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TMI Blog2019 (2) TMI 1322X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant evidence provided by the assessee company during the assessment proceedings which the TPO failed to take into account. Therefore, it will be appropriate to remand back the entire Transfer pricing issue to the file of the TPO/AO. Allowability of provision for warranty - HELD THAT:- The assessee company’s submissions were not properly taken into account by the Assessing Officer during the Assessment Proceedings while deciding the provision for warranty. Therefore, it will be appropriate to remand back this issue to the file of the Assessing Officer who will decide the same after taking into account all the submissions and evidence provided by the assessee company during the assessment proceedings. - ITA No. 1981/DEL/2015 - - - Dated:- 18-2-2019 - Shri R. K. Panda, Accountant Member And Ms Suchitra Kamble, Judicial Member For the Appellant : Sh. K. M. Gupta Sh. Anubhav Rastogi, Advs For the Respondent : Sh. Rakesh Kumar, Sr. DR ORDER PER SUCHITRA KAMBLE, JM This appeal is filed by the assessee against the Assessment Order dated 30/01/2015 passed u/s 143(3)/144C/92CA (4) of the Income Tax Act, for Assessment Year 2008-09. 2. The grounds of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies having different accounting year than that of the Appellant; Rejecting companies having services revenue less than 75 percent of the total income; Rejecting company having employee cost less than 25 percent of the total sales; Rejection of companies identified by the Appellant on account of having peculiar economic circumstances which are not in line with the industry trend, - companies which showed diminishing revenue trend; and Rejecting companies having export revenue less than 75 percent of the operating revenue. 7. That on facts of the case and in law, the DRP/ TPO/AO have erred in using single year data for financial year ( FY ) 2009-10 of alleged comparable companies without considering the fact that the same was not available to the Appellant at the time of complying with the transfer pricing documentation requirements and disregarding the Appellant s claim for use of multiple year data for computing the arm s length price. 8. That on facts of the case and in law, the DRP/TPO/AO have erred in selecting companies in the final set of alleged comparables which are functionally different as compared to the Appellant for the impugned transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in law, the DRP/AO has erred in confirming that AO/TPO has discharged his statutory onus by establishing that the conditions specified in clause (a) to (d) of Section 92C(3) of the Act have been satisfied before disregarding the arm s length price determined by the Appellant and proceeding to determine the arm s length price. Part II - Corporate Tax Grounds 17. That on the facts and circumstances of the case and in law, the DRP/AO erred in disallowing an amount of INR 53,37,340/- relating to provision made by the Appellant towards warranty expenses. 18. That on the facts and in the circumstances of the case, the AO has erred in initiating penalty under section 271(1)(c) of the Act, as consequences of the additions made in the assessment order passed under section 143(3) read with section 144C of the Act. 19. That on the facts and in the circumstances of the case, the AO has erred in charging interest under section 234B of the Act, as consequence of the additions made in the assessment order passed under section 143(3) read with section 144C of the Act. The above grounds of appeal are mutually exclusive without prejudice to each other. The Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nancial Year 2009-10. The TPO vide order dated 07.01.2015 recommended the Assessing Officer to make a TP addition of ₹ 5.87 crores on account of adjustment of arm s length price pertaining to the international transaction of provision of IT services. In undertaking the same the TPO disregarded the quantitative and qualitative filters applied by the Assessee and instead used his own approach to select comparables for benchmarking the international transaction of provision of IT services. While doing so, the TPO changed the characterization of the assesse from IT service provider to ITES service provider and chose the following companies as comparable to the assessee company for the provision of IT services: S. No. Company Name OP/OC% 1 Accentia Technologies 42.52% 2 Cosmic Global 18.28% 3 E4e Healthcare 31.03% 4 Fortune Infotech 22.80% 5 I gate global solutions Ltd. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat on Aggregation of international and domestic segments pertaining to IT segment, the segmental bifurcation of revenues and expenses into international and domestic segments given to the lower authorities are as under: Particulars International Segment Domestic Segment Total Revenue 178,289,410 61,200,528 239,469,938 Direct Cost 130,598,176 33,217,100 163,815,276 Indirect Cost 38,004,171 33,407,526 71,411,697 Total Operating Cost 168,602,347 66,624,626 235,226,973 Operating Profit 96,67,063 -54,24,098 4,242,965 NCP 5.73 -8.14 1.80 However, the Ld. AR submitted that the TPO disregarded the above segmental information and did not consider the submissions of the assessee company and the DRP also confir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia and thereby recharacterizing the assessee company as an ITES company. The primary function of the assessee company only comprises of providing basic support services once the IT products are sold by the AEs to the customers in India. Further, for the purpose of the said service, the assessee company derives its revenue on a lump sum basis and thus it is a risk mitigated entity. Additionally, the assessee company does not employ people having high end technical skills as the basic maintenance of the computer systems does not require people having high skilled technical knowledge. For IT service segment the functional analysis and risks assumed has been provided below: Functions performed: 1. Installation and commissioning: The assessee company is engaged in the installation and commissioning of IT Products (both hardware and software) sold by its AE s to third party customers in India. The services rendered range from integrating new technologies in IT infrastructure to providing support services. 2. Integration Services: The assessee company provides services pertaining to integration of new elements to existing infrastructure such as high end servers, storage so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of IT services which is without any concrete reason. In fact, the TPO has taken Provision of IT services and payment for receipt of IT services in totality which are separately submitted by the assessee in respect of the segmental bifurcation of its revenues and expenses into different operating segments. To compute the arm s length price of the aforementioned transaction, the segment profitability of the assessee company needs to be taken into consideration as against aggregation of international and domestic segment of the assessee company. Thus, in the present case the arm s length price of the related party transactions of the assessee company has to be computed with its AE s on segmental basis and not that of profitability of the entire segment which include both AE and non AE transaction. This submission of the Assessee is well formed and is accepted as the assessee company has given all the information relating to international segment and domestic segment with the related party sales transaction of the assessee company with its AE s. Besides that the TPO has also re-characterized the assessee s limited risk IT services as ITeS, thereby rejecting the functional analysi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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