TaxTMI 
TaxTMI 
2017 (4) TMI 1140
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....of income was taken up for scrutiny assessment after the issue of requisite notice under section 143(2) of the Act, during the course of the assessment proceedings, the AO noticed that the assessee company reported the following international transactions: Sl. No. Type of transaction Amount Paid (Rs.) Amount received (Rs.) 1 Software Development Services 34,96,83,925/- 2 Reimbursement of expenses 68,83,883/- 23,98,255/- 3. The assessee company sought to justify the consideration received for the international transactions entered with its AE to be at Arm's Length Pricing. The assessee company had also submitted transfer pricing study report adopting operating profit to total cost (OP/TC) as a profit level indicator for the Transfer Pricing study Report. The assessee company applied TNMM which was considered to be the most appropriate method for the purpose of bench marking the international transactions. The assessee company's profit was computed at 13.6% and the assessee company claimed that the same was comparable with other companies rendering software development services. For the purpose of transfer pricing study, the asses....
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....operating revenues - excluded 5 Companies who have less than 25% of the revenues as export sales - excluded 6 Companies with onsite revenues greater than 75% of the export revenues from software are excluded 7 Companies whose employee cost to revenues is less than 25% of the revenues - excluded 8 Companies having different financial year ending - rejected 9 Companies who have diminishing revenues/persistent losses for the period under consideration - excluded 10 Companies that are having peculiar economic circumstances were excluded 11 Companies functionally different from the assessee - excluded 5. The TPO rejected 16 comparables selected by the assessee company and accepted 7 comparables and also introduced 13 new comparables and finally selected the following comparables: SI. No. Name of the Company Mark-up on Total Costs 1. AvaniCimcon Technologies 25.62% 2. Bodhtree Consulting Ltd. 18.72% 3. Celestial Biolabs 87.94% 4. e-zest Solutions Ltd. 29.81% 5. Flextronics (Aricent) 7.86% 6. iGate Global Solution Ltd. 13.99% 7. Infosys 40.37% 8. Kals Information Syst....
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....consequently directed the AO/TPO to exclude the following companies from the list of comparables: 1. Flextronics Ltd., 2. IGate Global Solutions Ltd., 3. Infosys Technologies Ltd., 4. Mindtree Ltds., 5. Persistent Sytems Ltd., 6. Sasken Communication Technologies Ltd., 7. Tata Elxsi Limited 8. Wipro Limited (Seg.) The CIT(A) also directed the AO/TPO to include 2 comparables which are rejected by the TPO viz., M/s. Helios & Matheson Information Technology Ltd., and M/s. Maars Software International Ltd. The CIT(A) has also upheld the application of onsite revenue filter and consequently directed the exclusion of Softsol India Ltd., as no breakup of revenue from onsite and offshore was available. The CIT(A) also accepted the contention of the assessee company that the companies Bodhtree Consulting Ltd., Celestial Biolabs, Lucid Software Ltd., should be excluded from the list of comparables on the ground of functionality. The CIT(A) also directed the AO/TPO to include Cat Technologies Ltd., VMF Soft Tech and Thinksoft Global Solutions P. Ltd., on the application of export earnings filter. Thus, consequent to the order of the CIT(A), t....
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....assessee 19.29% -5% of the margin of the assessee 7.92% 10. Thus it was submitted before us that consequent to the rectification order passed by the CIT(A), the arithmetic mean margin of comparable entities is only 17.98% which is below +/- 5% margin of the assessee company which is computed at 13.61%. Therefore, it was prayed that the grounds of the appeal raised by the assessee company in its appeal do not survive for consideration and therefore prayed for dismissal of the appeal. 11. After considering the rival submission and perusal of the material on record, the appeal filed by the assessee is dismissed. 12. In the result, assessee's appeal in appeal IT(TP)A No. 79/Bang/2013 is dismissed. Revenue's Appeal IT(TP)A No.112/Bang/2013 13. Now we shall deal with the revenue's appeal. The revenue has raised the following grounds of appeal: 1. The order of the learned C1T(A) is opposed to law and facts of the case. 2. On the facts and in the circumstances of the case the learned CIT(A) failed to appreciate that the different year ending filter applied by the TPO is necessary to exclude companies which do not have the same or comparable f....
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....ing Department's SLP before the Hon'ble Supreme Court. 11. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored. 12. The appellant craves leave to add, alter, amend and / or delete any of the grounds mentioned above. 14. Ground Nos. 1, 2, 11 and 12 are general in nature, do not require any adjudication. Ground No. 3 challenges the direction of the CIT(A) to exclude the following companies on the ground of turnover exceeding 200 crores and less than 1 crore revenue: 1. Flextronics Ltd., 2. IGate Global Solutions Ltd., 3. Infosys Technologies Ltd., 4. Mindtree Ltds., 5. Persistent Sytems Ltd., 6. Sasken Communication Technologies Ltd., 7. Tata Elxsi Limited 8. Wipro Limited (Seg.) 15. The above companies were excluded by the learned CIT(A) on the grounds that the turnover of the comparable entities does not fall at 1 to 200 crore category. However, this Tribunal has been holding that the turnover is not a relevant criteria. Hence these companie....
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....ith him under section 133(6) of the Act, that it is engaged in the business of software development and information technology enabled services. Thus, it was submitted that the company is more into the ITeS and therefore functionally not comparable and reliance in this regard was also placed on the following 3 decisions: * GXS India Technology Centre (P.) Ltd. (supra) at para 8 at pages 14-15 * ITO v. Infinera India Ltd. 157 ITD 637 (Bang. - Trib.) paras 20-22 at pages 22- 24 * Emptoris Technologies India (P.) Ltd. v. Dy. CIT 2016 (2) TMI 932 - ITAT PUNE for AY 2008-09 at paras 13-14 at pages 15-19 19. After perusal of the material on record, the Bodhtree Consulting Ltd., is engaged both in ITeS and software development and no segmental details were available and therefore in the absence of segmental details, it cannot be held to be comparable with that of the assessee company which is engaged in purely software development. Thus the ground of appeal filed by the revenue is dismissed. 20. Ground No. 7 and 8 challenges the direction of the learned CIT(A) to exclude Celestial Biolabs and Lucid Software Ltd., from the final list of comparables on the ground of functiona....