Agilent Technologies International Pvt. Ltd., Gurgaon V. ACIT, Gurgaon

ITA 4648/DEL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53162 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-11-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 17-11-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 21-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RA J TANDON
• Assessee Lawyers: DR RAKESH GUPTA
• Keywords: Related party transaction; Transfer pricing; Principle of natural justice; International transaction
• Section: 92D

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E, NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER & SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO. 4648/DEL/2010 ASSESSMENT YEARS: 2006-07 AGILENT TECHNOLOGIES INTERNATIONAL PVT. LTD., VS. A CIT, PLOT NO. 90D, UDYOG VIHAR, CIRCLE-1, SECTOR-18, GURGAON. GURGAON. AADCA4115C (APPELLANT) (RESPONDENT) APPELLANT BY : DR. RAKESH GUPTA, ADV. RESPONDENT BY : SH. RAJ TANDON, CIT(DR) ORDER PER SHAMIM YAHYA, A.M. THIS APPEAL BY THE ASSESSEE DIRECTED AGAINST THE O RDER OF AO DATED 09.09.2010 AND PERTAINS TO THE A.Y. 200 6-07. 2. THE GROUNDS RAISED IN THE APPEAL READ AS UNDER: - THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW: 1. THE DRAFT ASSESSMENT ORDER PASSED BY THE LD. AO IS BAD IN LAW AND VOID-AB-INITIO. 2. THE LD. DISPUTE RESOLUTION PANEL (LD. DRP) AND THE LD. ASSESSING OFFICER (LD. AO) (FOLLOWING THE DIRECTIONS OF THE LD. DRP), ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE ITA NO. 4648/D/2010 2 ADDITION OF RS. 7,56,83,173/- TO THE INCOME OF THE APPELLANT PROPOSED BY THE LD. TRANSFER PRICING OFFICER (LD. TPO) BY HOLDING THAT ITS INTERNATIONAL TRANSACTIONS PERTAINING TO PROVISION OF INFORMATION TECHNOLOGY (IT) AND INFORMATION TECHNOLOGY ENABLED SERVICES (ITES) BUSINESS SEGMENT DO NOT SATISFY THE ARMS LENGTH PRINCIPLE ENVISAGED UNDER THE ACT. IN DOING SO, THE LD. DRP AND THE LD. AO HAS GROSSLY ERRED IN AGREEING WITH AND UPHOLDING THE LD. TPOS ACTION OF: 2.1DISREGARDING THE ARMS LENGTH PRICE (ALP), AS DETERMINED BY THE APPELLANT IN THE TP DOCUMENTATION MAINTAINED BY IT IN TERMS OF SEC. 92D OF THE ACT READ WITH RULE 10D OF THE INCOME TAX RULES, 1962 (RULES); 2.2 IGNORING THE FACT THAT THE APPELLANT IS ENTITLE D TO TAX HOLIDAY U/S 10A OF THE ACT ON ITS PROFITS AND, THEREFORE, WOULD NOT HAVE ANY UNTOWARD MOTIVE OF DERIVING A TAX ADVANTAGE BY MANIPULATING TRANSFER PRICES OF ITS INTERNATIONAL TRANSACTIONS; 2.3 HOLDING THAT ONLY CURRENT YEAR (I.E. F.Y. 2005- 06) DATA FOR COMPARABLE COMPANIES SHOULD BE USED FOR COMPARABILITY ANALYSIS, DESPITE THE FACT THAT THE SAME WAS NOT NECESSARILY AVAILABLE TO THE APPELLANT AT THE TIME OF PREPARING ITS TP DOCUMENTATION AND IN DOING SO, HAVE GROSSLY ERRED IN; ITA NO. 4648/D/2010 3 2.3.1INTERPRETING THE REQUIREMENT OF CONTEMPORANEOUS DATA IN THE RULES TO NECESSARILY IMPLY CURRENT/SINGLE YEAR (I.E. F.Y. 2005-06) DATA; AND 2.4 DENYING THE BENEFIT OF (+/-) 5 PERCENT [AS PER PROVISO TO SEC. 92C(2) OF THE ACT] AVAILABLE TO THE APPELLANT; SOFTWARE DEVELOPMENT SEGMENT (SUB-GROUNDS 2.5 TO 2. 