TaxTMI 
TaxTMI 
2015 (6) TMI 1164
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....d the case was taken up for scrutiny. 2.2 In view of the international transactions reportedly entered into by the assessee in the period under consideration, the Assessing Officer made a reference under Section 92CA of the Act to the Transfer Pricing Officer ('TPO') for determining the Arm's Length Price ('ALP') thereof, after obtaining the approval of the CIT (Appeals) - I, Bangalore. The TPO vide order under Section 92CA of the Act dt.31.10.2011 proposed a T.P. Adjustment of Rs. 1,23,18,582 to the ALP of international transactions in respect of software development services rendered by the assessee. The Assessing Officer then passed a draft under assessment under Section 143(3) rws 144C of the Act dt.15.12.2011. The assessee, on receipt thereof, informed the Assessing Officer that it would prefer to file an appeal before the concerned CIT (Appeals) and requested that the final order of assessment be passed. The Assessing Officer passed the final order of assessment under Section 143(3) rws 144C of the Act for Assessment Year 2008-09 on 2.1.2012 determining the assessee's taxable income at Rs. 1,24,15,282; which included the T.P. Adjustment of Rs. 1,23,18,582 to the ALP of....
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.... d. rejecting the transfer pricing analysis undertaken by the appellant on unjustifiable grounds. 5. The learned Assessing Officer, learned Transfer Pricing Officer and Commissioner of Income Tax (Appeals) - IV have erred in: a. Performing fresh transfer pricing analysis and adopting inappropriate filters in doing fresh transfer pricing analysis. b. adopting companies as comparables even though they are not comparable to the appellant. c. Not appreciating that the law does not compel adopting many (or any minimum) companies as comparables and that the appellant could justify the price paid/charged on the basis of any one comparable only. d. not making proper adjustment for enterprise level and transactional level differences between the appellant and the comparable companies. e. treating provision for bad debt as non-operating in nature. 6. The learned Commissioner of Income Tax (Appeals) - IV has erred in a. changing the filters applied by the TPO without giving an opportunity of being heard to the appellant. b. rejecting the companies having offshore revenues less than 75% of the total software dev....
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....ear 2008-09. It was submitted that the set of comparables chosen by the TPO in the cited cases (supra) are the same as those chosen in the case on hand and therefore the assessee places reliance on the decisions in the cited cases. 5.2 In the light of the above observations, we now briefly examine the grounds of appeal at S.Nos.4 to 7 raised on T.P. Issues. 5.2.1 Ground No.4 (a to d) are general in nature and since these grounds have not been urged before us, they are dismissed as infructuous. 5.2.2 Ground No.5 (a to e) is raised in respect of the inclusion of certain companies as comparables by the TPO/CIT (Appeals) and the exclusion of certain other companies by the learned CIT(A). As we will be examining and considering the comparability or otherwise of the individual companies as raised by the assessee before us, there is no requirement for specific adjudication on specific issues raised. 5.2.2 Ground No.6 (a to d) relates to the unilateral modification of certain filters and inclusion / exclusion of certain comparables by the learned CIT(A). as we will be examining and considering the comparability or otherwise of the individual companies as raised by the ....
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....ent Systems Ltd. 20.31 12. Quintegra Solution Ltd. 21.74 13. R Systems International (Seg) 15.30 14. R S Software (India) Ltd. 7.41 15. Sasken Communication Technologies Ltd. (Seg) 7.58 16. Tata Elxsi (Seg) 18.97 17. Thirdware Solution Ltd. 19.35 18. Wipro Ltd. (Seg) 28.45 19. Softsol India Ltd. 17.89 20. Lucid Software Ltd. 16.50 Average 23.65 The average mean margin of the 20 comparable companies selected by the TPO was 23.65% whereas the average mean margin of the software development services segment of the assessee was computed by the TPO at 14.07% on total cost. After granting working capital adjustment at 0.11%, the TPO computed the T.P. Adjustment of Rs. 1,23,18,582 to the ALP of international transactions entered into by the assessee in the period relevant to Assessment Year 2008-09. 6.3.1 On appeal, before the learned CIT(A), the assessee filed submissions raising various objections regarding the application of filters by the TPO. A summary of the CIT (Appeals) findings while disposing off the assessee....
