TaxTMI 
TaxTMI 
2015 (9) TMI 1553
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....For the admission of additional ground, Ld. AR relied on the decision of Special Bench in the case of DCIT v. Quark Systems P. Ltd [(2011) 42 DTR 414]. According to him, four of the comparables considered by the TPO, namely, Accel Transmatics Ltd (seg), Quintegra Solutions Ltd, Sasken Communication Technologies Ltd (Seg) and Tata Elxsi Ltd (seg), required to be excluded though these appeared in the original list of the assessee itself. As per the Ld. AR, TP issues being evolving in nature, by virtue of the decision of Special Bench in Quark Systems P. Ltd (supra), assessee could not be disabled from pleading exclusion of certain comparables only for a reason that it appeared in its own list. 03. Per contra, Ld. DR submitted that the additional grounds sought exclusion of comparable selected by the assessee itself and if admitted, required to be remitted back to the AO. 04. We have perused the orders and heard the rival contentions. In so far as the additional grounds are concerned, in our view, decision of Quark Systems P. Ltd, would go in favour of the assessee. It was held therein that transfer pricing was an evolving area and therefore an assessee, just because it had incl....
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....vices: HPGS also provides Technology Services in the following areas: Platform and Middleware Engineering, Virtual R&D, Embedded Systems Engineering and Quality Process Consultancy. High end skills, processes, tools, and, methodologies fuel the service offerings. IT Operations: HPGS helps customers in building infrastructure, network management, network deployment, security systems and database management. This group supports over 5.500 products and is geared to meet stringent service level expectations of its customers. HPGS has expertise in the networking arena and the capability to implement and manage technical-assistance centres ('TAC5"), remote management centres ("RMCs") and satallite data centres ("SDCs"). During the financial year 2004-05, HP decided to create a consolidated India based Global Delivery model for IT services. HPGS was made pall of the HP Global Delivery organisation pursuant to this decision. Consequently, HPGS now functions as a contract service provider to HP as opposed to an independent risk bearing entity. HPGS provides the above services to its associated enterprises under a General Services Agreement between FIPGS and HP Co. Whil....
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....sessee and adjudicated by us are confined to these segments only. 12. Software development and maintenance segment is first considered by us. Assessee had selected TNMM for its TP study and had selected 46 comparables through a search done under prowess and capitaline data base. Average PLI of these 46 comparables came to 12.52% and as per assessee, profit margin of 7.46% was falling within + / - 5% of the PLI of the comparables, after adjustment for working capital. TPO while accepting TNMM as the most appropriate method for analysing the international transactions of the assessee, however held that out of the 46 comparables considered by the assessee, 38 were to be rejected for a reason that they either failed criterion like RPT, erevenue filter, on-site revenue filter and functional dissimilarities. Eight comparables accepted out of the list provided by the assessee included Accel Transmatics Ltd (seg), Quintegra Solutions Ltd, Sasken Communication Technologies Ltd (Seg) and Tata Elxsi Ltd (seg), which assessee is now seeking exclusion. TPO thereafter made his own analysis of the data bases mentioned above and zeroed in on 26 comparables including the eight selected from the ....
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....64.00% P 14 Lucid Software Ltd 1.70 19.37% 0 0 0.00% 1.69 99.41% 0 0 0.00% 0.3 17.65% 41.17% P(EE) 15 Mediasoft Solutions Ltd 1.85 3.66% 0 0 0.00% 1.84 99.64% 0 0 0.00% 0.03 1.62% 69.19% P 16 Megasoft Ltd 139.33 60.23% 26.47/19% 10.21 7.33% 134.36 96.43% 56.00% 0 0.00% 2.2 1.58% 37.87% P 17 Mindtree Ltd 590.35 16.90% 0 0 0.00% 553.44 93.75% 36.18% 0 0.00% 2.75 0.47% 55.27% P 18 Persistent Systems Ltd 293.75 24.52% 2.15/0.73% 28.55 9.72% 282.06 96.02% 4.83% 2.71 0.92% 2.35 0.80% 54.95% P 19 Quintegra Solutions Ltd 62.72 12.56% 0 0 0.00% 59.91 95.52% 48.52% 0.39 0.62% 2.02 3.22% 66.68% P 20 R S Software (India) Ltd 101.04 13.47% 0 0.85 0.84% 97.17 96.17% 68.77% 0 0.00% 1.83 1.81% 64.62% P 21 R Systems International Ltd (Seg.) 112.01 15.07% 2.68/2.39% 12.77 11.40% 105.36 94.06% 8.55% 0.63 0.56% 0.93 0.83% 56....
