TaxTMI 
TaxTMI 
2016 (1) TMI 115
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....e monitoring and maintenance of the Equant's global network platforms and services, coordination and remote configuration and implementation of quality customer networking solutions to its Group Company in Ireland, Equant Network Services International Ltd. (ii) Contract software development services (hereinafter referred to as 'CSD') for developing software applications for use within Equant Group/ Associated Enterprises (hereinafter referred to as 'AEs'). For rendering these services, the assessee was remunerated on an arm's length cost plus basis i.e. it was compensated for all its operating costs, plus a pre-agreed mark-up of 15% thereon. 3. During the relevant FY, the assessee undertook the following international transactions with its AEs which were duly reported in the Accountant's Report (Form No 3CEB) filed along with the return:- Particulars (International Transactions) Adjustment Outcome of TP Order after DRP Directions Provision of ITES and CSD services 97,11,94,161 Adjustment of Rs. 13.044,743 on CSD services and Rs. 75,513,180 on ITES services Purchase of fixed assets 3,42,43,723 Accepted Interest on loan (paid) 1,60,....
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....1% 15. Mediasoft Solutions Ltd. 3.66% 0.87% 16. Megasoft Ltd. (Seg) 60.23% 50.21% 17. Mindtree Ltd. 16.90% 14.54% 18. Persistent Systems Ltd. 24.18% 22.21% 19. Quintegra Solutions Ltd. 12.56% 8.46% 20. RS Software (India) Ltd. 13.47% 12.33% 21. R Systems International Ltd. (Seg.) 15.07% 12.43% 22. Sasken Communication Technologies Ltd. 22.17% 20.21% 23. SIP Technologies & Exports 13.90% 9.91% 24. Tata Elxsi Ltd. (Seg.) 26.51% 25.26% 25. Thirware Solutions Ltd. (Seg.) 25.12% 20.65% 26. Wipro Ltd. (Seg.) 33.43% 33.27% Mean OP / TC 25% 22.13% ITES - TP ORDER COMPARABLES S.No. Name of the company 1. Accentia Technologies Ltd 30.61% 25.52% 2. Aditya Birla Minacs Worldwide Ltd. 11.98% 10.52% 3. Allsec Technologies Ltd. 27.31% 25.08% 4. Apex Knowledge Solutions Pvt. Ltd 12.83% 12.51% 5. Apollo Healthstreet Ltd -13.55% -21.11% 6. Asit C. Mehta Financial Services Ltd. 24.21% 22.18% 7. Bodhtree Consulting Ltd (Seg.) 29.58% 28.93% 8. Caliber Point Business Solutions Ltd 21.26% 19.62% 9. Cosmic Global Ltd. 12.40% 10.84% 10. Datamatics Financial Services Ltd (S....
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....197/Hyd/2010 (AY 2005-06), * ITA.No.2102/Hyd/2011 (AY 2007-08) (ii) Celestial Labs Limited ('Celestial') 8.4 Ld. AR contended that this comparable owns products and took our attention to Exhibit 2. According ot ld. AR, the Celestial company is primarily into development of software tools as products for application in the field of bio technology, pharmaceutical and health care industry. Eg: Celsuite tool is used for developing new molecule in drug development area, Celtox tool is used for predicting toxicity level in the drug development, Celmine - Nand Celmine - P is used for data mining The software tools developed by Celestial are proprietary in nature and protected using patent. 8.5 Ld. AR in this regard relied on the following case laws:- * Toluna India Put. Ltd. Vs ACIT (ITA No.5645/Del/2011)(AY 2007-08), * Motorola Solutions India Pvt. Ltd (ITA No.5637/Del/2011)(AY 2007-08) * Tata McGraw Hill Education Pvt. Ltd (ITA No.5857/Del/2011) (AY 2007-08), * LGS Global Ltd (formerly known as Lanco Global Systems Ltd (ITA No. 1885,/Hyd/2011) CAY 2007-08). (iii) Felxtronics Software Systems Limited ('Flextronic') (Segmental) 8.6 Ld. AR submitted that de....
