TaxTMI 
TaxTMI 
2017 (11) TMI 1725
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....come Tax, Transfer Pricing Officer - I(l)(l), New Delhi (hereinafter referred to as "Ld. TPO") for computation of arm's length price ("ALP') 2. That on the fact of the case and in law, the Ld. TPO / Hon'ble Dispute Resolution Panel ("Hon'ble DRF') has erred by not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Income Tax Rules, 1962 ("the Rules'), and conducting a fresh comparability analysis for the determination of the ALP of the Appellant's international transaction pertaining to provision of contract software development ("CSD") services by the Appellant and holding that the said international transaction is not at arm's length. 3. That on the facts and circumstances of the case and in law, the order passed by Ld. AO/Ld. TPO in pursuance to the directions of the Hon'ble DRP under section 143(3) read with section 144C of the Act, is bad in law and void ab-initio as the same has been passed in contravention of specific direction of Hon'ble DRP to include Akshay Software Technologies Limited, Infomile Technologies Limited and SQS India BFSI Limited as c....
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....f the case and in law, the Ld. TPO/ Hon'ble DRP has grossly erred in making an entity level adjustment by re- computing the operating cost of the Appellant for provision of CSD services to associated enterprise and thereby has inadvertently applied the TP provisions on the cost base of third party segment of the Company. Corporate Tax Grounds 12. 12. That on the facts and circumstances of the case and in law, the Ld. AO has erred in holding that liquidated damages of INR 55,35,88,892/- incurred by the Appellant pursuant to breach of its contractual arrangements are penal in nature and are thus, not allowable u/s 37(1) of the Act. 12.1 That the Ld. AO failed to follow the spirit and intent of the directions of the Hon'ble DRP as he failed to appreciate the correct facts and evidences brought on record for verification in accordance with the directions of Hon'ble DRP and further erred in making several allegations, observations and inferences in the assessment order which are both factually incorrect as well as legally untenable. 13. That on the facts and circumstances of the case and in law, the Ld. AO is not justified in making a disallowan....
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....e and in law, the Hon'ble DRP / Ld. AO has erred in holding that the reimbursements amounting to Rs. 29,23,40,542/- made in respect of the seconded employees to the overseas entities, are in the nature of fees for technical services amounting to sums chargeable u/ s 9(l)(vii) and under the relevant clause of the tax treaty of the country from where the employees are seconded and thereby liable to TDS u/s 195 of the Act. 17.2. Without prejudice, on the facts and circumstances of the case and in law the Hon'ble DRP / Ld. AO has erred in summarily rejecting the contentions of the appellant and the detailed argument made for differentiating the facts of the appellant's case from the ruling of Hon'ble Delhi High Court in the case of M/s Centrica India Offshore Pvt. Ltd. 18. That on facts in the circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under section 271(l)(c) of the Act mechanically and without recording any adequate satisfaction for its initiation. 3. The assessee company is engaged in the business of digital switching equipment and related software, cellular exchange / transmission equipment and pr....
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....justment made in this case by the TPO is tabulated hereunder:- Operating Cost 1194.76 Arm's Length Margin(%) 21.59 Arm's Length Price (ALP) 1452.70 Price Received 1338.41 Shortfall being adjustment u/s 92CA 114.29 5. The AO passed the draft assessment order u/s 144C(1) r.w.s 143(3} of Income Tax Act 1961on 30.03.2016 at an income of Rs. 225,65,85,440/- after making various additions and addition made by TPO amounting to Rs. 114,29,00,000/-. Against the draft order, the assessee company filed objection before Hon'ble DRP-I, New Delhi. The DRP passed the order dated 22.12.2016 u/s 144C(5) of the IT Act. Thereafter, fresh notice u/s 142(1} of the IT Act was issued on 28.12.2016 by the Assessing Officer. Pursuant to the directions of the DRP, a letter dated 28.12.2016 was sent to Transfer Pricing Officer for recomputation of the Arm's Length Price in this case. The response from DCIT, TPO was received by the Assessing Officer on 23.01.2017 with the following observations:- "8 The cumulative adjustment made in this case is as under:- International Transaction Adjustment (INR) On account of ALP of the comparables 130.10 ....
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....comparables: (i) Infosys (ii)Zylog (iii) Persistent Systems and Solutions Ltd. (iv) L & T (v) E-Zest (vi) Arcopetal 10.1. Infosys The Ld. AR submits that this comparable was rejected by the ITAT in assessee's own case for AY 2011-12 and confirmed by the Hon'ble Delhi High Court vide order dated 18.07.2017 for A.Y. 2003-04, 2004-05 and 2006-07. The Ld. AR submits that Infosys offers software products, platforms, diversified services like software consulting and systems integration, design development, re-engineering and maintenance, integration etc. Infosys Turnover is 31,254 Crore which is 54 times of assessee company (573.54 Crore). Infosys also owns its software products such as Finacle/Infosys active desk/Infosys Iprowe/Infosys mConnect. Infosys is engaged in research and development in relation to software engineering, enterprise technology, patenting new technologies. The company is having ownership of intangibles and also have presence of brands. There is extra-ordinary events occurred during the year as Infosys Consulting Inc. was merged with the Infosys Ltd. Thus, this company has to be excluded as per the submissions of the Ld. AR. The Ld. AR relied....
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....relied upon the order of the TPO. 10.6. We heard both the parties and perused the records. This company is engaged in providing onsite services, specializes in providing software products and solutions and there is revenue from consulting, licensing fee, as well as from software products and solutions. But, the assessee company is engaged in the business of digital switching equipment and related software, cellular exchange / transmission equipment and provides related services, intelligent network and broadband solutions, equipment and related services. Thus, the functions of both the companies are different. In fact in earlier Assessment Year the ITAT already excluded this company as comparable in assessee's own case on account of functional difference which was confirmed by the Hon'ble High Court. We, therefore, direct TPO to exclude this company from comparable. 10.7 Persistent Systems & Solutions Ltd. The Ld. AR submits that this comparable was rejected by the ITAT in assessee's own case for AY 2011-12 on account of functional difference and the same has been confirmed by the Hon'ble Delhi High Court vide order dated 18.07.2017. The Ld. AR submits that financials for ....
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.... annual report of the company. In fact in earlier Assessment Year the ITAT already excluded this company as comparable in assessee's own case on account of functional difference which was confirmed by the Hon'ble High Court. Therefore, this company has to be excluded. We, therefore, direct TPO to exclude this company from comparable. 10.13 e-Zest Solutions The Ld. AR submits that this company fails the service income filter applied by the TPO i.e. Service Income / Total Income < 75%. This company is engaged in providing diverse services like BPO, product engineering, software product development and KPO. The segmental data is also not available. The inventory ratio to total revenue is 19.90% , whereas the assessee company does not hold any inventory. Besides this, E-zest is into professional services and full risk bearing entrepreneur, whereas the assessee company is limited risk capital company dealing in software development and is performing limited functions like coding, testing. 10.14 The Ld. DR submitted that the TPO has rightly selected this comparable and relied upon the order of the TPO. 10.15 We heard both the parties and perused the records. The functions of ....