AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (1) TMI 1300
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....the areas of ERP, sales design implementation, maintenance and providing internet technology sales to its customers. It is required to customise software based on software design specifications, determined by Intelli group or other related associated enterprises. Assessee provides software development services to the group and is stated to have been compensated at cost plus 15% mark up on such cost. It also provides software developments services to third parties. On a reference made by the DCIT, Circle 21, Hyderabad under S.92CA, the TPO undertook the exercise of transfer pricing analysis, and has determined the transfer pricing adjustments in an order under S.92CA(3) dated 29.10.2010. The TPO analysed the financial results vide para 2.3 and determined the Operating Profit to Cost ratio at 10.21%(excluding interest, loss on investment, foreign exchange loss as part of cost). The TPO determined international transactions on software development services at Rs. 103.35 crores. The assessee has reported total operating revenue at Rs. 149.89 crores. In the transfer pricing study by the assessee, it has selected seventeen comparables with average profit margin of 10.86% of cost. Assesse....
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....Officer, consequent to the orders of the Dispute Resolution Panel, assessee has raised various grounds, including sub grounds before us. Assessee has not pressed grounds No.1, 2, part of ground No.3 from (a) to (f), part of 3(g) and (h) to (k) and (m). Therefore, these grounds are treated as withdrawn and consequently, rejected. The surviving grounds, including an additional ground- being 3(n), are as under- "1. ...... 2. .... 3. On the facts and in the circumstances of the case and in law, the Hon'ble DRP erred in upholding/confirming the fresh bench marking analysis undertaken by the learned TPO, which is defective in nature due to following reasons and is liable to be quashed: (g) i. The ld TPO/DRP erred in not undertaking an objective comparative analysis and inter-alia selecting the following companies as comparables to the Appellant for determination of ALP under TNMM i. Accel Transmatic Ltd. (Seg) ii. Avani Cimcon Technologies Ltd. iii. Flextronics Software Systems Ltd.(Seg) iv. Helios and Matheson Information Technology Ltd. v. Infosys Technologies Ltd. vi. Ishir Infotech Ltd. vii. Kals Infosystems Ltd. viii. Lucid Software Ltd. ix. Megasoft....
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....essee has raised the same objections with reference to the above comparables and requested for exclusion of the said companies taken as comparables Relevant portion of the order of this Tribunal dated 24.9.2015 in the case of United Online Software Development India Pvt. Ltd., is as under- "16. We have heard the arguments of both the sides and also perused the relevant material on record, including the paper-books and detailed filed by Assessee. It has been brought to our notice by the learned counsel for Assessee, and not disputed by the Learned Departmental Representative, that in assessee's own case for the assessment year 2006-07, the issue relating to comparable nature of three of the companies named in the original ground, viz. Megasoft Ltd., Infosys Technologies Ltd. and Tata Elxsi Ltd.(Seg)., and two out of the four companies named in the additional ground, viz. Accel Transmatic (Seg) and Kalis Information Systems Ltd. (Seg.) has come up for consideration before the Tribunal in ITA No.1500/Hyd/2010, and this Tribunal. 17. However, we find that the issue relating to comparable nature of nine out of above eleven companies (companies in original grounds as well as addition....
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.... j) CSR India P. Ltd. ITA.No.1119/Bang/2011 k) First Advantage ITA.No.1086/Bang/2012 l) HCL EAI Services Ltd. ITA.No.1348/Bang/2011 We herefore direct the Assessing Officer/TPO to exclude this while computing ALP. INFOSYS TECHNOLOGIES LTD., : 7.2 Objecting to the aforesaid company being treated as comparable, learned AR submitted that the company cannot be considered to be comparable to a captive service provider like Assessee, not only because of the quantum of revenue earned by them but also on account of various other factors. It was submitted that the company command a premium in the pricing of their products and services due to the goodwill, reputation and brand value. It was submitted that due to scale of operation it not only enjoy economies of scale in the lower cost of infrastructure facilities and employees but also earning profit. It was submitted that the company has diversified activities including products, consultancy and solutions. Company own intangibles and assume considerable risk which results in earning higher profits. In support of such contention the ld. AR relied upon a number of decisions, copies of which are placed in the paper book. 7.2.1. The....