10) ARBITRARILY APPLYING A WAGES/SALES FILTER FOR REJE CTING COMPARABLE COMPANIES; VIOLATING THE PRINCIPLES OF NATURAL JUSTICE BY NOT PROVIDING THE APPELLANT THE PRECISE BASIS/REASONS FOR SELECTI NG THE WAGES/SALES FILTER RANGE OF 50-70 PERCENT AND THERE BY DENYING THE APPELLANT AN OPPORTUNITY (LET ALONE A REASONABL E OPPORTUNITY) OF EXAMINING THE SAID BASIS/REASONS AN D PROVIDING ITS RESPONSE THERETO; FAILING TO APPRECIATE THAT, IF AT ALL THE WAGES/SA LES FILTER HAS TO BE APPLIED, THEN 50-70 PERCENT IS TOO NARROW/INA PPROPRIATE A RANGE AND THEREFORE, A MORE REPRESENTATIVE/APPROPRI ATE RANGE OF 40-80 PERCENT OR 45-75 PERCENT OUGHT TO BE CONSI DERED; RETAINING IN THE FINAL COMPARABLE COMPANIES HAVING RELATED PARTY TRANSACTIONS (RPT); ARBITRARILY DISREGARDING CERTAIN COMPARABLE COMPAN IES IDENTIFIED BY THE APPELLANT ON THE ALLEGED GROUND T HAT THEY ARE FUNCTIONALLY/ QUALITATIVELY NOT COMPARABLE TO THE A PPELLANT; RETAINING INFOSYS TECHNOLOGIES LIMITED IN THE COMP ARABLE SET IN COMPLETE DISREGARD OF THE SUBMISSIONS MADE B Y THE APPELLANT; ITES BUSINESS SEGMENT (SUB-GROUNDS 2.11 TO 2.14) ITA NO. 4648/D/2010 4 FAILING TO APPLY THE WAGES/SALES RATIO FILTER (AS APPLIED VIS- -VIS THE SOFTWARE DEVELOPMENT SEGMENT) AND THEREBY FAILING TO APPRECIATE THAT THE SAID WAGES/SALES RATIO WAS A RRIVED AT ON A COMPANY-WIDE BASIS AND, THEREFORE, SHOULD BE APPL IED CONSISTENTLY VIS--VIS BOTH SEGMENTS INCLUDING THE ITES SEGMENT (AND NOT SELECTIVELY VIS--VIS ONLY THE SOF TWARE DEVELOPMENT SEGMENT); ERRONEOUSLY RETAINING ONE COMPANY VIZ ALLSEC TECHNOLOGIES LTD. IN THE FINAL COMPARABLE SET, THER EBY FAILING TO APPRECIATE THAT IT IS FUNCTIONALLY/QUALITATIVELY UNCOMPARABLE TO THE APPELLANT; ARBITRARILY DISREGARDING CERTAIN COMPARABLE COMPAN IES IDENTIFIED BY THE APPELLANT ON THE ALLEGED GROUND T HAT THEY ARE FUNCTIONALLY/QUALITATIVELY NOT COMPARABLE TO THE AP PELLANT; SUBSTITUTING APPELLANTS TURNOVER FILTER OF RS. 1 CRORE WITH TURNOVER FILTER OF RS. 5 CRORES; DENYING THE APPELLANT THE BENEFIT OF A WORKING CAP ITAL ADJUSTMENT; DENYING THE APPELLANT THE BENEFIT OF A RISK ADJUST MENT BY COMPLETELY IGNORING THE BUSINESS/COMMERCIAL REALITY THAT SINCE THE APPELLANT IS REMUNERATED ON AN ARMS LENGTH COS T PLUS BASIS, I.E. IT IS COMPENSATED FOR ALL ITS COSTS PLU S A PRE-AGREED MARK-UP, THE APPELLANT UNDERTAKES MINIMAL BUSINESS