TaxTMI 
TaxTMI 
2019 (1) TMI 1128
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....eals pertain to the same assessee and involve common issues, as a matter of convenience, they are heard together and are being disposed of by way of this consolidated order. ITA no.631/Mum./2011 Revenue's Appeal - A.Y. 2005-06 3. In grounds no.1 and 2, the Revenue has challenged the decision of the learned Commissioner (Appeals) in accepting assessee's plea that international transaction with AEs should be benchmarked separately and the AE should be treated as tested party instead of the assessee. 4. Brief facts are, the assessee, an Indian company, is a wholly owned subsidiary of WNS Mauritius Ltd., which in turn, is a wholly owned subsidiary of WNS Holdings Ltd., U.S.A. In the relevant previous year, the assessee has provided Information Technology Enabled Services (ITES) in the nature of management and marketing services to clients through its Associated Enterprises, WNS Global Services (U.K) Ltd., U.K., and WNS North America (NA) Inc., U.S.A. For the assessment year under dispute, the assessee filed its return of income on 30th October 2005, declaring loss of Rs. 81,35,80,754. Noticing that in the relevant previous year the assessee has entered into a nu....
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....ng study report observed that similar methodology adopted by the assessee for benchmarking the international transactions with AEs for assessment year 2004-05 was rejected by the Transfer Pricing Officer by holding that instead of AEs the assessee has to be treated as the tested party. He observed that in assessment year 2004-05, the Transfer Pricing Officer has aggregated all the international transactions with AEs for benchmarking purpose. Following the approach adopted by him in assessment year 2004-05, the Transfer Pricing Officer held that the foreign AEs cannot be treated as tested party as they are not performing least complex functions. Accordingly, he treated the assessee as the tested party for functional analysis. Further, the Transfer Pricing Officer aggregated all the international transactions for benchmarking purpose. Being aggrieved with the aforesaid approach of the Transfer Pricing Officer the assessee preferred appeal before the first appellate authority. 5. The learned Commissioner (Appeals) after considering the submissions of the assessee in the context of facts and material on record as well as the appeal order passed for the assessment year 2004-05, held ....
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....questioned the functionality of the comparables nor their suitability to be treated as comparable due to different financial year ending. Referring to the observations of the Transfer Pricing Officer in Para-5.1.3 of his order, he submitted, the Transfer Pricing Officer has not disputed the comparable but has only applied their margin by selecting the assessee as the tested party. He submitted, the assessee has considered the margin of comparables selected separately for both the AEs. He submitted, the Transfer Pricing Officer having not raised the issue of different financial year ending of the comparables, learned Departmental Representative cannot raise such issue and request for restoring the issue to the Assessing Officer after lapse of so many years. In this context, he relied upon the decision of the Hon'ble Jurisdictional High Court in CIT v/s M/s. Maersk Global Services Centre (India) Pvt. Ltd., ITA no.692 and 693/2012, dated 22nd August 2015. The learned Sr. Counsel submitted, in the subsequent assessment years the Transfer Pricing Officer himself has not only accepted the AEs as the tested party but has also accepted the foreign comparables proposed by the assessee f....
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....plex parties and they were rightly used as tested party for the marketing and management fees paid to the AEs on cost plus basis, unlike in Business Model 2. iv. Each international transaction has to be benchmarked separately and the assessee has different functional profiles for the two business models, one as an entrepreneur and the other as a captive service provider. v. Such different transactions cannot be clubbed together as laid down in : a. Aztec Software and Technical Services Ltd v/s ACIT, (107 ITD 141) b. Development Consultants Pvt. Ltd. v/s DCIT, {115 TTJ 577) c. Star India Pvt. Ltd. v/s ACIT, ITA no.3585/Mum./2006) 16. In view of the above findings of CIT(A), we accept assessee's contention that the foreign AE should be considered as the tested party, accordingly all other grounds of appeal in the Department's appeal with respect to transfer pricing related issues become academic in nature." 9. As regards the issue relating to separate benchmarking of international transactions with the AEs, the Tribunal has held as under:- "21 We have considered rival contentions and find from the nature of the transac....
