TaxTMI 
TaxTMI 
TaxTMI 
2015 (1) TMI 1335
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....ith NTT Global Delivery Services Ltd., vide orders of Hon'ble High Court of A.P. dated 10th July, 2013. Assessee, accordingly, filed revised Form 36B indicating change in status which was taken on record. 3. Briefly stated, assessee is an IT solution company that provides software development service in the areas of ERP solutions design, implementation & maintenance and Internet technology solutions to its customers. The company has a hundred percent Export Oriented Undertaking (EOU) registered with the software Technology Parks of India {STIP}. The AE is a global provider of innovative consulting, technology, and outsourcing services. The services if the Group are broad based and include business process improvement, analytical services, ERP implementations, global roll-outs, Ebusiness solutions, upgrades, testing application management, and infrastructure support and lifecycle management services. Assessee during the year as per Form 3CEB entered into two international transactions for Software Development Services and reimbursement of expenses as given below : M/s. NTT DATA India Enterprise Application Services P. Ltd., Rs.123,46,25,254 Reimbursement of Expenses Rs. 12,56,9....
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.... Less: Sales made to non-A.Es. Rs. 34,20,39,922 Arm's Length sales made to A.Es. Rs.177,82,77,329 Price received by the assessee with reimbursements Rs.136,03,22,078 Shortfall being adjustment u/s.92CA Rs. 41,79,55,251 The above shortfall of Rs. 41,79.55,251/- was treated as transfer pricing adjustment u/s. 92CA of the IT Act by the TPO. 4. Aggrieved by the above adjustment as proposed on the draft order, assessee preferred application to the DRP, Hyderabad who vide their order dated 03.08.2012 allowed some of the objections. DRP directed that (a) T.P. adjustment to be modified from PLI of 26.20 of operating cost as adopted by TPO to 21.25% consequent to exclusion of some companies from comparables (b) Working capital adjustment to be recalculated on the basis of present comparables and (c) reimbursement of Rs. 12,56,96,824 not to be taken for ALP calculations. Consequent to the above directions, A.O. passed order making the adjustments to an extent of Rs. 18,42,03,431. Assessee in its grounds is objecting to the ultimate adjustments made by TPO/A.O. on various issues. 5. Assessee has raised in all 18 grounds on 5 main issues for consideration. (1) Internal TNMM is to be....
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....iew of this, without going into various principles laid down in the three cases relied upon by assessee, which, in our view, does not help assessee on the facts of the case, we refuse to entertain this additional ground raised by assessee as ground No.14. Since assessee has not submitted any segmental profits or the profits for comparison of internal TNMM as claimed by it, in the absence of any data or facts on record, the issue cannot be considered just because there are certain legal principles favourbly decided. Therefore, this issue is decided against assessee. 2. SELECTION OF COMPARABLES. 9. The next issue for consideration is with reference to selection of comparables. As briefly stated above, TPO selected 19 companies as comparable companies out of which, one company viz., Celestial Bio Labs was deleted by DRP. Out of the balance 18 comparables, assessee is objecting to selection of 8 comparable companies which are as under : 1. Avani Cincom Technologies Ltd., 21.65% Functionally different. 2. Bodhtree Consulting Ltd., 19.14% 3. E-Zest Solutions Ltd., 28.95% 4. Infosys Technologies Ltd., 40.41% 5. Kals Information Systems Ltd., 30.92% 6. Tata Elxsi Ltd., ....
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....to consideration before deciding to include this company in its final list of comparables. Non-furnishing the information obtained under section 133(6) of the Act to the assessee has vitiated the selection of this company as a comparable. 7.6.2 We also find substantial merit in the contention of the learned Authorised Representative that this company has been selected by the TPO as an additional comparable only on the ground that this company was selected in the earlier year. Even in the earlier year, it is seen that this company was not selected on the basis on any search process carried out by the TPO but only on the basis of information collected under section 133(6) of the Act. Apart from placing reliance on the judicial decision cited above, including the assessee's own case for Assessment Year 2007-08, the assessee has brought on record evidence that this company is functionally dis-similar and different from the assessee and hence is not comparable. Therefore the finding excluding it from the list of comparables rendered in the immediately preceding year is applicable in this year also. Since the functional profile and other parameters by this company have not undergon....