RISKS AS AGAINST COMPARABLE COMPANIES THAT ARE FULL FLEDGED RISK TAKING ENTREPRENEURS; AND DENYING THE BENEFIT OF (+/-) 5 PERCENT RANGE MENTI ONED IN PROVISO TO SEC. 92C(2) OF THE ACT WHILE COMPUTING T HE ALP. DISREGARDING JUDICIAL PRONOUNCEMENTS IN INDIA IN UNDERTAKING THE TP ADJUSTMENT. ITA NO. 4648/D/2010 5 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO ERRED IN INITIATING PENALTY PROCEEDINGS U/S 271(1)(C) READ WITH SEC. 274 OF THE ACT. THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT CRAVES LEAVE TO ALTER, AMEND OR WITHDRAW ALL OR ANY OF THE GROUNDS HEREIN OR ADD ANY FURTHER GROUNDS AS MAY BE CONSIDERED NECESSARY EITHER BEFORE OR DURING THE HEARING. 3. THE ASSESSEE IN THIS CASE IS A WHOLLY AND SUBSID IARY OF AGILENT TECHNOLOGIES EUROPE BV, AND IS REGISTERED U NDER THE SOFTWARE TECHNOLOGY PARKS OF INDIA (STPI) SCHEME FORMULATED BY THE GOVERNMENT OF INDIA AND THUS, ENT ITLED TO DEDUCTION U/S 10A. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVISI ON OF SOFTWARE DEVELOPMENT SERVICES AND IT ENABLED SER VICES TO ITS OVERSEAS GROUP COMPANIES IN THE INDIAN TERRITOR Y. IT IS A LIMITED RISK BEARING CAPTIVE SERVICE PROVIDER. IN RETURN FOR RENDERING THESE SERVICES, THE ASSESSEE WAS REMUNERA TED ON AN ARMS LENGTH COST PLUS BASIS I.E. IT WAS COMPENS ATED FOR ALL ITS COSTS, PLUS A PRE-AGREED MARK-UP THEREON. ITA NO. 4648/D/2010 6 DURING THE YEAR, THE COMPANY HAS ENTERED IN THE FOLLOWING INTERNATIONAL TRANSACTIONS: PARTICULARS AMOUNT (IN RS. CRORES) PROVISION OF SOFTWARE DEVELOPMENT SERVICES 260,694,508 PROVISION OF IT ENABLED SERVICES 941,342,381 1. BENCHMARKING ANALYSIS (TP DOCUMENTATION STUDY) PROVISION OF SOFTWARE DEVELOPMENT AND IT ENABLED SE RVICES PARTICULARS SOFTWARE DEVELOPMENT SERVICES IT ENABLED SERVICES PLI USED OPERATING PROFIT (OP)/ TOTAL COST (TC) OP/TC NO. OF COMPARABLES 50 14 COMPARABLES MEAN MARGIN 12.50% 11.72% APPELLANTS MARGIN 13.57% 12.44% CONCLUSION AT ARMS LENGTH AT ARMS LENGTH 2. BENCHMARKING ANALYSIS BASED ON UPDATED CURRENT YEAR DATA (AS PRESENTED DURING TP ASSESSMENT PROCEEDINGS ) PROVISION OF SOFTWARE DEVELOPMENT AND IT ENABLED SE RVICES PARTICULARS SOFTWARE DEVELOPMENT SERVICES IT ENABLED SERVICES COMPARABLES MEAN MARGIN 12.69% 14.68% APPELLANTS MARGIN 13.57% 12.44% CONCLUSION AT ARMS LENGTH AT ARMS LENGTH 3. TPOS APPROACH: PARTICULARS SOFTWARE DEVELOPMENT SERVICES IT ENABLED SERVICES NO. OF COMPARABLES (AS CONSIDERED BASED ON UPDATED CURRENT YEAR DATA) 50 12 LESS: COMPARABLES REJECTED ON THE GROUNDS OF SIGNIFICANT RELATED PARTY TRANSACTIONS (RPT I.E. RPT>15%) 19 4 LESS: COMPARABLES REJECTED ON THE GROUND OF THEM FAILING THE 20 - ITA NO. 4648/D/2010 7 WAGES/SALES FILTER OF 50- 70% ( REFER NOTES 1 AND 2 BELOW ) LESS: COMPARABLES REJECTED ON THE GROUND OF THEM HAVING INSUFFICIENT DATA 3 - LESS: COMPARABLES REJECTED ON THE GROUNDS OF THEM FAILING THE TURNOVER FILTER OF RS. 5 CRORES ( REFER NOTE 3 BELOW ) - 2 LESS: COMPARABLE REJECTED ON THE GROUND OF THEM BEING FUNCTIONALLY/ QUALITATIVELY DISSIMILAR 4 2 COMPARABLE COMPANIES FINALLY SELECTED 4 2 COMPARABLES MEAN MARGIN 26.59% 19.22% APPELLANTS MARGIN 13.57% 12.44% LOWER BAND OF +/- 5% RANGE 20.26% 13.25% NOTE 1: ASSESSEES WAGES/SALES RATIO IS 60.00% IN THE SOFTWARE DEVELOPMENT SEGMENT. NOTE 2: THE TPO DID NOT APPLY THIS FILTER (I.E. WA GES/SALES RATIO) TO THE ITES SEGMENT NOTE 3: THE TPO DID NOT APPLY THIS FILTER (I.E. TUR NOVER LESS THAN RS. 5 CRORES) TO THE SOFTWARE DEVELOPMENT SEGM ENT. CONSIDERING THAT THE ASSESSEES OP/TC MARGIN OF 13 .57% EARNED FROM THE SOFTWARE DEVELOPMENT SEGMENT WAS LO WER THAN THE LOWEST PERMISSIBLE LIMIT OF 20.26%, THE TP O CONCLUDED THAT THE APPELLANTS INTERNATIONAL TRANSA CTIONS PERTAINING TO SOFTWARE DEVELOPMENT SEGMENT DO NOT M EET THE ARMS LENGTH STANDARD. SIMILARLY, CONSIDERING THAT THE ASSESSEES OP/TC M ARGIN OF 12.44% EARNED FROM THE ITES SEGMENT WAS LOWER THAN THE LOWEST PERMISSIBLE LIMIT OF 13.25%, THE LD. TPO CON CLUDED THAT ITA NO. 4648/D/2010 8 THE APPELLANTS INTERNATIONAL TRANSACTION PERTAININ G TO THE ITES SEGMENT DO NOT MEET THE ARMS LENGTH STANDARD. VIDE ORDER DATED 24/11/2009, THE LD. AO/TPO PROPOSE D THE FOLLOWING ADDITIONS TO THE APPELLANTS INCOME O N ARMS LENGTH PRICE: S.NO. NATURE OF ADJUSTMENT AMOUNT (IN RS.) MARGIN OF ASSESSEE ARMS LENGTH MARGIN BY TPO 1. FOR SOFTWARE DEVELOPMENT SERVICES SEGMENT 2,98,88,912 13.57% 26.59% 2. FOR IT ENABLED SERVICES 5,70,25,104 12.44% 19.22% TOTAL ADJUSTMENT 8,69,08,0 16 II. PROCEEDINGS BEFORE DRP THE ADJUSTMENT IN RESPECT OF THE SOFTWARE DEVELOPME NT HAS BEEN REDUCED BY THE DRP BY REJECTING THE SATYAM COM PUTER AS COMPARABLE FOR SOFTWARE DEVELOPMENT AS ITS FINAN CIAL RESULTS ARE NOT REALISTIC AND REDUCED THE ARMS LEN GTH MARGIN TO 21.7% BY RESTRICTING COMPARABLES TO 3 INSTEAD OF 4 TAKEN BY TPO AND REDUCED THE AMOUNT OF ADJUSTMENT TO RS. 1,86,64,069/- . HOWEVER, DRP RETAINED INFOSYS TECH NOLOGIES LTD. AS ONE OF THE COMPARABLES. HOWEVER, NO RELIEF HAS BEEN GRANTED IN RESPECT OF I T ENABLED SERVICES. ACCORDINGLY, THE RETURNED INCOME WAS THEREFORE, ASS ESSED AT RS. 8,18,58,538/-. DEMAND RAISED PURSUANT TO THE ASSESSMENT ORDER SO FRAMED IS AS UNDER: PARTICULARS AMOUNT (IN RS.) AMOUNT (IN RS.) RETURNED INCOME 61,75,365 ADDITIONS MADE: FOR SOFTWARE DEVELOPMENT SERVICE 1,86,64,069 FOR IT ENABLED SERVICES 5,70,25,104 7,56,83,173 ASSESSED INCOME 8,18,58,538 ITA NO. 4648/D/2010 9 TAX PAYABLE ON ABOVE TAX (INCLUDING SURCHARGE) 2,75,53,583 INTEREST 