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TMI Blog2018 (4) TMI 499X X X X Extracts X X X X X X X X Extracts X X X X ..... SHRI ANIL CHATURVEDI, AM AND SHRI VIKAS AWASTHY, JM For The Assessee : Shri Kamal Sawhney For The Revenue : Shri Rajeev Kumar, CIT ORDER PER VIKAS AWASTHY, JM This appeal by assessee is directed against the assessment order dated 17.08.2017 passed u/s.143(3) r.w.s.144C(13) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) 2. The brief facts of the case as emanating from records are: The assessee company is a subsidiary of Kennati Technologies Inc. The assessee is providing software support and quality assurance services for 2Wire Inc s residential gateways and multimedia broadband products from its development centre at Pune. In accordance with the inter-company services agreement, the assessee is remunerated on cost-plus 15% billing methodology for services rendered. During the assessment year under appeal, the assessee entered into international transactions to the tune of ₹ 12,17,36,835/- in respect of software support services to its Associated Enterprises (AEs). The assessee adopted Transactional Net Margin Method (TNMM) as most appropriate method to benchmark its transactions. Profit Level Indicator (PLI) to deter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of TPO, the Assessing Officer made draft assessment order dated 25.11.2016. The assessee filed objection before the Dispute Resolution Panel (DRP) assailing the adjustment proposed by TPO. The assessee inter alia raised objection qua companies selected/rejected while preparing final list of comparables by TPO. The DRO vide directions dated 31.05.2017 disposed off the objections raised by assessee whereby TP adjustment was deleted. Thereafter, the Assessing Officer vide impugned order suo-moto revised the final list of comparable companies by introducing four new comparables and made revised TP adjustment of ₹ 61,80,690/-. 4. Shri Kamal Sawhney appearing on behalf of assessee submitted at the outset that Assessing Officer while giving effect to the direction of DRP exceeded jurisdiction and has included four companies in the final list of comparables resulting in TP adjustment of ₹ 61,80,690/-. The ld. AR pointed that the list of comparable companies as per the order of Assessing Officer are at page No. 4 of 6 Thirdware Solutions Ltd. 36.98 42.32 7 Cigniti Technologies Ltd. 8.59 12.58 8 Exilant Technologies Pvt. Ltd. 10.48 16.06 9 Harbinger Software Pvt. Ltd. 21.98 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o recompute working capital of Cybermate Infotek Ltd. in line with directions of the DRP, international transactions entered into by the assessee with its AEs would fall within the range of 5% and no TP adjustment would be required. 5. On the other hand, Shri Rajeev Kumar representing the Department vehemently defended the assessment order and prayed for dismissing the appeal of assessee. 6. We have heard the submissions made by representatives of rival sides and have perused the orders of Authorities below. The ld. AR of the assessee has primarily assailed the assessment order on the ground that the list of comparables adopted by the Assessing Officer includes four comparables which were neither part of final list of comparables selected by TPO nor subject matter of discussion before the DRP or were rejected by the DRP. 7. The Assessing Officer while framing assessment order has over stepped his jurisdiction in tinkering with the final list of comparables. The provisions relating to passing of the assessment order, where reference has been made to DRP are contained in section 144C of the Act. The relevant extracts of the section specifying the role of Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained in section 153 [or section 153B], the assessment without providing any further opportunity of being heard to the assessee, within one month from the ends of the month in which such direction is received. A bare perusal of the sub-section (10) reveals that the Assessing Officer has to pass order in accordance with the direction of DRP. The directions of DRP are binding on the Assessing Officer. On further perusal of sub-section (13) shows that assessment order passed by the Assessing Officer shall be in conformity with the directions of DRP. Thus, the Assessing Officer cannot go beyond the directions of DRP to make the additions. 8. In the present case, we find that the Assessing Officer has exceeded his jurisdiction in including four companies viz. Tata Elxsi Ltd (Seg.), Cybermate Infotek Ltd., Megri Soft Ltd. and Sankhya Infotech Ltd. in the list of comparables and thereby disturbing average arithmetic margin of the comparables. The suomoto inclusion of four companies in the list of comparables resulted in TP adjustment of ₹ 61,80,690/-. The ld. DR failed to show as to under what provisions of the Act, the Assessing Officer has suo-moto included these compani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed view that the Assessing Officer has erred in exceeding his jurisdiction and suo-moto adding companies in the final list of comparable companies proposed by TPO. The ld. AR stated at Bar that if four companies subsequently added by the Assessing Officer, are excluded from the list of comparables, the international transactions entered into by assessee with its AEs would fall within arm s length and no adjustment would survive. We are of considered view that it would be appropriate to remit this issue back to the file of Assessing Officer for verification. The assessee shall demonstrate before the Assessing Officer that after exclusion of four companies as mentioned above, the international transactions of assessee would fall within the arm s length. In principle, the ground No. 1 2 raised in appeal are allowed, however, we are restoring the issue to Assessing Officer for limited purpose of verification as mentioned above. Accordingly, ground No. 1 and 2 raised in the appeal by assessee are allowed for statistical purposes. 10. In so far as other grounds are concerned, the same are not being deliberated upon as the addition made on account of TP adjustments would be reduce ..... X X X X Extracts X X X X X X X X Extracts X X X X
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