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2017 (12) TMI 198
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....10/2017 and, thereafter, both parties were 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 ....
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....No. Nature of international transaction Adjustment 92CA under section 1. Provision of software development services Rs. 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. Re....
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....ng before the Hon'ble High Court of Allahabad, but on the other hand, entire ground No. 6 of the appeal of the assessee has been restored back to the Tribunal. In the circumstances, we do not deem it proper to adjudicate in respect of the comparables 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 s....
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....lusion of the comparable were submitted by the Ld. Counsel as high turnover, industry giants and significant intangible assets and having high brand value. He further submitted that the said comparable company has been excluded by the ITAT Delhi bench in the case of Sun 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. C....
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....ity control procedure with respect to the software modules developed by it. ( Page 24 of the TP study) e) Adobe India also performs unit test for the software modules developed by it.( Page 25 of the TP study).´ 6.5.9 Though, in the TP study the assessee has furnished that conceptualization and 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 t....
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.... it because it not include return associated with economic ownership of intangibles." 6.5.12 We agree with the fact that the assessee has developed these intangibles in India and transferred to the AE, who is registered as legal owner. Thus, though the legally assessee is not owner of the intangibles, but it has carried out all 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....
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....not be compared with assessee company. Other reasons for exclusion of the said comparable submitted include high turnover, industry giant, significant brand value and significant intangible assets. The Ld. counsel submitted that the company has been excluded by the Tribunal Delhi bench in the case of Sun Life India service Centre private limited (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 o....
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....hat the comparable company is functionally similar to the assessee company and having significant R&D activity. He further submitted that amalgamation during the year has not affected the PLI of the comparable. 6.5.24 We have heard the rival submission and perused the relevant material on record. We find from page 70 of the Annual Report of company that the company 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. W....
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....ial on record. The management discussion and analysis of the comparable company on pages 1401 of the paper book, reads as under: "The Company's business comprises of domestic and overseas operations: During the year the overseas operations of the company registered strong growth. Revenues from our overseas operatiosn doubled to Rs. 183.72 crores from Rs. 97.33 crores during the previous 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....
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....or assessment year 2011-12 and assessment year 2012-13. Further, in support of the claim of working capital adjustment the Ld. counsel relied on following decisions: * Mercer Consulting (India) Pvt. Ltd-(ITA No.966/Del/2014)- for AY 2009-10. * Agilent Technologies International Private Limited (ITA No. 1837/DEL/2014) * Also in NaviSite India Private Limited (ITA No. 5329/DEL/2012) [Para 72, Page 53] * Nortel 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 functiona....