TaxTMI 
TaxTMI 
TaxTMI 
2017 (4) TMI 1375
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....assessee has explained the cause of delay as stated in the Affidavit that the assessee company has been acquired by an American Company M/s. Infor Inc. and the acquisition formalities completed on 18.9.2015. Due to the acquisition there has been a restructuring of team in USA which responsibility reassigned to new management and the process of transition was in progress at the time when the appeal had to be filed. Since transition process was in progress therefore the assessee could not file the appeal within the period of limitation and consequently there was a delay of 51 days in filing the appeal. Thus it is pleaded that the delay in filing the appeal is neither intentional nor deliberate but due to the unavoidable circumstances which were beyond the control of the assessee. 3. Having considered the explanation of the assessee, we are satisfied that the assessee was having sufficient cause for not presenting this appeal within the period of limitation. The assessee has given all the relevant details of acquisition of the assessee company by an American Entity therefore there was a change in the management and due to the process of transition of management the assessee could not....
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.... 'Transfer Pricing Officer') and Honorable Dispute Resolution Panel (hereinafter referred to as 'DRP') are bad in law and liable to be quashed. 2. The learned Assessing officer has made reference to TP officer in a mechanical manner and that there was no requirement of referring an international transaction to the TPO merely because the value of the international transaction is above a particular limit and further where the assesse enjoys 10A benefit where the tax rate in the country of the Associated Enterprises is higher than the rate of tax in India and hence the establishment of tax avoidance or manipulation of prices or establishment of shifting of profits is not possible. 3. The learned Assessing Officer, learned Transfer Pricing Officer and Honorable DRP have erred in a. Making transfer pricing adjustment of Rs. 1,51,50,722/- b. Passing the order without demonstrating that appellant had motive of tax evasion. c. Passing the orders without considering all the submissions and/or without appreciating properly the facts and circumstances of the case and the law applicable. GROUNDS ON COMPARABLES COMPANIES AND REJECTION OF TRANSFER PRICING ANALYSIS OF THE APPELLANT 4. ....
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....ound No.1 of the revenue's appeal are general in nature and does not require any specific adjudication. 6. Ground Nos.4 & 5 of the assessee's appeal and Ground Nos.2 to 7 of revenue's appeal are regarding the comparability of the companies selected by the TPO. Therefore we will deal with this issue simultaneously. 7. The learned Authorised Representative of the assessee has pointed out that though the DRP has applied different filters however an identical set of 13 companies was selected by the TPO in the case of Applied Materials India Pvt. Ltd. Vs. ACIT in IT(TP)A Nos.17 & 39/Bang/2016 for the same Assessment Year 2011-12 and this Tribunal vide order dt.21.9.2016 has dealt with the identical set of 13 comparables. Thus the learned Authorised Representative has submitted that the issue of comparability of these companies is now covered by the decision of this Tribunal in the case of Applied Materials India Pvt. Ltd. Vs. ACIT. The learned Authorised Representative has pointed out that the DRP has applied the turnover filter of Rs. 1 Crore to Rs. 200 Crores whereas this Tribunal has taken a view that 10 times of the assessee's turnover would be an appropriate parameter for....
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....t. Ltd. Vs. ACIT (2014) 151 ITD 177. 9.1.3 We have considered the rival submissions as well as the relevant material on record. We find that the assessee has raised objections against this company before the DRP. However the DRP did not adjudicate the objections raised by the assessee. The decision of this Tribunal in the case of M/s. Electronics for Imaging India Pvt. Ltd. Vs. DCIT (supra) relied upon by the learned Authorised Representative is based on two aspects. (i) The information received under Section 133(6) of the Act was considered by the TPO without sharing with the assessee and (ii) nature of the activity is KPO. It is pertinent to note that the question of BPO and KPO is relevant only in ITES segment and not for software development services segment. On the contrary, the decision in the case of Toluna India Pvt. Ltd. Vs. ACIT (supra), pertains to the Assessment Year 2007-08, therefore the facts of the different year cannot be applied without verification. Accordingly, we set aside this issue of comparability of E-Just Solution Ltd. to the record of the Assessing Officer / TPO for deciding the same after verification of the relevant facts as well as considering the ob....
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....ever, the DRP has rejected the said company. Therefore, the said company should be retained in the list of comparables. 61. Having considered the rival submissions as well as relevant material on record, at the outset, we note that the DRP has examined the functional comparability of this company by considering the relevant details as given in the annual report of this company. The DRP has given the finding that the entire revenue has been earned by this company from the sale of software services and products and in the absence of segmental details, it cannot be considered as comparable with software services segment. We find that this company has shown the income from sale of software services and products to the tune of Rs. 6.67 crores. We further note that as per Schedule 11, the entire revenue has been shown under one segment i.e., sale of software services and products. Therefore, no separate segment has been given in respect of software services. Accordingly, the composite data of revenue as well as margins of this company pertaining to the sale of software services and products cannot be considered as comparable with the software development services segment of the assesse....
