TaxTMI 
TaxTMI 
2017 (3) TMI 86
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....ational transactions fall within the ambit of the transfer pricing provisions of section 92C of the Act. He also observed that the assessee has filed an audit report in Form No.3CEB containing the details of the transactions with its Associated Enterprises (AEs), as per which, the value of the transactions exceeded Rs. 15.00 crores. He therefore, referred the determination of the Arms' Length Price (ALP) of the international transactions to the TPO u/s 92CA of the Act. The TPO initiated proceedings by issuance of notice u/s 92C of the Act dated 14.2.2013. The assessee filed its replies on 28.2.2013 and 13.07.2013 and also explained the facts of the case. 3. The TPO observed that the assessee i.e. M/s. Invensys Development Centre (India) Pvt Ltd, incorporated on June 2003, was set up to cater to the software development, quality assurance and support services needed for the products of Invensys Group and that the assessee has two centres, one located in Hyderabad and the other in Mumbai. He observed that the Invensys Dev. Centre (P) Ltd is headquartered in London and is a global technology group providing software solutions, products and services to control, optimize and automate e....
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....are appropriate comparables. He, therefore, rejected the assessee's T.P. documentation and proceeded to conduct his own search for the comparables. The assessee had adopted 21 companies as comparable to the assessee out of which the TPO has accepted only 7 companies as comparable to the assessee and rejected the remaining companies. Thereafter, he has arrived at the final list of comparables which is as under: S.No Name of the company OR OP/OC 1 Accelya Kale Solutions Ltd 1,27,05,82,108 28.42 2 Avani Cimcon Technologies Ltd 2,83,06,444 3.39 3 CAT Technologies Ltd 8,15,37,696 13.04 4 Comp-U-Learn Tech India Ltd 14,31,03,387 19.96 5 E-Infochips Bangalore Ltd 43,04,89,804 72.32 6 Evok Tech 10,86,33,823 18.61 7 E-Zest Solutions Ltd 10,35,93,830 22.1 8 Infosys Technology Ltd 2,12,06,00,00,000 45.44 9 Kals Information Systems Ltd (Seg) 2,16,92,935 34.41 10 Kuliza Tech 9,91,21,132 25.92 11 L&T Infotech Ltd 17,89,50,41,004 21.2 12 Mindtree Ltd (Seg.) 7,38,41,68,041 20.47 13 Persistent Systems & Solutions Ltd (Merged) 6,67,28,828 11.37 14 RS Software (India) Ltd 1,61,83,71,419 9.88 15 Sasken Communication Technologies Ltd 4,19,3....
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....tion of use of contemporaneous data and multiple year data 2. Using single year data of companies to determine the arm's length price of the international transactions without considering the fact that the same was not available to the Appellant at the time of complying with the transfer pricing documentation requirements and disregarding the Appellant's claim for use of multiple year data for computing the arm's length price. Use of additional filters 3. Inter-alia use of the following additional filters in undertaking the comparative analysis to reject comparable companies having: a) Diminishing revenue; b) Persistent Losses; c) Different financial year-end; and d) Export Sales Less than 75% of the sales. Selection of comparables 4. Not undertaking an objective comparative analysis and interalia selecting the following companies as comparable to the software services of the Appellant: i. Camp U Learn Tech India Ltd; ii. E lnfochips Bangalore Ltd; iii. Kals Infosystems Ltd.; and iv. Tata Elxsi Ltd. (Seg). Rjection of comparables 5. Not undertaking an objective comparative analysis and interalia rejecting the following comparable companies: i....
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.... deals with the term and termination, the contract can be terminated by both the parties. Clause 12.2 provides that where the contract is terminated for convenience by the group company, then it shall pay to the developer a termination fee in respect thereof. Clause 12.3 provided for termination cost. It is submitted that the AE has terminated the contract and since the assessee is being compensated on cost plus margin basis, for the services rendered by it, the contract termination fee is also in the nature of the operating income and should be taken into consideration for determination of the ALP of the international transactions undertaken by the assessee. Regarding the items of expenditure considered towards the payment of contract termination fee, the learned Counsel for the assessee has drawn our attention to Page 925 of the paper book wherein the expenditure relating to training and also other expenditure is given. 12. The learned DR, however, supported the orders of the authorities below and submitted that though the agreement contains the clause for contract termination fee, the assessee has not been compensated in accordance with the said agreement and therefore, this am....