1,37,56,475 TOTAL DEMAND (INCLUDING INTEREST) 3,92,31,430 4. AGAINST THE ABOVE ORDER AND DEMAND ASSESSEE IS I N APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS IN THE LIGHT OF MATERIAL PRODUCED AND PRECEDENTS RELIED UPON. 6. AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE CONTE NDED THAT THERE HAS BEEN INCORRECT INCLUSION OF FUNCTION ALLY, SIZE WISE, RISK WISE UNCOMPARABLE COMPANY I.E. INFOSYS TECHNOLOGY LTD. IN THE FINAL COMPARABLE SET. IT HA S BEEN CLAIMED THAT TPO & DRP HAVE GROSSLY ERRED IN SELECT ING THE INFOSYS TECHNOLOGY LTD. IN THE FINAL COMPARABLE SET FOR DETERMINING THE ARMS LENGTH MARGIN OF THE SOFTWARE DEVELOPMENT SERVICES OF THE ASSESSEE AS THE FUNCTIO N ASSET RISK (FAR) PROFILE OF THIS COMPANY IS MATERIALLY DI FFERENT FROM ASSESSEES PROVISION OF CAPTIVE SOFTWARE DEVELOPMEN T SERVICES. THE ASSESSEE HAD VEHEMENTLY SUBMITTED BE FORE THE TPO THAT INFOSYS SHOULD NOT BE TAKEN AS COMPARABLE BECAUSE OF HUGE DISSIMILARITIES. TO WHICH THE TPO HAD AD VERTED BY SHOWING THAT ASSESSEE HAD INCLUDED IT IN ITS TP STU DY. ITA NO. 4648/D/2010 10 6.1 THE LD. COUNSEL FURTHER CLAIM THAT IN A RECENT JUDGMENT DELHI BENCH OF THE JURISDICTIONAL TRIBUNAL IN THE C ASE OF AGNITY INDIA TECHNOLOGIES P. LTD. VS. ITO (ITA NO. 3856/DE L/2010) HAS UPHELD THAT A FAR PROFILE OF THAT ASSESSEE AND INFOSYS TECHNOLOGY LTD. IS NOT COMPARABLE AND HENCE ALLOWED TO EXCLUDE IT FROM THE FINAL SET OF COMPARABLE COMPANI ES FOR DETERMINING THE ARMS LENGTH MARGIN. LD. COUNSEL F URTHER SUBMITTED THAT SPL BENCH OF THIS TRIBUNAL IN QUARK SYSTEMS PVT. LTD. IN ITA NO. 100 115/CHD./2009 VIDE ITS O RDER DATED 22.02.2009 HAD HELD THAT EVEN IF THE TAXPAYER HAD T AKEN A COMPARABLE IN ITS TRANSFER PRICE STUDY, IT IS ENTIT LED TO POINT OUT TO THE TRIBUNAL THAT THE ABOVE ENTERPRISE WAS W RONGLY TAKEN AS COMPARABLE AND THE ASSESSEE IS NOT ESTOPP ED FROM POINTING OUT A MISTAKE IN THE ASSESSMENT EVEN THOUG H SUCH MISTAKE IS THE RESULT OF THE EVIDENCE ADDUCED BY TH E TAXPAYER. 7. LD. COUNSEL HAD FURTHER ARGUED THAT THERE IS A V IOLATION OF PRINCIPLES OF NATURAL JUSTICE BY NOT PROVIDING T HE ASSESSEE THE PRECISE BASIS/REASONS FOR SELECTING THE WAGES/F ILTER RANGE OF 50-70% AND THEREBY DENYING THE ASSESSEE AN OPPOR TUNITY OF THE EXAMINING THE SAID BASIS/REASONS AND PROVID ING ITS RESPONSE THERETO. ITA NO. 4648/D/2010 11 7.1 IT HAS FURTHER BEEN SUBMITTED THAT WAGES TO SAL ES OF INFOSYS IS 47.2% AS GIVEN IN THE ANNUAL REPORT OF I NFOSYS AND HENCE, IT SHOULD BE EXCLUDED ON THAT SCORE, AS THE TPO HAS APPLIED WAGES FILTER OF RANGE 50-70%. LD. COUNSEL ARGUED THAT THESE POINTS WERE DULY AGITATED BEFORE THE DRP & TPO AND HAVE NOT BEEN DEALT WITH IN PROPER SPEAKING ORD ER. 8. LD. COUNSEL HAD FURTHER URGED THAT IN ANY EVENT THE BENEFIT OF +/- 5% RANGE IS AVAILABLE TO THE ASSESSE E AS PER OLD PROVISO TO SEC. 92C(2) OF THE ACT. IT HAS BEEN CLA IMED THAT WITHOUT PREJUDICE TO ALL THE OTHER OBJECTIONS RAISE D BY THE ASSESSEE IN ANY EVENT THE ADJUSTMENT MADE IN ASSESS EES CASE IS LIABLE TO BE REDUCED OF 5% RANGE. