K.K. Gupta, Accountant Member. - The assessee has filed this appeal agitating the action of the learned Commissioner of Income-tax (Appeals) in confirming the Arm’s Length Price (in short ‘ALP’) as determined by the Assessing Officer in accordance with the Transfer Pricing Officer’s Order.

2. The brief facts relating to the agitation can be stated as follows :—

2.1 During the previous year relevant to assessment year 2003-04, Philips Software Centre Private Limited (since merged with Philips Electronics India Limited) was engaged in providing software development services to its overseas affiliates. The assessee had various international transactions with its associated enterprises. The assessee conducted a transfer pricing study substantiating that its international transactions were at arm’s length. The assessee filed its return of income for assessment year 2003-04 on 28-11-2003 disclosing a total taxable income of Rs. 2,97,86,420. Subsequently, assessment proceedings were initiated under section 143(3)/143(2) of the Income-tax Act, 1961 and the case of the assessee was also referred to the Additional Director of Income-tax (Transfer Pricing)-II (the TPO). The TPO passed an order under section 92CA of the Act, on 15-3-2006, proposing a transfer pricing adjustment of Rs. 2,21,80,792 after arriving at a mean margin of the comparable companies at the rate of 21.14 per cent. The assessment order under section 143(3) of the Act was passed on 31-3-2006 with the following primary adjustments.

(a)Reduction in the claim for deduction under section 10A of the Act to the extent of Rs. 1,31,26,943; and

(b)Transfer Pricing adjustment of Rs. 22,10,80,792 (as proposed by the TPO in his order dated 15-3-2006).

Being aggrieved by the assessment order, the assessee appealed before the CIT(A). The CIT(A), vide her order, dated 25-1-2008, has recomputed the mean margin of the comparable companies at 20.47 per cent and has revised the transfer pricing adjustment to Rs. 20,84,81,378. While passing her order and reaching her conclusions the CIT(A) has, inter alia, held that:—

(i)The TPO is well within his rights to conduct a fresh comparability analysis using contemporaneous data and the analysis conducted by the TPO was appropriate.

(ii)A mere difference in the rates of charging depreciation cannot be considered as a difference in accounting policies, requiring adjustments to arrive at an appropriate comparability. As such, making an adjustment using average rate of depreciation is not an appropriate approach.

(iii)Merely because a methodology for normalizing margins of companies earning super profits has not been laid down in the Act, it does not imply that the TPO cannot make an adjustment.

(iv)Risk adjustment of 5.25 per cent claimed by the company is without any basis and ad hoc, and cannot be allowed.

(v)Adjustment for working capital cannot be allowed merely on the basis that the same was allowed by the TPO in the succeeding assessment year.

(vi)The decision by the Hon’ble Delhi Tribunal in case of Mentor Graphics (Nokia) (P.) Ltd. v. Dy. CIT [2007] 109 ITD 101 is not applicable.

2.2 The assessee is in appeal before us in the following grounds :—

"The order passed by the ACIT under section 143(3) of the Income-tax Act, 1961 (‘the Act’) and the CIT(A) under section 250 of the Act, are bad in law and on facts.

The CIT(A) erred in determining the arithmetical mean of arm’s length net profit margin of 20.47 per cent and a transfer pricing adjustment of Rs. 20,84,81,378.

The CIT(A) erred in law in not appreciating the meaning of the phrase ‘having regard to’ in sections 92 and 92CA(4) of the Act.

The CIT(A) erred in law confirming that the amendment made to section 92CA(4) vide the Finance Act, 2007 was to set right the lacuna in the said section.

The ACIT having accepted the international transactions of the appellant as being at arm’s length in the assessment year 2002-03, the CIT(A) erred in law in confirming the different view adopted by the ACIT in t