TaxTMI 
TaxTMI 
2014 (9) TMI 309
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....red into international transactions with its Associated Enterprise. Since value of such transactions exceeds Rs. 5,00,00,000/-, the AO had made a reference to the Additional Commissioner of Income-tax (Transfer Pricing/TPO) of the Act, for determining the arm's length price (ALP) of such transactions. In response to this, after carrying out verification and necessary enquiries, the TPO vide his order dated 30-05-2008 passed u/s 92CA(3) of the Act, while accepting Transactional Net Margin Method (TNMM), as the most appropriate method, determined the arm's length price of such transactions at Rs. 93,63,69,863/- as against Rs. 86,51,06,000/- shown by Assessee, thereby suggesting for adjustment of Rs. 7,12,63,863/- to the ALP of such transactions u/s 92CA of the Act. Later, in conformity with such order of the TPO, while adopting the ALP of such international transactions at Rs. 93,63,69,863/-, the AO made addition of Rs. 7,12,63,863/- to the income of Assessee, towards adjustment u/s 92CA of the Act. 3. Further, during the assessment, while verifying claim of deduction u/s 10A of the Act, the AO had asked Assessee to produce the Foreign Inward Remittance Certificates (FIRCs) in sup....
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....sp; 9. Visualsoft Technologies Ltd. (Seg) 8. Assessee's objection is with reference to balance 7 comparables confirmed by the CIT(A) vide para 16 of his order. The learned counsel placed on record various paper books, PB-A(398 pages), PB-B(948 pages), PB-C (pages 952 to 1032) and PB-D case law(pages 1034 to 1151) and made submissions with reference to the above 7 comparables, as under: 1. 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 ret....
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....supra) - Colt Technology Services India (P.) Ltd. (supra) - Sonata Software Ltd. (supra) - E-Gain Communications (P) Ltd. v. ITO [2008] 23 SOT 385/[2009] 118 ITD 243 (Pune). 3. Infosys Technologies Ltd. The learned counsel submitted that this company is engaged in diversified activities including products, consultancy & solutions and this company commands a premium in the pricing of its products and services due to its goodwill, reputation and brand value. Further due to scale of operations, Infosys enjoys economies of scale, which results in lower cost of infrastructural facilities and overheads. Further, he submitted that the issue of comparability of Infosys to a small captive service provider is no longer res-integra. The following cases have specifically anlaysed in detail the comparability of Infosys on various parameters to a similar size software service provider and rejected it: - Intoto Software India Pvt. Lt....
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....ctionally different as evident from various disclosures in the annual report (Directors report, Management discussion and website information) indicates clearly that the company is into software products. The following rulings have analysed and rejected this company as it has derived income from software license and AMC's: - Intoto Software India (P.) Ltd. (supra) - Hellosoft India (P.) Ltd. (supra) 6. Tata Elxsi Ltd. The learned counsel submitted that this company shall be rejected as comparable since it is a specialized embedded software development company and this company has in fact clearly stated in its response to 133(6) notice that due to the complex segments in which they are operating, it is not comparable to any other software services company. The following rulings have analysed this company and relying on the same 133(6) response, rejected it as a comparable to software services provider: &nbs....
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....here is a merit in assessee's contentions about non-comparability of various comparable companies selected by the TPO. 12. 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 mention that the company's income of Rs. 737.79 lakhs is possible with the amalgamqation of Holool India Ltd. It was further mentioned that Assessee company has got benefit by advanced latest technical expertise on various technology domains of the transferor company. Further, that company has charged deferred expenditure and the amount claimed in this year is Rs. 1.22 crores as against Rs. 30.21 lakhs in earlier year. This was clearly stated in Notes that claim was with reference to the AS-14 and also due to amalgamation of two companies. Vide page 957 of paper book, it was seen that out of gross assets of Rs. 7.95 crores, Brands alone consist of Rs. 5 crores, therefore, intangible assets comprising of substantial part of this company's assets. Not only in the correspondence with the TPO that Assessee expressed its inability to furnish separate accounts for two amalgamate....
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....ssing Officer/TPO to exclude this company from the list of comparables." 13. 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 Intoto Software India Pvt. Ltd., complete details were not placed on record, therefore, the matter was sent to AO for verification whereas in this case Assessee has objected even before the AO/ CIT(A), therefore, there is no need to set aside the issue to the file of the AO for examination as was done in the case of Intoto Software India (P.) Ltd. (supra). We are, therefore, of the opinion that on the basis of facts placed on record, the case of Exensys Software Solutions Ltd. cannot be taken as comparable. Similarly, the other cases, Thirdware Solutions Ltd., Infosys, Sankhya Infotech Ltd., etc, as mentioned above, are also to be excluded. However, as pointed out by the learned counsel the exclusion of other companies becomes academic. In view of this, we are not discussing other comparables in detail, but, suffice to say that assessee's submissions ar....