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....ment services segment. 15. Now before us, Ld. AR submitted that out of the 26 comparables considered by the AO / TPO, assessee had no grievance with regard to Datamatics Financial Services Ltd (seg), Geometric Software Ltd (seg), iGate Global Solutions Ltd, LGS Global Ltd, Media Soft Solutions P. Ltd, Mindtree Ltd, R S Software (India) Ltd and SIP Technologies & Exports Ltd, totalling to eight companies. As for the balance 18 comparables, Ld. AR submitted that except Flextronics Software Systems Ltd (seg), R. Systems International (seg) and Sasken Communication Technologies Ltd, all others were considered by this Tribunal in the case of NXP Semi Conductors India P. Ltd v. ACIT [IT(TP)A 1174/Bang/2011, dt.14.11.2014]. As per the Ld. AR, the same set of 26 comparables were taken by the TPO in the said case also for similar software development services segment. It was also for the very same assessment year. Hence according to him the decision of the coordinate bench in the said case could be taken as a good precedence for exclusion of Accel Transmatic Ltd (seg), Avani Cimcon Technologies Ltd, Celestial Labs Ltd, E-Zest Solutions Ltd,, Helios & Matheson Information Technology Ltd, ....
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....in the case of ACIT v. Hapag Llyod Global Services P. Ltd [ITA.8499/Mum/2010, dt.28.02.2013]. According to him the said company was also following calendar year as its financial year and hence could not be considered as a proper comparable. Reliance was placed on the copy of annual report of the said company placed at page 599. 19. Per contra, Ld. DR submitted that in so far as Flextronics Software Systems Ltd (seg) was concerned, its product revenue prima facie was very minimal. Though segmental result might not be there, as per the Ld. DR, TPO had obtained the required information, on 133(6) notice issued by him and this was reproduced by the TPO at page 123 of his order. Services income came to Rs. 7368 millions whereas the product revenues were only Rs. 896 millions. Thus according to him the argument of assessee that segmental results were unavailable for the said company was incorrect. Further according to him, once information received on issue of notice u/s.133(6) was put to the assessee and assessee was given a chance to answer the queries raised, it could not say that only the annual reports and audited accounts should be considered for the comparability analysis. 2....
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.... Ltd. the assessee submitted the company profile and its annual report for financial year 2005-06 from which the DRP noted that the business activities of the company were as under. (i) Transmatic system - design, development and manufacture of multi function kiosks Queue management system, ticket vending system (ii) Ushus Technologies - offshore development centre for embedded software, net work system, imaging technologies, outsourced product development (iii) Accel IT Academy (the net stop for engineers)- training services in hardware and networking, enterprise system management, embedded system, VLSI designs, CAD/CAM/BPO (iv) Accel Animation Studies software services for 2D/3D animation, special effect, erection, game asset development. 4.3 On careful perusal of the business activities of Accel Transmatic Ltd. DRP agreed with the assessee that the company was functionally different from the assessee company as it was engaged in the services in the form of ACCEL IT and ACCEL animation services for 2D and 3D animation and therefore assessee's claim that this company was functionally different was accepted. DRP therefore directed the Assessin....
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....re products have not been provided so as to see whether the profit ratio of this company can be taken into consideration for comparing the case that of assessee. In absence of any kind of details provided by the TPO, we are unable to persuade ourselves to include it as comparable party. Learned CIT DR has provided a copy of profit loss account which shows that mainly its earning is from software exports, however, the details of percentage of export of products or services have not been given. We, therefore, reject this company also from taking into consideration for comparability analysis." It was also highlighted that the margin of this company at 52.59% which represents abnormal circumstances and profits. The following figures were placed before us:- Particulars FYs 05-06 06-07 07-08 08-09 Operating Revenue 21761611 35477523 29342809 28039851 Operating Expns. 16417661 23249646 23359186 31108949 Operating Profit 5343950 12227877 5983623 (3069098) Operating Margin 32.55% 52.59% 25.62% - 9.87% 40. It was submitted that this company has made unusually high profit during the financial year 06-07....
