AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (4) TMI 866
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.... Pricing study report for benchmarking analysis. I Grounds of appeal in respect of transfer pricing adjustment relating to provision of software development services 2. Rejecting the transfer pricing documentation and not considering the comparability analysis as documented in the transfer pricing study report Erred in rejecting the transfer pricing documentation maintained by the Appellant and also not considering the data provided in the transfer pricing study report for benchmarking analysis. 3. Use of different turnover filter for identification of comparable companies and applying the modified range on cost base instead of turnover base. Erred in applying turnover filter of INR 1 crore to INR 200 crores as a comparable selection criteria (i.e. using a turnover filter of INR 1 to 200 crores) as against the turnover filter of upto INR 100 crores applied by the Appellant for identifying the comparable companies (Appellant's turnover being INR 14.37 crores). Further, erred in inappropriately considering the above range on cost basis instead of turnover basis (i.e. companies having cost in the range of INR 1 crore to INR 200' crores have been considered for anal....
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....vailable to the Appellant under erstwhile proviso to section 92C(2) of the Act of adopting as arm's length price, a price which varies by not more than 5 per cent from the arm's length price. II. Grounds of appeal in respect of international transactions relating to payment for meeting expenses, travel cost, stay cost, etc 11. Adjustment on account of payment for reimbursement of certain expenses Erred in making transfer pricing adjustment by disallowing genuine operating expenses of the Appellant to the amount of INR 14,88,134 pertaining to payment for meeting expenses, travel cost, stay cost, etc and valuing above expenses as NIL by wrongly concluding that such expenses incurred represents expenditure for shareholders activity. III. Other grounds of appeal 12. Initiation of penalty proceedings under sec 271(1)(c) of the Act Erred in initiating penalty proceedings under section 271(1)(c) without considering the fact that transfer pricing adjustments has been made on account of difference of opinion pertaining to selection criteria adopted for identifying the comparable companies, interpretation of provisions of law, etc and not due to concealment of or furnishi....
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....o the assessee. The first filter applied by the TPO was to exclude the companies with less than 75% earning from exports. Secondly, the companies with different accounting year were rejected. The third filter was the companies with income from software development services having 75% of operating revenue or segmental revenue were selected. The companies which were persistently loss making were also rejected and companies with less than 25%, related party transactions were selected. Certain companies with peculiar circumstances were also rejected. The TPO noted that the assessee had applied turnover filter of Rs. 25 crores to Rs. 100 crores, whereas the turnover of assessee in SW segment was Rs. 178 crores. After considering the explanation of assessee, the TPO was of the view that the turnover range of Rs. 1 to Rs. 200 crores was acceptable in assessee's case. The PLI was to be determined with respect to operating cost and not the sales. The super profit making companies were to be rejected. However, the companies which were selected by the assessee in the TP report but were sought to be rejected being super profit companies, was not accepted by the TPO and the contentions of asses....
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....metic mean of margins after working capital adjustment worked out to 23.90%. The TPO thus, proposed an adjustment over operating income at Rs. 2,55,74,805/- on account of software development services and Rs. 14,88,134/- on account of cost allocation. The revised total adjustment as per directions of DRP was Rs. 2,70,62,939/- which was added to the income of the assessee. 4. The assessee is in appeal against the order of Assessing Officer passed under section 143(3) r.w.s. 144C of the Act. 5. The grounds of appeal No.1 and 2 raised by the assessee being general, are dismissed. 6. The issue in ground of appeal No.3 raised by the assessee is the application of turnover filter of Rs. 1 to Rs. 200 crores as comparables selection criteria, as against the turnover filter up to Rs. 100 crores applied by the assessee for identifying the comparable companies. The first part of the issue raised by way of ground of appeal No.3 is against the application of turnover filter of Rs. 1 to Rs. 200 crores and not Rs. 100 crores as applied by the assessee. The learned Authorized Representative for the assessee pointed out that the first limb of ground of appeal No.3 is not pressed, hence, the same....
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....er, the assessee is aggrieved by inclusion of all the other concerns as comparable. Further, the assessee is also aggrieved by the order of TPO in not including the following concerns as comparable:- Sr No. Name of the company 1 Akshay Software Technologies Ltd. 2 Indium Software (India) Ltd. 3 Maars Software international Ltd. 4 Quintegra Solutions Ltd. 5 S I P Technologies and Exports Ltd. 6 R S Software (India) Ltd. 10. First, we shall take up the objections of assessee and the submissions of the learned Departmental Representative for the Revenue in respect of companies which were finally selected by the Assessing Officer / TPO / DRP in the final set of comparables. The first concern is Bodhree Consulting Ltd. The learned Authorized Representative for the assessee pointed out that the said concern merits to excluded from the final list of comparables as the said concern was product company and was also engaged in ITES segment. Further, there was re-structuring during the year and the year under consideration was an exceptional year. 11. The learned Departmental Representative for the Revenue on the other hand, pointed out that the assessee was eng....