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE IS NO DISCUSSION ON THIS ASPECT IN EITHER THE ORDER OF TP O NOR THE DRP. 9. WE HAVE CAREFULLY CONSIDERED THE SUBMISSION AND PERUSED THE RECORDS. 10. WE FIND THAT IT IS THE ASSESSEES CLAIM THAT AS SESSEE HAS RAISED VITAL POINTS BEFORE THE TPO AS WELL AS THE D RP AND THE SAME HAVE NOT BEEN DEALT WITH BY PROPER SPEAKING OR DER. THE DRP ORDER IN THIS CASE IS VERY LACONIC THE OPERATIN G PORTION OF WHICH READS AS UNDER: - WHILE REACHING TO THE ABOVE CONCLUSIONS, THE TPO HAS MADE FOLLOWING OBSERVATIONS: ITA NO. 4648/D/2010 12 (I) TNMM AS ADOPTED BY THE ASSESSEE TO BENCHMARK THE INTERNATIONAL TRANSACTIONS HAS BEEN ACCEPTED. OP/OC HAS BEEN ACCEPTED AS THE PROFIT LEVEL INDICATOR. (II) THE ASSESSEE HAD USED DATA FOR THE YEARS ENDING MARCH, 2004, 2005 AND 2006 IN THE CASE OF COMPARABLES. HOWEVER, ONLY THE INSTANT YEARS DATA HAS BEEN TAKEN INTO CONSIDERATION FOR COMPARABLES. (III) THE ASSESSEE HAS SELECTED 50 COMPARABLES IN THE SOFTWARE DEVELOPMENT SEGMENT. THESE COMPARABLES WERE EXAMINED BY THE TPO AND IT WAS FOUND THAT 46 COMPANIES USED WERE NOT COMPARABLE. DETAILED REASONS FOR THE SAME HAVE BEEN DISCUSSED IN THE BODY OF THE TRANSFER PRICING ORDER. FINALLY ONLY 4 COMPARABLES HAVE BEEN USED TO BENCHMARK THE INTERNATIONAL TRANSACTIONS IN THE SOFTWARE DEVELOPMENT SEGMENT. NO FRESH SEARCH WAS CARRIED OUT. (IV) THE ASSESSEE HAD SELECTED 14 COMPARABLES IN THE ITES SEGMENT. THESE COMPARABLES WERE EXAMINED AND IT WAS FOUND THAT 10 COMPANIES USED ITA NO. 4648/D/2010 13 WERE NOT COMPARABLE. HENCE, FINALLY ONLY 4 COMPARABLES HAVE BEEN USED TO BENCHMARK THE INTERNATIONAL TRANSACTIONS IN THE ITES SEGMENT. THE RESULTS OF FRESH SEARCH HAVE NOT BEEN USED. THE COMPARABLES HAVE BEEN SELECTED OUT OF THE COMPANIES IDENTIFIED BY THE ASSESSEE IN THE TRANSFER PRICING STUDY REPORT. (V) AN ADJUSTMENT OF RS. 8,69,08,016/- HAS BEEN MADE TO THE INCOME OF THE ASSESSEE. (VI) THE CLAIM OF THE ASSESSEE FOR RISK ADJUSTMENT HAS BEEN EXAMINED AND HAS NOT BEEN ACCEPTED. 