COMVERSE NETWORK SYSTEMS INDIA PVT. LTD.,GURGAON vs. DCIT, GURGAON

ORDER

PER R.K. PANDA, AM:

The AO, thereafter, vide order dated 26th December, 2016, passed the order 5. revising the upward adjustment to Rs.2,03,72,092/-.

On the facts and circumstances of the case and in law, the learned Assessing Officer (“AO”) has erred in passing the assessment order under section 143(3) read with section 144C of the Income-tax Act, 1961 (“the Act”) after considering the adjustments proposed by the learned Transfer Pricing Officer (“TPO”) in his order passed under section 92CA(3) of the Act and subsequently confirmed by the Hon’ble Dispute Resolution Panel (“DRP”). Each of the ground is referred to separately, which may kindly be considered independent of each other. On facts and circumstances of the case, and in law: Ground No.

1. The learned TPO / AO / DRP have erred in making an adjustment of INR 20,372,092 to the total income of the Appellant in respect of international transaction pertaining to provision of software development services, professional services and maintenance services (collectively software services) by the Appellant to its associated enterprises (“AEs”) (hereinafter referred to as “impugned transaction”). Ground No.

2. The learned AO / TPO / DRP have erred in not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Income-tax Rules, 1962 (“the Rules”), and modifying the same for the determination of the Arm’s Length Price (“ALP”) of the impugned transaction to hold that the same is not at arm’s length. Ground No.

3. The learned AO / TPO / DRP have erred in: (a) Not accepting the use of multiple year data, as adopted by the Appellant in TP documentation; and (b) Determining the arm’s length margins / prices using data pertaining only to financial Year (“FY”) 2006-07 which was not available to the Appellant at the time of complying with the Indian TP documentation requirements.

Ground No. 4 The learned TPO / AO / DRP have erred, in rejecting certain comparable companies selected by the Appellant by applying inappropriate comparability criteria such as: a. Turnover less than INR 1 crore; b. Different accounting year; c. Employee cost less than 25 percent of total sales; d. Diminishing revenues trend; and e. Onsite revenues greater than 75 percent of export revenues. Ground No. 5 The learned AO/TPO has erred by exercising powers assigned under section 133(6) of the Act to obtain information which was not available in the public domain and relying upon the same for comparability purposes. Ground No. 6 The learned TPO/ AO/ DRP have erred in selecting certain companies (which are earning supernormal profits) as comparable to the Appellant to benchmark the impugned transaction. Ground No. 7 The learned TPO/ AO/ DRP have erred in wrongly rejecting certain companies from and including certain companies to the set of final comparables for the impugned transaction on an ad-hoc basis, thereby resorting to cherry picking of comparable for benchmarking the impugned transaction. Ground No. 8 The learned TPO/ AO/ DRP have erred in not making suitable adjustments to account for differences in the risk profile of the Appellant vis-a-vis the comparable companies. Ground No. 9 The learned AO has erred in not granting full credit of prepaid taxes (i.e. advance tax, TDS and self-assessment tax) as claimed by the Appellant in its return of income.

Ground No. 10 The learned AO has grossly erred in initiating penalty proceedings under section 271(1)(c) of the Act. The Appellant craves leave 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. The Appellant prays for appropriate relief based on the said grounds of appeal and the facts and circumstances of the case.”

7. We have heard the ld. DR and perused the record. We find, the TPO, in the instant case, had proposed an upward adjustment of Rs.4,69,71,391/- which the ld. DRP in a very elaborate order, revised to Rs.2,03,72,092/-. We find, the ld. DRP while deciding the issue has directed the TPO to exclude Helios & Matheson Information Technology Ltd, and Ishir Infotech Ltd., from the final list of comparables of Computer software development services if it fails the employee cost filter. Further, they also directed the TPO to examine the margins for any arithmetical errors, and make any corrections. They have directed the TPO/AO to exclude the gains/loss from foreign exchange fluctuations from the operating revenue/expenditure and also directed to give working capital adjustment. Under these circumstances, we do not find any infirmity in the order of the DRP/AO to take any contrary view especially in absence of any distinguishable features brought before us. Accordingly, the order of the AO is upheld and the grounds raised by the assessee are dismissed.