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....t this company is engaged in the development of software products as it has inventories, intangible assets as well as high expenditure on R&D. Therefore this company is functionally not comparable to the assessee. The ld. AR has referred to the Annual Report of this company and submitted that it derives income from software products specifically new products launched called 'Vyaparaseva' during F.Y. 2010-11. Thus this company is engaged in product development cannot be compared with the assessee when segmental details are not available. He has relied upon the decision dt.24.2.2016 of the co-ordinate bench of this Tribunal in the case of DCIT Vs. Electronics for Imaging India Pvt. Ltd. (supra). 9.3.2 On the other hand, the learned Departmental Representative has submitted that the inventory shown at page 70 of the report is very negligible. The product launched is for future period and not generated any revenue during the year under consideration. He has relied upon the orders of authorities below. 9.3.3 We have considered the rival submissions as well as the relevant material on record. The co-ordinate bench of this Tribunal in the case of DCIT Vs. Electronics for Imaging India....
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....ion on a different ground by applying a filter that the expenditure in foreign currency was higher when compared to its total revenue. Thus DRP was of the view that this company was predominantly engaged in the 'on site' development of software. The ld. AR has submitted that such filter was neither applied by the TPO nor sought to be applied by the assessee. Therefore the DRP was not asked to apply this filter. Secondly the DRP did not arrive at the finding that the said company was in fact engaged in 'on site' development of software. The finding of the DRP are based mainly on the assumption that because of its expenditure in foreign currency was high it must have been engaged in the 'on site' development of software. The ld. AR has further contended that this filter of 'on site' development services have been applied by the DRP without giving an opportunity of filing its objections to the assessee. Thus the ld. AR has submitted that the rejection of the said company by applying a filter not applied by the TPO is liable to be set aside. He has relied upon the decision of this Tribunal dt.29.6.2015 in the case of M/s. Arowana Consulting Ltd. Vs. ITO in IT(TP)A No.235/Bang/2015. 12....
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....ct the TPO to include the said company as a comparable along with the two comparables, namely, M/s. R. S. Software (India) Ltd and M/s. Thinksoft Global Services Ltd, and rework the mean PLI. ALP adjustment, if any, required shall be based on such mean PLI, after considering the working capital adjusted. Ordered accordingly. Ground 12 of the assessee is allowed. 09. Vide its ground 13, we find that assessee is aggrieved that DRP had directed treatment of foreign exchange loss/gain as non-operating in nature. We find that DRP had at para 2.9 of its directions dated 26.11.2014 directed inclusion of foreign exchange gain / loss as part of the operating expenditure and not the other way. Therefore, the said ground is ill conceived and dismissed." Therefore other than the employee cost the issue of functional similarity was not before the Tribunal in the said case. However, we note that as per the financial results reported in the Annual Report at page 2 and 15, the income shown in the profit and loss account is from software services and products. Further as per the schedule 10 at page 20 of the Annual Report this company has reported income from sale of product. Similarly as per Sche....
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....f this company. 14. The assessee is also seeking inclusion of couple of companies which were selected by the TPO but rejected by the DRP as under : (i) Evoke Technology Ltd. (ii) R S Software (India) Ltd. 14.1 We have heard the learned Authorised Representative as well as learned Departmental Representative and considered the relevant material on record. These two companies were selected by the TPO in the set of comparables however the DRP has rejected these companies on the ground that the company Evoke Technology Ltd. is having low margin and the company R S Software (India) Ltd. is engaged in 'on site' activity. Both the assessee as well as revenue are seeking inclusion of these companies in the list of comparables. Accordingly, when the assessee as well as revenue are seeking inclusion of these two companies, we direct the TPO to include these two companies in the list of comparables. 15. The revenue is also seeking inclusion of some of the companies in the list of comparables which were reflected by the DRP. We will deal with the issues one by one as under : (i) Acropetal Technologies Ltd.(Seg.) 16.1 The DRP rejected this company on the ground of employee cost filter. ....
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....ICRA Techno Analytics Ltd. (seg) 14. At the outset, we note that apart from having the related party revenue at 20.94% of the total revenue, this company was also found to be functionally not comparable with software development services segment of the assessee. The DRP has given its finding at pages 13 to 14 as under:- "Having heard the contention, on perusal of the annual report, it is noticed by us that the segmental information is available for two segments i.e., services and sales. However, it is evident from the annual report that the service segment comprises of software development, software consultancy, engineering services, web development, web hosting, etc. for which no segmental information is available and therefore, the objection of the assessee is found acceptable. Accordingly, Assessing Officer is directed to exclude the above company from the comparables." 15. We find that the facts recorded by the DRP in respect of business activity of this company are not in dispute. Therefore, when this company is engaged in diversified activities of software development and consultancy, engineering services, web development & hosting and substantially diversified itself....