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....ystem India P. Ltd. ITA.1978/H2011 c) M/s. Virtusa (I) P. Ltd. ITA.No.1962/Hyd/2011 d) Telcordia Technologies India P. Ltd. ITA.7821/Mum/2011 e) Triology E-Business Solutions ITA.No.1054/Bang/2011 f) Adaptec (India) P. Ltd. vs. DCIT ITA.No.1801/Hyd/2009 g) Trinity Advanced Software Labs P. Ltd. vs. ACIT ITA.No.1129/Hyd/2005 We therefore direct the Assessing Officer/TPO to exclude this while computing ALP. ISHIR INFOTECH LTD 7.3. So far as this company is concerned, Assessee has sought exclusion of the aforesaid company on the ground that this company fails employee cost filter as its employee cost was only 3.96%. In this context, the learned AR has relied upon the decision of co-ordinate Bench of this Tribunal in case of M/s Virtusa (India) Pvt. Ltd. (supra). On a perusal of the order passed in case of M/s Virtusa (India) Pvt. Ltd.((supra)), we find that the co-ordinate bench has held that Ishir Infotech Limited cannot be treated as comparable as it does not qualify the employee cost filter as well as RPT filter. This view of ours is also in tune with the view expressed by different Benches of this Tribunal as stated below : a) M/s. Foursoft Limited (ITA.No.1903/H....
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....lowing cases : a) M/s. Foursoft Limited (ITA.No.1903/H/2011) b) M/s. Conexant System India P. Ltd. ITA.No.1978/Hyd/2011 c) Intoto Software India P. Ltd. ITA.2102/H/2010 d) Triology E-Business Solutions ITA.No.1054/Bang/2011 e) Telcordia Technologies India P. Ltd. ITA.No.7821/Mum/2011 f) Bearing Point Business ITA.No.1124/Bang/2011 g) LG Soft India P. Ltd. ITA.1121/Bang/2011 h) Transwitch India P. Ltd. ITA.948/Bang/2011 i) Mercedes Benz Research & Development ITA.No.1222/Bang/2011 j) CSR India P. Ltd. ITA.No.1119/Bang/2011 k) First Advantage ITA.No.1086/Bang/2012 l) HCL EAI Services Ltd. ITA.No.1348/Bang/2011. Respectfully following the aforesaid orders of co-ordinate benches, we direct the Assessing Officer/TPO to consider only the segmental margin of this company for the relevant assessment year for computing ALP. TATA ELXSI LIMITED : 7.6. Assessee has sought exclusion of the aforesaid company by placing reliance upon the information furnished by said company u/s 133(6) wherein the said company has admitted that it cannot be treated as comparable with any other software service provider due to complex nature of its business. However, while the TPO sel....
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....WIPRO LIMITED : 7.7. While objecting to the aforesaid company being treated as comparable, the learned AR submitted that the TPO only on considering segmental details submitted by the said company for IT services, in response to notice issued u/s 133(6), has considered it as a comparable. It was submitted that the aforesaid company is a diversified company and discloses segmental information for IT services and products as one segment in its annual report. It was submitted that the TPO has not provided any other documents excepting segmental information obtained from TP report of Wipro, which is unaudited, manually corrected and unverified. It was submitted that Wipro is also considered to be a giant in its field assuming all the risks and cannot be compared to captive service provider like Assessee. To support his contentions with regard to noncomparability of the said company, he relied upon the following decisions : a) Telcordia Technologies India P. ITA.No.7821/Mum/2011 Ltd. b) Triniti Advances Software P. Ltd., ITA 1129/H/2005. No. c) M/s. Foursoft Limited (ITA.No.1903/H/2011) d) M/s. Virtusa (I) P. Ltd. ITA.No.1962/Hyd/2011 e) M/s. Conexant System India P. ITA.No.....
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....he 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. 7.8.1. On careful perusal of the business activities of Accel Transmatic Ltd. DRP agreed with Assessee that the company was functionally different from 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. It directed the Assessing Officer to exclude ACCEL Transmatic Ltd. from the final list of compara....
