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TMI Blog2018 (1) TMI 1394X X X X Extracts X X X X X X X X Extracts X X X X ..... The TPO during the course of TP assessment proceedings observed that the assessee company has entered into the following international transactions with its AE :- Nature of transaction Method selected Total value of transaction (Rs.) Provision of Software Development Services TNMM 14,913,278 Provision of Engineering design Services TNMM 195,214,578 Cost reimbursement received CUP 532,039 3. He observed that the assessee has used TNMM as the method and OP/TC as the PLI. He further observed that the assessee has arrived at a set of 6 comparables for its engineering design segment. The average margin of the comparables, using multiple year data is 5.03%. The assessee's margin in this segment is 8.9%. So far as software development segment is concerned, the assessee has arrived at a set of 18 comparables with an average margin of 13.43%. Since the assessee's margin is 21.47%, it was concluded that the transactions are at arm's length price. 4. The TPO, in order to benchmark the international transactions, rejected the application of multiple year data which was used by the assessee in some of the comparables and applied current year data. The TPO further rej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess but not derived from business and, therefore, the same has to be excluded from the profit eligible for deduction u/s 10A of the I.T. Act. The Assessing Officer, in view of the above, further held that the insurance charges amounting to Rs. 9,79,500/- has to be excluded from the export turnover. He accordingly recomputed the deduction u/s 10A of the I.T. Act. The Assessing Officer in the draft assessment order made addition of Rs. 2,44,840/- by restricting the depreciation on computer peripherals at 15% as against 60% claimed by the assessee. The Assessing Officer accordingly determined the total income of the assessee at Rs. 3,09,95,020/-. 7. The assessee approached the DRP who gave partial relief on account of reducing insurance charges from export turnover for calculating deduction u/s 10A and allowed depreciation at the rate of 60% on some of the parts of the computer peripherals. The rest other additions made by the Assessing Officer were sustained. 8. Aggrieved with such order of the DRP/Assessing Officer/TPO, the assessee is in appeal before the Tribunal by raising the following grounds :- "That on the facts and circumstances of the case, and in law. 1. The Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions filter by the Ld. TPO. 2.9 denying the benefit of idle capacity adjustment. 2.10 disregarding prior year's data as used by the Appellant in the TP documentation and holding that current year (i.e. FY 2006-07) data for comparable companies should be used despite the fact that the same was not necessarily available to the Appellant at the time of preparing its TP documentation. 2.11 failed to consider and appreciate that the Appellant is entitled to the benefit of the option of +/- 5% as per the provisions of proviso to Section 92C(2) of the Act. 3. The Ld. AO erred in excluding leaseline expenses amounting to INR 232,264 from business income for computing profits eligible for deduction under section 10 of the Act. 3.1 The Ld. AO erred in not appreciating that leaseline expenses written back amounting to Rs. 232,264 were not considered for the purpose of computation of business profits eligible for deduction under section 10A in previous year 2005-06. 4. The Ld. AO erred in allowing the depreciation on computer peripherals at the rate of 15 per cent, which is the rate allowable for general plant and machinery, instead of at the rate of 60% per cent. 5. Wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erpreting and processing of data etc.. Referring to page 259 of the Paper Book, Volume - I, ld. counsel for the assessee drew the attention of the Bench to the scope of services to be provided to the AE as per the agreement. Referring to the same he submitted that these are all software driver activities and the assessee is not required to go to the site. Referring to page 260 of the Paper Book, he drew the attention of the Bench to the clause relevant to information technology. Referring to page 4 of the Annual Report compilation, he drew the attention of the Bench to the following clause :- "Our presence India's largest private sector company to offer seismic data acquisition, data processing, data interpretation services, reservoir studies and topographic survey services." 14. He submitted that the above activities are not comparable with that of the assessee company which is engaged in engineering design services. Referring to the decision of the Tribunal in the case of Flour Daniel India (P.) Ltd. vs. DCIT reported in 78 taxmann.com 138, he submitted that under identical circumstances, the Tribunal at para 5.9 of the order has directed the Assessing Officer to exclude M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any is also functionally different, since apart from providing engineering services, the company is engaged in providing other services also such as preliminary planning, assistance in startup, testing and commissioning etc. which are not provided by the assessee. He submitted that the technical consultancy services are not functionally comparable to that of the assessee and, therefore, TCE Consulting Engineers Ltd. cannot be considered as comparable. He submitted that although it was submitted before the DRP that the above company is not comparable, however, the DRP has not given any comments as to why the above company should be considered as comparable. He accordingly submitted that the above five companies be excluded from the final set of comparables. 19. Ld. DR on the other hand submitted that since the order of the TPO is very cryptic on the issue of the comparables and the DRP has not given any observations, therefore, this matter may be restored to the file of the Assessing Officer/TPO for adjudication of the transfer pricing adjustment issue. 20. We have considered the rival arguments made by both the sides, perused the orders of the TPO/AO/DRP and the Paper Book filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tensity of asset employed. Accordingly, we direct the Assessing Officer to exclude M/s Alphageo from the set of comparables chosen for computing arm's length of the international transaction and compute the transfer pricing adjustment accordingly." 21. The Tribunal apart from holding that the above companies are functionally different has also given a finding about the net fixed assets/sales ratio and difference in the asset between the assessee and that of the comparable. We, therefore, restore the issue relating Alphageo India Ltd. to the file of the Assessing Officer/TPO with the direction to give an opportunity to the assessee to substantiate the above details and decide the inclusion/exclusion of the same in the light of the decision of the Tribunal. 22. So far as the comparable i.e. Mahindra Engineering Design and Development company is concerned, it is the submission of the ld. counsel for the assessee that RPT is 31.0% and, therefore, the same should be excluded from the list of comparables. The various Benches of the Tribunal are taking the consistent view that where the RPT are more than 25%, the comparable should be excluded. Since this aspect has never been argued bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee are accordingly allowed for statistical purposes. 26. So far as ground no.4 is concerned, the same relates to depreciation on computer peripherals at the 15% allowed by the Assessing Officer as against 60% claimed by the assessee. 27. After hearing both the sides, we find the Assessing Officer rejected the claim of depreciation at the rate of 60% on computer peripherals such as UPS, Switches, Computer racks etc. and allowed 15% depreciation on the same treating these items as plant and machinery. The DRP in the order upheld the disallowance of depreciation proposed by the Assessing Officer in respect of UPS, switches, microwave, radio, camera, cable. They, however, directed the Assessing Officer to allow depreciation at the rate of 60% on items like switches, cables parts and connectors which are connected with a computer system. It is the submission of the ld. counsel for the assessee that the computer accessories and peripherals being integral part of computer system are eligible for depreciation at higher rate of 60%. We find merit in the argument of the ld. counsel for the assessee. The Hon'ble Delhi High Court in the case of CIT vs. BSES Yamuna Powers Ltd. repo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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