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....r drew our attention to page-389 of the paper book which is an extract from the Directors report which reads as follows: 'The Company has developed a de novo drug design tool "CELSUITE" to drug discovery in, finding the lead molecules for drug discovery and protected the IPR by filing under the copy if sic (of) right/patent act. (Apprised and funded by Department of Science and Technology New Delhi) based on our insilico expertise (applying bio-informatics tools). The Company has developed a molecule to treat Leucoderma and multiple cancer and protected the IPR by filing the patent. The patent details have been discussed with Patent officials and the response is very favorable. The cloning and purification under wet lab procedures are under progress with our collaborative Institute, Department of Microbiology, Osmania University, Hyderabad. In the industrial biotechnology area, the company has signed the Technology transfer agreement with IMTECH CHANDIGARH (a very reputed CSIR organization) to manufacture and market initially two Enzymes, Alpha Amylase and Alkaline Protease in India and overseas. The company is planning to set up a biotechnology facility to manufacture industria....
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....of the Act in which it has said that it is in the business of providing software development services. The Assessee in reply to the proposal of the AO to treat this as a comparable has pointed out that this company provides software products/services as well as bioinformatics services and that the segmental data for each activity is not available and therefore this company should not be treated as comparable. Besides the above, the Assessee has point out to several references in the annual report for 31.3.2007 highlighting the fact that this company was develops biotechnology products and provides related software development services. The TPO called for segmental data at the entity level from this company. The TPO also called for description of software development process. In response to the request of the TPO this company in its reply dated 29.3.2010 has given details of employees working in software development but it is not clear as to whether any segmental data was given or not. Besides the above there is no other detail in the TPO's order as to the nature of software development services performed by the Assessee. Celestial labs had come out with a public issue of shares and....
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....any has not provided segmental data in its Annual Report. The learned Authorised Representative submits that since the Annual Report of the company does not contain detailed descriptive information on the business of the company, the assessee places reliance on the details available on the company's website which should be considered while evaluating the company's functional profile. It is also submitted by the learned Authorised Representative that KPO services are not comparable to software development services and therefore companies rendering KPO services ought not to be considered as comparable to software development companies and relied on the decision of the co-ordinate bench in the case of Capital IQ Information Systems (India) (P) Ltd. in ITA No.1961(Hyd)/2011 dt.23.11.2012 and prayed that in view of the above reasons, this company i.e. e-Zest Solutions Ltd., ought to be omitted from the list of comparables. 14.3 Per contra, the learned Departmental Representative supported the inclusion of this company in the list of comparables by the TPO. 14.4 We have heard the rival submissions and perused and carefullyconsidered the material on record. It is seen from the recor....
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.... the assessee as the said concern is engaged in software services. The stand of the assessee is that a perusal of the Annual Report of the said concern for F.Y. 2006-07 reveals that the application software segment is engaged in the business of sale of software products and software services. The assessee pointed out this to the TPO in its written submissions, copy of which is placed in the Paper book at page 420.3 to 420.4. The assessee further pointed out that there was no bifurcation available between the business of sale of software products and the business of software services, and therefore, it was not appropriate to adopt the application software segment of the said concern for the purposes of comparability with the assessee's ITServices Segment. The TPO however, noticed that though the application software segment of the said concern may be engaged in selling of some of the software products which are developed by it, however, the said concern was not into trading of software products as there were no cost of purchases debited in the Profit & Loss Account. Though the TPO agreed that the quantum of revenue from sale of products was not available as per the financial stateme....