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....IT(A) in the final set of comparables. The learned Authorised Representative submitted that all the four companies selected by the learned CIT(A) deserve to be rejected. Exclusion of comparables sought for by the assessee 7. The learned Authorised Representative submitted that the following three companies are liable to be rejected as comparables as they are functionally different from the assessee; based on the judicial pronouncements in the decisions of the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) for Assessment Year 2008-09 :- (i) e-Zest Solutions Ltd. (ii) Lucid Software Ltd. and (iii) KALS Information Systems Ltd. (seg.) We shall now proceed to examine and consider each of the comparable companies so highlighted by the assessee in its chart. 8. e-Zest Solutions Ltd. 8.1 This company was selected by the TPO as a comparable. Overruling the assessee's objections that it was functionally different, the TPO included this company as a comparable on the ground that as per the information received under Section 133(6) of the Act, this company is engaged in software development services and sat....
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...., we find that while the assessee is into software development services, this company i.e. e-Zest Solutions Ltd., is rendering product development services and high end technical services which come under the category of KPO services. It has been held by the co-ordinate bench of this Tribunal in the case of Capital I-Q Information Systems (India) (P) Ltd. Supra) that KPO services are not comparable to software development services and are therefore not comparable. Following the aforesaid decision of the co-ordinate bench of the Hyderabad Tribunal in the aforesaid case, we hold that this company, i.e. e-Zest Solutions Ltd. be omitted from the set of comparables for the period under consideration in the case on hand. The A.O. / TPO is accordingly directed." 8.4.2 Following the aforesaid decision of the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra), we direct the A.O./TPO to exclude this company from the list of comparables as it is functionally different form the assessee in the case on hand who is rendering purely software development services. It is ordered accordingly. 9. Kals Information Systems Ltd. (Seg) 9.1 This company has be....
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....assessee's own case for Assessment Year 2007-08 (supra) and in the case of Triology E-Business Software India Pvt. Ltd. (supra) have held that this company was developing software products and was not purely or mainly a software service provider. Apart from relying of the above cited decisions of co-ordinate benches of the Tribunal (supra), the assessee has also brought on record evidence from various portions of the company's Annual Report to establish that this company is functionally dis- similar and different form the assessee and that since the findings rendered in the decisions of the co-ordinate benches of the Tribunal for Assessment Year 2007-08 (cited supra) are applicable for this year i.e. Assessment Year 2008-09 also, this company ought to be excluded from the list of comparables. In this view of the matter, we hold that this company i.e. KALS Information Systems Ltd., is to be omitted from the list of comparable companies. It is ordered accordingly." 9.4.2 Following the above decision of the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra), we direct the Assessing Officer to exclude this company from the final set of compar....
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....these companies are not maintainable, reject the same. Consequently, the inclusion of these two companies i.e. Bodhtree Consulting Ltd. and Lucid Software Ltd. in the final list of comparables is upheld. INCLUSION OF COMPANIES AS COMPARABLES SOUGHT FOR BY THE ASSESSEE. 11.1 In the course of appellate proceedings, the learned Authorised Representative of the assessee submitted that R System International Ltd. should be included in the list of comparables. The ld. A. R. challenged the order of the learned CIT(A) in directing the Assessing Officer / TPO to exclude the following companies from the list of comparables by applying the Related Party Transaction ('RPT') filter of more than 0%, as he was of the view that even a single instance of RPT should lead to their rejection from the list of comparables :- (i) Avani Cincom Technologies Ltd. (ii) LGS Global Ltd. (iii) Flextronics Software Systems Ltd. (iv) i-Gate Global Solutions Ltd. (v) Infosys Technologies Ltd. (vi) Mindtree Ltd. (vii) Persistent Systems Ltd. (viii) R. Systems International Ltd. (Seg) (ix) Softsol India Ltd. (x) Tata Elxs....
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....relevant observation / finding of the co-ordinate bench in the case of 24/7 Customer.Com Pvt. Ltd. (supra) at para 13 thereof are extracted hereunder :- "13.0 RELATED PARTY TRANSACTIONS In respect of the ground raised at S.No.1 regarding acceptance of comparable companies having related party transactions as proposed by the TPO, the learned counsel for the assessee argued that the transfer pricing regulations do not stipulate any minimum limit of related party transactions which form the threshold for exclusion as a comparable. In this regard, the learned counsel for the assessee objected to the TPO's setting a limit of 25% on related party transactions. He objected to the inclusion of comparables being related party transactions in excess of 15% of sales / revenue. In support of this proposition, the learned counsel for the assessee placed reliance on the decision of the Hon'ble Bench of the ITAT, Delhi in the case of Sony India (P) Ltd. reported in 2008- TIOL-439-ITAT-Delhi dt.23.12.2008. The learned counsel for the assessee drew our attention to para 115.3 of the order wherein the Tribunal has held that - "We are further of the view that an entity ....