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.... in the advance pricing agreement dated 3rd August 2015, the Department has accepted the AEs as the tested parties insofar as it relates to fees paid towards management and marketing services rendered by them. 11. As regards the contention of the learned Departmental Representative that the learned Commissioner (Appeals) has not properly considered the comparability of the foreign comparables on account of different financial years, it is relevant to observe, the Transfer Pricing Officer never rejected the foreign comparables proposed by the assessee on the issue of different financial year ending. In fact, the Transfer Pricing Officer has not at all gone into far analysis of the foreign comparables proposed by the assessee since he treated the assessee as the tested party and, therefore selected separate sets of comparables. Therefore, we are unable to accept the submissions of the learned Departmental Representative for restoring the issue to the Assessing Officer / Transfer Pricing Officer for reconsideration. In view of the aforesaid, we uphold the order of the learned Commissioner (Appeals) on these issues by dismissing the grounds raised. 12. In ground no.3, the Departm....
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....sessee in the context of facts and material on record observed that the Travelocity contract was a very prestigious contract and was the single largest contract secured by the group in the U.S. market. For securing this contract, it was agreed by the American AE as well as the assessee that till the time all processes are fully migrated to India, whatever costs are incurred by Travelocity would be reimbursed. The learned Commissioner (Appeals) observed, since the reimbursement of cost was a pre-condition of the contract, the assessee and the AE had to take a commercial decision to agree to such term in order to secure the contract. The learned Commissioner (Appeals) observed, though initially the assessee had to incur the migration cost, however, in subsequent years, the contract generated good profit for the assessee. Thus, the learned Commissioner (Appeals) relying upon his decision on identical issue in assessment year 2004-05, held that the migration cost relating to Travelocity contract being an exceptional and onetime cost, should not be treated as part of operating cost for computing the profitability of the assessee. 15. The learned Departmental Representative relying up....
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....alue. 19. Brief facts are, the Transfer Pricing Officer noticing that the assessee had provided a guarantee against loan advanced by Travelocity to one of the AEs called for the necessary details. After examining the details, he found that the loan was provided to the AE at the interest rate of 5%. He also noticed that all the subsidiaries of the WNS group had individually given subsidiary guarantee to Travelocity for the loan. The Transfer Pricing Officer noticed that the main purpose of loan was to make adequate cash flow available to WNS India i.e., the present assessee to execute the services outsourced to it by Travelocity. When the Transfer Pricing Officer called upon the assessee to explain why no commission was charged for providing guarantee against the loan, it was submitted by the assessee that since the assessee itself is the end user of the loan and no service client was involved, guarantee commission was not charged. However, the Transfer Pricing Officer did not accept the claim of the assessee and made an adjustment of Rs. 65,59,545 on account of guarantee commission computed @ 1.5% of the guarantee amount. Being aggrieved of the aforesaid Transfer Pricing adjustm....
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.... (Appeals) in deleting the addition of Rs. 4,02,55,828, on account of determination of arm's length price of interest for extended credit period. 25. Brief facts are, from the transfer pricing study report as well as other documents available before him, the Transfer Pricing Officer noticed that an amount of Rs. 156,12,05,562, was appearing as sundry debtors in the name of WNS U.K. and WNS N.A., two AEs of the assessee. Noticing this, the Transfer Pricing Officer called upon the assessee to explain why interest should not be charged for extended credit period allowed to the AEs, since, according to the Transfer Pricing Officer an independent enterprise would have charged interest for such extended credit period. He also called upon the assessee to furnish month-wise figures of the balance in the hands of both the AEs. In response, the assessee furnished the details called for and also submitted that no interest should notionally be charged as neither any loan nor any advance was given to the AEs. It was submitted by the assessee that it receives money from the AEs as and when they receive money from the third party. It was submitted, the delay in making payment on some insta....