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....the relevant para of the order of the TPO i.e., 6.3.21, in terms of which the said concern has been included as a comparable concern. The assessee pointed out that as in the case of KALS Information Solutions Ltd. (Seg), in the instant case also for A.Y. 2006-07 the said concern was found functionally incomparable by the assessee in its Transfer pricing study and the said position was not disturbed by the TPO. The relevant portion of the Transfer pricing study, placed at page 432 of the Paper book has been pointed out in support. Considered in the aforesaid light, on the basis of the discussion in relation to KALS Information Solutions Ltd. (Seg), in the instant case also we find that the said concern is liable to be excluded from the list of comparables." vi) Infosys Technologies Ltd. 12.1 This was a comparable selected by the TPO. Before the TPO, the assessee objected to the inclusion of the company in the set of comparables, on the grounds of turnover and brand attributable profit margin. The TPO, however, rejected these objections raised by the assessee on the grounds that turnover and brand aspects were not materially relevant in the software development segment. 12.2....
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.... of revenue from software services and software products is not available. In this view of the matter, we hold that this company ought to be omitted from the set of comparable companies. It is ordered accordingly. vii) & viii) M/S.Ishir Infotech Ltd. And Lucid Software Ltd : 20. As far as comparable companies listed at Sl.No.11 & 14 of the final list of comparable companies chosen by the TPO viz., M/S.Ishir Infotech Ltd. And Lucid Software Ltd., is concerned, this Tribunal in the case of First Advantage Offshore Services Pvt.Ltd. Vs. DCIT IT (TP) No.1086/Bang/2011 for AY 07-08 held that the aforesaid companies are not comparable companies in the case of software development services provider. The nature of services rendered by the Assessee in this appeal and the Assessee in the case of First Advantage Offshore Services Pvt.Ltd.(supra) are one and the same. This fact would be clear from the fact that the very same 26 companies were chosen as comparable in the case of the Assessee as well as in the case of First Advantage Offshore Services Pvt.Ltd.(supra). The following were the relevant observations in the case of First Advantage Offshore Services Pvt.Ltd.(supra): 22. The l....
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.... DCI, ITA No. ITA No 1386/PN/1O wherein KALS as comparable was rejected for AY 2006-07 on account of it being functionally different from software companies. The relevant extract are as follows: "16. Another issue relating to selection of comparables by the TPO is regarding inclusion of Kals Information System Ltd. The assessee has objected to its inclusion on the basis that functionally the company is not comparable. With reference to pages 185-186 of the Paper Book, it is explained that the said company is engaged in development of software products and services and is not comparable to software development services provided by the assessee. The appellant has submitted an extract on pages 185-186 of the Paper Book from the website of the company to establish that it is engaged in providing of I T enabled services and that the said company is into development of software products, etc. All these aspects have not been factually rebutted and, in our view, the said concern is liable to be excluded from the final set of comparables, and thus on this aspect, assessee succeeds." Based on all the above, it was submitted on behalf of the assessee that KALS Information Systems Limite....
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....ebsite extracts indicate that this company is in the business of product design services. (iv) The ITAT, Mumbai Bench in the case of Telecordia Technologies India Pvt. Ltd.(supra) while discussing the comparability of another company, namely Lucid Software Ltd. had rendered a finding that in the absence of segmental information, a company be taken into account for comparability analysis. This principle is squarely applicable to the company presently under consideration, which is into product development and product design services and for which the segmental data is not available. The learned Authorised Representative prays that in view of the above, this company i.e. Persistent Systems Ltd. be omitted from the list of comparables. 17.2 Per contra, the learned Departmental Representative support the action of the TPO in including this company in the list of comparables. 17.3 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the details on record that this company i.e. Persistent Systems Ltd., is engaged in product development and product design services while the assessee is a software development services p....
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....ort of the company for the period under consideration, which is as under : " Quintegra has taken various measures to preserve its intellectual property. Accordingly, some of the products developed by the company ............... have been covered by the patent rights. The company has also applied for trade mark registration for one of its products, viz. Investor Protection Index Fund (IPIF). These measures will help the company enhance its products value and also mitigate risks." (iv) The TPO has applied the filter of excluding companies having peculiar economic circumstances. Quintegra fails the TPO's own filter since there have been acquisitions in this case, as is evidenced from the company's Annual Report for F.Y. 2007-08, the period under consideration. The learned Authorised Representative prays that in view of the submissions made above, it is clear that inter alia, this company i.e. Quintegra Solutions Ltd. being functionally different and possessing its own intangibles / IPRs, it cannot be considered as a comparable to the assessee in the case on hand and therefore ought to be excluded from the list of comparables for the period under consideration. 18.2 Per con....
