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2015 (7) TMI 1276
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....nel') erred in upholding the rejection of Transfer 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....
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.... 92C(2) of the Act, while determining the arms' length price Other than Transfer Pricing Related 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. 1,0....
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....rejected the comparables selected by the assessee and adopted his own comparables and arrived at the average arithmetical mean 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....
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.... Genesis Integrating Systems (India) P Ltd. vs. DCIT reported in (2012) 20 Taxmann.com 715(Bang.) has held that turnover is a reasonable filter to be adopted and has also prescribed the slabs of Rs. 1 to 200 crores, Rs. 200 to 500 Crores and Rs. 500 and above for the purpose of adopting this filter. Respectfully following the above decision, we direct 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 a....
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....n the aforesaid comparable companies in the case of Triology E-Business Software India Pvt.Ltd.(supra): "(d) KALS Information Systems Ltd. As far as this company is concerned, the contention of the assessee is that the aforesaid company has revenues from both software development and software products. Besides the above, it was also pointed out that this company is engaged in providing training. It was also submitted that as per 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....
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....em, ticket vending system (ii) Ushus Technologies - offshore development centre for embedded software, net work system, imaging technologies, outsourced product development (iii) Accel IT Academy (the net stop for engineers)- training services in hardware and networking, enterprise system management, embedded system, VLSI designs, CAD/CAM/BPO (iv) Accel Animation Studies software services for 2D/3D animation, special effect, erection, game asset development. 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 comp....
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.... agree with the contention of the learned AR that the nature of product developed and services provided by this company are different from the assessee as have been narrated in para 6.6 above. Even the segmental details for revenue sales have not been provided by the TPO so as to consider it as a comparable party for comparing the profit ratio from product and services. Thus, on these facts, we are unable to treat this company fit for comparability analysis for determining the arms length price for the assessee, hence, should be excluded 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....
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....less than the figure of 17% margin as declared by the respondent-assessee. This is the finding recorded by the tribunal. The tribunal in the impugned order has also observed that the assessee had furnished details of workables in respect of 23 companies and the mean of the comparables worked out to 10%, as against the margin of 17% shown by the assessee. Details of these companies are mentioned in para 5 of the impugned order." Respectfully following the same, we direct the AO to exclude Infosys also from the list of comparables. Consequently, the issue 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 a....
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....n time is only compensatory and not penal in nature. Respectfully following the same, we direct the AO to allow the said expenditure in the hands of the assessee. 11. The next ground i.e. ground No.13 is against non-deduction of tax at source on rent paid towards service apartments. The learned counsel for the assessee submitted that the assessee had incurred expenditure towards training and education of its employees and the assessee has paid rent towards the use of service apartments to the tune of Rs. 2,85,000/- for such training. He submitted that the AO has erroneously 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 ....