Brief of the Case
In the present case the Hon’ble Tribunal held that assessee can’t be compared with other companies when they are totally different in functions. Also, the Intellectual property Rights, Brand Value have to be seen while making comparisons under “Transfer Pricing”.
Facts of the Case
Assessee company is a private limited company which is a wholly owned subsidiary of Convergys Information management Group Inc., USA. The assessee company has been registered as a 100% EOU under the software technology parks of India (STPI) Scheme. It is engaged in providing software development and support services for which it is being compensated. The assessee company filed its return of income for the A.Y. 2008-09 on 23.09.2008 declaring the total income of Rs.41,412 after claiming deduction under section 10A of Rs.27,74,72,754 under normal provisions. The assessee company paid tax on book profit of Rs.22,72,37,501 under section 115JB of the I.T. Act, 1961. A reference under section 92CA was made to the ACIT to determine the Arms Length Price of the international transactions of the assessee reported in Form 3CEB. The A.O. passed a draft assessment order dated 28.12.2011 under section 143(3) read with section 144C of the Act for arriving at a total income of Rs.186,344,463 as against Rs.41,412 as declared in the return of income.
Contention of the Assessee
Assessee was having objections with respect to comparison made with the six companies.
Regarding company no.1, assessee contended that this company as a comparable on the ground that this company is not functionally comparable to assessee as it is into software products whereas assessee offers software development services to its AEs.
Regarding company no.2 Assessee contended that this company is functionally different to assessee. It is submitted that this company is engaged in ‘e- Business Consulting Services’, which are like KPO services and are not comparable to software development services.
While objecting the comparison with the Company No.3, Assessee contended that this company (Company No. 3) commands substantial brand value, owns intellectual property rights and is a market leader in software development activities, whereas assessee is merely a software service provider and does not possess either any brand value or own any intangible or intellectual property rights (IPRs).
While objecting to Company No. 4 the Assessee contended that (i) This company is functionally different from the software activity of assessee as it is into software products. This company is engaged not only in the development of software products but also in the provision of training services as can be seen from the website and the Annual Report of the company for the year ended 31.3.2008.
Regarding Company No.5 the assessee contended that this company performs a variety of functions under software development and services segment namely – a) product design, (b) innovation design engineering and (c) visual computing labs as is reflected in the annual report of the company.
Regarding company no. 6 the assessee contended that this company owns significant intangibles in the nature of customer related intangibles and technology related intangibles, owns IPRs and has been granted 40 registered patents and has 62 pending applications and its Annual Report confirms that it owns patents and intangibles.
Contention of the Revenue
