TaxTMI 
TaxTMI 
2018 (5) TMI 1784
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....d relevant to assessment year under appeal, the assessee entered into following international transactions with its Associated Enterprises (AEs). Sr. No. International transaction Amount (Rs.) Method selected for Benchmarking 1 Provision of software development services to MSC US 15,86,50,674 Transactional Net Margin Method („TNMM‟) 2 Provision of sales support services to MSC US 71,37,437 TNMM 3 Payment of management fees and communication expenses 2,75,63,487 Cost Allocation Arrangement 4 Reimbursement of expenses incurred by AEs on behalf of MSC India 2,56,27,582 Reimbursement of expenses 5 Recovery of expenses incurred by MSC India on behalf of AEs 1,37,76,456 Reimbursement of expenses 2.1 The assessee selected Transactional Net Margin Method (TNMM) as the most appropriate method to benchmark its international transactions relating to software development services and sales support services. The TPO accepted TNMM applied by assessee to benchmark its international transactions. To establish ALP of Software Development Services, the assessee selected 11 companies as comparables with an arithmet....
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....,63,487 pertaining to payment towards management fees and communication cost and valuing aforementioned expenses as NIL by wrongly concluding that the Appellant has not proved the receipt of services and benefit derived. II. Without prejudice to the above, the Appellant wishes to raise the following grounds of appeal with respect to provision of software development services notwithstanding the fact that no adjustment has been made in respect of this segment in the final assessment order 3. Rejecting the transfer pricing documentation and not considering the comparability analysis as documented in the transfer pricing study report Erred in rejecting the transfer pricing documentation maintained by the Appellant and also not considering the data provided in the transfer pricing study report for benchmarking analysis. 4. Not pressed 5. Not pressed 6. Not pressed 7. Rejection of certain comparable companies identified by the Appellant in the transfer pricing study report Erred in rejecting certain comparable companies from the comparable set identified by the Appellant in respect of international transaction perta....
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....e in relation to international transaction pertaining to sales support services. IV. Other grounds of appeal 16. Levy of interest under section 234A of the Act on account of late furnishing of return of income Erred in levying interest under section 234A of the Act without appreciating the fact that the Appellant had filed the return of income on 30 October 2009 (when the due date of filing the return of income in certain districts of Maharashtra was extended to 31 October 2009). 17. Levy of interest obligation under section 234B of the Act on account of additions made to the total income Erred in levying interest under section 234B of the Act to the extent addition is made to the total income of the Appellant on account of transfer pricing adjustments related matters without considering the fact that shortfall in advance tax resulted due to the additions to total income, which are unanticipated in nature. 18. Initiation of penalty proceedings under sec 271(1)(c) of the Act on account of additions made to the total income and voluntary adjustment made by the Appellant Erred in initiating penalty proceedings under sectio....
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....pheld the findings of TPO in mechanical manner without properly appreciating the facts of the case. The ld. AR pointed that the operating margin of Goldstone Technologies Limited before working capital adjustment is 4.23% and after granting working capital adjustment the same is -10.88%. The TPO accepted the said company as comparable in assessment year 2008-09. The Tribunal in catena of judgment has held that loss making company should be rejected from the list of comparables only if it is having persistent losses. However, there is nothing on record to show that Goldstone Technologies Limited has suffered loss in three consecutive financial years including the financial year corresponding to the financial year relevant to the assessment year under appeal. The ld. AR further submitted that there is no dispute with respect to similarity of functions of both the companies. The Goldstone Technologies Limited also qualifies all the filters applied by the TPO for selection of a comparable during the assessment year 2009-10. The ld. AR prayed for inclusion of said company in the final list of comparables. 3.3 In respect of ground No. 9 relating to exclusion of certain companies intro....
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.... open and end-toend web solutions. An examination of the annual report of the company would show that there is only one segment i.e. software development. A visit to the Website of the company reveal that the company is into product engineering, provision of analytics and cloud computing services. Thus, Bodhtree Consulting Ltd. is engaged in software development products as well as providing ITES. The financial statement of company does not give breakup of revenue of these two segments. The ld. AR further pointed that the company has abnormal growth of 67% over previous year on account of launch of new product „MIDAS‟. Thus, on account of abnormal event the said company is liable to excluded from the list of comparables. 3.4 In respect of ground No. 11 the ld. AR submitted that the TPO has wrongly computed PLI of certain comparable companies. The ld. AR pointed that the TPO has wrongly computed PLI of CG-VAK Software & Exports Ltd. (Segmental), Goldstone Technologies Limited and Kals Information Technology System Ltd. The ld. AR prayed for directions to TPO/Assessing Officer for recomputation of PLI. The ld. AR further pointed that the assessee had filed application ....
