TaxTMI 
TaxTMI 
2017 (7) TMI 768
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....rred to separately, which may kindly be considered independent of each other and without prejudice to each other. That on the facts and circumstances of the case and in law, Transfer Pricing grounds: 1. The learned AO/TPO/DRP have erred in making an addition of INR 334,238,459 to the total income of the Appellant on account of adjustment in the arm's length price ("ALP") of the international transactions related to software development services entered into by the Appellant with its associated enterprises ("AEs"). 2. The learned AO/TPO/DRP have erred by not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Income Tax Rules, 1962 ("the Rules"). 3. The learned AO/TPO/DRP have erred in making an adjustment under Section 92CA(3) of the Act without returning a finding about existence of any of the circumstances specified in clauses (a) to (d) of sub-section (3) of Section 92C of the Act. 4. The learned AO/TPO/DRP have erred by rejecting certain comparable companies identified by the assessee for having different accounting year (i.e. having accounting year other than Mar....
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....nd, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. The Appellant prays for appropriate relief based on the said grounds of appeal and the facts and circumstances of the case." 2. Ground nos. 1 to 11 relate to the determination of Arm's Length Price (ALP) of the international transactions entered by the assessee. The facts culled out from the record in this regard are that the assessee company is engaged in development of software in various stages like engineering, research, development, debugging, coding, quality control checks, testing application, designing and programming and is exporting its services to M/s Adobe Systems Inc., USA and to M/s Adobe Systems Software, Ireland. 3. On examination it was noticed that the assessee has entered into international transactions and during the year has made transactions with its Associated Enterprise (A.E.). The total transactions have been declared at Rs. 3,35,31,95,993/-. The Assessing Officer (A.O.) accordingly made a reference to the Transfer Pricing Officer (TPO) and the T.P.O. having taken 21 comparables determined the ALP. The order of the T....
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....they cannot be called to be good comparables for computing the ALP for international transactions. Accordingly the Tribunal directed the AO/TPO to exclude these comparables from the list of comparables. It has also been brought to our notice that Sun Life India Service Centre Pvt.Ltd. was set up to provide software development and maintenance support services and back office support services, to its Sun Life Information Service Ireland Ltd. the A.E. for assisting in their projects. 5.2. The method selected was also TMM method as was done in the instant case. A copy of the order of the Tribunal is also placed on record. The Ld.D.R. placed heavy reliance upon the order of the lower authorities with the submission that profile of the assessee and Sun Life India Service Centre Pvt.Ltd. is not same, therefore, the order in this case will not apply to present case. 5.3. Having heard the rival submissions and from a careful perusal of the order of The Tribunal we find that the assessment year involved in that case is 2010-11 and that the profile of Sun Life Service Centre Pvt.Ltd. and assessee are almost similar. Having examined the profile and data available with respect to the com....
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....this company is engaged in technical consulting, systems integration, infrastructure management services. He also submitted that this company is exposed to significant customer address due to sole customer being Fujitsu services Ltd. Ld.TPO did not accept the contentions of the assessee and retained this company as a comparable. It was further submitted that this company was not selected by ld.TPO, either in earlier year or in later years. The ld.AR submitted that insufficient segmental information was available in respect of this comparable. The counsel has relied on the order passed by ld.TPO for assessment year 2009-10. 10.7. Ld. DR, however, referred to the extracts from the order of ld.TPO, and submitted that Infinite Data Systems Pvt Ltd is a comparable company with that of assessee. 10.8. After considering the rival contentions and pursuing the annual reports placed on record, we are of the opinion that this company cannot be selected as comparable for TP analysis. A perusal of the annual report of this company for assessment year 2010-11, suggests that it is a full-fledged IT consulting organisation and provides services in the nature of technical consulti....
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....arables. The Ld.Counsel for the assessee further contended that the Sonata Software fails on RPT filter as related party transactions in this case was 55.95%, where as Wipro Technology Services Ltd. are functionally different from the assesseees, as is engaged in information technology, software solution/maintenance and technology infrastructure support service. It was further contended that there was no separate segment for software services. The Ld.Counsel for the assessee further contended that both these comparables were examined by the Tribunal in the case of Equant Solutions India Pvt. Ltd. in ITA 1202/Del/2015 A.Y. 2010-11, wherein the Tribunal has held that if the RPT is in excess of 25% which is the filter set by the TPO himself, then this comparable fails and therefore to be excluded and for verification the matter was restored to the TPO. With regard to Wipro Technology Services Ltd. the Tribunal held relying upon the other judgements of the Coordinate Bench in the case of Agnity Technology Pvt. Ltd. that this Wipro Technology Services Ltd. is not a good comparable. The relevant observations of the Tribunal in this regard are as under. a. The TPO has included So....
