is, provision of contract research and testing services by adopting TNMM as Most Appropriate Method (MAM) and PLI as operating profit to total cost. For benchmarking the transaction, the assessee has carried out detailed search process and had identified 9 comparable companies with the following PLI of the financial year 2007-08:- S. No. Name of the Comparable Company Updated PLI for FY 2007-08 % 1 Alphageo (India) Ltd. 40.27 2 Choksi Laboratories Ltd. 29.95 3 Dolphin Medical Services Ltd. 9.24 4 Medinova Diagnostic Services Ltd. 4.47 5 N G Industries Ltd. 21.56 6 Vimta Labs Ltd. 15.84 7 TCG Lifesciences Ltd. 29.97 8 Neeman Medical Int. (Asia) Ltd -Clinical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... research work, business development, technical services and various high end support services to its AE in the field of pharmaceuticals. Thus, the very nature of services undertaken by the assessee involves creation of IPR. The assets employed are for high end activities. Hence huge intangibles are created during the course of rendering of services to the AE which leads to creation of IPR to the AE. Thus, the submission of the ld. Counsel regarding Transegenic Biotek cannot be sustained. He further pointed out that Transgene Biotek Limited was a comparable chosen and included by the assessee in the earlier year as in that year its margin was at 10.78% and now in this year assessee is pleading for exclusion because in this year margin is 25.97%. Therefore, the assessee cannot pick and choose the comparable from year to year basis. The TPO in the present case had selected the comparables which are by and large on the same line of activities carried out by the assessee and any comparability analysis under TNMM, the comparison is to be seen on a broader spectrum and elasticity has to be given while analyzing the comparables. The Tribunal in the earlier year while adjudicating on the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er areas like Enterprise Management Applications, Broadband, Internet and eBusiness, Mobile Usage, IT Service Exports and Continuous Market Review of Computing and Peripheral Products. Such research reports provide market forecasts, competitive analyses, vendor profiles, and information on customer requirements and buying patterns. Further, the areas of research include Communication Services Broadband Business, Network Services, IP based services, residential small business and wireless communications. The products and services of IDC consist of the following: - Customized Services: IDC delivers strategic and tactical research, and consulting services to support the development and implementation of business strategies of ICT builders and providers. These projects are customized to address the client's specific business problem. The uniquely qualified, multidisciplinary experts help you develop business strategies, fine tune product development and pricing, define and implement marketing goals, asses competitive forces, and evaluate joint ventures and acquisitions. - Standard research reports: These research documents cover everything in hardware-PCs, peripherals, servers, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rable to the Assessee. Hence it is clear that it is not comparable to the functional profile of the Company and accordingly ought not to be considered a comparable The learned D.R. however drew our attention to page- 389 of the paper book which is an extract from the Directors report which reads as follows: "The Company has developed a de novo drug design tool "CELSUITE" to drug discovery in, finding the lead molecules for drug discovery and protected the IPR by filing under the copy if right/patent act. (Apprised and funded by Department of Science and Technology New Delhi) Based on our in silico expertise (applying bioinformatics tools). The Company has developed a molecule to treat Leucoderma and multiple cancers and protected the IPR by filing the patent. The patent details have been discussed with Patent officials and the response is very favorable. The cloning and purification under wet lab procedures are under progress with our collaborative Institute, Department of Microbiology, Osmania University, Hyderabad. In the industrial biotechnology area, the company has signed the Technology transfer agreement with IMTECH CHANDIGARH (a very reputed CSIR organization) to manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... novation and licensable intellectual properties with applicability across industry groups. Semiconductor and Hardware Engineering - The department provides product realization and feasibility services, as well as high-speed interface design, helping its clients assess the right electronic architectures and design high-speed hardware interfaces. It helps its customers at any stage of ASIC/SoC development from concept to silicon. These services offered on an individual as well as on a turnkey basis. Software Engineering - The department set of skills spanning from embedded software to application software needed for product realization. This, coupled with hardware engineering capabilities, enables the company to work as a "one-stop shop" for software product development needs. Video Surveillance Solutions - The department provides a range of licensable components that enable OEMs, large system integrators, and distributors to introduce products like surveillance manager, intelligent video encoders, video decoders, and intelligent Digital Video Recorders (DVR)s quickly into the market. The application of these set-vices will come in use for the following industries: - Automot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no bills and invoices were enclosed. He further noted that, the major expense has been incurred for making the payment to one party namely, M/s Nirmal Computers, the details of which were as under:- Sr. No. Name Amount Purpose 01 Nirmal Computers 31,54,666 Desktop Pro Lic/ SA Pack OVL 02 Nirmal Computers 62,400 MS Win 2003 Svr Std R2 OVL 03 Nirmal Computers 21,146 Ms Exchange 2003 Std Svr OVL 04 Nirmal Computers 84,586 M/s Share point server software TOTAL 33,22,798 He observed that, these payments relate to Microsoft product licenses which are one time licenses taken for Microsoft products for existing desktop, laptops and servers. From the perusal of the copies of the bills (which were later on furnished by the assessee), he observed that, these licenses are not annual licenses but are one time license. Accordingly, he treated the same as capital expenditure. However, he allowed deprecation @ 60% and accordingly, net amount of Rs. 13,29,119/- was added. 15. The Ld. DRP has confirmed the said addition/disallowance. 16. Before us, the Ld. Counsel Mr. Harish Arora, submitted that the assessee's entire work depends upon the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... license given before the authorities below were as under: "1.4 Under Item No.1 of invoice, 250 official Microsoft Enterprises 6 licenses were been taken for Pro Desktop listed Licenses / SA Pack MVL. It is for the most current versions of MS Office Professional Windows Desktop, including of Windows NI Workstation and the BackOffice Client Access for the existing Desktop Computers and Laptops, which were procured and installed in the earlier years and used in the Research & Analytical Labs, Development Labs and offices. 1.5 Similarly under Item No.2, 4 number of official Microsoft Enterprises 6 Licenses for windows Server Standard listed licenses / SA Pack MVL were taken for the existing Servers. 1.6 Under Item No. 3 one License for Microsoft Exchange Server listed languages licenses was taken. This again was for the existing email application system, server version and under Item No.4 one License for Office Sharepoint Server listed license was taken". Without these software, it is difficult to carry out the functioning of the business properly and efficiently, specifically in the case of the assessee whose entire operation of business is carried out through computers. The test o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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