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TMI Blog2016 (6) TMI 1321X X X X Extracts X X X X X X X X Extracts X X X X ..... most appropriate method by keeping in view the Circular No. 6/2013 dated 29.06.2013 but it is an admitted fact that the said Circular was not in existence when the TPO passed the impugned orders for the respective assessment years i.e. assessment years 2007-08 to 2009-10, under consideration. However, he admitted while passing the orders u/s 92CA of the Act for the assessment year 2010-11 that TNMM is most appropriate method for determining the Arm’s Length Price. We, therefore, deem it appropriate to set aside this issue relating to the assessment years 2007-08 to 2009-10 to the file of the TPO/AO to decide as to what is the most appropriate method by considering the facts and the guidelines available in the form of circular. As regards to the issue relating to the comparables for which the information u/s 133(6) of the Act were obtained by the TPO and which were not confronted to the assessee, we are of the view that this issue also deserves to be set aside to the file of the TPO/AO for fresh adjudication in accordance with law. Additional ground relating to deduction u/s 10A of the Act was not before the TPO/AO. The said grounds are purely legal grounds and raised first time be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd circumstances of the case and in law in classifying the software development services rendered by the appellant as end-to end product development and has misinterpreted the phrase "end-to-end" to mean all the stages of the software development life cycle. 6. That on facts and in law, the Hon'ble DRP and Learned TPO/AO have erred in classifying the appellant as a risk bearing entirely which undertakes all risks pertaining to the software product development business, thereby completely ignoring the fact that the appellant receives a substantial cost plus mark-up remuneration from its AE, regardless of the success or failure of the products developed by it. 7. That on facts and in law, the Hon'ble DRP has erred in confirming the conclusion drawn by the Learned TPO/AO that the appellant has created significant intangibles and is the economic owner of such intangibles. 8. That on facts and in law, the Hon'ble DRP and Learned TPO/AO have failed to adopt a step by step scientific approach for identifying comparable companies based on a reliable Functional and Risk Analysis. 9. That on facts and in law, the Hon'ble DRP and Learned TPO/AO have erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal." 4. The assessee had also raised the additional grounds and requested for admission of the same by stating in the application dated 03.12.2015 as under: "The above referred appeal for AY 2006-07 is fixed for hearing before your Honours for hearing on 14 December 2015. The Appellant has challenged the order of the learned Assessing Officer ("Ld. AO") in respect of the adjustment made on account of difference in the arm's length price ("ALP") of the international transaction pertaining to provision of software development services as determined by the Learned Transfer Pricing Officer ("Ld. TPO") and the Appellant. In addition to the grounds of appeal filed, we wish to file the additional / supplementary ground of appeal. The additional ground does not need any verification of facts and is purely a legal issue. We therefore, request your Honours to kindly admit the additional ground and decide on merits. The Appellant wishes to humbly submit that the additional ground can be raised if the facts are placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gone through the material available on the record. In the present case, it is an admitted fact that the additional grounds raised by the assessee first time before the ITAT are purely legal grounds and do not need any verification of facts, so these deserve to be admitted. These grounds now raised by the assessee as additional ground were not available to the authorities below, so they have no occasion to adjudicate the same. We, therefore, deem it appropriate to set aside the issue raised by the assessee in the additional grounds to the file of the TPO/AO to be adjudicated afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee. 8. As regards to the other grounds raised by the assessee, it is gathered that ground nos. 1 to 15 relates to the addition made by the AO on account of Arm's Length Price adjustment. 