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TMI Blog2021 (7) TMI 1308X X X X Extracts X X X X X X X X Extracts X X X X ..... the taxpayer has failed to substantiate that it is carrying out activities in two segments viz. CSDS and ITES. When Revenue has been accepting and benchmarking such international transactions in segregated manner in earlier years in taxpayer s own case and there is no change in the nature of international transactions as well as functional profile of the taxpayer during the year under assessment vis- -vis earlier assessment years, following the rule of consistency as has been held by Hon ble Supreme Court in Radhaswami Satsang [ 1991 (11) TMI 2 - SUPREME COURT] we are of the considered view that both the segments viz. CSDS and ITES are required to be benchmarked independently/in segregated manner. How to allocate certain common expenses incurred by the taxpayer in various segments for the purpose of calculation of the gross profit margin? - Keeping in view the evidence brought on record by the taxpayer and following the reasons rendered by Hon ble High Court of Delhi in case of Fujitsu India Private Ltd. [ 2019 (2) TMI 1993 - DELHI HIGH COURT] we are of the considered view that ld. TPO should allocate common expenditure incurred by the taxpayer in two segments i.e. ITE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resent year i.e. A.Y. 2013-14, the Transfer Pricing Officer characterized the Appellant as ITES Service Provider only rejecting its claim of providing IT Services in the nature of Software Development which had been accepted for all preceding years. The claim of the assessee before the Dispute Resolution Panel that it had two distinct segments of IT i.e. Software Development and ITES were also rejected and the findings of the TPO were upheld. The Assessee appellant filed an appeal before the ITAT and during the course of hearing on 8th February, 2018, the Appellant was directed by the ITAT to submit additional evidence demonstrating that the appellant was engaged in IT services including software development activity. The hearing on 8th February, 2018 being a Thursday was adjourned to 12th February, 2018, thus, the Appellant was provided one working day before the final hearing on 12 February, 2018 which was a Monday. The present appeal has been filed alongwith an application for additional evidence wherein voluminous evidence has been filed by way of Annexure A-6 to A-13 indicating that the assessee was engaged in software development. 32. Keeping in view the fact that the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entity and a part of Orange Group is a subsidiary of EGN BV, Netherlands, which is into providing information technology enabled network management / technical support and other back office support services to its group companies. It also undertakes software developments services for developing software applications which are used within the Orange Group. 4. The IT enabled network management/technical support and other back office support services performed by the taxpayer primarily include remote monitoring and maintenance of Orange s Global network platforms and services, coordination, remote configuration and implementation of quality customer networking solutions. Further, under the category of software development services, the taxpayer is engaged in providing routine Contract Software Development Services (CSDS) relating to development and maintenance of applications used within the Group like Human Resource, Accounting etc. 5. The taxpayer filed its return of income at ₹ 32,82,84,980/- declaring three international transactions in Form 3CEB. Matter was referred to ld. TPO for benchmarking of international transactions. Taxpayer s international transactions as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amount (INR) Operating Cost 2,059,944,026 Arm s length margin (%) 23.94% Arm s length margin (Rs.) 493,150,600 Arm s length Price 2,553,094,626 Price charged by the assessee 2,416,307,816 Difference between ALP and price charged by assessee 13,67,86,810 8. Consequently, ld. TPO proposed an amount of ₹ 13,67,86,810/- as adjustment u/s 92CA of the Act. 9. The taxpayer carried the matter by way of filing objections before the ld. DRP who have not accepted the same and upheld the order passed by the ld. TPO. In compliance with the orders passed by the ld. TPO/DRP, AO made adjustment in the final assessment order. The Tribunal vide order dated 15.02.2018 also upheld the aggregation of IT and ITES segment and remanded the matter back to ld. TPO for selection of comparables operating in both IT and ITES segment. The taxpayer carried the matter before the Hon ble High Court challenging the segmentation of rejection of CSDS a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and resumes qua the educational and professional experience of the key employees of the taxpayer working in IT segment. Evidence brought on record in the tabulated form under the head details as per head count for FY 2012-13 shows that the taxpayer has engaged a team for software development of highly qualified engineers to perform software development activities. The taxpayer has also brought on record job description of Project Manager IT and Lead Programme Manager of the taxpayer company having Bachelor Degree of Software Engineering or Computer Science, BS Technology Management or equivalent and Project Manager IT having experience of 7 10 years including development and implementation of product methodologies and standards. It is also proved on record that Project Managers IT are having knowledge in WEB development environments (LAMP, WAMP), on OS such as Windows 2008 and UNIX (Workstation) and in Oracle database management and design. 15.1 The taxpayer also employed Lead Programme Manager having experience of 15 years in software application programming and development in telecommunications in multicultural and international environment. The taxpayer has brought on rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inciple by returning following findings :- 3. As far as the first question is concerned, while arriving at the transfer pricing adjustment by the ALP, the Assessing Officer/TPO had to allocate certain common expenditure. The tax authority applied the first principle of apportionment, which resulted in proportionate allocation of expenditure attributable to the concerned segments. After completion of this step, a sum of ₹9.79 crores, remained as un-allocable costs. For this, the assessee sought to use the headcount method for allocation as the allocation principle to ascribe the segment to which the expenses were to be considered. The assessee s arguments with respect to application of the headcount basis was rejected by the TPO, DRP and later by the ITAT in the impugned order. 4. Mr. Srivastava, learned counsel appearing on behalf of the assessee relied upon the judgment of the this Court in Commissioner of Income Tax vs. EHTP India Pvt. Ltd. (2013) 350 ITR 41(Del.). In that decision, the Court indicated broadly that if headcount had been the basis for proportionate allocation of costs, there was no objection or illegality attached to it. The Court of course in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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