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.... identified only one segment i.e software development. Therefore, the Id AR has submitted that this company is functionally not comparable with the assessee and consequently should be excluded from the comparables. 29.2 On the other hand, the Id DR has filed the information collected u/s 133(6) of the I T Act and submitted that as per this information, this company has revenue from ITES activity to the extent of Rs. 2,94,85,528/-. Therefore, this company is a good comparable having functional similarity. 29.3 ......... 30. We have considered the rival submissions as well as the relevant material on record. The details filed by the Id DR before us has been obtained by the TPO at Hyderabad and not by the TPO of the assessee in the present case. It is stated in the letter dated 5.2.2010 written by the Chartered Accountant of Bodhtree Consulting Ltd to the TPO Hyderabad that the company is providing data cleaning services to clients for whom it had developed the software application.........". 23. Considering the above, we are of the opinion that Bodhtree Consulting Limited is not engaged in the software development services and there is no segmental data comparable. Therefore,....
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....f the matter, we hold that this company ought to be omitted from the set of comparable companies. It is ordered accordingly. 5. KALS Information Systems Ltd., : 10.4. We have heard both parties and perused and carefully considered the material on record. We find from the record that the TPO has drawn conclusions as to the comparability of this company to the assessee based on information obtained u/s.133(6) of the Act. This information which was not in the public domain ought not to have been used by the TPO, more so when the same is contrary to the Annual Report of the company, as pointed out by the learned Authorised Representative. We also find that the co-ordinate benches of this Tribunal in the assessee's own case for Assessment Year 2007-08 (supra) and in the case of Triology E-Business Software India Pvt. Ltd. (supra) have held that this company was developing software products and was not purely or mainly a software service provider. Apart from relying of the above cited decisions of co-ordinate benches of the Tribunal (supra), the assessee has also brought on record evidence from various portions of the company's Annual Report to establish that this company is func....
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....ngly. 7. Thirdware Solutions Ltd 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 accounts for software development services and product development are not given separately. Further, as pointed out by the learned Authorised Representative, the Pune Bench of the Tribunal in the case of E-Gain Communications Pvt. Ltd. (supra) has directed that since the income of this company includes income from sale of licenses, it ought to be rejected as a comparable for software development services. In the case on hand, the assessee is rendering software development services. In this factual view of the matter and following the afore cited decision of the Pune Tribunal (supra), we direct that this company be omitted from the list of comparables for the period under consideration in the case on hand." 8. Wipro Ltd., 12.4.1. We have heard both parties and carefully perused and considered the material on record. We find merit in the contentions of the a....
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.... given detailed reasons while rejecting the said comparables, which were brought to our notice by learned D.R. 13.1. Considering the objections raised by assessee and TPO in its study, we agree with the findings of TPO that these companies are not comparable and therefore, they need not be considered for comparability analysis afresh now. Therefore, additional ground No.16 raised by assessee on this issue is rejected. 4. WORKING CAPITAL ADJUSTMENT : 14. It was the objection of assessee that TPO has arrived at negative working capital adjustment wherein assessee does not have any risk and is a captive services provider. Therefore, following the decision of Coordinate Bench in the case of Cordys Software India P. Ltd., in ITA.No.1972/H/2011 dated 15.03.2013 for A.Y. 2007-08, assessee requests for positive working capital adjustments. As far as the working capital adjustment is concerned, these are academic in nature and require to be analysed on the basis of assessee's work profile and comparable companies working results. No clear cut directions can be given in this as it requires examination of various documents. In fact, DRP itself has directed the TPO to re-workout the working....