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TMI Blog2017 (12) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... der was passed by the Assessing Officer on 16.09.2010 u/s 143(3) read with section 144C of the Act making an addition of Rs. 4,56,86,300/- on account of variation in the income as a consequence of the order passed by the Transfer Pricing Officer (TPO). The said order was challenged before the Tribunal. Vide order dated 25.02.2011, the Tribunal, in ITA No.5150/Del/2010, decided most of the issues. One of the filters applied by the TPO, as assailed in the appeal, was 'Wages to sale ratio between 30 to 60%.' This filter was adopted by the TPO in the light of the fact that the assessee was engaged in the business of software development which requires highly skilled manpower. Since wages constitute a major part of the total expenditure, the TPO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r came up before the DRP for carrying out the exercise as directed by the Tribunal. Vide its order dated 20.09.2013, the DRP found from the Annual reports of Melstar Information Technologies Ltd. and Satyam Computer Services Ltd. that their 'Wages to sale ratio' was 57.88% and 58.28% respectively. Since the same was within the range of 30% to 60%, these companies were directed to be included in the list of comparables. However, such ratio in the case of SQL Star International Ltd. was determined by the DRP at 27.61% and in Sasken Communication Technologies Ltd. at 61.85%. That is how, these two companies were found to be lacking in so far as the application of filter of Wages to sale ratio (30% to 60%) was concerned. As regards the last com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osts incurred in providing software development services, but also included the Employee cost in respect of Research and development expenses, Selling and marketing expenses and Administrative and general expenses. The ld. AR contended that such Employee cost in relation to R&D; Selling and marketing; and Administrative and general expenses ought to have been excluded from total the Employee cost in calculating the ratio of Wages to sales. It was contended that if such an exclusion of the Employee cost is made, then, this company passes the filter of Wages to sales ratio between 30% to 60%. 5. We are not convinced with the proposition put forth on behalf of the assessee. It is discernible from the Rs.Sales' figure taken by the DRP at Rs. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d order in excluding Sasken Communication Technologies Ltd. from the list of comparables. (ii) SQL Star International Ltd. 6. The DRP adopted the figure of Rs.Sales' of this company at Rs. 31.70 crore which includes not only the revenues from Rs.Software and services' but also Rs.Training course' and Rs.Others'. A copy of Profit & Loss Account of this company is available at page 329 of the paper book, which gives the break-up of the figure of total Sales of Rs. 31.70 crore, as Rs.Software and services' (Rs.14.76 crore); Rs.Training course' (Rs.15.43 crore); and Rs.Others' (Rs.1.50 crore). As against that, the figure of Rs.Employee cost', described as 'Personnel expenses' in the Profit & Loss of this company, stands at Rs. 8.75 crore, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t inasmuch as it was not the first year of the company. As regards the other direction, the DRP observed that the : 'Wages/sales ratio is only 22.99%, which fails filter applied by TPO'. That is how, this company got excluded from the final tally of comparables. The assessee is aggrieved against this exclusion. 9. Having heard both the sides and perused the relevant material on record, the Tribunal finds it as a factual position that this company was found to be wanting only in respect of 'Wages to sale ratio.' The DRP computed such ratio at 22.99% by taking the amount of Rs.Sales' at Rs. 1.70 crore and Rs.Employee cost' at Rs. 39.27 lac. We have gone through the Annual report of this company, a copy of which is available in the paper book ..... X X X X Extracts X X X X X X X X Extracts X X X X
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