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....jections filed by the assessee. 3.9 In respect of ground No. 16 relating to charging of interest u/s. 234A of the Act is concerned the ld. AR pointed that the assessee filed return of income on 30-10-2009. The due date for filing return was extended by CBDT to 31-10-2009 in certain districts of Maharashtra. The authorities below have failed to take note of the extension granted by the CBDT in filing the return of income. 4. On the other hand Shri Sandeep Garg representing the Department vehemently supported the findings of DRP/Assessing Officer. The ld. DR strongly objected to the assessee‟s submissions against exclusion of Thirdware Solution Ltd., Kals Information Technology System Ltd. and Bodhtree Consulting Ltd. The ld. DR submitted that all the three companies are functionally same and are engaged in similar activities, as are carried out by the assessee. The ld. DR asserted that it would be very difficult to find pure software development company. Therefore, these companies have been rightly included by the TPO in final list of comparables. The finding of the Tribunal in respect of Thirdware Solution Ltd. in Approva Systems Pvt. Ltd. Vs. Commissioner of Income Tax....
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.... the company at page 342 of the paper book. A perusal of the same shows that the operating margin of the company before working capital adjustment is 4.23%. The ld. AR has further pointed that the TPO has wrongly computed working capital adjustment of the said company. The assessee has filed application u/s. 154 for rectification of mistake and the said application has not been decided by the TPO/Assessing Officer till date. It is a well settled proposition that only persistent loss making companies have to be excluded from the list of comparables. Nowhere it has been urged by the Revenue that the aforesaid company is functionally dissimilar or does not qualify the filters adopted by the TPO for selection of the comparables. We further observe that Goldstone Technologies Limited was selected as one of the comparables by the assessee in immediately preceding assessment years i.e. assessment year 2008-09. The TPO has not raised any objection to the inclusion of such company in the assessment year 2008-09. Thus, in view of the facts discussed above, we are of considered view that the Goldstone Technologies Limited deserves to be included in the list of comparables. Accordingly, the....
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....07-08 at para 26 of the order has observed as under : "26. As far as Thirdware Software Solution Limited is concerned, we find from the information furnished by the said company that though the said company is also into product development, there are no softrware products that the company invoiced during the relevant financial year and the financial results are in respect of services only. Thus, it is clear that there is no sale of software products during the year but the said company might have incurred expenditure towards the development of the software products." 29.2 In various other decisions also Thirdware Solutions Ltd. has been rejected as a comparable on the ground that it is functionally dissimilar. We therefore find force in the submission of the Ld. Counsel for the assessee that Thirdware Solutions Ltd. should not be included as a comparable. We accordingly set-aside the order of the CIT(A) and direct the Assessing Officer to exclude the same from the list of comparables." No material has been brought to our notice by ld. DR to show that the activities of the assessee and Approva Systems Pvt. Ltd. (supra) are at variance. Thus, following the order ....
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....as software products and has reported inventory and work in progress in annual report. Reference is made to pages 719 and 720 of the Paper Book. Even the website of KALS Information Systems Ltd. states that the company has developed two products i.e. Virtual Insure and La-Vision. Since the revenue breakup is not available, then the margins of said concern cannot be applied to benchmark the international transactions undertaken by the assessee of provision of software development services to its associate enterprises. Similar proposition has been laid down by the Pune Bench of Tribunal in John Deere India Pvt. Ltd. Vs. ACIT (supra). Further the Hon'ble Bombay High Court in the case of CIT Vs. PTC Software (I) Pvt. Ltd. in Income Tax Appeal No.732 of 2014 judgement dated 26-09-2016 has held that Kals Information Systems Ltd. was engaged in Software products not comparable to concern providing software services. Applying the same, we hold that the said concern is to be excluded from the final list of comparables." Thus, following the order of Co-ordinate Bench in assessee‟s own case for assessment year 2008-09 we direct the TPO to exclude both the above said companies from the f....
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....e risks are taken care of by the associate enterprises, then adjustment on account of difference in the risk profile of comparable companies merits to be allowed while benchmarking the international transaction of assessee. The Bangalore Bench of Tribunal in the case of Philips Software Centre Pvt. Ltd. Vs. ACIT reported in 26 SOT 226 has upheld that the adjustment of risk to be computed as difference between the PLR and the risk free rate of turn. The assessee prepared a summary computation considering the aforesaid rule, which reads as under:- 33. Further, the Delhi Bench of Tribunal in the case of Sony India Pv t. Ltd. reported in 114 ITD 448 has allowed 20% risk adjustment considering the fact that it may not be possible to quantify risk adjustments. The assessee applying the said ratio in the case of Sony India Pvt. Ltd. (supra) has worked out the risk adjustment on the operating margins of comparables to be allowed when computed @ 20%." 34. Following the said ratio, we direct the Assessing Officer to allow the risk adjustment and re-compute the margins of comparables by applying the ratio laid down by Delhi Bench of Tribunal in the case of Sony India Pvt. Ltd. (su....