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2015 (5) TMI 258
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...., the background of the controversy can be understood as follows. The appellant before us is a company incorporated under the provisions of the Companies Act, 1956 and is inter- alia, engaged in the business of Software Development Services. The assessee is a 100% owned subsidiary of Global Symphony Technology Pvt. Ltd., Mauritius (GST) and GST in-turn is a 100% subsidiary of Symphony Services Corporation (SSC). The Assessing Officer noted that assessee had entered into certain international transactions with its associated enterprises on account of provisions of Software Development and related services, Reimbursement of Expenses and Recovery of Expenses. In order to determine the computation of arm's length price in relation to the international transactions, Assessing Officer referred the matter to the Transfer Pricing Officer in terms of section 92CA(1) of the Act. The TPO has passed an order u/ s 92CA(3) of the Act dated 28.10.2011 determining the arm's length price of the international transactions relating to the provision of Software Development and related services at Rs. 79,63,60,703/- as against the stated consideration of Rs. 62,59,60,686/-, thereby resulting in....
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....een heard only on the aforesaid three points pressed before us in the course of hearing. 6. The first point raised by the assessee is relating to the action of the Assessing Officer in determining the adjustment to the value of international transactions which according to the assessee is based on an erroneous computation of operating margins of assessee's segment of AE transaction. In this context, our specific attention has been drawn to para 7.5.3 of the assessment order, which reads as under :- "7.5.3 PLI of the asse4s see has been worked out at 18.26 as against PLI of comparables at 24.34 assessee is not entitled for benefit of +/- 5% deduction. In view of the above, revised adjustment is worked out as under :- As per TPO's Order As per DRP's directions Operating revenue of the assessee [B] 913,024,950 625,960,687 Operating Cost (OC) 821,211,981 563,014,642 (*) Arms Length Mean Margin OP/OC) [D] 0.3193 0.2436 Arm's Length Price (ALP ) of the international transaction [A](ALP=OC*)1+D)) 1,083,424,967 700,165,009 5% range on lower side -- 655,156,759 Adjustment over operating income [A-B] 170,400,017 ....
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....nly with respect to the AE segment. According to him, while carrying out the said directions Operating costs with respect to the AE segment has been taken as Rs. 56,30,14,642/- in terms of the Tabulation reproduced above whereas the same would amount to Rs. 49,51,47,742/- on the basis of the following allocation worked out by the assessee : ANNEXURE - DETAILS OF SEGMENTAL MARGIN Particulars Non-AE AE Total Basis of allocation INCOME Software dev. Services 28,70,64,264 62,59,60,686 91,30,24,950 Actual Basis Operating Income 28,70,64,264 62,59,60,686 91,30,24,950 EXPENDITURE Employee costs 18,62,22,333 34,26,56,991 52,88,79,324 On actual basis to the extent identifiable and balance apportioned on head count basis Operating & administrative expenses 7,56,58,931 14,83,58,275 22,40,17,206 Depreciation 1,48,40,563 3,46,09,523 4,94,50,086 Finance charges 1,56,141 88,43,655 89,99,796 Total Expens....
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....sessing Officer in para 7.5.3 has opined that there are no segmental accounts with reference to the AE and the non-AE and therefore the Operating cost has been allocated on proportionate basis and thus no interference is called for. 12. We have carefully considered th7e rival submissions. At the outset, we may say that the onus lies with the assessee to justify the allocation of expenses and income with reference to the transactions with the associated enterprises and non-associated enterprises. So however, the claim of the assessee is that certain costs like employee costs, operating and administration expenses, depreciation and finance charges can be allocated on actual basis to the extent identifiable and only the balance expenses be apportioned on head count basis. Similar is the situation with regard to nonoperating expenses which according to the assessee, could be allocated on the actual basis. In our considered opinion, the best method ofcourse to identify expenses on actual basis to the extent, it is so possible. Therefore, we deem it fit and proper to remand the matter back to the file of the Assessing Officer to carry out the aforesaid exercise; ofcourse, it would be ....
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....eir customers pre and post sales. On this basis, it was sought to be made out that the assessee was functionally different inasmuch it was engaged in the provision of software development and other related services to its associated enterprises as well as to the non-associated enterprises and, was not involved in development and sale of software products. The TPO did not accept the plea of the assessee for the reason that the Annual Report of the said concern did not reflect about sale of software products after development and therefore, according to him, it was not functionally different. 14. Before us, the learned counsel for the assessee has vehemently pointed out that the plea of the assessee has been rejected by the income-tax authorities without any justifiable reasons, as even on the basis of the information available in the public domain it is quite evident that Kals Information System Limited was a concern which was developing and selling software products, which was an act9iv ity quite distinct from the activity of software development undertaken by the assessee. In the course of hearing, the learned counsel has furnished the prints out from the Annual Report of Kals ....
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.... case of Bindview India Pvt. Ltd. (supra) and the decision of the Bangalore Bench of the Tribunal in the case of M/s 3DPLM Software Solutions Ltd. (supra) relied upon by the assessee squarely cover the controversy relating to Kals Information Systems Limited. In the aforesaid two precedents, the said concern has been sought to be excluded from the list of comparables on account of functional dissimilarities. The Bangalore Bench of the Tribunal in the case of M/s 3DPLM Software Solutions Ltd. (supra) has considered the functions undertaken by the said concern during the previous year relevant to the assessment year under consideration before us, and it has been found that the said concern was engaged in the business of developing and selling software products and was not purely or mainly a software service provider. There is no dispute to the fact position that the appellant before us has undertaken mainly software development services for its associated enterprises and the non-associated enterprises and that such activity is quite distinct from the developing and selling of software products. The Pune Bench of the Tribunal in the case of Bindview India Pvt. Ltd. (supra) has also fo....
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....tted that the said concern was functionally dissimilar and its services can be considered as Knowledge Process Outsourcing (KPO), which is quite distinct from that of the assessee. It is further pointed out that the said distinction has been appreciated by the Bangalore Bench of the Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) whereby the said concern has been held to be functionally dissimilar to a concern which was undertaking functions similar to those performed by the assessee. Accordingly, reliance has been placed on the decision of the Bangalore Bench of the Tribunal in order to justify the exclusion of the said concern from the list of comparables. 22. On the other hand, the learned CIT-DR has referred to the argument setup by the TPO in his order which we have already adverted to in the earlier paragraphs of this order and is not being repeated for the sake of brevity. 23. We have carefully considered the rival submissions. In this context, we find that before the TPO relied upon the information available on the website of the said concern and submitted that the said concern was engaged in e business consultancy services, consisting of web strategy se....