TaxTMI 
TaxTMI 
TaxTMI 
2017 (12) TMI 198
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....heard. 3. The ground No. 6 and 14 of the appeal of the assessee in ITA No. 1163/Del/2014 are reproduced as under: "6. The learned AO/TPO/DRP have erred in rejecting certain companies which are comparable to the Appellant and adding certain functionally dissimilar companies to the final set of comparable companies. 14. The learned AO/DRP have erred by not making suitable adjustments to account for differences in the risk profile and working capital of the Appellant vis-à-vis the comparable companies." 4. The facts in brief of the case are that the assessee (hereinafter also called as "Adobe India") is a subsidiary of "Adobe USA". During relevant period, the assessee was engaged in providing software development services to 'Adobe USA'. It also provided marketing and sales support services to 'Adobe System Software, Ireland'. For the year under consideration, the assessee filed return of income on 28/09/2009, declaring total income of Rs. 24,74,56,967/- after claiming exemption under section 10A of the Income-tax Act, 1961 (in short 'the Act') amounting to Rs. 32,78,01,197/-. The case was selected for scrutiny and notice under section 143(2) of the Act was issued and co....
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.... 18,73,02,909 2. Provision of marketing support services Rs. 1,18,51,961 3. Total Rs. 19,91,54,870 4.4 Aggrieved, both the assessee and the Revenue filed appeal before the Tribunal. 5. Under 'software development services' segment out of the list of comparable suggested by the assessee, the learned TPO rejected few comparables, however the Ld. DRP, allowed request of the assessee for retaining following two comparables: 1. Quintegra Solutions Ltd. 2. Zylog Systems Ltd. 5.1 The Revenue in its appeal challenged retaining (inclusion) of the above two comparables by the Ld. DRP. 5.2 Further, under the 'software development services', out of the list of the comparables included by the learned TPO, the DRP considered objections of the assessee and directed to retain/reject comparables as follows: 1. Bodhtree Counselting Ltd. Rejected 2. FCS Software Solutions Ltd. Retained 3. Infosys Technologies Ltd. Retained 4. Tata Counseltancy Services Retained 5. Wipro Ltd. Retained 6. Zenith Infotech Ltd. Retained. 5.3 Before the Tribunal, the assessee in ground No. 6 challenged retaining (inclusion) of above comparables except FCS Software Solutions Ltd. The Revenu....
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....parables excluded under the 'marketing support service' segment and confine ourselves to the comparables challenged under software development service due to following reasons: 1. The assessee made plea before the Hon'ble High Court that its argument in respect of the comparables has not been considered by the Tribunal and on said plea the Hon'ble High Court has restored the matter back to the Tribunal. Evidently, the plea of the assessee was in respect of comparables under the software development service and not in respect of marketing support service. 2. The Tribunal has already given finding in respect of marketing support service and that finding has been challenged by the Revenue, which is pending before the Hon'ble High Court . 6.4 In the circumstances, as far as ground No. 6 of the appeal of the assessee is concerned, we restrict ourselves to comparables retained by the Ld. DRP and challenged by the assessee under software development services. 6.5 Before us, the Ld. counsel challenged exclusion of the following five comparables, which we are discussing as under: Bodhtree Consulting Ltd 6.5.1 The learned counsel submitted that the comparable is functionally dissimi....
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.... Life India Service Centre Private Limited (ITA No. 1489/Del/2014). 6.5.4 The Ld. CIT(DR), on the other hand, referred to page 6 of the order of the ld. TPO and submitted that assessee was not merely routine software development service provider, but it was engaged in developing new products through research and development activity for its AE. He also referred to page 61 to 66 of the order of the Ld. TPO and submitted that AE has registered/applied for the patents having source in India, which established that the assessee has provided significantly valueadded services to its AE, capable of generating patents for the associated enterprises in US. He submitted that remuneration has to made at much higher level as the economic ownership of the intellectual property intangibles vest with assessee. 6.5.5 Regarding the argument of the Ld. counsel that the comparable company is engaged in various products, the Ld. CIT(DR) submitted that assessee is also engaged in development of various products . On the issue of the high turnover and industry giants, the Ld. CIT(DR) submitted that the assessee is also not a small captive service provider and it is having turnover of more than Rs. 285....
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....d design of the software are being done in the supervision or direction of the 'Adobe US' and the assessee's having limited role in these activities, but, in our opinion, it is evident from the transfer pricing study, as far as development of software modules is concerned, the assessee also plays a dominant role. The learned TPO in the order has brought on record that the assessee has not provided the details of software developed or designed and conceptualizations was done abroad and development work was done in India. He also mentioned that details of software developed completely and description of functions in India and abroad was not provided to him despite numerous opportunities given to the assessee. The assessee has even not brought any such evidences before us. 6.5.10 In such circumstances, on the basis of the evidence before us, we conclude that the function of the assessee company becomes similar to the comparable company, who develops products for the client and provide service in respect of those products. 6.5.11 As far as argument of the high turnover of the comparable (Rs.20,264 crores) as compared to turnover of the assessee (Rs. 285 crores), is concerned, we plac....
