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July, 24th 2013

                                     Date of decision: 10th July, 2013

+                        ITA 1204/2011

      CIT                                               ..... Appellant
                         Through     Ms. Suruchi       Aggarwal, sr.
                         standing counsel.


                    Through     Mr. G.C. Srivastava and Ms.
                    Preeti Bhardwaj, Advocates.



      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


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
                 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          &
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

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

9.       In view of the aforesaid position, we do not think that any

substantial question of law arises for consideration. The appeal is


                                      SANJIV KHANNA, J.

                                      SANJEEV SACHDEVA, J.
JULY 10, 2013
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