TaxTMI 
TaxTMI 
2015 (3) TMI 883
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....up of 12%. For the assessment year under consideration, assessee originally filed its return of income on 26/09/2009 declaring total income of Rs. 1,00,45,150. Later, assessee filed revised returns of income on 10/10/2009 & 19/12/2009 declaring total income Rs. 1,01,01,040 and Rs. 33,81,240 respectively after claiming deduction u/s 10B of the IT Act. In course of assessment proceeding, AO noticing that assessee has entered into international transactions with its AEs during the relevant previous year made a reference to the Transfer Pricing Officer (TPO) to determine the arm's length price (ALP). In course of proceeding before him, the TPO noticed that as per 3CEB report assessee has undertaken the following international transactions: AE Nature of transaction Amount (Rs.) Alliance Consulting Group Associates Inc., Software development and consulting services 34,53,32,211 Alliance Global Services Inc. -do- 9,40,43,658 43,93,75,869 He further noticed, for establishing the arm's length margin of price charged to its AE assessee has undertaken economic analysis through an external consultant. In the TP study assessee was taken as th....
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....ft assessment order proposing addition of Rs. 2,28,17,229 being TP adjustment. AO also recomputed deduction u/s 10B by reducing lease line/ communication charges from export turnover. 5. Assessee raised objections against draft assessment order before the DRP on transfer pricing adjustment as well as corporate issues. However, none of the objections raised by assessee found favour with the DRP. As a result, in terms with the directions of DRP, AO passed the impugned assessment order on 03/12/2013. 6. Being aggrieved, assessee is before us raising, in total 12 grounds. Ground Nos. 1 to 9 are on transfer pricing issues, whereas, ground Nos. 10 to 12 are on corporate tax issues. As far as transfer pricing issues are concerned, ld. AR confined his argument to selection of certain companies as comparables as raised in ground Nos. 4 and 6 and issue of non-consideration of bad debt as part of the operating cost as raised in ground No. 9. In view of the above, rest of the grounds raised on TP issues are dismissed as not pressed. At the outset, we will take up the issues relating to selection of comparables as raised in ground No. 4 & 6. Out of the seventeen comparables selected by TP....
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....e companies on the basis of materials on record, held the aforesaid companies not to be comparable with a captive software development service provider. The coordinate bench in case of M/s CISCO Systems (India) Pvt. Ltd. Vs. DCIT (supra) after examining in detail, excluded Infosys Ltd., Bodhtree Consulting Ltd., and Kals Information Systems. The relevant observations of the ITAT Bangalore Bench in respect to each of the aforesaid companies are reproduced hereunder for the sake of clarity: "26.1 Bodhtree Consulting Ltd.:- As far as this company is concerned, it is not in dispute that in the list of comparables chosen by the assessee, this company was also included by the assessee. The assessee, however, submits before us that later on it came to the assessee's notice that this company is not being considered as a comparable company in the case of companies rendering software development services. In this regard, the ld. counsel for the assessee has brought to our notice the decision of the Mumbai Bench of the Tribunal in the case of Nethawk Networks Pvt. Ltd. v. ITO, ITA No.7633/Mum/2012, order dated 6.11.2013. In this case, the Tribunal followed the decision rendered by the Mumb....
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....arious parts of the Annual Report of this company to ubmit that this company commands substantial brand value, owns intellectual property rights and is a market leader in software development activities, whereas the assessee is merely a software service provider operating its business in India and does not possess either any brand value or own any intangible or intellectual property rights (IPRs). It was also submitted by the learned Authorised Representative that :- (i) the co-ordinate bench of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. in ITA No.227/Bang/2010 has held that a company owning intangibles cannot be compared to a low risk captive service provider who does not own any intangible and hence does not have an additional advantage in the market. It is submitted that this decision is applicable to the assessee's case, as the assessee does not own any intangibles and hence Infosys Technologies Ltd. cannot be comparable to the assessee; (ii) the observation of the ITAT, Delhi Bench in the case of Agnity India Technologies Pvt. Ltd. in ITA No.3856 (Del)/2010 at para 5.2 thereof, that Infosys Technologies Ltd. being a giant company and market leader assum....
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....ompany is concerned. Respectfully following the decision of the Tribunal referred to above, we hold that Infosys Ltd. be excluded from the list of comparable companies. 26.3 KALS Information Systems Ltd.:- As far as this company is concerned, it is not in dispute before us that this company has been considered as not comparable to a pure software development services company by the Bangalore Bench of the Tribunal in the case of M/s. Trilogy e-business Software India Pvt. Ltd. (supra). The following were the relevant observations of the Tribunal:- "(d) KALS Information Systems Ltd. 46. As far as this company is concerned, the contention of the assessee is that the aforesaid company has revenues from both software development and software products. Besides the above, it was also pointed out that this company is engaged in providing training. It was also submitted that as per the annual repot, the salary cost debited under the software development expenditure was Rs. 45,93,351. The same was less than 25% of the software services revenue and therefore the salary cost filter test fails in this case. Reference was made to the Pune Bench Tribunal's decision of the ITAT in the cas....
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.... Respectfully following aforesaid decisions of coordinate benches, we direct AO/TPO to exclude Infosys Ltd., Bodhtree Consulting Ltd., and Kals Information Systems Ltd. 11. As far as Tata Elxsi Ltd. (segment) is concerned, the reason on which assessee has sought exclusion is, it is a functionally different company as it provides high end services. However, on going through the segmental details of services provided by Tata Elxsi Ltd. as contained in annual report, a copy of which is at page 707 of the assessee's paper book vis-à-vis, the functions of the assessee as enumerated in TP study, a copy of which forms part of assessee's paper book, we are of the view that unless proper analysis is made with regard to the functions of both the companies it cannot be said that services performed/provided by Tata Elxsi Ltd. is high end services whereas services provided by assessee are low end services. As the issue requires thorough examination in so far as it relates to exact nature of services rendered by both the companies, we remit the comparability of the aforesaid company to the file of AO/TPO for considering afresh after affording due opportunity of being heard to assessee.....
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....in case of M/s Kenexa Technology Pvt. Ltd. Vs. DCIT (supra), which are as under: "41. We place reliance on the decision of ITAT Delhi Bench in the case of Sony India Pvt. Ltd. vs. DCIT, ITA No. 1189/Del/2005, 819/Del/2007 and 820/Del/2007. The relevant portion is extracted below: "106.2 Thus, creation of unpaid liability and its write back is a normal incident of a business operation which is carried everywhere in accounts to have true picture of profits of the relevant period. Having regard to statutory provisions, it cannot be said that provisions or writing back of liability is not part of operating profit or would not be taken into consideration for computing the same. We can therefore make a general observation that all business enterprises are making and writing back liabilities as a normal incident of operating business. Therefore on facts we do not see any justification for excluding provisions written back in the profit and loss account as not forming part of the operating profit of the taxpayer. Accordingly claim of the taxpayer is accepted. 107. The next item relates to balances written back. In our considered opinion, finding given in respect of provisions written ba....