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.... iv) Ingersoll-Rand Ltd v/s ACIT, 67 taxmann.com 328 (Bang.); v) CIT v/s Indo American Jewellery Ltd., 44 taxmann.com 223; and vi) Det Norske Veritas A/S v/s ADIT, ITA no.200/Mum./2014 dated 29.02.2016. 28. We have considered rival submissions and perused materials on record. It is evident from the facts on record, not only the assessee receives payment from AEs towards services rendered but the AEs also receive payment from the assessee on account of provision of marketing support services. It is a fact on record that in some instances there is a delay in receiving payments from the AEs. The assessee has explained such delay to be on account of late receipt of payment by the AEs from the overseas customers. It is also evident, the assessee has also made delayed payment to AEs towards marketing support services rendered by them. Therefore, there is delay in making payments from both sides. As observed by the learned Commissioner (Appeals), after factually verifying the outstanding creditor and debtor position on account of payment / receipts relating to the AEs there is no loss to the assessee in real terms. As could be seen, the Transfer Pricing Officer whil....
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....presentative fairly submitted that while deciding identical issue in assessee's own case for assessment year 2003-04 and 2004-05, the Tribunal has allowed assessee's claim of deduction under section 10A of the Act. 33. The learned Sr. Counsel for the assessee strongly supporting the decision of the learned Commissioner (Appeals) submitted, the issue stands settled in favour of the assessee by virtue of the decisions of the Co-ordinate Bench in assessee's own case for assessment year 2003-04 and 2004-05. 34. We have considered rival submissions and perused materials on record. It is evident, the Assessing Officer referring to the provisions of section 10A(9) of the Act has disallowed assessee's claim of deduction under section 10A of the Act. Whereas, learned Commissioner (Appeals) relying upon certain judicial precedents as referred to above, has allowed assessee's claim of deduction by holding that the omission of section 10A(9) of the Act will operate retrospectively as if the said sub-section never existed in the statute. It is relevant to observe, when identical issue came up for consideration before the Tribunal in assessee's own case in assessment year 2003-04, the Trib....
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....Being aggrieved with the aforesaid decision of the Assessing Officer the assessee preferred appeal before the first appellate authority. 37. After considering the submissions of the assessee learned Commissioner (Appeals) held that the right acquired by the assessee on assignment of contract is an intangible asset and accordingly allowed assessee's claim of depreciation. 38. The learned Departmental Representative, though, fairly submitted that the issue has been decided in favour of the assessee by the Tribunal in assessment year 2004-05, however, he relied upon the observations of the Assessing Officer. 39. The learned Sr. Counsel for the assessee relied upon the findings of the learned Commissioner (Appeals). 40. We have considered rival submissions and perused materials on record. Insofar as factual aspect of the issue is concerned, there is no dispute that by virtue of acquisition of M/s. Town and Country Assistance Ltd., various contracts executed by the said concern with third party clients were assigned to the assessee. It is also a fact that such acquisition took place by virtue of an agreement executed on 13th January 2004. It is also a fact on record that in ....
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....see is in the nature of fees for technical services, hence, the assessee was required to deduct tax at source while making such payment. Since, the assessee has not deducted any tax at source, the Assessing Officer disallowed the payment under section 40(a)(i) of the Act. The assessee challenged the disallowance before the first appellate authority. 43. Learned Commissioner (Appeals) after examining the provisions of Double Taxation Avoidance Agreement (DTAA) between India and U.SA. as well as India and U.K. held that the payment made cannot be treated as fees for technical services under the respective tax treaties. Further, he observed that in assessee's own case for assessment year 2004-05 he has decided the issue in favour of the assessee by holding that the provisions of section 195(1) of the Act is not applicable to the payments made, as, such payment cannot be treated as fees for technical services. Accordingly, he deleted the disallowance made under section 40(a)(i) of the Act. 44. The learned Departmental Representative, though, fairly submitted that the issue has been decided in favour of the assessee by the Tribunal in assessment year 2004-05, however, he relied up....
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....enged the decision of the learned Commissioner (Appeals) in directing the Assessing Officer to allow deduction under section 10A of the Act in respect of the profits of eligible units without setting-off losses relating to other non-eligible units. 48. While completing the assessment the Assessing Officer disallowed assessee's claim of deduction under section 10A of the Act on the ground that the assessee has shown a profit of Rs. 1.29 crore, in respect of one eligible unit under section 10A of the Act, whereas, there are losses in respect of all other units and the net effect after grossing of income of all the units, there is loss, hence, no deduction under section 10A of the Act is allowable. 49. When the assessee challenged the aforesaid decision of the Assessing Officer before the first appellate authority, the learned Commissioner (Appeals) held that if the assessee has more than one unit, deduction under section 10A of the Act is to be computed for different undertakings separately and not by grossing up the income / loss of all the units. He also held that deduction under section 10A of the Act is to be granted at the source and not after computing gross total income.....
