Income Tax, Pvt. Ltd, Circle1(1)(1), 3rd Floor, Crescent4, Prestige Bangalore Shantiniketan, White Field, Bangalore560048 PAN: AACCA 3430F APPELLANT RESPONDENT CO No.33/Bang/2017 [in IT(TP)A No.221/Bang/2016] Assessment year : 201112 M/s Alcon Laboratories(India) Vs. The Asst. Commissioner of Pvt. Ltd, Income Tax, Bangalore560048 Circle1(1)(1), PAN: AACCA 3430F Bangalore. CROSS OBJECTOR RESPONDENT Revenue by : Ms. Neera Malhotra, CIT(DRI), ITAT, Bengaluru. Assessee by : Shri Narendra Kumar Jain, Advocate. Date of hearing : 11.11.2020 Date of Pronouncement : 20.11.2020 IT(TP)A No.221/Bang/2016 & CO No.33/Bang/2017 Page 2 of 25 ORDER Per N.V. Vasudevan, Vice President IT(TP)A No.221/Bang/2016 is an appeal by the Revenue against the final order of assessment dated 21.12.2015 of ACIT, Circle 1(1)(1), Bangalore [hereinafter referred to as the Assessing Officer, ("AO" in short)] passed u/s. 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (the Act) in relation to assessment year 201112. The assessee has filed a cross objection against the very same order of the AO. 2. The assessee is engaged in the business acting as distributors for surgical products of its parent company Alcon Inc., USA. The assessee also provides Software Development Services (SWD services) which has been referred to as IT Support Services in the order of the Transfer Pricing Officer (TPO). The assessee also provides Marketing and Sales Support Services (MSS) to its wholly owned holding company. In terms of the provisions of Section 92A of the Act, the assessee and its wholly owned company were Associated Enterprises ("AEs"). In terms of Sec. 92B(1) of the Act, the transaction of providing SWD Services and MSS were "international transactions" i.e., a transaction between two or more associated enterprises, either or both of whom are nonresidents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises. In terms of Sec. 92(1) of the Act, any income arising from an international transaction shall be IT(TP)A No.221/Bang/2016 & CO No.33/Bang/2017 Page 3 of 25 computed having regard to the arm's length price. In this appeal by the assessee, the dispute is with regard to determination of Arm's Length Price (ALP) in respect of the aforesaid two international transaction of (i) rendering SWD services to the AE, and (ii) rendering of MSS to the AE. We shall deal each of the international transaction separately. SOFTWARE DEVELOPMENT SERVICES SEGMENT 3. As far as the provision of Software Development services are concerned, the assessee did not file any Transfer Pricing Study (TP Study) to justify the price paid in the international Transaction as at ALP. The TPO adopted Transaction Net Margin Method (TNMM) as the Most Appropriate Method (MAM) of determining ALP. The TPO selected Operating Profit/Operating Cost (OP/OC) as the Profit Level Indicator (PLI) for the purpose of comparison. The OP/TC of the assessee was arrived at 7.84% by the assessee. The operating income was Rs. 1,97,39,622 and the Operating Cost was Rs. 1,83,03,341. The Operating profit (Operating income Operating cost) was Rs. 14,35,681. 4. As already stated, the TPO, to whom the determination of ALP was refer