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....brand value, size, etc. The TPO, however, rejected the contention put forth by the assessee and included this company in the set of comparables. 14.2 Before us, it was reiterated that this company is not functionally comparable to the assessee as it performs a variety of functions under the software development and services segment namely (a) Product design services (b) Innovation design engineering and (c) visual computing labs. In the submissions made the assessee had quoted relevant portions from the Annual Report of the company to this effect. In view of this, the learned Authorised Representative pleaded that this company be excluded from the list of comparables. 14.3 Per contra, the learned Departmental Representative supported the stand o the TPO in including this company in the list of comparables. 14.4.1 We have heard both parties and carefully perused and considered the material on record. From the details on record, we find that this company is predominantly engaged in product designing services and not purely software development services. The details in the Annual Report show that the segment "software development services" relates to design servic....
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....in product development and earns revenue from sale of licences and subscription. It has been pointed out from the Annual Report that the company has not provided any separate segmental profit and loss account for software development services and product development services. (ii) In the case of E-Gain communications Pvt. Ltd. (2008-TII- 04-ITAT-PUNE-TP), the Tribunal has directed that this company be omitted as a comparable for software service providers, as its income includes income from sale of licences which has increased the margins of the company. The learned A.R. prayed that in the light of the above facts and in view of the afore cited decision of the Tribunal (supra), this company ought to be omitted from the list of comparables. 15.2 Per contra, the learned Departmental Representative supported the action of the TPO in including this company in the list of comparables. 15.3 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the material on record that the company is engaged in product development and earns revenue from sale of licenses and subscription. However, the segmental profit and loss accoun....
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....revenue filter adopted by him. Another major flaw in the comparability analysis carried out by the TPO is that he adopted comparison of the consolidated financial statements of Wipro with the stand alone financials of the assessee; which is not an appropriate comparison. 13.4.2 We also find that this company owns intellectual property in the form of registered patents and several pending applications for grant of patents. In this regard, the coordinate bench of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. (ITA No.227/Bang/2010) has held that a company owning intangibles cannot be compared to a low risk captive service provider who does not own any such intangible and hence does not have an additional advantage in the market. As the assessee in the case on hand does not own any intangibles, following the aforesaid decision of the co-ordinate bench of the Tribunal i.e. 24/7 Customer.Com Pvt. Ltd. (supra), we hold that this company cannot be considered as a comparable to the assessee. We, therefore, direct the Assessing Officer/TPO to omit this company from the set of comparable companies in the case on hand for the year under consideration. 24. No doubt if we follow....
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....ents in this company viz., (i) software development segment, and (ii) software product segment. The Assessee is a pure software services provider and not a software product developer. According to the Assessee there is no break up of revenue between software products and software services business on a standalone basis of this comparable. The TPO relied on information which was given by this company in which this company had explained that it has two divisions viz., BLUEALLY DIVISION and XIUS-BCGI DIVISION. Xius-BCGI Division does the business of product software. This company develops packaged products for the wireless and convergent telecom industry. These products are sold as packaged products to customers. While implementing these standardized products, customers may request the company to customize products or reconfigure products to fit into their business environment. Thereupon the company takes up the job of customizing the packaged software. The company also explained that 30 to 40% of the product software would constitute packaged product and around 50% to 60% would constitute customized capabilities and expenses related to travelling, boarding and lodging expense. Based ....
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....e service segment for comparability purposes. Consistent with such stand, it was submitted that the margins of the software segment only should be adopted in the case of Megasoft also, in contrast to the entity level margins. 28. Computation of the net margin for Mega Soft Ltd. Is therefore remitted to the file of the TPO to compute the correct margin by following the direction of the Tribunal in the case of Trilogy EBusiness Software India Pvt.Ltd." 23. Respectfully following the decision of the Tribunal referred to above, we direct the AO/TPO to compute the correct margin of Mega Soft Ltd., as directed by the Tribunal in the case of First Advantage Offshore Services Pvt.Ltd. (supra). Accordingly we hold that Megasoft Ltd can be considered as a good comparable after segmentation as directed in the above order is done. 26. Now taking up the question of exclusion of Flextronics Software Systems Ltd (seg), it is true that the decision of Motorola Solutions (India) P. Ltd (supra) also was for the very same year and also on software development services sector. This Tribunal held as under : "97.2 For a company to be included in the list of comparables, it is necessary th....
