TaxTMI 
TaxTMI 
2014 (7) TMI 127
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....es at Rs. 1,74,28,928/-. Further, an amount of Rs. 3,03,47,740/- was shown as towards reimbursement of expenses. For determining the Arm's Length Price (ALP) of such transactions, AO has made a reference to the Addl. Commissioner of Income Tax (Transfer Pricing) (hereinafter referred to as 'TPO') under section 92CA(1) of the Act on 08-05-2006. In response to this, TPO vide his order dated 31-03-2008, passed U/s.92CA(3) of the Act, while holding that such amount of Rs. 3,03,47,740/- shown under reimbursement Expenses was incurred in connection with software services rendered on-site by the assessee, has determined the ALP of such transactions under 'software development and support services at Rs. 44,11,05,783/-, and thereby suggested for adjustment of Rs. 7,07,47,467/- under section 92CA of the Act. Further, he held that the value of the transactions shown under software distribution services were at Arm's Length range. Later, in conformity with such order passed by the TPO, the AO made addition of Rs. 7,07,47,647/- to the income of the assessee, towards the shortfall in the ALP of the international transactions U/s.92CA(3) of the Act. 2.1. Further, during th....
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....nd by including two of the comparables which are accepted before the Ld. CIT(A) i.e., Infosys Technologies and Tata Elxsi Ltd. It also raised addl. grounds on negative working capital adjustment and inclusion of reimbursement expenses to operating cost. 6. Ld. Counsel referring to the various contentions submitted that assessee has no objection with reference to 9 comparables whereas, it was objecting the Tata Elxsi which is accepted before the Ld. CIT(A). Rest of the comparables which are objected before the Ld. CIT(A) were also objected to before the ITAT. Ld. Counsel also submitted arguments that two comparables selected by the assessee company i.e., M/s. VJIL Consulting Ltd. and Birla Technologies Ltd. are also to be included for consideration. Assessee on comparables inter alia relied on the decision of ITAT in the case of Invensys Development Centre India P. Ltd. in ITA no 1256/Hyd/2010 dt.20-02-2014 for A.Y. 2005-06. ]For negative working capital adjustment, Ld. Counsel relied on the DRP directions in assessee's own case in A.Y. 2007-08 and the ITAT order in assessee's own case for the same A.Y. With reference to inclusion of reimbursement expenses in the operating cost, ....
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.... Related party transactions filter: As per schedule 4 of the balance sheet, the company has investments in Perigon, LIC, USA and as per the response u/s 133(6); the company has export sales to Perigon LIC, USA of Rs. 133.90 lakhs, being 34.68% of the total turnover. * Functionally different filter: The company in its response to notice u/s 133(6) has stated that it provides e-paper solutions, data cleansing software, website development and other customized software and also state that the epaper solutions and data cleansing services would come under the category of IT enabled services. 2. Exensys Software Solutions Ltd., The learned counsel submitted that this company should be rejected under the following TPO's filters: a) Functionally different: The company is a software product and ITES company. The company owns significant brand intangibles (almost 60% of its net block of assets), unlike the appellant, which is a contract captive services provider. Further, various disclosures on the site of the company also indicate that it is into product development. b) Exceptional year of Operations: There was amalgamation of the company with Holool India Ltd. with retrospec....
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..... 1962/H/2010) - Patni Telecom Solutions Pvt. Ltd. Vs. ACIT (ITA No. 1846/Hyd/2012) - Adaptee (India) Pvt. Ltd. Vs. DCIT (ITA No. 1801/Hyd/2009) - DCIT Vs. M/s Hellosoft India Pvt. Ltd. (ITA No. 645/Hyd/09) - Trilogy E Business Services Software Ltd. Vs. DCIT (ITA No. 1054/Bang/2011 - Para 20) - Telcordia Technologies India P Ltd. (ITA No. 7821/Mum/2011 - Para 7.4) - Cordys Software India Pvt. Ltd. Vs. ACIT (ITA No. 1972/H/2011) - Agnity India Technologies Vs. ITO (ITA No. 3856/Del/2010) - Agnity India Technologies Pvt. Ltd. Vs. ITO (High Court decision - ITA 1204/2011) - Invensys Development Centre India P. Ltd. in ITA no 1256/Hyd/2010 dt.20-02-2014 5. Sankhya Infotech Ltd. The learned counsel submitted that this company is functionally different as evident from the following: * Various disclosures in the annual report and response to 133(6) notice indicates clearly that the company is into software products (services are supplementary to products licensing) * The TP office has in subsequent year rejected this company as comparable relying on the same 133(6) response. The following rulings have analysed and rejected this company as it has ....
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.... Ltd. (IT(TP)A No. 1129/Bang/2011) - Invensys Development Centre India P. Ltd. in ITA no 1256/Hyd/2010 dt.20-02-2014 9. With reference to these companies, the learned counsel referring to replies given to AP/TPO in response to the notices u/s 133(6) and their annual reports, which are available in its paper book, submitted that companies are functionally different and the operations are exceptional as there was a merger in the year with another company which had a material/significant impact on the profit margins and further the computations are also wrong as the deferred revenue expenditure, which was claimed regularly on the basis of accounting policy of the company, was excluded by the TPO in arriving at a different higher profit margin, which is not correct. 10. We have considered the issue and examined the record including paper books placed on record. There is a merit in assessee's contentions about non-comparability of various comparable companies selected by the TPO. 11. As regards the Exensys Software Solutions Ltd., as seen from the paper book placed on record, there is a merger of Holool India Ltd. and in the director's report (PB-951), there is a clear me....
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.... this extraordinary event, then such company cannot be considered as a comparable. The objections to this company by Assessee are made for the first time before the Tribunal. The Tribunal being the final fact finding authority is bound to take note of the objections of Assessee. As the material relied upon by the learned Counsel for Assessee clearly denotes that there is an extraordinary event which has resulted in the high operating margin of the company, we deem it f it and proper to remand this issue to the file of the Assessing Officer/TPO for reconsideration. If it is found that there is an amalgamation of Exensys Software Limited and Holool India Limited and formed as one entity viz.,Exensys Software Solutions Limited. during the relevant previous year and the financial result is the combined result of these two companies, then, we direct the Assessing Officer/TPO to exclude this company from the list of comparables." 12. In view of the above, we are of the opinion that there is an extra-ordinary event which resulted in high operating margin of that company and we, therefore, direct the AO to exclude this company from the list of comparables. In the above referred case of ....
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.... questioned the adjustments to be made for the working capital adjustment as well as risk adjustment. It was the contention that under Rule 10B(1)(iii) adjustment should be made to the profit margin of independent comparable companies to take into account the difference in functions and risks. TPO made negative working capital adjustment to the ALP determined by him by adopting the comparables. Assessee is questioning the negative working capital adjustment. In addition, it also argued about risk adjustments. It was the submission that assessee is functioning under a limited risk environment whereas the comparable companies being independent companies are working in a different functional profile. In order to neutralize the risk being taken by the comparable companies assessee wants risk adjustment and placed reliance on the following companies. a. E-Gain Communication (P) Ltd. vs. ITO 118 ITD 243 (Pune) b. Mentor Graphics P. Ltd. vs. DCIT 109 ITD 101 c. ACIT vs. Fiat India P. Ltd. 2010-TII-30-ITAT-Mum-TP d. Skoda Auto India P. Ltd. vs. CIT 30 SOT 319 (Pune) (Trib) e. Diamond Dye Chem Ltd. vs. DCIT 2010-TII-20-ITAT-Mum- TP f. Intervet India P. Ltd. vs. ACIT 2010-T....