POLYCOM TECHNOLOGY ( R & D) CENTER P.LTD,HYDERABAD vs. ASST CIT CIR 1(2)(2), MUMBAI

ननधाारयती की ओर से /Assessee by : Shri Nikhil Tiwari याजस्व की ओर से /Revenue by : Shri N.K.Chand सुनवाई की तायीख / Date of Hearing : 17/05/2016 घोषणा की तायीख/Date of Pronouncement 17/05/2016 आदेश / O R D E R Per Sanjay Garg, Judicial Member:

The present appeal has been preferred by the assessee against the assessment order framed by the AO u/s.143(3) r.w.s.144C(1) of the Income Tax Act pursuant to the directions dated 14-12-2015 of the Disputes Resolution Panel (DRP). 2. The assessee has taken as many as 13 grounds of appeal

3. At the outset, ld. AR has submitted that grounds taken in the present appeal are identical and squarely covered by the decision of the Tribunal in assessee’s own case for A.Y.2009-2010, passed in vide order dated 10-11-2015. Ld. AR has further relied upon a chart explaining in brief relating to the each ground taken by the assessee.

4. The ld. AR has stated that ground Nos.1 to 3 are general in nature and do not require any adjudication.

5. Ground No.4 is not pressed by ld. AR, the same is, therefore, dismissed as not pressed.

6. Ground Nos.5 to 7 are related to transfer pricing adjustment made by the TPO. The claim of the assessee is that it is engaged in providing contract software development and marketing support services to its associate enterprises. The assessee selected comparables having the same nature of business as that of the assessee in its TP study report. The assessee had shown its margin @15.11%, whereas as per TP study report, the weighted average comparable margin came to Rs.12.64%. Since the operating margin of the assessee was higher than the arithmetic mean of the comparables, the assessee claimed that no transfer pricing adjustment was required. However, during the proceedings before the TPO, the TPO after going into the annual financial of the assessee and reading the nomenclature of the works done by the assessee and the wording of the agreement was of the view that the assessee was engaged into the contract research and development services, instead of contract software development services as claimed by the assessee. He, therefore, rejected the comparables taken by the assessee in its TP study report and adopted the comparable companies engaged into rendering of contract research and development of services. 7. Being aggrieved by the above action of AO, the assessee carried the matter before the DRP and contended that the TPO had not correctly appreciated the business activity of the assessee and that he had wrongly rejected the comparables taken by the assessee and adopted his own comparables which were not applicable to the facts of the case. The DRP after considering the relevant submissions, rejected the contention of assessee, however, rejected one of the comparable out of 4 comparables taken by the TPO for calculation of the aforesaid comparable margin and enhanced the adjustment value to Rs.3.62 crores as against Rs.2.10 crores made by the TPO. The AO has given effect to the said directions, aggrieved by which the assessee has come in appeal before us.

9. Per contra, the Ld. Departmental Representative strongly stated that the claim of the service provided by the assessee is actually embedded in the software itself. The Ld. DR strongly relied upon the decision of the Tribunal Delhi Bench in the case of ST Microelectronics (P) Ltd Vs CIT 145 TTJ 553. It is the say of the Ld. DR that where product produced by the assessee in itself is of a complex nature which required skill work force. The assessee was rightly turned a high end performer in field of Computor Software and therefore there is no error in the comparables selected by the TPO. 10. We have given a thoughtful consideration to the rival submissions and have carefully perused the orders of the authorities below. We have also considered the relevant documentary evidences brought on record. In our considered opinion, the entire dispute revolves around the nature of business of the assessee. The assessee claims itself to be a Software Development Service Provider whereas the TPO has treated the assessee as engaged in providing contract Research & Development Services. This dispute gets strength from the nomenclature used by the assessee in Form No. 3CEB and also in its Transfer Pricing Study Report. However, the documentary evidences filed in the form of copies of Softex Forms and the order of the STPI authorities paint an altogether different picture. In our considered opinion, these documents have not been properly appreciated by the Revenue authorities. Had these documents been examined qua the nature of business of the assessee, the 4 resultant product would have been different. Therefore, in the interest of justice and fair play, we restore this issue to the file of the TPO. The TPO is directed to re-examine the entire issue by denovo assessment. The TPO is directed to decide the issue on the basis of Softex Form filed with the STPI authorities and related orders of the STPI authorities. The assessee is directed to furnish necessary details and the TPO is directed to examine the same after giving reasonable opportunity of being heard to the assessee. Needless to mention, the TPO shall also decide all other related issues with the TP adjustments relating to working capital adjustments and differences in the risks. Ground No. 4,5 & 6 are treated as allowed for statistical purpose”. Since the issue involved in the subsequent year is identical in nature, both learned representatives of the parties have submitted that the issue for the year under consideration be restored to the file of TPO with similar directions as are given for A.Y.2009-2010. We, accordingly restore this issue to the file of AO for de novo assessment in terms of the direction given by the Tribunal in assessee’s own case for A.Y.2009-2010 as reproduced above.