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....entical issue in assessee's own case for assessment year the Tribunal has restricted the disallowance to 10% of the total expenditure claimed. Thus, he submitted, similar direction may be given in the impugned assessment year. 57. The learned Departmental Representative relied upon the observations of the learned Commissioner (Appeals). 58. Having considered rival submissions and perused material on record, we find that while deciding identical issue in assessment year 2004-05, the Tribunal has restricted the disallowance to 10% of the total expenditure claimed by the assessee. Facts being identical, following the aforesaid decision of the Tribunal in ITA no.2318/Mum./ 2009, dated 4th May 2018, we restrict the disallowance to 10% of the total expenditure claimed by the assessee under the head "Others". 59. Ground no.2, the assessee has challenged the decision of the learned Commissioner (Appeals) in determining the arm's length price of guarantee commission @ 0.5%. 60. This ground raised by the assessee is corresponding to ground no.4 of Revenue's appeal in ITA no.631/Mum./2011. In view of our decision therein in the earlier part of the order, separate adjudication ....
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....liday period is over and directed the Assessing Officer to allow the claim of the assessee. The same view was expressed by the Tribunal while deciding assessee's appeal in ITA no.1886/Mum./2009, dated 4th May 2018, in assessment year 2004-05. Accordingly, we direct the Assessing Officer to factually verify and allow assessee's claim as per the directions of the Tribunal in the earlier assessment years, as referred to above. 73. Ground no.9, being general in nature is not required to be adjudicated independently. 74. Ground no.10 is identical to grounds no.1 and 2 raised by the Revenue in ITA no.631/Mum./2011. In terms of our decision given in the earlier part of the order, we direct the Assessing Officer to treat the AEs as the tested party and benchmark the international transactions separately without aggregating them. 75. In grounds no.11 and 12, the assessee has challenged selection / rejection of certain comparables by the Transfer Pricing Officer and upheld by the DRP. 76. Before we deal with the issues relating to each comparable disputed before us by the assessee, it is necessary to briefly discuss the factual background relating to the issue. 77. As stated e....
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....and after considering the submissions / objections of the assessee, the Transfer Pricing Officer finally selected 22 comparables in the ITES segment with average PLI of 27.53% against PLI of 9.62% shown by the assessee. Accordingly, he made an adjustment of Rs. 118,88,88,500, to the price charged by the assessee. As regards software development services, the Assessing Officer after rejecting the transfer pricing study report proceeded to select comparables independently. Out of the 16 comparables selected by the assessee, the Transfer Pricing Officer retained seven while rejecting the rest of the comparables. In addition to the aforesaid seven comparables from the assessee's list of comparables, the Transfer Pricing Officer himself added 10 more comparables. Thus, the total comparables finally selected by the Transfer Pricing Officer was 17 with average PLI of 22.90%. Since, the assessee has shown the margin of 9.62%, the Transfer Pricing Officer made an upward adjustment of Rs. 44,46,046. On the basis of transfer pricing adjustment made by the Transfer Pricing Officer, the Assessing Officer made addition to the income of the assessee. Though, the assessee challenged the aforesaid ....
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....de rejection of companies having RPT of more than 25% of the operating revenue as well as companies having different financial year ending. In other words, he has rejected companies which do not have their financial year ending on 31st March 2008. It is the specific contention of the learned Sr. Counsel before us that not only the RPT of this company as a percentage of operating revenue works out to 28.19% thereby exceeding the threshold limit of 25% fixed by the Transfer Pricing Officer, but, the company has a different accounting year ending which is 30th June. It is noticed that in case of H&S Software Development and Knowledge Centre Pvt. Ltd. (supra), the Tribunal, Delhi Bench, taking note of the fact that the RPT of the company exceeds the threshold limit of 25% fixed by the Transfer Pricing Officer himself and further it has a different financial year ending has held that it cannot be treated as a comparable. The Tribunal, Mumbai Bench, in Dialogic Network India Pvt. Ltd. (supra) has also rejected this company as a comparable since it has a different financial year ending. Since, the aforesaid decisions of the Tribunal pertain to the very same assessment year, respectfully f....