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....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. 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 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 Assessee that KALS Information Systems Limited should be rejected as a comparable. 47. We have given a careful consideration to the submission made on behalf of Assessee. We find t....
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....MITED : " As far as Flexitronics Software Limited is concerned, we find that at page 90 of his Order, the TPO has also observed that the said company has incurred expenditure for selling of products and has incurred R & D expenditure for development of the products. The above facts clearly demonstrate that there is functional dissimilarity between Assessee and these companies and without making adjustment for the dissimilarities brought out by the TPO himself, these companies cannot be taken as comparable companies. The method adopted by the TPO to allocate expenditure proportionately to the software development services and software product activity cannot be said to be correct and reasonable. Wherever, the Assessing Officer/TPO cannot make suitable adjustment to the financial results of the comparable companies with Assessee-company to bring them on par with Assessee, these companies are to be excluded from the list of comparables. Therefore, we direct the Assessing Officer/TPO to exclude from the list of comparables." ............. 14. HELIOS & MATHESON information Technology ltd This comparable is objected on the reason of low employee cost of 1.36%. Thus it fails the emp....
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....companies form the list of comparable companies. Assessing Officer is directed to modify and redetermine the Arm's Length Price accordingly. Ground No.3(g) is accordingly allowed. 7. The next ground to be considered is ground no.3(l), which alleges erroneous adoption of operating margin and arithmetic mean of comparable companies by the learned Transfer Pricing Officer. It was submitted that the TPO did not calculate the PLI of the assessee properly and excluded certain costs from the operating cost. Thereby as against the assessee's margin at 11.72%, TPO determined the margin at 10.21%. Even though learned counsel relied on various case-law, it was fairly admitted that this issue becomes academic, if Ground No.4 is considered favourably. Consequently, we direct the TPO to keep in mind the objections of the assessee, while working out the PLI of the assessee company in the re-assessment proceedings. 8. Next ground for consideration is ground No.3(n), which is raised as an additional ground. After considering the objections of the Learned Departmental Representative, additional ground, being legal in nature, is admitted. It is submitted that the assessee does not have any interest....
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....DRP, Hyderabad in the case of Cordys Software India P. ltd., for A.Y. 2008-09 in its directions dated 03.08.2012 has given a finding as under : "7.7. 4 Thus, working capital adjustment is made for the time value of money lost when credit time is provided to the customers. The applicant is not an entrepreneur but a captive service provider. Its entire funding needs are provided by the A.E. This being so, the applicant does not stand to lose anything as it is compensated on a total cost plus basis. The TPO probably was carried away by the large amount of receivables appearing in the books of the applicant. But the applicant is running its business without any working capital risk while comparable companies have such a risk for them. If at all any working capital adjustment is to be made to t his situation, only a positive adjustment has to be made to the comparables so that they are brought on par with the applicant. In view of the same, the Panel directs that negative working capital adjustment to the arithmetic mean margin of the comparables shall not be made." In view of the above, the Panel directs that negative working capital adjustment to the arithmetic mean margin of the ....
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....ted to keep in mind the above directions/findings and work out the working capital adjustment, if any, required to be done, after giving due opportunity to the assessee, while making comparability analysis consequent to this order. This ground is accordingly considered as allowed. 10. Ground No.4 pertains to the action of the Transfer Pricing Officer in considering the costs incurred for rendering services to third parties also while arriving at the Arm's Length Price of the international transactions of the assessee under TNMM. It was submitted that even though assessee has submitted segmental profits, the Transfer Pricing Officer has considered the total cost incurred by the assessee and enhanced the Arm's Length Price determined. When the transactions pertained to AE, costs pertaining to AE only should have been considered by him. In the guise of reducing the sales after revising the value of AE transactions, the TPO in fact made adjustment on the total cost on the services rendered to non-AEs as well. Learned counsel submitted that this issue was decided in favour of the assessee in assessee's own case for the assessment year 2008-09, vide para 15 and 16 of its order dated 2nd....