TaxTMI 
TaxTMI 
2017 (3) TMI 86
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....t. Therefore, he observed that these international 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....
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.... resulted in use of inappropriate comparables and rejection of companies that 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.) 7,38,41,68,0....
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....cumentation maintained 1. Rejecting the transfer pricing documentation maintained by the Appellant in accordance with the provisions of the Act read with the Income Tax Rules, 1962 ('Rules') and making adjustment of Rs. 4,72,33,317. Rejection 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 Le....
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....ge No.901 of the paper book filed before us. As per clause 3 of the said agreement, the assessee is required to meet the staffing requirement as per the docket arrived at, between the parties within 90 days of the commencement of the agreement and as per clause 12 of the agreement which 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....
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....at the time of hearing, the learned Counsel for the assessee submitted that the assessee is not seeking the exclusion of Comp-U-Learn Tech India Ltd from the final list of comparables. In view of the same, the assessee's ground on this company is rejected. 16. As regards, E Infochips Bangalore Ltd is 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 ....
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....n Assessee's case in this assessment year. We are also aware of the decision of the Co-ordinate Bench given in earlier assessment year on the reason that segmental reporting was not available. Be that as it may, since the said company is functionally different from Assessee's activities and in the absence of 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 ....
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....mpany is that it is functionally not similar as it is specialized in embedded software development technology and cannot be considered as comparable to the assessee. It is also submitted that in response to the notice u/s 133(6) of the Act, the said company itself has stated that it is into diverse nature of business and its services 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 ....
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....e no ALP adjustment. In view of the same, we do not see any reason to adjudicate the Ground of appeal No.5, at this stage as it would only result in an academic exercise. Ground No.5 is accordingly rejected. 30. As regards Grounds of appeal No.7 to 9 are concerned, we find that they need no adjudication in view of our decision on ground of appeal 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 ....