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....l functions to generate intangibles, and thus it becomes functionally similar to the comparable company who has also generated intangibles during the year. The assessee also deserves to be compensated for generation of the intangibles similar to the intangible exploited by the comparable. 6.5.13 Next argument of the learned counsel for rejection of the comparable is on-site filter. The learned counsel submitted that during the year under consideration the comparable earned 49.3% of the revenue from on-site activities. In our opinion, by providing the staff at the site of the client is akin to making the staff available for exclusive work of the client. We find that the assessee also acts as captive service provider for its AE. In both the cases the ultimate function which is carried out is of the software development services. We find that in this manner, the on-site activity of the comparable does not make any functional difference between the assessee and the comparable. 6.5.14 The learned TPO has brought on record in the order that the assessee has employed 1367 employees out of which 1342 employees were engaged in providing software development services. He further submitted ....
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....ted (ITA No. 1489/Del/2014). He also submitted that the company should be excluded relying on the assessee's own order of the Tribunal for assessment year 2008-09 for rejecting of Infosys. 6.5.19 The learned CIT(DR), on the other hand, submitted that the acquisition/merger during the year has not affected the revenue operation during the year and it has not affected the economy of the business. 6.5.20 We have heard the rival submissions and perused the relevant material on record. We find from pages 105 of the Annual Report (page 1138 of the assessee's paper book) that the company has shown income from information technology and consultancy services of Rs. 21,535 crores and bifurcations of information technology and consultancy service has not been provided in the annual report. We also find that the revenue of the assessee include sale of equipment and software licenses, amounting to Rs. 868.25 crores. Thus, in absence of segment result of consultancy and information technology, the result of the company cannot be compared with the result of the assessee company. Further, from the page 23 of the annual report of the comparable (page 1056 of the assesses paper book), we find that....
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....ompany is leading India-based provider of IT service including business process outsourcing (BPO) and further it has other businesses such as IT products and customer care and lighting. In the financial statements no separate segment has been provided in respect of sale of the customer care and lighting products. In absence of such segment result, the entity level result of the company cannot be compared with the assessee. Further on page 49 of the Annual Report (page 1304 of the paper book) of the company following details have been provided in respect of acquisitions and mergers: 1. Acquisitions In January 2009, the Company acquired 100% shareholding in India based Citi Technology Services Limited (subsequently renamed as Wipro Technology Services "WTS") for a purchase consideration of US $ 127 Million. WTS is an India based provider of information technology services and solutions to Citi Group worldwide. WTS has a strong competency in Technology Infrastructure Services (TIS), application development and maintenance services (ADM) for cards, capital markets and corporate banking. The acquisition will enhance Wipro's capabilities to compete for both TIS business and ADM busi....
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....vious year. This growth was driven by the sales of the company's SAAZ remote management software,-Virtual NOC remote management service and the backup and disaster recovery (BDR) product line. Being a software product company, the company sells Its products through a vast network of resellers In North America, UK and Australia. The company's reseller network grew from approximately 1,500 resellers at the end of 2007-2008 to more than 3,000 resellers at the end of 2008- 09. The number of enterprises using the companies SAAZ product and Virtual NOC service increased from approximately 10,000 at the end of 2007-2008 to over 22,000 customers at the end of 2006-2009. With respect to re the company's BDR product, the number of Installations Increased from approximately 3,000 at the end of 2007- 200810 over 9,000 at me end of 2008-2009. Towards the end of the financial year, the company launched a new product in the backup and disaster recovery rent called ARCA (Advanced Recovery and Continuity Appliance). ARCA is a business continuity product designed for midmarket and enterprise customers as compared to the company's BDR product which is meant for SMB (small and medium bu....
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.... Networks India Pvt. Ltd. - Delhi ITAT - ITA 4765/ Del/ 2011 and 427/ Del/2013 - Page 8 (Para 10.8) 7.3 Ld. CIT(DR), on the other hand, relying on the order of the lower authorities submitted that assessee cannot make a request for working capital adjustment at the stage of the Tribunal. 7.4 We have heard the rival submission and perused the relevant material on record. We find that the assessee has requested for allowing working capital adjustment, which the learned TPO has discussed on page 55 of his order. Similarly the Ld. DRP has also discussed the objection of the assessee against denial of working capital adjustment while adjudicating ground 11 and 12 of the objections of the assessee. The Ld. DRP held that adjustment of functional differences if any can be made only if those differences can be ascertained accurately and their impact on the margins can be assessed with reasonable accuracy and in absence of this information it was impossible to quantify the adjustment of such difference. 7.5 In view of the above finding, is evident that the claim of working capital adjustment has not been made for first time before the Tribunal. Further we find that the working capital ad....