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....other 15 0.17 45 0.73 Total Sales 8,616 100 6.165 100 But how this segmentation was done by the TPO and the reconciliation of the said segmentation with the annual report of the assessee was never attempted or done. In such a situation we are of the opinion that Flextronics Software Solutions Ltd (seg) could not be considered as a proper comparable. We direct exclusion thereof. 29. Vis-a-vis R Systems International Ltd (seg), Mumbai bench of this Tribunal had held as under at para 7.1 and 7.2 in the case of Hapag Lloyd Global Services Pvt. Ltd (supra) : 7.1 This case was included by the assessee in its transfer pricing study. The TPO excluded this case because of different financial year ending in that case. The learned CIT(A) ordered for the inclusion of this case by recording that even though this company was following different financial year ending but the following different financial years could not be a reason to exclude this case. 7.2 The learned Departmental Representative contended that unless the financial year end of a comparable case matches with that of the assessee, it cannot be considered as comparable because the fig....
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....obtained u/s 133(6), the company qualifies onsite revenue filter (onsite revenues were to the extent 27.27% of its export revenues). After considering the assessee's reply, ld. TPO included this company in the list of comparables. Ld. counsel pointed out that this company has incurred significant expenditure on research and development activity the same being 6.07% of sales. He further submitted that the company had significant intangible inasmuch as it develops siskin branded products. The company owns IPR Further it was pointed out before TPO that during the year the company had acquired Botnia Hightech F. and its two subsidiaries and thus, it had under gone significant restructuring. However, ld. TPO ignored these facts He relied on the following decisions: * IQ Information System (I) Pvt. Ltd., ITA No. 1961/Hyd./2012 (para no. 11 & 23, page 25); * Amerson Process Management India Pvt. Ltd., ITA No. 8118/Mum./2010 (para 16 page 15). 110. Ld. DR relied on the order of TPO and submitted that TPO considered the companies software services segment details only. We have considered the rival submissions and have perused the record of the case. 111. Ld. TPO has completely i....
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....thin + / - 5% of its own profit margin of 9.53%, as per the assessee there was no requirement for any adjustment in the pricing of these transactions. As per the assessee ITES segment comprised of Technical Call Centre services. TPO though he accepted he the assessee to be a call center service provider, rejected seven companies out of the 13 selected by the assessee. Thereafter he made his own study under prowess and capitaline data base and zeroed in on 27 comparables, including the seven in the assessee's own list. 27 comparables considered by the TPO and their average PLI is given hereunder : Sl. No Company Name Sales (Rs.cr.) OP to Total Cost % RPT (Rs.cr.) % of RPT over Sales Export (Rs. Cr.) % of exports over Sales Mktg. (Rs.cr.) % of mktg. over sales Data base 1 Accentia Technologies Ltd (Seg.) 16.57 30.61% 0 0.00% 16.57 100.00% 4.7 28.36% C 2 Aditya Birla Minacs Worldwide Ltd (Earlier Transworks Information Services Ltd) 197.06 11.98% 8.35 4.24% 191.19 97.02% 3.38 1.72% P 3 Allsee Technologies Ltd 113.28 27.31% 13.48 11.90% 109.36 96.54% 5.91 5.2....
