TaxTMI 
TaxTMI 
TaxTMI 
2016 (9) TMI 1447
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....rables. 2. The learned TPO has erred in treating foreign exchange gain or loss as non - operating in nature in computing the operating margin of the (i) comparables and (ii) assessee. On facts and in the circumstances of the case and law applicable, foreign exchange gain or loss should be considered as operating in nature in computing the operating margin of the (i) comparables and (ii) assessee. Ground on working capital adjustment 3. The learned TPO and CIT(A) has erred in not properly computing working capital adjustment in computing the adjusted margin of comparables. On facts and circumstances of the case and law applicable, working capital adjustment is to be properly computed and allowed in computing the adjusted margin of comparables. Ground on risk adjustment 4. The learned TPO and CIT(A) has erred in not allowing risk adjustment in computing the adjusted margin of comparables. On facts and circumstances of the case and law applicable, risk adjustment is to be properly computed and allowed in computing the adjusted margin of comparables. Ground on inappropriate computation of operating margin of comparables and the assessee 5. The learned TPO has erred in not....
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....the operating margin of the comparables and the assessee is to be properly computed. Prayer 12. In view of the above and other grounds to be adduced at the time of hearing, the respondent prays that the order of the learned CIT(A) to the extent prejudicial to respondent be quashed or in the alternative the aforesaid grounds of cross objections be accepted and relief be allowed accordingly. 3. M/s Aroba Ltd is a subsidiary of Aroba Wireless Network Incorporated USA. It is engaged in providing software development and support services to its AE. 4. The following are the details from the international transactions of the Assessee. 1) Income from software development services amounting to Rs. 15,74,03,549/-. 2) Income from providing marketing services amounting to Rs. 2,06,39,290/- 3) Purchase of capital asset amounting to Rs. 2,40,16,114/- 5. The assessee adopted TNMM at entity level, whereas the TPO adopted TNMM segment level. The operating costs of the assessee in software services was 14.39% and in marketing services was at 10.00%. Software Services 6. The operating cost of the comparables for software services was at 22.71%. The comparables selected by the a....
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....icted to 1.98% and the adjusted mean margin is computed at 20.73%. 9. The CIT(A) observations with respect to software development segments is as follow. CIT(A) Observation (Software Development Segment) SL. No .Name of the Company Sales (Rs. In crores Operating Margin on Cost Adjusted Operating Margin on Cost CIT(A) Order 1 ICRA Techno Analytics Ltd. (seg) 11.89 24.94% 23.79% Accept 2 Infosys Ltd. 21,140.00 44.98% 43.79% Reject 3 Kals Information Systems Ltd(seg) 2.16 34.41% 29.54% Accept 4 Larsen & Toubro Infotech Ltd. 1,776. 76 19.33% 18.53% Reject 5 Mindtree Ltd (seg) 698.02 14.83% 11.87% Reject 6 Persistent Systems & Solutions Ltd 6.67 15.38% 14.28% Accept 7 Persistent Systems Ltd. 504.41 30.35% 27.20% Reject 8 RS Software (India) Ltd 161.83 10.29% 9.59% Accept 9 Sasken Communication Technologies 401.50 17.36% 15.52% Reject 10 Tata Elexi (seg) 336.94 20.93% 16.32% Reject 11 Thinksoft Global Services Ltd 74.55 17.05% 13.10% Accept 10. Remaining companies after rejection by the CIT (A) is : Remaining Companies After CIT(A) Rejection Sl.No. Name of the Company Sales(Rs....
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.... and substantially diversified itself into domain of business analysis and business process outsourcing, then the same cannot be regarded as functionally comparable with that of the assessee who is rendering software development services to its AE. 4. In view of the above facts, we do not find any error or illegality in the findings of the DRP that this company is functionally not comparable with that of a pure software development service provider. 14. Respectfully following the decision of the co-ordinate Bench in the case of DCIT Vs. M/s Electronics for Imaging India Pvt. Ltd., in IT(TP) No.212/Bang/2015, we exclude ICRA Techno Analytics Ltd. (seg) from the list of comparables selected by TPO/AO. 15. With respect to KALS Information Systems Ltd., we find that the co-coordinate bench in the case DCIT Vs. M/s Electronics for Imaging India Pvt, Ltd in ITA No.212/2015 for the assessment year 2010-2011 has held as follows: (3) KALS Information Systems Ltd. 5. The assessee raised objections against this company on the ground that this company is engaged in the development of software and software products. Further, this company consists of STPI unit and also having a training ....