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....ot show any other services rendered other than software development services provided by this company. Thus the DRP held that software development segment is comparable to the assessee and therefore this company has to be retained as comparable. 63. We have heard the ld. AR as well as ld. DR and considered the relevant material on record. The ld. AR has submitted that this company is having 18.66% RPT and further this company earns revenue from both services and products. Thus, the ld. AR submitted this company is also in the software products and therefore cannot be considered as good comparable. He has further contended that in a series of decisions, the Tribunal has applied 15% RPT filter and since this company is having more than 15% RPT, the same cannot be considered as a good comparable. 64. On the other hand, the ld. DR has submitted that TPO has applied RPT filter of 25% and therefore only for this company, the RPT cannot be reduced to 15%. Further, the DRP has examined annual report of this company and found that this company earns revenue from software development services and accordingly is comparable. 65. We have considered the rival submissions and relevant mater....
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....the Mumbai Bench of the Tribunal in the case of Telcordia Technologies Pvt. Ltd. (supra). 32. We have heard the ld. DR as well as ld. AR and considered the relevant material on record. We find that this company even in the software development segment is engaged in diversified activities of product design services, innovation design, engineering services, visual computing labs, etc. We further note that in the case of Telcordia Technologies Pvt. Ltd. (supra), the Mumbai Bench of the Tribunal vide its order dated 11.5.2012 in para 9.7 has held as under:- "7.7 From the facts and material on record and submissions made by the learned AR, it is seen that the Tata Elxsi is engaged in development of niche product and development services which is entirely different from the assessee company. We 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....
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.... Crores. It is pertinent to note that the DRP has applied the turnover filter and the revenue has challenged the same therefore, the issue of turnover filter has been a subject matter in these appeals. Accordingly, these 7 companies are directed to be excluded. 10. Further in view of the functional comparability has been considered by this Tribunal in the case of Applied Materials, the following companies namely (i) Acropetal Technologies Pvt. Ltd. (Seg.) and (ii) ICRA Techno Analytics Ltd. are found to be functionally not comparable. 11. As regards the E-Zest Solution Ltd, the issue of comparability has been remitted to the record of the TPO. Accordingly by following the earlier order of this Tribunal, the functional comparability of E-Zest Solution Ltd. has been remitted to the record of the TPO/A.O. E-Infochips Limited. 12. The functional comparability of this company has been considered by the Delhi Bench of the Tribunal in the case of Saxo India Pvt. Ltd. Vs. ACIT (supra) in para 10.1 to 10.2 as under : " (i) E-Infochips Limited: 10.1. The Transfer Pricing Officer included this company in the list of comparables. On being called upon to explain as to why it sho....
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....ompute the ALP on the basis of remaining companies. 14. The Ground Nos.8 & 9 of the revenue's appeal is regarding exclusion of the expenditure incurred in foreign currency from export turnover as well as total turnover while computing the deduction under Section 10A of the Act. 15. We have heard rival submissions as well as carefully considered the material on record and the judicial decision cited. On perusal thereof we find that the issue before us for adjudication i.e. if expenditure incurred in foreign currency attributable to the delivery of computer software abroad is reduced from export turnover an equal amount should also be reduced from total turnover while computing the deduction under section 10A of the Act, is covered in favour of the assessee by the decision of the Hon'ble Karnataka High Court in the case of Tata Elxsi Ltd. (supra). In this order, the Hon'ble Court held - " The Bombay High Court had an occasion to consider the earning of the word 'total turnover' in the context of section 10A, in the case of CIT Vs. Gem Plus Jewellery India Ltd. (2011) [330 ITR P. 175 (Bom)] (2010-TIOL-456- HC-MUM-IT). Interpreting sub-section (4) of section 10A, it is held as unde....
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.... however, misses the point that the expression "total turnover" has not been defined at all by Parliament for the purposes of s.10A. However, the expression "export turnover" has been defined. The definition of "export turnover" excludes freight and insurance. Since export turnover has been defined by Parliament and there is a specific exclusion of freight and insurance, the expression "export turnover" cannot have a different meaning when it forms a constituent part of the total turnover for the purposes of the application of the formula. Undoubtedly, it was open to Parliament to make a provision which has been enunciated earlier must prevail as a matter of correct statutory interpretation. Any other interpretation would lead to an absurdity. If the contention of the Revenue were to be accepted, the same expression viz. 'export turnover' would have a different connotation in the application of the same formula. The submission of the Revenue would lead to a situation where freight and insurance, though these have been specifically excluded from 'export turnover' for the purposes of the numerator would be brought in as part of the 'export turnover' when it forms an element of the to....
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.... the other component being the domestic turnover. In other words, to the extent of export turnover, there would be a commonality between the numerator and the denominator of the formula. In view of the commonality, the understanding should also be the same. In other words, if the export turnover in the numerator is to be arrived at after excluding certain expenses, the same should also be excluded in computing the export turnover as a component of total turnover in the denominator. The reason being the total turnover includes export turnover cannot be different. Therefore, though there is no definition of the term 'total turnover' in section 10A, there is nothing in the said section to mandate that, what is excluded from the numerator that is export turnover would nevertheless form part of the denominator. Though when a particular word is not defined by the legislature and an ordinary meaning is to be attributed to the same, the said ordinary meaning to be attributed to such word is to be in conformity with the context in which it is used. When the statute prescribes a formula and in the said formula, 'export turnover' is defined, and when the 'total turnover' includes export turno....