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.... a. TPO has included Wipro Technology Services Ltd having a margin of 73.35% and it has been upheld by DRP. Before us, the Id AR submitted that this company has huge related party transaction as company's total revenue is governed by master service agreement with CITI technology services Limited where the 100 % of the equity is owned by Wipro. Therefore, the entire revenue of this is much related party. It was further submitted that it has turnover of more than 24 times of the assessee and has huge brand value of Wipro and therefore it should be excluded. He further buttressed his claim of exclusion by submitting the volatile PLI of the company from 52.55 % to 80.81 % in a chart for three years. b. Ld. DR Relied on the order of TPO and DRP for the reason given for selection of this comparable. c. We carefully considered the rival contention regarding exclusion of this comparable. This company had agreed an agreement with CITI Technology Services Ltd, which is 100% subsidiary of Wipro Technology Ltd. The entire revenue during the year is covered by a master service agreement entered into by Wipro with CITI Group Services. Further, this company is also a....
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....and available data and has held that these comparables are to be included in the final list of comparables. 5.9. The Ld.D.R. on the other hand has submitted that the TPO has not taken into account these comparables as they are functionally different from the profile of the assessee. 5.10. Having carefully examined the orders of lower authorities and orders of the Tribunal in the case of Sun Life India Service Centre (supra) we find that the Tribunal has examined these comparables in the light of assessee's contentions and was of the view that these comparables be included in the final list of comparables. The relevant observations of the Tribunal is extracted hereunder for the sake of ready reference. "Software Development Segment CG-VAK Software and Exports Ltd (Seg.) 10.36. The ld.TPO excluded this company from the list of comparables by holding that this company does not satisfy the employee cost filter. 10.37 We find that the Ld. TPO has accepted the submissions of assessee which is as under: "38.2 In its reply, the assessee has stated that the employee cost to total cost of the company is 68.22%, and it satisfies all the filters applied by the TPO and being f....
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....d circumstances are identical particularly in the case of same assessee. We accordingly direct the ld. TPO/AO to include this company to the list of comparables. R Systems International Ltd 10.38. The ld.TPO has rejected the company on account of different financial year ending vis-a-vis the assessee. The ld.AR submitted that companies whose financial data was available for the relevant period, were considered in view of rule 10 D (4), which provides that information to be used must be contemporaneous. The ld. AR further submitted that though the Company has different financial year ending, were operating during the same period of time as the assessee, and were also facing similar business cycles, market and economic conditions as faced by assessee having financial year from April to March. He thus submitted that in absence of evidence available to the contrary that there has been a significant impact on the margins due to change in different reporting/accounting period, it is incorrect to disregard the comparable using this filter. Ld.DR, however, referred to the extracts made by the ld.TPO in his order to submit that R Systems International Ltd., should not be considered co....
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....dered opinion, if a comparable is functionally same as that of the tested party then the same cannot be rejected merely on the ground that data for entire financial year is not available. If from the available data on record the results were financial year can be reasonably extrapolated, then the comparable cannot be excluded solely on this ground. The learn ADR as referred to rule 10 B (4) which only mandates that the data which is to be utilised for analysing the comparability of uncontrolled transactions with an international transaction, has to be financial year only in which the international transaction has been entered into. This rule is based on matching principle but this role cannot be interpreted in such a rigid manner so as to defeat the basic object of rule viz., selection of the comparable for determination of arms length price of an international transaction" (emphasis supplied) 10.40. In any case the ld.TPO has not cited any instances of functional dissimilarity of this comparable company with that of assessee. We therefore direct the ld.AO/TPO to consider this company in the final list of comparable. Calibra Point, Business Solutions Ltd, Helios & Ma....
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....trapolated. The ld.TPO must demonstrate with documentary evidence/research materials placed on record to the contrary to suggest otherwise. In the event the contemporary comparative analysis undertaken ease in accordance with the rule 10 B (2) and also in line with globally accepted practices, the use of different accounting year is appropriate, as long as the international transaction pertain to the same accounting year." 5.11. Since the aforesaid comparables were not examined by the TPO while determining the ALP we direct the TPO to examine these comparables and if it is found to be similar with the profile of the assessee and are not to be excluded on any of the filters, the same may be considered as good comparables for determining the ALP on international transactions. While doing so the order of The Tribunal be also kept in mind. 6. With regard to Silver Line Technology it was contended by the Ld.Counsel for the assessee that the different financial year filter is inappropriate and immaterial and in this regard he placed reliance upon the judgement of Hon'ble Delhi High Court in the case of CIT vs. Mckinsey Knowledge Centre India Pvt.Ltd. in ITA 217/2014 dt. 27.3.2015 i....