TaxTMI 
TaxTMI 
2015 (7) TMI 1276
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....r Pricing (TP) documentation by the learned Deputy Director of Income Tax (Transfer Pricing Officer - V) (TPO') and thereby erred in not appreciating that the Appellant had prepared the TP documentation bona fide and in good faith and conducted the comparable analysis based on the detailed Functional Asset and Risk analysis performed with due diligence and the data available at the time of conducting the comparability analysis. 3 That the learned AO and the learned Panel erred in ignoring the limited risk nature of the services provided by the Appellant as detailed in the TP documentation and in upholding the conclusion of the learned TPO that no adjustment on account of risk differential is required while determining the Arm's Length Price of the international transactions of the Appellant, but for an adjustment towards differences in the working capital position between the Appellant and the entrepreneurial comparable companies. 4 That the learned AO and the learned Panel erred both in facts and law in confirming the action of the learned TPO of making an adjustment to the transfer price of the Appellant by Rs. 17,785,678 in respect of contract software development serv....
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.... 5. That the order of the learned Assessing Officer ('AO') is contrary to the provisions of law and liable to be quashed. 6. That the learned AO erred in not allowing deduction under section 10A of the Income tax Act,1961 ('the Act') in respect of the entire profit of the ndertaking registered with the Software Technology Parks of India. 7. That the learned AO erred while computing deduction under section 10A of the Act in treating telecommunication expenses and insurance expenses as 'expenditure attributable to the delivery of software outside India' under Explanation 2(iv) to section 10A of the Act. 8. That the learned AO erred while computing deduction under section 10A of the Act in treating expenditure in foreign currency as 'expenses incurred in foreign exchange in providing technical services outside India' under Explanation 2(iv) to section 10A of the Act. 9. That the learned AO erred while computing deduction under section 10A of the Act in reducing the telecommunication expenses of Rs. 25,13,0001-, insurance expenses of Rs. 1,06,0001- and expenditure in foreign currency of Rs. 16,40,0001- from the export turnover. 10 That the learned ....
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.... of the comparable companies at 20.68% and after reducing the working capital adjustment of 0.24%, he arrived at the average mean of 20.92% on the operating cost and arrived at the adjustment u/s 92CA at Rs. 1,77,85,678/-. Pursuant to the order u/s 92CA of the Act, the AO passed the draft assessment order which was furnished to the assessee. Aggrieved by the same, assessee preferred objections before the DRP which granted partial relief to the assessee. In compliance with the directions of the DRP, AO passed the final assessment order making transfer pricing adjustment and against the same, assessee is in second appeal before us. 5. At the time of hearing, the learned counsel for the assessee has filed a chart as well as brief synopsis of the case before us. The same is taken on record and is disposed of on the basis of the said chart subject to the arguments advanced by the learned departmental representative. 6. The assessee has also filed additional grounds of appeal for application of turnover filter of Rs. 1 to 200 crore and to exclude (i) Infosys (ii) Flextronics, (iii) iGate Global Solutions Ltd., (iv) Persistent Systems Ltd., and (vi) Sasken Communications Ltd., from the ....
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....the TPO to exclude these companies from the final list of comparables. 6.3 Further, the assessee is also seeking application of RPT of more than 15%. We find that this Tribunal, in various decisions, has been holding that RPT filter of more than 15% is to be adopted for determining the ALP. The assessee has sought exclusion of the following companies on the ground of RPT of more than 15%: Sl. No. Name of the company RPT on sales 1 Aztec Software Ltd. 17.77% 2 Geometric Software Ltd. 19.34% 3 Megasoft Ltd. 17.09% As observed above, this Tribunal, in various other cases pertaining to the very same assessment year has taken a similar view. Respectfully following the same, we direct the AO to exclude these companies from the final list of comparable companies. 6.4 In addition to the above, assessee is seeking exclusion of the following companies on functional dissimilarity: 1. KALS Info Systems Ltd. 2. Tata Elxsi Ltd. (seg.) 3. Accel Transmatics Ltd. (Seg.) It is stated by the learned counsel for the assessee that the assessee had raised objections against these companies before the TPO as well as the DRP but the same has not been appreciated by the lower aut....