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....l statements for the year under consideration placed at pages 618, 619, 625 and 630 of the Paper Book and the learned Authorized Representative for the assessee pointed out that there was decrease in inventories in the case of E-Infochips Ltd. establishing the contention of assessee that it was product company. He stressed that where the comparable was not purely a software development company, the results of such concern could not be compared with the assessee which was purely engaged in the software development. The second issue of it being a super profit making company was not pressed during the course of hearing. 14. The learned Departmental Representative for the Revenue on the other hand, pointed out that the concern was engaged in embedded software development services. He further pointed out that the quantum of hardware sale had to be seen. Since the assessee and also the Assessing Officer / TPO had selected the companies with export filter of 75% turnover, then the concern EInfochips Ltd. is to be included in the final set of comparables. He referred to the decision of Hon'ble High Court of Gujarat in the case of Allscripts (India) (P.) Ltd. (2016) 72 taxmann.com 305 (Guj....
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....cluded. Reliance was placed on the decision of Pune Bench of Tribunal in John Deere India Pvt. Ltd. Vs. ACIT (supra). 17. On the other hand, the learned Departmental Representative for the Revenue pointed out that where the assessee is also providing mixed bag of services, so it cannot be pleaded that it is not comparable being providing mixed services. 18. On perusal of record and the order of Tribunal in John Deere India Pvt. Ltd. Vs. ACIT (supra), we find that the concern E-zest Solutions Ltd. is a product company and is engaged in both the provision of software services and sale of software services. On the other hand assessee is engaged in Software development services where the segmental details are not available, accordingly, E-zest Solutions Ltd. is functionally not comparable. Accordingly, we hold that the said concern is to be excluded from the final set of comparables. 19. The next concern is KALS Information Systems Ltd., wherein the plea of assessee is that the same is product company as in the case of E-zest Solutions Ltd. and the same is to be excluded from the final set of comparables. 20. The learned Departmental Representative for the Revenue also stated that ....
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.... that both Akshay Software Technologies Ltd. and Maars Software International Ltd. were to be rejected being on-site developers while comparing the margins with off-site developers. The said proposition was again applied by the Pune Bench of Tribunal in BMC Software India Pvt. Ltd. Vs. DCIT in ITA No.1425/PN/2010, relating to assessment year 2006-07, order dated 16.03.2016. Applying the said principle, we hold that Akshay Software Technologies Ltd. is to be excluded from the final list of comparables as done by the TPO. Applying the said principle, we further hold that the concern at serial No.3 i.e. Maars Software International Ltd. being on-site developer is also to be excluded from the final set of comparables. Similarly, the concern at serial No.6 i.e. R S Software (India) Ltd. is on-site developer and the same is to be excluded from the final list of comparables. 24. Now, coming to the concern at serial No.2 i.e. Indium Software (India) Ltd. The said concern was picked up by the assessee as comparable. However, the same was rejected by the TPO and excluded from the final list of comparables on two grounds; first the company was loss making company and secondly, the export tur....
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.... ACIT, relating to assessment year 2008-09 reported in (2015) 56 taxmann.com 386 (Pune - Trib.) and the same is to be excluded from the final list of comparables. 29. Now, coming to the last concern S I P Technologies and Exports Ltd., which the assessee wants to be included in the final set of comparables. The said concern was rejected on the ground that it was loss making and had shown loss of (-) 33.20%; the profits of the company were diminishing from year to year. 30. The contention of the assessee was that in case the said concern is to be excluded, then super profit companies also should be excluded. 31. We find no merit in the plea of the assessee since the assessee is captive service provider and is being reimbursed on cost plus basis, hence, the said loss making concern declaring operating loss of (-) 33.20% merits to be excluded. Accordingly, we hold that it is to be excluded from the final list of comparables. The Assessing Officer is directed to compute the margins of comparables and make suitable adjustments, if any, to the international transactions undertaken by the assessee. 32. The ground of appeal No.9 raised by the assessee is against nonallowance of risk adj....