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....mpany cannot be a comparable to ITE service provider like the assessee. Since, most of these decisions, as cited by the learned Sr. Counsel, pertain to the impugned assessment year including the decision of the Tribunal, Mumbai Bench, in Dialogic Network India Pvt. Ltd. (supra), we respectfully follow the ratio laid down in these decisions and exclude this company from the list of comparables. iii) E-CLERX SERVICS LTD. 85. Objecting to the selection of this company, learned Sr. Counsel for the assessee submitted, the company is functionally different from the assessee as it provides data analytics and data process solution which are in the nature of KPO services. In this context, he drew our attention to the information given in the annual report of the company. He submitted, considering the nature of services provided by this company, not only different Benches of the Tribunal but also the Hon'ble Delhi High Court in Rampgreen Solution Pvt. Ltd. v/s CIT, [2015] 377 ITR 533 (Del.) has held that since this company provides KPO services, it cannot be a comparable to ITE service provider. In support of such contention, he relied upon the following decisions:- ....
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....FORMATION TECHNOLOGIES LTD.) 88. Objecting to the selection of this company, learned Sr. Counsel for the assessee submitted, the business model of this company is totally different from the assessee as it outsources all its work to third party vendors. Further, he submitted, the fact that it has shown inventories in the Balance Sheet suggests that it is functionally different, as, an ITES provider does not hold inventories. Thus, he submitted, the company cannot be treated as comparable. In support, he relied upon the following decisions:- i) PCIT v/s Aptara Technology Pvt. Ltd., [2018] 92 taxmann.com 240; ii) PCIT v/s BNY Mellon International Operations India Pvt. Ltd. ITA no.1226/2015, dated 23.04.2018; iii) Rampgreen Solutions Pvt. Ltd. v/s CIT, [2015] 60 taxmann. com 355; iv) PCIT v/s New River Software Services Pvt. Ltd. ITA no.924/ 2016, dated 22.08.2017; v) CIT v/s Mercer Consulting India Pvt. Ltd. ITA no.101/2015, dated 21.08.2016; vi) Maersk Global Services Pvt. Ltd. v/s ACIT, ITA no.7466/ Mum./2012, dated 07.03.2014; vii) Goldman Sachs (I) Securities Pvt. Ltd. v/s ACIT, ITA no.6912/ Mum./2012, daed 29.07.20....
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....7466/Mum./ 2012, dated 07.03.2014; ii) Goldman Sachs (I) Securities Pvt. Ltd. v/s ACIT, ITA no.6912/ Mum./2012, dated 29.07.2016; iii) Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/Mum./ 2012, dated 27.07.2018; iv) ix) M/s. Capital IQ Information Systems Pvt. Ltd. v/s DCIT, 32 taxmann.com 2 (Hyd.); v) Lionbridge Technologies Pvt. Ltd. v/s ITO, ITA no.7498/Mum./ 2012, dated 09.07.2014; vi) Symphony Marketing Solutions India Pvt. Ltd. 37 CCH 253 (Bang.); vii) Willis Processing Services India P. Ltd. v/s ACIT, [2017] 83 taxmann.com 198; viii) Stream International Services Pvt. Ltd. v/s ACIT, [2015] 53 taxmann.com 19 (Mum.); and ix) B.P. India Services Pvt. Ltd. v/s ACIT, [2015] 55 taxmann.com 150 (Mum.). 92. The learned Departmental Representative relied upon the observation of the DRP and the Transfer Pricing Officer. 93. We have considered rival submissions and perused material on record. From the information furnished in the annual report of the company, a copy of which is placed in the factual paper book, it is seen that the company has categorized itself as a KPO service provider. It is also seen ....
