$~09
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of decision: 10th July, 2013
+ ITA 1204/2011
CIT ..... Appellant
Through Ms. Suruchi Aggarwal, sr.
standing counsel.
versus
AGNITY INDIA TECHNOLOGIES PVT LTD..... Respondent
Through Mr. G.C. Srivastava and Ms.
Preeti Bhardwaj, Advocates.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE SANJEEV SACHDEVA
SANJIV KHANNA, J. (ORAL)
This appeal by the Revenue, which pertains to the assessment
year 2006-07, in the case of Agnity India Technologies Pvt. Ltd. raises
a short issue. The respondent-assessee is a wholly owned subsidiary of
Bay Packets Inc., USA and was/is engaged in the business of
development of software for the parent company in the field of
telecommunication. The respondent had filed return of income on 30th
November, 2006 declaring total income of Rs.8,31,720/-. As
respondent-assessee had undertaken international transactions with
"Associated Enterprise" details of which were mentioned in the tax
audit report, the matter was referred to Transfer Pricing Officer (TPO)
to determine the fair market value of the international transactions.
TPO opined that adjustment of Rs.3,73,74,985/- would be justified to
bring it in line with arms length value. Addition of the aforesaid
amount was suggested in the draft assessment order which was
examined by the Dispute Resolution Panel before whom the
respondent-assessee had filed objections. Dispute Resolution Panel
vide order dated 17th June, 2010 directed the Assessing Officer to re-
compute the arms length value by taking the ratio of operating profit
to the total cost at 25.6%. This resulted in an addition of
Rs.1,24,01,451/-.
3. Before the TPO, the respondent-assessee was asked to re-work
the list of comparables and the same was reduced to 20. TPO also
directed inclusion of Infosys Technologies Ltd. in the said list. The
TPO in the final analysis has taken the comparables as under:-
"
"S.No. Name OP/TC (%)
1 Satyam Computer Service 30.07
Ltd.
2 L&T Infotech Ltd.. 11.11
3 Infosys Technologies Ltd. 40.08
Arithmetic mean 27.08
"
4. One of the companies which was included by the TPO was
Satyam Computer Services Ltd. Dispute Resolution Panel excluded
the said company from the comparables for obvious reasons.
5. The tribunal has observed that the assessee was not comparable
with Infosys Technologies Ltd., as Infosys Technologies Ltd. was a
large and bigger company in the area of development of software and,
therefore, the profits earned cannot be a bench marked or equated with
the respondent, to determine the results declared by the respondent-
assessee. In paragraph 3.3 the tribunal has referred to the difference
between the respondent-assessee and Infosys Technologies Ltd. For
the sake of convenience, we are reproducing the same:-
"
Basic Particular Infosys Technologies Ltd. Agnity India
Risk Profile Operate as full-fledged risk taking Operate at minimal risks as
entrepreneurs the 100% services are
provided to AEs
Nature of Services Diversified-consulting, application Contract Software
design, development, re-engineering Development Services.
and maintenance system integration,
package evaluation and
implementation and business process
management, etc. (refer page 117 of
the paper book)
Revenue Rs.9, 028 Crores Rs.16.09 Crores
Ownership of Develops/owns proprietary products
branded/proprietary like Finacle, Infosys Actice Desk,
products Infosys iProwe, Infosys mConnect,
Also, the company derives
substantial portion of its proprietary
products (including its flagship
banking product suite ,,Finacle)
Onsite Vs. Offshore -As much as half of the software The appellant provides only
development services rendered by offshore services (i.e.,
Infosys are onsite (i.e., services remotely from India)
performed at the customers location
overseas). And offshore (50.20%)
(Refer page 117 of the paper book)
than half of its service, income from
onsite services.
Expenditure on Rs.61 Crores Rs. Nil (as the 100%
Advertising/Sales services are provide to AEs)
promotion and
brand building
Expenditure on Rs. 102 crores Rs. Nil
Research &
Development
Other 100% offshore (from India)
"
6. Learned counsel for the Revenue has submitted that the tribunal
after recording the aforesaid table has not affirmed or given any
finding on the differences. This is partly correct as the tribunal has
stated that Infosys Technologies Ltd. should be excluded from the list
of comparables for the reason latter was a giant company in the area of
development of software and it assumed all risks leading to higher
profits, whereas the respondent-assessee was a captive unit of the
parent company and assumed only a limited risk. It has also stated that
Infosys Technologies Ltd. cannot be compared with the respondent-
assessee as seen from the financial data etc. to the two companies
mentioned earlier in the order i.e. the chart. In the grounds of appeal
the Revenue has not been able to controvert or deny the data and
differences mentioned in the tabulated form. The chart has not been
controverted.
7. Learned counsel for the appellant Revenue during the course of
hearing, drew our attention to the order passed by the TPO and it is
pointed out that based upon the figures and data made available, the
TPO had treated a third company as comparable when the wage and
sale ratio was between 30% to 60%. By applying this filter, several
companies were excluded. This is correct as it is recorded in para
3.1.2 of the order passed by the TPO. TPO, as noted above, however
had taken three companies, namely, Satyam Computer Service Ltd.,
L&T Infotech Ltd. and Infosys Technologies as comparable to work
out the mean.
8. It is a common case that Satyam Computer Services Ltd. should
not be taken into consideration. The tribunal for valid and good
reasons has pointed out that Infosys Technologies Ltd. cannot be taken
as a comparable in the present case. This leaves L&T Infotech Ltd.
which gives us the figure of 11.11 %, which is less than the figure of
17% margin as declared by the respondent-assessee. This is the
finding recorded by the tribunal. The tribunal in the impugned order
has also observed that the assessee had furnished details of workables
in respect of 23 companies and the mean of the comparables worked
out to 10%, as against the margin of 17% shown by the assessee.
Details of these companies are mentioned in para 5 of the impugned
order.
9. In view of the aforesaid position, we do not think that any
substantial question of law arises for consideration. The appeal is
dismissed.
SANJIV KHANNA, J.
SANJEEV SACHDEVA, J.
JULY 10, 2013
NA
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