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....er the annual report, the salary cost debited under the software development expenditure was Q 45,93,351. The same was less than 25% of the software services revenue and therefore the salary cost filter test fails in this case. Reference was made to the Pune Bench Tribunal's decision of the ITAT in the case of Bindview India Private Limited Vs. DCI, ITA No. ITA No 1386/PN/1O wherein KALS as comparable was rejected for AY 2006-07 on account of it being functionally 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. The 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 the 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....
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....nt. 4.3 On careful perusal of the business activities of Accel Transmatic Ltd. DRP agreed with the assessee that the company was functionally different from the 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. DRP therefore directed the Assessing Officer to exclude ACCEL Transmatic Ltd. from the final list of comparables for the purpose of determining TNMM margin." Besides the above, it was pointed out that this company has related party transactions which is more than the permitted level and therefore should not be taken for comparability purposes. The submission of the ld. counsel for the assessee was that if the above company should not be considered as comparable. The ld. DR, on the other hand, relied on the order of the TPO. 50. We have considered the submissions and are of the view that the plea of the assessee that the aforesaid company should not be treated as comparables was considered by the Tribunal in Capgemini India Ltd (supra) where the assessee was software developer. The Tribunal, in the said dec....
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....d from the list of comparable parties." 15. In view of the above, the ld. counsel for the assessee fairly admitted that comparable company at Sl.No.6 viz., Flextronics Software Systems Pvt. Ltd. should be taken as a comparable, while comparable at Sl.No.24 viz., Tata Elxsi Ltd. should be rejected as a comparable." 18. In view of the aforesaid decision, we hold that Tata Elxsi has to be excluded from the list of comparable chosen by the TPO. Respectfully following the same, we direct the AO to exclude these companies from the list of comparables. 7. As regards Infosys Ltd., it is the case of the assessee that the turnover of Infosys was Rs. 9028/- crores and it was also functionally different from the assessee as it owns IPR's and intangibles and is involved in diversified operations; is also engaged in development of software products and is also engaged in research and development activity. He has also placed reliance upon the decision of the Hon'ble Delhi High Court in the case of Agnity India Ltd. (ITA No.1204/2011 dated 10th July 2013), for exclusion of the said company from the list of comparables. We find that the Hon'ble High Court, in the case of Agnity had held as unde....
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....e is now remitted to the file of the AO/TPO for redetermination of the ALP after excluding the above comparable companies as directed by the Tribunal. 8. As regards the grounds relating to non-transfer pricing issues, we find that the grounds No.6 to 10 are relating to computation of deduction u/s 10A of the Act. The learned counsel for the assessee has submitted that the assessee is making an alternative claim to this ground in ground No.11 wherein it is prayed that this expenditure, if reduced from the export turnover, may also be excluded from the total turnover in computing deduction u/s 10A of the Act. As we find that the alternative ground of appeal i.e. ground No.11 to grounds No.6 to 10 is covered in favour of the assessee by the decision of the jurisdictional High Court in the case of Tata Elxsi Ltd. reported in 349 ITR 98, respectfully following the same, we direct the AO to reduce these expenses both from export turnover as well as total turnover for computation of deduction u/s 10A of the Act. Thus grounds 6 to 10 are rejected and ground No.11 is allowed. 9. Ground No.12 is against the disallowance of Rs. 44,859/- incurred by the assessee on delayed remittance of tax ....
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....oneously applied the provisions of section 194C holding that the payment to any contractor for carrying out any work requires deduction of tax at source at the time of credit of such income to the account of the contractor or at the time of payment thereof in cash or by issue of cheque or draft or any other mode whichever is earlier and since the assessee has failed to make such TDS, the AO, disallowed the same. The learned counsel for the assessee submitted that this amount was not paid to the service apartment as a consideration for any service contract but was for usage of the service apartments for a short period and was reimbursed to the employees for the expenses incurred by them towards stay during their training period. Therefore, according to him, it is not in the nature of rent and the provisions of sec.194C are not applicable. He further submitted that the amount paid to each of the employees was only Rs. 95,000/- whereas the limit fixed under the Act for exemption is Rs. 1,20,000/-. He, therefore, submitted that these amounts cannot be treated as rent and TDS provisions cannot be applied. The learned departmental representative, however, supported the orders of the auth....