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....concerned, the argument of the assessee is that it is functionally different as it is into the business of software and I.T. enabled services as stated in its Annual Report and further that the said company has not provided any segmental information in relation to the two services. He has also referred to the Annual Report of the said company to demonstrate his point. The learned Counsel for the assessee further submitted that the said company has also been rejected by the tax authorities themselves due to lack of availability of segmental information. Further, it is submitted that the said company has abnormal financials with significant fluctuation in its margins on a year to year basis. The learned Counsel for the assessee has drawn our attention to the fact that this company has been taken as a comparable by the TPO in the cases of companies which are also into similar business as the assessee herein, and its comparability with such companies had come for consideration before the Coordinate Bench of this Tribunal for the very same A.Y and in the following cases, ITAT has directed the exclusion of the same from the final list of comparables on the ground of lack of availability ....
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....segmental information, we direct AO/TPO to exclude the above while working out the comparability analysis. We uphold the plea of Assessee in this regard". 19. In other cases cited by the assessee as reproduced above also, similar direction was given. Respectfully following the same, we direct the AO/TPO to exclude this company from the final list of comparables. Kals Information Systems Ltd: 20. The learned Counsel for the assessee submitted that this company is also to be excluded from the final list of comparables as it is not functionally similar and further that the company is engaged in the business of software products and that the website of the company shows the product owned by Kals information Systems Ltd and it has inventories equivalent to 27% of the total sale. Further, he also submitted that the issue of comparability to this company to the assessee has also arisen in the assessee's own case for the A.Ys 2008-09 and 2009-10 and the said company was rejected by the Income Tax Appellate Tribunal in its own case. He also submitted that in the cases referred to in Para 15 above, the Income Tax Appellate Tribunal has directed the exclusion of this company also. 21. The....
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....ces are complex and cannot be compared to routine software development companies. It is submitted that in assessee's own case for the A.Y 2005-06 to 2009-10, Income Tax Appellate Tribunal has taken note of these facts to direct exclusion of the company from the list of comparable. He submitted that in the cases referred to above also, the Tribunal has directed its exclusion. 25. The learned DR, however, supported the orders of the authorities below. 26. We find that in the case of M/s. Pegasystems Worldwide India Pvt Ltd, the Coordinate Bench of this Tribunal has considered all these facts as under: "Tata Elxsi Ltd (Seg) 12.1. It was the objection of Assessee that above company is predominantly into product design services, Innovation Design Engineering and visual computing labs division which are specialized services. He referred to the order of ITAT in AY. 2009-10 in the case of Planet Online Pvt. Ltd., in ITA No. 464/Hyd/2014 (supra), wherein this company was rejected on the reason that it is engaged in multiple segments. There is no break-up in the annual report and data on which margin from software services activity only can be computed is also not available. Moreover, t....
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....ppeal No.4. These grounds are also rejected, if any to the assessee. 31. With regard to Ground No.10, we find that it is consequential in nature and therefore, we direct the AO to give consequential relief. 32. Ground No.11 is only against the initiation of penalty proceedings u/s 271(1)(c) of the Act and therefore is premature. Hence rejected. 33. In the result, assessee's appeal is partly allowed. ITA No.318/Hyd/2015 34. Coming to the Revenue's appeal which is against exclusion of L&T Infotech Ltd from the final list of comparables on the ground of exceptionally large scale of operation, it is the case of the Revenue that the assessee has itself taken this company as a comparable and therefore, it cannot challenge the same before the higher authorities. We find that though the assessee has taken this company as comparable in its TP study, has challenged its comparability before the TPO itself. Further, in the case of Kenexa Systems, this Tribunal has held that it is open to the assessee to challenge the comparability of a company taken by itself as a comparable in its TP study. Therefore, we do not agree with the contentions of the learned DR that the assessee having consid....