TaxTMI 
TaxTMI 
2014 (10) TMI 737
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.... the Act. In response to this, the TPO after making necessary enquiries and verification vide his order dated 30.5.2008 passed u/s. 92CA(3) of the Act determined the ALP of such transactions at Rs. 7,97,32,152 as against Rs. 7,26,98,036 shown by the assessee thereby suggesting adjustment of Rs. 70,34,116 to the income of the assessee u/s. 92CA of the Act. 3. Later, in conformity with such order passed by the TPO, the Assessing Officer had made addition of Rs. 70,34,116 to the income of the assessee u/s. 92CA of the Act. During the course of assessment proceedings, the AO has observed that the Assessee has recovered an amount of Rs. 9,73,317 towards recoveries made from Skyworks Solutions India Private Limited (Skyworks). In this regard, the AO has called for the details of the recoveries along with the supporting documents. In response, the assessee submitted that it has entered into a lease agreement dated June 2, 2003 with Vanenburg IT Park (the landlord) having its registered office at Plot No. 17, Building D, Software Units Layout. Madhapur Hyderabad- 500081. As per the lease deed dated June 2, 2003 the assessee company has taken 8,994 square feet (sft) in building D, 3rd Fl....
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....rom Skyworks. The Assessee submitted that it has furnished all relevant details with regard to the above mentioned treatment adopted by the Assessee. Further the Assessee also filed the copies of bills/invoices incurred by the Assessee along with the copies of invoices and debit notes raised by the Assessee Company on Skyworks. However, it was submitted that the Assessing Officer outrightly rejected the Assessee's submissions and erroneously added back an amount of Rs. 29,00,000, instead of Rs. 9,73,317, alleging that the same was recovered from Skyworks for the period of six months and treating the same as rental income under the head Income from other sources. However while disregarding the above submissions made by the Assessee the Assessing Officer was of the view that the recoveries made by the Assessee from Skyworks limited were in the nature of rental income and assessed it as such. 6. The Assessee further submitted that the Assessing Officer, while arriving at the figure of monthly rental payable by the Assessee to the landlord, has wrongly considered the amended lease agreement entered into by the Assessee and the landlord which was operational with effect from Sept....
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...., the Learned CIT Appeals has erred in confirming the addition of Rs. 19,26,683 as alleged rental income. 11. We have heard both the parties. We find that the lease deed dated June 2, 2003 between the assessee- company and Vanenburg IT Park was amended by an addendum with effect from September, 22,2004 to include lease of additional premises (building 'D' 4th floor) which inter-alia included revised monthly rental of Rs. 56,65,810 and the Assessing Officer has wrongly considered the amended lease agreement entered into by the assessee and the landlord which was operational with effect from September 22, 2004, without appreciating the fact that Skyworks had occupied the said premises and availed of the facilities up to June, 2004 only. Hence the figure of monthly rentals arrived at by the Assessing Officer at Rs. 1,14,60,804 is based on the amended lease agreement and consequently the view of the Assessing Officer with regard to recovery of the amount from Skyworks computed by the Assessing Officer was wrong. From page 6 of the order of the Assessing Officer it is very clear that the Assessing Officer has wrongly stated that Skyworks has availed the said premises/faciliti....
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....ng Officer held that payments made to various companies towards bandwidth charges are liable for TDS u/s 194J. He brushed aside the assessee's plea that the payments were made or providing facilities and not any services. In appeal, the CIT(A) accepted the contention of the assessee and held that the payments are in the nature of rent paid for space ITA Nos. 1699 to 1701/H/2008 ITA Nos. 1706 to 1708/H/2008 M/s Ushodaya Enterprises Pvt. Ltd., Hyderabad allotted in the transponder and the same will not come under the purview of section 194J. The CIT(A) followed the decision of the Hon'ble Madras High Court in the case of Skycell communications Ltd. Vs. DCIT 251 ITR 53 MAD. The CIT(A) also relied on the decision of the Bangalore Bench of the Tribunal in the case of Software Technology Parks of India Vs. ITO 3 SOT Bang. The CIT (A) held that section 194J will not be applicable to the impugned payments. 16. Aggrieved, the department is in appeal before us. 17. The learned counsel for the assessee Shiva Kumar relied on the decision of the Tribunal Mumbai Bench in the case of Pacific Internet (India) P Ltd. Vs. ITO 318 ITR (AT) 0197 Mum wherein it has been held that payment made for....
