TaxTMI 
TaxTMI 
2017 (11) TMI 908
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....uter skilled manpower and other computer related activities to carry out development in the area of information technology, computer systems, software, application software, integrated tolls for computer systems and application development, data communication and network. During the year under consideration, the assessee entered into international transaction of Rs. 20,61,19,812 regarding rendering of services i.e. "Software Development Services". The assessee used TNMM as the method and OP/TC as the PLI. The assessee arrived at a set of 9 companies with an average margin of 7.64%. The assessee used multiple year data. The assessee's own margin worked out to be 13.48%. Based on this analysis, the assessee concluded that its international transactions are at arm's length. A show cause notice dated 07.12.2015 was issued to the assessee. The assessee filed reply dated 28.12.2015 in response to the show cause notice and the personal hearing was conducted on the same day. The TPO rejected the objections raised by the Assessee by rejecting the economic analysis of the assessee. Foreign exchange fluctuation was also treated as non operating income of the taxpayer and also in the case of c....
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....solution Panel (DRP) and DRP issued certain directions to the TPO vide order dated 18.11.2016. The TPO followed the DRP directions as follows: S. No. Name of the Company OP/OC (%) DRP directed to consider forex as operating OP/OC (%) 1 Acropetal Technologies Ltd. (seg) 65.92 65.92 2 Akshay Software Technologies Ltd. 7.77 9.87 3 Celstream Technologies Pvt. Ltd. 11.34 7.13 4 Cigniti Technologies Ltd. 8.28 9.08 5 Infosys Ltd. 42.15 42.15 6 Sasken Communication Technologies Ltd. 14.58 14.58 7 Lucid Software Ltd. 11.10 11.64 8 Larsen & Toubro Infotech Ltd. (Industrial Cluster) 27.16 16.06 9 Persistent Systems Ltd. 26.92 26.27 10 R S Software (India) Ltd. 15.43 15.43 11 Sankhya Infotech Ltd. 5.68 6.27 12 Mindtree Ltd. (IT Service Segment) 19.19 15.01 13 Spry Resources Pvt. Ltd. 33.59 33.59 14 Tata Elxsi Ltd. 14.32 15.17 15 Thirdware Solutions Ltd. (Overseas segment) 11.10 11.10 16 Zylog Systems 32.01 28.38 &....
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.... not available in the audited financial statements. The TPO rejected the contentions of the assessee company during the TP proceedings and held that Information Technology segment providing outsourced SWD services has been considered. The Ld. AR submitted that operating expenses and operating income are not allocated in the segmental details provided in the financial statements. Accordingly, correct and accurate operating profit margin of the IT segment cannot be computed. The Ld. AR further submits that the company acquired two US based companies, namely, Line Beyond Inc, and Optech Consulting Inc. The company acquired 100% stake in Line Beyond Inc. and 70% stake in Optech Consulting Inc. Further, the company also acquired two domestic companies, viz., Mind River Information Technologies Ltd. and Kinfotech Pvt. Ltd. Thus, the Ld. AR submits that it is an extra-ordinary event which the TPO has overlooked while selecting this as comparable. 4.2 The Ld. AR relied upon the decision of Hon'ble Delhi High Court in case of Rampgreen Solutions Pvt. Ltd. vs. CIT (377 ITR 533), wherein there is a clear distinction between BPO and KPO companies and it was held that a company engaged in prov....
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....) * Equant Solutions India (P.) Ltd, vs. DCIT (ITA No. 1202/Del/2015) 4.3 The Ld. DR submits that the segment is of IT service only and there is no product included in the same. The Ld. DR further submits that % is very less so hardly it will make any difference. The Ld. DR relied upon the orders of the TPO and the DRP. 4.4 We have heard both the parties and perused the records available before us. This company is engaged in provision of high end healthcare services and develops & owns related intellectual property providing a substantial competitive advantage to this company, leading to higher profitability. As per the annual report, the company is engaged in the sale of software products. In assessee's case, the company is undertaking software development which is more of an event constituting a new stage in a changing situation, than a complete product. Therefore, Acropetal Technologies Limited is functionally different from the assessee company and should have been excluded by the TPO. Further, the segmental data was not available for the assessment year under question of this company. The company is engaged in two business segments, i.e., sale of products and sale of servi....
