Income Tax Appellate Tribunal Delhi Giesecke & Devrient India Pvt. Ltd., ... vs Dcit, New Delhi on 23 August, 2018 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER & SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA No.5924/Del/2012 (Assessment Year: 200809) Giesecke & Devrient India vs DCIT Pvt. Ltd. Circle12(1), Corporate Office, Plot #57, Central Revenue Building Sector44 New Delhi Gurgaon PAN : AABCG4223D Assessee by Sh. Harpreet Ajmani, Adv., Sh. Rohan Khare, Adv. Revenue by Ms. Vatsala Jha, CIT, DR Date of Hearing 24.05.2018 Date of Pronouncement 23.08.2018 ORDER PER SUDHANSHU SRIVASTAVA, J.M. This present appeal by the assessee is preferred against the Final Assessment Order dated 18.09.2012 passed under section 144C read with section 143(3) of the Income Tax Act, 1961 (hereinafter called "the Act"). 2.0 Brief facts of the case are that the assessee is a wholly owned subsidiary of Giesecke & Devrient GmBH("G&D GmBH") and is engaged in the business of trading of Currency Verification and Processing Systems ("CVPS") and assembling and distribution of SIM cards to the telecommunication service 2 ITA NO. 5924/Del/2012 (Giesecke & Devrient India Pvt. Ltd.) providers. Further, the company is also engaged in providing software services to G&D GmBH. 2.1 The return of income for year was filed declaring an income of Rs.1,89,362/. Subsequently, the return was revised declaring an income of RS. 3,34,31,113/. Since the Assessee had entered into international transactions, reference was made to the Transfer Pricing Officer ("TPO") to determine the Arm's Length Price (ALP) of the international transactions. Details of the transactions undertaken by the Assessee are as under: S. NO. NATURE OF TRANSACTION AMOUNT (In INR) 1. Import of CVPS Machines and 32,65,84,552 spare parts ("Distribution Function") 2. Import of Raw Material for SIM 11,97,70,998 Card ("Assembly Function") 3. Software Development 8,93,34,164 4. Sale of SIM Cards 4,94,72,539 5. Import of Capital Equipment 2,22,07,884 6. Provision of Installation Services 93,23,193 7. Service Expenses 1,11,21,465 8. Commission Expenses 48,84,400 9. Interest on External Commercial 73,87,140 Borrowing 10. Repairs and Maintenance 59,09,162 11. Other Expenses 34,97,831 12. Reimbursement of Expenses 51,43,772 13. Sale of others 1,13,248 3 ITA NO. 5924/Del/2012 (Giesecke & Devrient India Pvt. Ltd.) 2.2 From the international transactions declared by the Assessee, the TPO picked up the transactions regarding the Software Development Segment and the SIM Card Assembly Segment. With regard to the Software Development Segment, the Assessee had selected OP/OC as the Profit Level Indicator ("PLI") whilst applying TNMM as the Most Appropriate Method ("MAM") and declared its margin at 11.04%. The assessee, further, in its Transfer Pricing Study (TP Study) had selected a total of 18 comparables with an average OP/OC of 14.05% and hence claimed the said transaction to be at arm's length. The TPO while accepting the MAM as selected by the assessee, accepted only 7 out of the 18 comparables and further introduced 12 additional comparables with an average OP/OC of 24.95% thereby determining an adjustment of Rs. 1,10,57,340/ for the Software Development Segment. 2.3 In the SIM Card Assembly Segment, the assessee had declared a PLI of (15.22%) and justified the same to be owing to various circumstances such as initial years of operation, high competition in the market etc. The assessee, in its TP study, had selected 5 comparables with an average OP/OC of 6.39%. During the transfer pricing proceedings, the TPO issued a show cause notice to the assessee and vide the assessee's reply dated 05.10.2011, the assessee submitted a detailed reasoning as to why i