Shamim Yahya, Accountant Member. - This appeal by the Assessee is directed against the order of the Ld. Commissioner of Income-tax (Appeals) dated 5-10-2010 and pertains to assessment year 2006-07.

2. The effective issue raised is that Ld. Commissioner of Income-tax (Appeals) erred in passing the assessment order under section 143(3) read with section 144C of the Income-tax Act. It has been urged that Assessing Officer/DRP has erred in making the addition of Rs. 10,40,75,727 to the income of the assessee on account of adjustment in the Arms Length Price of international transaction entered by the assessee with associated enterprise. It has been urged that TPO/Assessing Officer has erred by accepting companies earning super normal profits.

3. The brief facts of the case are that the assessee Adobe Systems India Private Limited (hereinafter called Adobe India or the Assessee) is a wholly and subsidiary of Adobe Systems Inc., USA. It is engaged in providing software development services and marketing support services to its associated enterprises. The TPO in this case noted that the assessee company is showing OP/Cost Margin of 14.96 per cent which he considered to be quite low, as compared to other companies which are engaged in similar Income-tax fields. The TPO in this case passed a Transfer Pricing order making a upward adjustment of Rs. 10,40,75,727 on the arms length price of the international transactions. The TPO had worked out the average of arithmetic mean of ALP (OP/OC) of 42 comparables at the average of 24.91 percent. The Arm’s Length Price of international transaction was determined as under :—

4. The TPO did so by rejecting some of the comparables used by the assessee and added some more comparables which the assessee had objected. Ld. counsel of the assessee submitted that he shall be restricting his arguments against the inclusion of the following in the transfer pricing analysis.

4.1 Assessee’s submission in this regard is that these are super normal profit making companies and should be excluded from comparables set. As there is tendency skew the results and cannot be considered as representative of the industry.Against the above contention of the assessee TPO only dealt with Jayamaruthi Software Systems Limited and GDA Technologies Limited and did not deal with Cranes Software International Limited. The assessee’s submission as regards the GDA Technologies was as under :—

"This company did not appear in the search conducted by the assessee in its transfer pricing documentation.

As per the products details available in Prowess database, for financial year 2005-06, the company has earned its entire income from ‘Computer hardware and software’.

On review of this Annual Report (attached as Annexure 4) for financial year 2006-07 (as annual report for financial year 2005-06 is not available) it is observed as follows :—

Page 64 of the Annual Report, ‘...., your company has carried out IC design, systems design, software development and PCB layout for several global customers.’

Page 64 of the Annual Report, "The company has also started offshore Design Centres during the year for customers based out of US. The company has developed office in a Box, several Field Programmable Gage Array boards, Gigabit Passive Optical Network) during the year."

Based on the above, it is evident that the company is primarily engaged