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.... :- * 3DPLM Software Solutions Ltd. (Successor to Delmia Solutions Pvt Ltd) (IT(TP) A NO.1303/Bang/2012) (AY 2008-09), * Symphony Services Pune Pvt Ltd (ITA No. 257/PN/2013) (AY 2008-09). Ld. AR pointed out that this comparable fails TPO filter. (vi) Helios & Matheson Information Technology Limited ('Helios') 8.14 Ld. AR contended that this comparable fails employee cost filter and took our attention to Exhibit 6. He pointed out that company fails employee cost filter applied by the TPO which are as below :- Particulars Amount Income from software sales and services (A) 1,786,380,304 Staff Welfare (B) 186,43,728 Employee cost / sales (B/A) 1.04% Also, the ld. AR submitted that the company provides various diversified services, like, application management services, ITESBPO services, executive education- info system, etc. 8.15 The case laws relied upon by the ld. AR are as under :- * Toluna India (ITA No.5645/Del/2011) (AY 2007-08) * Motorola Solutions India Pvt Ltd (ITA No.5637/Del/2011)(AY 2007-08) * PTC Software (India) Pvt. Ltd. (ITA No.1605/PN/2011) (AY 2007-08) (vii) Ishir Infotech Limitd ('Ishir') 8.16 Ld. AR contended tha....
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....t 9. He submitted that the company has undergone business restructuring activities during the year where in the business performance of Visual Soft Technologies Limited, w.e.f. October 1, 2006 has been amalgamated with the financial performance of the company. (x) Persistent Systems Limited ('Persistent') 8.21 Ld. AR submitted that the merger took place in this year and took our attention to Exhibit 19. He submitted that as per the annual report of Persistent, it has undergone significant restructuring during the relevant FY wherein a subsidiary, Control Net (India) Private Limited was merged into the company. 8.22 The ld. AR relied upon the decision in the case of Tata McGraw Hill Education Pvt Ltd (ITA No.5857/Del/2011)(AY 2007-08). 8.23 Ld. AR submitted that the company derives its income from the sale of software services as well as products. Since the annual report does not provide any further break-up of income into products and services, the Company cannot be treated as functionally comparable to the assessee. He submitted that the segmental information is also available. 8.24 He relied on the following case laws :- * Intoto Software India Put. Ltd. [ITA.No.1....
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....2007-08) * Logica Private Ltd (ITA No.1129/Bang/2011)(AY 2007-08) * LGS Global Ltd (formerly known as Lanco Global Systems Ltd (ITA No. 1885/Hyd/2011)(AY 2007-08) * Toluna India (ITA No.5645/Del/2011)(AY 2007-08) 8.33 Ld. AR submitted that also, Infosys owns products/ IPR and leverages on its premium banking solution Finacle R as evidenced by its annual report for IT 2006-07 and the company also undertakes significant expenditure on R&D as is evident from its annual report. He submitted that standalone segmental information for software development services is not available. 8.34 Ld. AR relied on the following case laws :- * Axsys Health tech Ltd. (ITA.No.2076/Hyd/2011)(AY 2007-08) * Agnity India Technologies Private Limited (ITA 1204/HC/2011) * Pyramid IT consulting (ITA NO. 5401/DEL/2012)(AY 2008-09) * 3DPLM Software Solutions Ltd (IT (TP) A.No.1303/Bang/2012)(AY 2008-09) * Bearing Property Services P. Ltd (ITA NO.1124/Bang/2011)(AY 2008-09) (xiii) Wipro Limited (Seg.) (Wipro) 8.35 Ld. AR submitted that this comparable company is a giant Company and took our attention to Exhibit 13. He submitted that the sales/ turnover of Wipro for FY 2006-07 is INR 9,669 cr....
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....on International Operations (India) Pvt. Ltd. (ITA No.2380/PN/2012)(AY 2008-09) * TNS India Pvt Ltd (ITA No. 604 & 419/Hyd/2014) (AY 2009-10) 9.3 Ld. AR submitted that the following comparables fails TPO filters :- (xv) Asit C. Mehta Financial Services Limited ('Asit') 9.4 Ld. AR submitted that this comparable fails employee cost filter and took our attention to Exhibit 15. He submitted that the company fails the employee cost to total cost filter of 25% as applied by the TPO. Ld. AR further submitted that the company has an employee cost to sales ratio of 24.79% as under :- Sales (Operating) 63,415 Employee Cost 15,720 Employee cost/ Sales 24.79% 9.5 He relied on the decision in the case of Zavata India Private Limited (ITA No.1781/Hyd/2011) (AY 2007-08). 9.6 Ld. AR submitted that the company is engaged in the provision of high-end services in the nature of GIS services and mobile assets tracking. Further, the company is engaged in providing portfolio management services and investment services. 9.7 Ld. AR relied on the decision of Avineon India Pvt Ltd (ITA No.1989/Hyd/2011) (AY 2007-08). (xvi) H C L Comnet Systems & Services Limited ('HCL Comn....