9. Facts of the case in brief are that the assessee filed the return of income on 30.11.2006 declaring an income of ₹ 4,98,056/- which was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act). Later on, the case was selected for scrutiny. The assessee is a wholly owned subsidiary of M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the comparable having average arithmetic mean of 12.04% and reads as under: Margin Analysis Unadjusted margins of comparable companies Sl. No. Name of the Company Weighted average margins (%) 1 3 i Infotech Limited 6.42% 2 Akshay Software Technologies Limited 8.24% 3 Aztec Software & Technology Services Limited 13.74% 4 Bangalore Softsell Limited 4.37% 5 Bristlecone India Limited -2.92% 6 Compucom Software Limited 15.97% 7 Datamatics Limited -5.87% 8 Encore Software Limited -33.94% 9 Flextronics Software Systems Limited 32.69% 10 Four Soft Limited 22.27% 11 Future Software Limited 2.88% 12 Gebbs Infotech Limited 23.69% 13 Goldstone Technologies Limited 7.48% 14 Infosys Technologies Limited 41.17% 15 Intertec Communications Limited 46.07% 16 K P I T Cummins Info systems Limited 13.60% 17 Lanco Global Systems Limited 12.26% 18 Larsen &. Toubro Infotech Limited 8.09% 19 Maars Software International Limited 4.27% 20 Melstar information Technologies limited -0.15% 21 Mphasis BFL Limited 52.87% 22 Orient Information Technology Limited 14.76% 23 Quintegra Solutions Limited 8.59% 24 R S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment year 2006-07 in ITA No. 5232/Del/2010. Therefore, our findings given in the former part of this order shall apply mutatis mutandis for the assessment years 2007-08 to 2010-11. 15. The ld. Counsel for the assessee at the very outset stated that for the assessment years 2007-08 to 2009-10, the TPO considered the "residuary profit split method" as most appropriate method instead of TNMM method. However, for the assessment year 2010-11, the TPO again considered the TNMM method as most appropriate method by following the Circular of the CBDT No. 6/2013 dated 29.06.2013. It was submitted that the matter may be restored to the TPO for application of the most appropriate method by considering the guidelines issued by the CBDT in Circular No. 6/2013 dated 29.06.2013 which was not available when the TPO passed his order for the assessment years 2007-08 to 2009-10. It was further submitted that the TPO asked the information u/s 133(6) of the Act in respect of the comparables choosen by him but those informations were not confronted to the assessee and that the comparables were choosen on the basis of the information collected u/s 133(6) of the Act and without giving opportuni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... based on the totality of the facts and circumstances of the case. In doing so the assessing officer or the transfer pricing officer as the case may be shall be guided by the conduct of the parties and not merely by the terms of the contract" 2.20 It is further corroborated by the press release by the CBDT on 14 August 2013 while inviting comments for safe harbour guidelines. The relevant para is reproduced as follows: "(7] Where the safe harbour rules are not applicable in the case of an assessee, engaged in providing contract research and development services with insignificant risks, the Transactional Net Margin Method (TNMM) shall be considered as the most appropriate method for the determination of arm's length price unless it is shown by the assessee that it is not feasible to apply this method in the facts and circumstances of the case." On the basis of the analysis of the facts of the case, and guidelines in the matter and technical report it is considered that TNMM is most appropriate method for determining the arm's length price in the case under consideration." 18. In the present case, it is also relevant to discuss the guidelines and direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earch which vests with the foreign principal and that this is evident from the contract as well as from the conduct of the parties. The Assessing Officer or the Transfer Pricing Officer, as the case may be, shall have regard to the guidelines above and shall take a decision based on the totality of the facts and circumstances of the case. In doing so, the Assessing Officer or the Transfer Pricing Officer, as the case may be, shall be guided by the conduct of the parties and not merely by the terms of the contract. The Assessing Officer or the Transfer Pricing Officer, as the case may be, shall bear in mind the provisions of section 92C of the Act and Rule 10A to Rule 10C of the Rules. He shall also apply the guidelines enumerated above and select the 'most appropriate method'. The above may be brought to the notice of all concerned." 19. However, in the present case, it is an admitted fact that the said Circular was not in existence when the TPO passed the impugned orders for the respective assessment years i.e. assessment years 2007-08 to 2009-10, under consideration. However, he admitted while passing the orders u/s 92CA of the Act for the assessment year 2010-11 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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