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....es Ltd 30.6 51.19% 0 0.00% 30.6 100.00% 0 0.00% P 25 Wipro Ltd (Seg.) 939.78 29.70% 21.41 2.28% 920.98 98.00% (*) 427.4 (*) 0.31% P Seg 26 Nittany Outsourcing Services Pvt Ltd 23.23 11.50% 0.8 3.44% 23.23 100.00% 0.1 0.43% C 27 Accurate Data Converters Ltd 4.33 50.68% 0.05 1.18% 4.33 100.00% 0 0.00% C (Soft) Arithmetical Mean 30.21% 5.43% 95.08% 3.45% 34. On the arithmetic mean PLI of 30.21%, AO made a negative working capital adjustment of 1.60% and arrived at adjusted mean PLI of 28.61%. Shortfall in the value of the international transactions was worked out by the AO as under : Operating Cost Rs.258,89,21,986/- Arm's Length Margin 28.61% of the Operating Cost Arm's Length Price (ALP) @ 128.61% Rs.332,96,12,566/- Price shown by the assessee Rs.279,24,76,527/- Shortfall being adjustment u/s.92CA Rs.53,71,36,039/- 35. TPO recommended an adjustment of Rs. 5,37,36,019/- in the ITES segment. When a proposal on the ....
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....bmitted that M/s Maple E solutions Ltd and Triton Corp Ltd had to be excluded since promoters /directors of these companies were involved in frauds during the previous year relevant to A. Y. 2007-08, rendering their annual reports unreliable. Reliance was placed on the decision of Delhi Tribunal in the case of iQor India services P Ltd (supra) and that of coordinate bench in the case of First Advantage Off shore Services P. Ltd (supra). 40. In addition to the above, as per the Ld. AR, Caliber Point Business Solutions Ltd, H C L Comnet Systems & Services Ltd (seg) and R Systems International (seg), had to be excluded since their annual reports were for different year than financial year and thus not amenable for comparison. Reliance was placed on Mumbai Bench decision in Sandstone Capital Advisors P. Ltd v. ACIT [ITA.6315/Mum/2012, dt.06.12.2013], Savan Technologies P. Ltd v. ACIT [ITA No.1456/Hyd/2010, dt.10.01.2014 and Telelogic India P. Ltd v. DCIT [ITA.166/Mum/2011, dt.18.05.2015]. 41. Per contra, Ld. DR supported the orders of lower authorities. According to him, grounds raised by assessee for exclusion of companies which it had not sought exclusion at lower levels, requi....
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.... they may be less skilled compared to software development segment, the number of employees would definitely be more and thus the employee cost would be high and thus application of employee cost filter to the ITES sector is also justified. In view of the same, we direct the TPO to apply the employee cost filter to exclude companies with employee cost of less than 25% from the list of comparables for the computation of ALP. Above decision was also for A. Y. 2007-08. Thus there is doubt that employee cost filter necessarily has to be applied for ITES segment. However, what we find is that lower authorities had not applied this filter at all and also not worked out proportion of the employee cost with the total cost and total revenue. As per the assessee, if the employee cost filter of 25% is applied, Accentia Technologies Ltd, Asit C Mehta Financial Services Ltd, Informed Technologies India Ltd, Spanco Ltd (seg) and Vishal Information Technologies Ltd, would go out of the list of comparables. We are of the opinion that this requires a fresh look by the AO / TPO. We therefore set aside the issue of comparability of the above five companies in the ITES segment and remit it back to ....
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....om the list of comparables. While doing so, he observed that the various parts of the directors report as well as other references in the annual report make 5 it clear that M/s. Bodhtree Consulting Ltd. is into software development and therefore this company cannot be treated as comparable with the assessee company which renders ITES. Concerned assessment year being the very same, we are of the opinion that Bodhtree Consulting Ltd (seg) has to be excluded from the list of comparables. 44. Vis-a-vis Eclerx Services Ltd, Infosys BPO Ltd and Mold-Tek Technologies Ltd, argument of the assessee is that they were into knowledge process outsourcing which cannot be compared with assessee who was only providing lower end call centre services. In this regard, it would be appropriate to reproduce the analysis by the assessee of itself, on its own call-centre work, appearing at para 25.1 to 25.3 of TP order : 25 Functions, Assets and Risks Analysis done by the taxpayer 25.1 Functions Currently. . the services offered by IIPGS through the Global Solutions Centre Bangalore ("GSCB") are voice and e-mail support. HPGS has entered into a General Services Agreement with its associated....