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....in restricting working capital adjustment to 1.98% is correct. We find that 1.92% which comes out based on final list of comparables is lesser than 1.98% adopted by the TPO. The ld counsel for the assessee requested that working capital adjustment should be given at actual based on final comparables. Reliance was placed on the ITAT decision in ARM Embedded Technologies Pvt. Ltd., Vs. DCIT, TS-466-ITAT 2015(Bang)-TP. Hence, we direct the TPO to rework the working capital adjustment. 21. With respect to 4, the learned counsel also pointed out that the price margins are without adjustment of risk differentials. The learned counsel submitted that it should be granted adjustment and placed reliance on the decision in the case of M/s Intellinet Technologies India Pvt. Ltd., Vs. ITO in ITA No./1237/Bang/2007 and M/s Bearing Point Business Consulting Pvt. Ltd., in ITA No.1124/Bang/2011. 22. Ground No.5 is conceptual. 23. We find that the appellant's margin is higher than the average margin of the comparables. Thus International Transaction of the appellant relating to software development services should be considered to be at Arm's Length. Sales & Marketing Support Services Segment 24....
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....ues recognition policy for income from exhibitions & events, delegate fees, sponsorships and entry charges. 31. In view of the ITAT decision in the case of ACIT v RGA Services India Pvt. Ltd TS-580-ITAT-2015(mum)-TP AY 10-11 and DCIT v M/s Electronics for Imaging India Pvt. Ltd. IT(TP)A No.212/Bang/2015-AY 10-11, wherein it is held as under:- 8. However, we find that the only effective ground raised by the assessee in the marketing support segment is regarding Asian Business Exhibition & Conference Ltd., a comparable selected by the TPO and retained by the DRP. 9. The assessee objected against this company on the ground that this company is functionally different as it is engaged in organizing exhibitions and conferences. The DRP did not accept the contention of the assessee and held that this company received income in the nature of consultancy for organizing exhibitions and events. Therefore this company is functionally similar to the functions carried out by the assessee. 10. Before us, the ld. AR of the assessee has submitted that functional comparability of this company has been examined by the Mumbai Bench of the Tribunal in the case of RGA Services India Pvt. Ltd. vid....
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.... 12. Thus, on overall analysis of facts and materials placed on record it is very much clear that the business model of the assessee and Asian Business Exhibition and Conferences Limited are totally different. While assessee undoubtedly is providing support services to its overseas AE's, Asian Business Exhibition and Conferences Limited is primarily and fundamentally engaged in event management. Thus, under no circumstances it can be considered as a comparable to the assessee. Therefore, for the aforestated reasons the DRP, in our view, was justified in excluding this company as a comparable. As far as the contention of learned DR that reasons on which this company was excluded equally applies to other comparables retained by the DRP, we may observe, such argument of learned DR is not at all relevant as the issue raised by the department in the present appeal is confined to exclusion of Asian Business Exhibition and Conferences Limited as a comparable. As far as objection of learned departmental representative that assessee itself has selected this company as a comparable, we may observe, that cannot be the sole criteria to reject assessee's objection with regard to selection of ....
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....omparables. 15. We have heard the ld. DR as well as ld. AR and considered the relevant material on record. The DRP has considered the fact that payroll processing services was main part of the operations of the company and quantitative details of sales and certain information as required under Part II of Schedule VI to Companies Act was not possible. Thus, in the absence of any contrary fact on record brought before us, we do not find any reason to interfere with the finding of the DRP, when the functions and business activity of this company was found to be different from marketing and sales support services of the assessee. Accordingly, the objection of the Revenue is rejected. 33. Learned Counsel submitted that Hindustan Housing Co. Ltd. Should be rejected as it has a substantial Related Party Transactions at 26.97% and hence fails RTP filter. 34. Learned counsel submitted that Killick Agencies & Mktg. Ltd. Should be rejected as it is functionally different from the Appellant for the following reasons: a. Commission/service charges income of the company constitutes 64.66% of the operating revenues, which is less that 75% of the operating revenue. No segmental results are a....
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.... Ltd. 13.68% 2 ICC International Agencies Ltds., 13.72% 3 Priya International Agencies Ltd., 11.47% Arm's length margin 12.96% 39. We also direct that TPO to grant risk adjustment following decisions of the coordinate bench in the case of M/s Bearing Point Business Consulting Pvt. Ltd., in ITA No.1124/Bang/2011, wherein it has been held as follows:- IV. Risk adjustment: 5.5 According to the assessee, it is operating in a risk mitigated environment. It was submitted that the risk assumed by it are lesser than those assumed by the companies in an uncontrolled condition, therefore, an adjustment for risk is to be granted. The reasoning for the above submission is that higher the risk, the higher the profit. 5.5.1 In the instant case, TPO in his order has computed the adjustment for risk differential Table at pages 179 and 180 of the order passed u/s 92C of the Act indicate margins were reduced by 0.73% to factor in the risk differentials. The TPO, however, after computing the risk differentials did not give effect to the same on the premise that the single customer risk of the assessee is more to off set the effect of the risk differentials as abo....