2.2 THE ASSESSEE HAS OBJECTED THE TRANSFER PRICING ORDER AND HAS CLAIMED THAT THE TPO HAS ARBITRARILY APPLIED VARIOUS FILTERS FOR REJECTING COMPARABLES IN SOFTWARE DEVELOPMENT SEGMENT AS WELL AS IN ITES SEGMENT. IT HAS BEEN SUBMITTED THAT THE TPO HAS RETAINED INFOSYS TECHNOLOGIES LTD. AND SATYAM SOFTWARE SERVICES LTD. IN THE COMPARABLE SET IN COMPLETE DISREGARD OF THE FACT THAT THERE IS SUFFICIENT EVIDENCE AVAILABLE IN PUBLIC DOMAIN TO DEMONSTRATE THAT THE FUNCTIONAL DATA OF SATYAM SOFTWARE SERVICES LTD. WAS NOT ITA NO. 4648/D/2010 14 RELIABLE FOR F.Y. 2005-06. THE ASSESSEE HAS ALSO SUBMITTED THAT THE TPO FAILED TO APPLY WAGES/ SALES RATIO FILTER IN ITES SEGMENT, ERRONEOUSLY RETAINED ALLSEC TECHNOLOGIES LTD. IN THE FINAL COMPARABLE SET, THOUGH IT WAS FUNCTIONALLY UNCOMPARABLE, APPLIED TURNOVER FILTER OF RS. 5 CRORES, DENIED THE BENEFIT OF WORKING CAPITAL ADJUSTMENT AND THE RISK ADJUSTMENT. 2.3 THE SUBMISSIONS MADE BY THE ASSESSEE ARE CORRECT TO SOME EXTENT. THE FUNCTIONAL DATA OF SATYAM SOFTWARE SERVICES LTD. FOR F.Y. 2005-06 IS NOT RELIABLE, HENCE, THE SAME IS REMOVED FROM THE COMPUTATION OF OP/OC FOR DETERMINING THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTION RELATING TO SOFTWARE DEVELOPMENT SEGMENT. ANOTHER SUBMISSION OF THE ASSESSEE RELATING TO APPLICATION OF VARIOUS FILTERS BY THE TPO IN BOTH THE SEGMENT HAS NOT BEEN FOUND CORRECT. THE TPO HAS GIVEN DETAILED REASONING AND SELECTING THE VARIOUS FILTERS. THE TPO HAS NOT SELECTED NEW COMPARABLES BUT HAVE SHORT LISTED SOME COMPANIES OUT OF GIVEN SET OF COMPARABLES BY ASSESSEE ITSELF. IN THE MATTER OF RISK ADJUSTMENT ITA NO. 4648/D/2010 15 ALSO THE ISSUES POINTED OUT BY THE TPO ARE CORRECT AND THERE IS NO SUBSTANTIAL FORCE IN THE ARGUMENT OF THE ASSESSEE TO INTERFERE WITH THE FINDINGS OF THE TPO. 11. IN OUR CONSIDERED OPINION, THE SUBMISSIONS OF T HE ASSESSEE ARE COGENT ENOUGH THAT BEFORE THE DRP ELAB ORATE SUBMISSIONS HAD BEEN MADE AND THE SAME HAVE NOT BE EN DEALT WITH BY THE DRP BY A SPEAKING ORDER. 12. AS NOTED IN PRECEDING PARAGRAPHS ASSESSEE HAS RAISED STRONG POINTS FOR EXCLUSION OF INFOSYS TECHNOLOGY LTD. IN THE LIST OF COMPARABLES. IT HAS BEEN AGITATED THAT ON WAGE FILTER RANGE 50-70% ADOPTED BY TPO HIMSELF, INFOSYS SHOU LD BE EXCLUDED FROM COMPARABLES, AS ITS WAGES TO SALES RA TIO IS 47.2%. THE LD. COUNSEL OF THE ASSESSEE HAS ALSO POINTED OUT OTHER ASPECTS AS MENTIONED IN PRECEDING PARAGRAPHS WHERE ASSESSEES GRIEVANCE HAS NOT BEEN ADDRESSED BY TPO /DRP. 13. IN THE BACKGROUND OF THE AFORESAID DISCUSSION, WE REMIT THE ISSUES RAISED IN THE APPEAL TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL REMIT THE IS SUE TO THE TPO FOR HIS CONSIDERATION IN THE LIGHT OF OUR ADJU DICATION AS ABOVE. BOTH THE COUNSEL HAVE FAIRLY AGREED TO THE ABOVE PROPOSITION. ITA NO. 4648/D/2010 16 14. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIS TICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 17.11.2011, UPON CONCLUSION OF HEARING. SD/- SD/- (A.D. JAIN) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 17-11-2011 *KAVITA/SRB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR