Income Tax Appellate Tribunal Delhi Cadence Design Systems (India) Pvt. ... vs Acit, New Delhi on 2 April, 2018 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH 'I(2)' NEW DLEHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER I.T.A. No. 6315/Del/2015 Assessment Year: 201112 Cadence Design Systems (I) P. Ltd. vs Asstt. Commissioner of Incometax O Floor, Hotel The Surya, Circle 5(2), New Delhi. New Friends Colony, New Delhi. (Appellant) (Respondent) Appellant by: S/Shri Nageswar Rao, Sandeep S. Karhail, Sharanik Chakrabarty, Adv Respondent by: Shri H.K. Choudhary, CIT DR Date of hearing: 06.03.2018 Date of Pronouncement: 02.04.2018 ORDER PER K. NARASIMHA CHARY, JM Aggrieved by the assessment order dated 27. 10.2015 read with the directions dated 31.8.2015 by the learned DRP whereunder a sum of Rs.17,84,42,262/ was added towards arm's length price adjustment u/s 92CA of the Act, assessee preferred this appeal. 2 2. Briefly stated facts are that the assessee, Cadence Design Systems (India) P. Ltd., is a wholly owned subsidiary of Cadence Design Systems Inc. and was established in India in order to undertake software development and research services, related information technology, back office support service and related pre sales marketing and post sales technological services in India. Assessee provides R&D services and ITes services from its unit located in the Noida Special Economic Zone (SEZ) and the Software Technology Parks (STP) unit located in Bangalore. Further the IT group in India provides systems supports to all the Cadence offices across the world. They derive income in the business of development and export of computer software and providing technical support and training services. Assessee is a captive service provider and risk mitigated entity inasmuch as it is compensated on a cost place markup basis for the services rendered to its associated enterprise (s).For the AY 201112, the assessee filed the return of income on 25.11.2011 declaring a total income of Rs.44,54,97,708/ and during the scrutiny learned AO found that during that year the assessee had the international transactions with associated enterprises, as such, referred the matter to the learned Transfer Pricing Officer("TPO") u/s 92CA(1) of the Act. Learned TPO tabulated the international transactions entered into by the assessee, transfer pricing approach of the assessee for bench marking purpose, as follows: S. Natureof Value (Rs) Method No. Arm's Result No transaction applied of length of . comp result assesse arabl e es 1 Provision of 1,886,342,446 TNMM 23 12.84% 15.04% software 3 research and development services 2 Provision of IT 488,122,843 TNMM 14 118.09% 15.00% Back Office support services 3 Provision of 406,345,339 TNMM 11 2.84% 12.12% presales marketing and post sales technical support services 4 Payment of 169,646 CUP 3 1.19% 1% interest LIBOR LIBOR towards foreign currency loan 3. Learned TPO proposed the adjustments of Rs.14,10,06,876/ in respect of the IT segment and Rs.7,10,53,705/ in respect of ITES segment put together Rs.21,20,60,581/. Assessee filed objections before the learned DRP and pursuant to the directions given by the learned DRP, learned AO passed the impugned order making an addition of Rs.17,84,42,262/ towards TP adjustment and Rs.346,434/ on account of expenses claimed on wrong allocations of Director's salary. 4. Challenging addition on account of ALP adjustment, the assessee is before us in this appeal on as many as 16 grounds. Grounds 1 & 2 are general in nature and do not require specific adjudication and get covered by the result of adjudication of Grounds No.3 to 12. Grounds 3 to 12 relate to transfer pricing issue in respect of both IT and ITES segments, which are contentious in nature and 4 therefore, we deal with