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....ables for determining the ALP of the international transactions in this case by the CIT(A). The CIT(A) observed that on the basis of figures of profit margins in respect of those 16 companies upheld by him as comparables the average profit margin i.e., arithmetic mean PLI comes to 26.41%. Aggrieved by the order of the CIT(A), the assessee preferred appeal and raised grounds No. 4 as under: 4. That the Learned CIT Appeals erred in determining the arm's length mark-up for provision of software development services to be 24.45% (after working capital adjustment). While doing so Learned CIT Appeals grossly erred in: (i) rejecting the comparability analysis carried in the TP documentation and in accepting the fresh comparability analysis carried out by Learned Transfer Pricing Officer ('Learned TPO') based on application of additional filters. (ii) retaining companies in the comparability analysis which do not satisfy the test of comparability. (iii) rejecting companies that are functionally comparable to the Appellant. (iv) ignoring the limited risk nature of the contractual services provided by the Appellant and in not providing an appropriate adjustment tow....
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.... Ors. dated 24.5.2013, held as follows: "Exensys Software Solutions Limited : As regards this company, the learned Counsel appearing on behalf of the assessee submitted that the operating profit by operating cost of this company is 70.68%. He submitted that though the assessee has not objected to the adoption of this company as comparable before the TPO, it has come to its knowledge subsequently that there is an extraordinary event in the company which has effected the margins of the company for the relevant assessment year. He submitted that during the relevant previous year, the Exensys Software Limited was amalgamated with another company by name Holool India Limited and the operating margin of 70.68% is the combined result of the amalgamated company. Thus, according to him, the data collected by the TPO is not reliable and therefore, this company should be excluded from the list of comparables. For this purpose, he has drawn our attention to pages 526 to 529 of the paper book filed along with the chart wherein while giving information to the TPO under section 133(6) of the I.T. Act, Exensys Software Limited has clearly mentioned that Holool India Limited and Exensys Softw....
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.... 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. Infosys Technologies Limited : According to the learned Counsel for the assessee the operating margin of this company is 42.83% and is a giant company which is into diversified activities of software development. He submitted that Infosys Technologies Limited is not only a giant company but is also into development of niche products and therefore, cannot be taken as comparable to any other software company, particularly, a small company like the assessee. He relied upon the decisions of the Tribunal in the case of Patny Telecom Solutions Pvt. Ltd. ITA. No. 1846/Hyd/2012, Deloitte Consulting India Pvt. Ltd. vs. DCIT ITA.1082/Hyd/2010, Ad-India Technologies Pvt. Ltd. ITA.3856/Del/2010 wherein Infosys Technologies Ltd. has been directed to be excluded from the list of comparables. The learned D.R. how....
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....of the authorities below. Having heard both the parties and having gone through the material on record, we find that the TPO at page 37 of his order has brought out the differences between a product company and a software development services provider. Thus, it is clear that he is aware of the functional dissimilarity between a product company and a software development service provider. Having taken note of the difference between the two functions, the Assessing Officer ought not to have taken the companies which are into both the product development as well as software development service provider as comparables unless the segmental details are available. Even if he has adopted the filter of more than 75% of the revenue from the software services for selecting a comparable company, he ought to have taken the segmental results of the software services only. The percentage of expenditure towards the development of software products may differ from company to company and also it may not be proportionate to the sales from the sale of software products. Under section 133(6) of the I.T. Act, the TPO has the power to call for the necessary details from the comparable companies. It is....