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.... Toluna India Pvt. Ltd. vs. ACIT (ITA No, 5645/del/2011) wherein the Tribunal directed to exclude Infosys holding that the company is a giant risk taking company and cannot be compared with a captive service provider. Delhi Bench of the Tribunal in the case of Ut Starcom Inc. (India Branch) vs. DDIT (ITA No. 5848/Del/2011), also directed to exclude Infosys holding that the company is a giant risk taking company and cannot be compared with a captive service provider. Delhi Bench of the Tribunal in the case of Avaya India Pvt. Ltd. vs. DCIT (ITA No. 146/Del/2013) directed to exclude Infosys on account of being a giant company. Delhi Bench of the Tribunal in the case of AVL India Software Pvt. Ltd. vs. DCIT (ITA No, 6454/Del/2012) directed to exclude Infosys holding that the assessee providing services to its AE on a cost plus basis without having any intangible assets cannot be compared with a giant company like Infosys. The Ld. AR relied upon the following decisions, wherein, Infosys Technologies Ltd, was directed to be excluded holding that the company is a giant company having significant intangibles: i. Nokia Siemens Networks India Pvt Ltd vs. ACIT (ITA No. 5837/Del/2011) i. ....
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....Ltd. vs. ACIT (ITA No. 6148/Del/2015), wherein, L&T Infotech Ltd. was directed to be excluded holding that the company is also engaged in business of software product and segmental information is not available. The appeal filed by the Revenue was dismissed by the Hon'ble Delhi High Court in ITA No 682/2016. The Ld. AR further submits that Delhi Bench of the Tribunal in the case of Alcatel-Lucent India Ltd, vs. DCIT (ITA No. 6856/Del/2015) directed to exclude Larsen & Toubro on account of functional dissimilarity and unavailability of segmental data. The Ld. AR also relied upon the following decisions, wherein, Larsen & Toubro was directed to be excluded on account of unavailability of segmental data: * Pegasystems Worldwide India Pvt. Ltd vs. ACIT (ITA No. 1758/Hyd/2014) Cerner Healthcare Solutions P Ltd vs ITO (ITA No, 44/Bang/2015) * Invensys Dvelopment Centre India Pvt, Ltd. vs DCIT (ITA No 383/Hyd/2014) * M/s Broadcom India Research Pvt Ltd. vs, DCIT (ITA No, 62/Bang/2014) 4.9 The Ld. DR relied upon the orders of the TPO and DRP 4.10 We have heard both the parties and perused the material available on record. This company is engaged in two business segments, namely, sof....
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.... which are functionally different has to be excluded. Therefore, we direct TPO to exclude this company from comparables. 4.14. Persistent Systems Ltd. The Ld. AR submitted that Persistent Systems Ltd. is engaged in the business of development and sale of software products and therefore, cannot be regarded as comparable to the applicant, a routine software service provider From the annual report of the company, it would be appreciated that during the relevant previous year, the company launched a new product, namely, eMee, an employee engagement platform, targeted towards SME clients. Further, at page 49 of the annual report of the company it is stated that during the relevant previous year, the company has developed and launched two new products namely eMee and KLISMA. The Ld. AR relied on the decision of Delhi Bench of the Tribunal in the case of Cash Edge India (Pvt.) Ltd vs ITO (ITA No. 64/Del/2015), directed to exclude the company on account of functional dissimilarity. Appeal preferred by the Revenue was dismissed by the Hon'ble Delhi High Court vide order dated 04.05.2016 (ITA No, 279/2016). Delhi Bench of the Tribunal in the case of Equant Solutions India Pvt, Ltd. vs. DCI....
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....has asked for annual report of this company which was not given to the assessee. The TPO is directed to consider the objection of the assessee. The TPO is directed to take on record the financial statement and give opportunity to assessee for hearing to that extent. The TPO thereafter should consider whether this comparable is proper or not in assessee's case. 4.20. Zylog Systems Ltd. The Ld. AR submitted that this company is engaged in the business of development and sale of software products. At page 21 of the annual report, it is stated that products and solutions offered by the company are it's main differentiators vis-a- vis the competitors. The company invests heavily in development of new products and also owns IP rights with respect to various software products such as Field Power, Smart Migrator and Bank. Companion. Further, at page 26 & 37 of the annual report, it is stated that the company spends significant resources on the R&D activity for the purpose of development of new products. Further, as on March 31, 2012, the company has capitalized a sum of Rs. 97.72 crore as product development cost under the head intangible assets. (Fixed asset schedule at page 73 of the a....
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....specific functional dissimilarity. In response, the assessee company vide reply dated 23.12.2015 submitted a detailed submission substantiating that the company is functionally comparable to the assessee company. However, the TPO failed to adjudicate the aforesaid objection in the Transfer Pricing order. The Ld. AR submitted that the company is engaged in the business of provision of software services such as software validation and verification services. At page 38 of the annual report, it is evident that the business operations of the company predominantly relates to software validation and verification services relating to banking and financial services industry. During the financial year 2011-12, the company earned 100 percent revenue amounting to Rs. 1,118,983,577 from provision of software services. The Ld. AR relied upon the decision of Pune Bench of the Tribunal in the case of TIBCO Software India Pvt. Ltd. vs. DCIT (ITA No. 2536/PN/2012), wherein, the Tribunal directed TPO to include Thinksoft Global Services Ltd holding that verification and validation services provided by the company is similar to software development services. 5.2 The Ld. DR relied upon the orders of t....