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....ring entity. 25.2 Assets The taxpayer given the details of assets utilised for rendering technical call centre services as under in its TP report. 11.1. Assets utilized The net assets utilized by HPGS for provision of technical cal centre services as on Maich 31, 2007 are as follows Land Leasehold 3,246,431 Computer Equipment 90,793,667 Electrical Fittings 3,608,674 Furniture and Fixtures 18.927,861 Vehicles 21,704,134 Plant and Machinery 8,461.043 Office Equipment 44,079,779 Computer Software 2,336,578 25.3 Risks The taxpayer has given its risk profile as under in its TP report. "4.1.2 Risks assumed Service delivery risk In this case, if the services rendered by HPGS do not meet the expectations of the associated enterprises. IIPGS is not directly responsible. Associated enterprise bear the service delivery risk, as it enters into contracts with customers and are responsible jar any liability far defective services. Market Risk. The associated enterprises would be responsible for identifying and retaining clients and therefore the market risk would lie with them. Thus, HPGS assumes no ....
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....being considered as a comparable to an assessee doing lower end call centre work. This Tribunal in the case of Symphony Marketing Solutions India P. Ltd (supra) had also considered comparability of Infosys BPO Ltd and Mold-Tek Technologies Ltd. It was held that these companies were providing market analytics and data management services. However as mentioned by us AO / TPO had not verified whether the services provided by assessee fell within lower end or upper end. We therefore set aside the issue of comparing Eclerx Services Ltd, Infosys BPO Ltd and Mold-Tek Technologies Ltd back to the AO / TPO for considering afresh after properly analysing the services rendered by the assessee to its AEs in the ITES segment. Ordered accordingly. 46. Vis-a-vis Wipro Ltd (seg) no doubt, Mumbai Bench of this Tribunal in the case of Stream International Services P. Ltd, held as under at para 13 (xiv) : (xiv) Wipro Ltd (seg ) : The facts of this company are similar to the facts of Infosys BPO Ltd. Considered by us at Sl.No.(vi). For the similar reason, this company is also directed to be excluded from the final list of comparables. What we find is that Coordinate Bench had followed its own....
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....rables, the question of exclusion of M/s. Maple E Solution Ltd is remitted back to the AO / TPO for consideration afresh in accordance with law. Ordered accordingly. 48. Coming to Caliber Point Business Solutions Ltd, H C L Comnet Systems & Services Ltd (seg) and R Systems International Ltd (seg), it is not disputed that accounting year of these companies were not financial year, or in other words the audited accounts and annual reports were not for an year ending 31.03.2007. Comparability of a company having a different year than the one followed by the assessee, was an issue which had come up before various coordinate benches of this Tribunal. In the case of Sandstone Capital Advisors P. Ltd v. ACIT [ITA.6315/Mum/2012, dt.06.02.2013], Mumbai bench of this Tribunal had held as under : 9.1 On the other hand, the ld DR has submitted that the company's financial accounts are prepared on 30.6.2007; therefore, the data for the entire financial year are not available and only for 3 months data were available. Therefore, in view of the decision of the Pune Benches of the Tribunal in the case of Honeywell Automation India Ltd vs DCIT in ITA No. 4/PN/08 vide order dated 10th Feb 2009....
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....sly challenged by the ld. AR. Respectfully following the precedent, we hold that this case should be excluded from the list of comparables. In the case of Telelogic India P. Ltd v. DCIT [ITA No.166/Mum/2011, dt.18.05.2015, also a similar view was taken. 50. In line with the above orders, we direct the exclusion of Calibre Point Business Solutions Ltd, HCL Comnet Systems & Services Ltd and R. Systems International Ltd, from the list of comparables in ITES segment. 51. Accordingly we direct the AO / TPO to rework the average PLI of the comparables after considering our directions at para 42 to 49 above and thereafter make an analysis of the pricing of the international transactions of the assessee in the ITES segment. Ordered accordingly. 52. Now we shall consider the corporate tax issues raised vide grounds 5 to 10. In grounds 5 & 6 asssessee assails exclusion of expenditure incurred in foreign currency expenditure of Rs. 3,361,467,945/-, while working out the eligible relief u/s.10A of the Act. Alternatively it pleads that whatever is excluded from the export turnover has to be excluded from the total turnover. 53. We have perused the orders and heard the rival conte....