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....ture compared to the routine outsourced service functions performed by the assessee under ITES segment. He submitted that the segmental data not available and company also states it is not comparable to BPO and also owns significant JP. 9.16 Ld. AR relied on the following case laws:- * Zavata India Private Limited [TS-156-ITAT-2013-HYD)-TP] (AY 2007-08 * Stream International Services Pvt Ltd [TS-312-ITAT-2014-Mum)- TP](AY 2007-08) * Cognizant Technology Services Pvt. Ltd. (ITA Nos.2106/Hyd/2011) (AY 2007-08) and (1864/Hyd/2012)(AY 2008- 09) * Capital IQ Information Systems (India) Pvt. Ltd vs. DCIT [TS- 720-ITAT-2012-HYD)-TP7)(AY 2007-08) * Maersk Global Service Centres (India) Pvt Ltd (ITA No. 2594/Mum/2014, [TS-13-ITAT- 2015 (Mum)-TP), ITAT Mumbai)(AY 2009-10) * Market Tools Research Pvt Ltd (ITA No......11/ HYD/2012)(AY 2008-09) (xx) Genesys International Corporation Limited ('Genesys') 9.17 Ld. AR submitted that this comparable company is engaged in the business of High End KPO Services and took our attention to Exhibit 19. He submitted that Genesys is mainly engaged in the area of Geographical Information System Services and the GIS services performed b....
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....Pvt. Ltd. (ITA No. 1204/HC/2011) 9.24 Ld. AR submitted that the sales/turnover of the company is Rs. 649.51 Crore as against the assessee's sales / total turnover of Rs. 80 Crore from IT enabled services segment. 9.25 Ld. AR relied on the following case laws :- * Zavata India Private Limited (ITA No.1781/Hyd/2011)(AY 2007- 08) * Avineon India Pvt Ltd (ITA No.1989/Hyd/2011)(AY 2007-08) * Capital IQ Information Systems (India) Pvt. Ltd (ITA No.1961/Hyd/2011)(AY 2007-08) * Actis Advisers Pvt Ltd. (ITA No.5277/Del/2011 and ITA No. 958/Del/2012)(AY 2007-08), * Agnity India Technologies P. Ltd (ITA No.1204/HC/2011) * Market Tools Research Put Ltd (ITA No.1811/HYD/2012)(AY 2008-09) (xxiii) Wipro Limited (Segment) ('Wipro') 9.26 Ld. AR submitted that this comparable company is a giant company and took our attention to Exhibit 22. He submitted that the sales/ turnover of Wipro ITES segment for the FY 2006-07 is Rs. 940 crores as against the assessee's sales/ turnover of Rs. 80 crores. 9.27 Ld. AR relied upon the following case laws :- * Tata McGraw Hill Education Pvt Ltd (ITA No.5857/Del/2011)(AY 2007-08) * Adaptec India Private Limited (ITA No.1801/Hyd/09)....
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....different business model and took our attention to Exhibit 23. He submitted that Vishal Outsources most of its services to third party contractors which is evidenced by the low employee cost to sales ratio of the company. Vishal has significant payment towards vendors and low personnel cost as a percentage of sales. He submitted that the intermediary functions of Vishal can only be compared to that of a distributor which takes title to service/ product for resale to the customer whereas the assessee is a provider of back office services on its own. Thus, ld. AR submitted that the outsourcing model followed by Vishal cannot be considered to be comparable customer to be comparable to the business model followed by the assessee as under :- Particulars Amount (in INR) Income from operations (A) 306,010,382 Personnel cost 7,027,631 Hiring charges 1,359,045 Employee cost (B) 8,386,676 Employee cost / sales (B/A) 2.74% 9.38 Ld. AR relied on the following case laws :- * Zavata India Private Limited [TS-156-ITAT-2013-CHD)-TP](AY 2007-08) * Avineno India Pvt. Ltd [TS-308-ITAT-2013-Hyd)-TP] AY 2007- 08) * Cognizant Technology Services Pvt. (ITA No.2106/Hyd/2011)(AY ....
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....idered together. The comparables used in both segments have been put through a filtration process to arrive at a set which is broadly comparable with reference to FAR to that of the assessee. In the circumstances, DRP finds' no reason to disturb the order of TPO on these grounds. Hence, objections are rejected. Ground No. 3.12 ignoring the business/ commercial reality that since the assessee (vis-a-vis both its ITES/ CSD services) is remunerated on an arm's length cost plus basis, i.e. it is compensated for all its operating costs plus a pre-agreed mark-up based on a benchmarking analysis, the Assessee undertakes minimal business risks as against comparable companies that are full fledged risk taking entrepreneurs, and by not allowing a risk adjustment to the Assessee on account of this fact; and Assessee relied on Mentor Graphics where it was held that adjustment should be made to margins of comparable companies to account for differences In functions performed and risks assumed between the comparable companies and the Assessee. DRP's Observation: 3.12.1 DRP has considered all the submissions and is of the view that the assessee cannot be compared to a risk free s....