TaxTMI 
TaxTMI 
2018 (10) TMI 1429
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....ustment by rejecting the analysis undertaken by the Appellant to determine arm's length price for its international transactions pertaining to rendering of software development support services to the AEs. 2. Inappropriate use of single year and non-contemporaneous financial data of comparable companies for transfer pricing analysis Erred in considering the operating margins on operating cost of the comparable companies based on the financial data pertaining only to financial year ended 31 March 2009 and rejecting use of financial data of comparable companies for multiple i.e. including 31 March 2008 and 31 March 2007. Further, erred in computing the arm's length price using the financial information of comparable companies available at the time of assessment proceedings, although such information was not available at the time when the Appellant complied with the transfer pricing regulations 3. Inappropriate modification of export earning filter applied by the Appellant Erred in inappropriate modification of export earnings filter applied by the Appellant by rejecting companies having export earnings less than 75% of operating revenue as against the filter of....
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....sfer pricing regulations. 11. Erroneously computing the transfer pricing adjustment from the arithmetic mean of arm's length price instead of lower 5% arithmetic mean Erred in computing the arms-length price, without taking into account the lower 5% variation from the mean arms-length price determined, which is permitted to and which has been opted for by the Appellant under the provisions of section 92C(2) of the Act. Other Grounds of appeal: 12. Inappropriate levy of penalty and interest Erred in initiating penalty proceeding under sections 271(1)(c) of the Act and levying interest under section 234B of the Act. 4. The learned Authorized Representative for the assessee at the outset pointed out that ground of appeal No.1 is general and grounds of appeal No.2, 3, 5, 6, 7 and 10 are not pressed, hence the same are dismissed. He further pointed out that ground of appeal No.12 is premature and also dismissed. The learned Authorized Representative for the assessee also pointed out that issue in ground of appeal No.9 is against allowability of risk adjustment and ground of appeal No.11 is +/-5% range to be adopted. He further submitted that the issues which need to....
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....elopment services, whereas charges for onsite consultancy services was decided on case to case basis. The assessee arrived at PLI of net profit to total cost ratio of 7.16%. The assessee had adopted weighted average margin after adjustment of working capital for two years and selected certain concerns as comparable. During TP proceedings, the assessee was asked to consider data for the contemporaneous period i.e. year ending 31.03.2009. The updated margins of nine concerns was worked out and arithmetic mean of margins was at (-) 6.96%. The TPO however, did not accept the approach adopted by assessee vis-à-vis accept/reject matrix of comparables and finally selected five concerns as comparables. The TPO did not allow risk adjustment to the assessee and consequently, arm's length price of software development services rendered by assessee was worked out at Rs. 8,84,21,599/-. The said adjustment was proposed by the TPO, which was then adopted by Assessing Officer in the draft assessment order and the assessee was show caused. The Assessing Officer thereafter, passed final assessment order under section 143(3) r.w.s. 144C(13) of the Act. 7. Before the CIT(A), the assessee r....
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....nes Assessing Officer / TPO had adopted. The grounds of appeal No.1, 4 and 5 raised by Revenue are general in nature, hence dismissed. 11. The learned Authorized Representative for the assessee at the outset pointed out that there was no dispute on the method to be employed to benchmark provision of software development services by assessee to its associated enterprises. It was further pointed out that margins shown by assessee were 7.16% and weighted average margins were 9%. He further pointed out that TPO had accepted one comparable finally selected by assessee and rejected six comparables. He further added four new concerns as functionally comparable. The CIT(A) included five out of six which were rejected by TPO and upheld inclusion of four new ones, against which the Revenue is in appeal. The final list of comparables picked up by TPO comprised of five concerns, whose mean margins worked out to 26.39%, resulting in an upward adjustment of Rs. 8.84 crores in the hands of assessee. He further pointed out that the value of international transactions was Rs. 48.29 crores. The learned Authorized Representative for the assessee pointed out that vide modified ground of appeal No.4, ....
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....%, The assessee in support has furnished the audit report along with attachments to establish its case that the said concern SIP Technologies and Exports Ltd. was not persistent loss making. 14. We find that similar issue of concern being persistent loss making or not, arose before the Pune Bench of Tribunal in John Deere India Pvt. Ltd. Vs. DCIT in ITA No.827/PN/2014, relating to assessment year 2009-10, order dated 27.10.2016 and it was held that the said concern SIP Technologies and Exports Ltd. was not persistent loss making company, since out of three years, it had got profit in one of the years, hence the same was directed to be included in final set of comparables. Further, even in assessee's own case for assessment year 2008-09 (supra), the said concern was held to be functionally comparable and not to be excluded on the ground of persistent loss making concern. Accordingly, we reverse the finding of CIT(A) in this regard and direct the Assessing Officer / TPO to include SIP Technologies and Exports Ltd. in final set of comparables. Hence, modified ground of appeal No.4 raised by assessee is thus, allowed. 15. Now, coming to modified ground of appeal No.8 raised by assess....
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....ly comparable and had excluded the same. Further, while deciding the appeal for assessment year 2009-10 in the case of John Deere India (P.) Ltd. (supra) the Tribunal observed that the said concern was also engaged in sale of software product and providing software services and no segmental details were available. Therefore, the said concern had to be excluded while benchmarking the arm's length price of international transactions of a concern engaged in software development services. 19. The Hon'ble Bombay High Court in the case of CIT Vs. Principal Global Services (P.) Ltd. reported in 95 taxmann.com 315 (Bom) while deciding the appeal have held that KALS Information Systems Ltd. was engaged in developing software products, development of software services and was also engaged in running a training centre for software professional on online projects. It was held that the margins of KALS Information Systems Ltd. should not be compared with the concern engaged in the activity of providing software solution i.e. software services. Following the same parity of reasoning we hold that the KALS Information Systems Ltd. is to be excluded from the final list of comparable, since the said....
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....n had shown margin of 17% whereas in financial year 2008-09 it had shown margin of 56% and in financial year 2009-10, 40%. The Tribunal in the case of Deputy Commissioner of Income Tax Vs. Barclays Technology Center India (P.) Ltd. (supra) while deciding the appeal for assessment year 2009-10 has held that the said concern needs to be excluded because of the huge fluctuating margins. Accordingly, we hold that Bodhtree Consulting Ltd. is to be excluded from the final list of comparables. 14. Now, coming to the next concern i.e. Kals Information Systems Ltd., the Tribunal in assessee's own case for assessment year 2008-09 has held that the said concern to be not functionally comparable and had excluded the same. Further, while deciding the appeal for assessment year 2009-10 in the case of John Deere India (P.) Ltd. (supra) the Tribunal observed that the said concern was also engaged in sale of software product and providing software services and no segmental details were available. Therefore, the said concern had to be excluded while benchmarking the arm's length price of international transactions of a concern engaged in software development services." 21. We also find that the....