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....pag-Lloyd Global Services Pvt. Ltd. v/s DCIT, ITA no.2300 and 7539/Mum./2014, dated 16.01.2016; v) PCIT v/s Aptara Technology Pvt. Ltd., [2018] 02 taxmann.com 240 (Bom.); vi) Symphony Marketing Solutions India Pvt. Ltd. v/s ITO, ITA no.1316/Bang./2012; dated 14.08.2013; vii) Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/Mum./ 2012, dated 27.07.2018; and viii) Stream International Services Pvt. Ltd. v/s ACIT, ITA no. 8290/Mum./2011, dated 10.10.2014. 95. The learned Departmental Representative relied upon the observations of the DRP and the Transfer Pricing Officer. 96. We have considered rival submissions and perused material on record. The documents submitted in the paper book including annual report of the company clearly reveal that it is engaged in the software development / software product development. However, no segmental details are available. Further, the annual report reveals that in the relevant financial year there are mergers / acquisitions which might have impacted the financial results of the company. Considering the aforesaid aspects, different benches of the Tribunal have held that this company cannot be treated as c....
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....l skills. Even otherwise also, the company provides substantial on-site services as compared to the assessee. For the aforesaid reasons, different benches of the Tribunal including the Mumbai bench, have held that this company is not comparable to an ITE service provider. Since, all such decisions cited by the learned Sr. Counsel pertain to the impugned assessment year and no factual difference has been brought to our notice, following the aforesaid decisions, we hold that this company cannot be treated as comparable. viii) CROSSDOMAIN SOLUTIONS LTD. 100. Objecting to the selection of this company, the learned Sr. Counsel for the assessee submitted, as per the information available in the website of the company, it is engaged in rendering software development and KPO services relating to software development and maintenance services, software testing services, infrastructure set-up and management, consulting services, architecture, configuration and installation, etc. Thus, it was submitted, the company being functionally different cannot be treated as comparable to the assessee. Further, the learned Sr. Counsel submitted, the financials of the company provided by the T....
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....sessee, this company has been rejected as comparable since it is a KPO service provider. Since, these decisions are for the very same assessment year, consistent with the view taken in these decisions, we direct the Assessing Officer to exclude this company. ix) WIPRO LTD. 103. Objecting to the selection of this company the learned Sr. Counsel for the assessee submitted, it is a leading market player with significant intangibles. He submitted, the company operates as a full risk bearing entrepreneur having significant intellectual property. Therefore, he submitted, it cannot be compared to a risk mitigated captive service provider like the assessee. He submitted, the company incurs significant selling, marketing and brand building expenses. Further, it has a brand value associated with it which has significant influence over the pricing policy and ultimately impacts the margin. He submitted, as per the director's report the company has been granted 40 patents and has 62 pending patents application which shows that it is into high end activity. He submitted, the company undertakes significant research and development activities which is evident from the financials. Final....
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....e company incurs selling, marketing and brand building expenses and owns significant intangibles. Thus, he submitted, the company is not functionally comparable to a captive service provider like the assessee. In support of such submissions, he relied upon the following decisions:- i) Hinduja Global Solutions Ltd.v/s DCIT, [2017] 78 taxmann.com 199 (Mum.); ii) Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/Mum./ 2012, dated 27.07.2018; iii) Hapag-Lloyd Global Services Pvt. Ltd. v/s DCIT, ITA no.2300 and 7539/Mum./2014, dated 16.01.2016; iv) B.P. India Services Pvt. Ltd. v/s ACIT, [2015] 55 taxmann.com 150 (Mum.); v) Aegis Ltd. v/s DCIT, [2017] 78 taxmann.com 275 (Mum.); vi) CIT v/s Pentair Water India Pvt. Ltd., ITA no.18 of 2015, dated 16.09.2015; and vii) PCIT v/s New River Software Services Pvt. Ltd., ITA no.924 of 2016, dated 22.08.2017. 107. The learned Departmental Representative relied upon the observations of the DRP and the Transfer Pricing Officer. 108. We have considered rival submissions and perused material on record. From the material available on record we find that this company is not only ren....
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....however, segmental data relating to all these services are not available in the annual report. For the aforesaid reasons, the Tribunal, Mumbai Bench, in Dialogic Network India Pvt. (supra), has excluded this company as a comparable. Facts being similar, following the aforesaid decision of the Co-ordinate Bench, we exclude this company as a comparable. xii) MAPLE-E- SOLUTIONS LTD. 111. Objecting to the selection of this company the learned Sr. Counsel for the assessee submitted, the promoter of this company i.e., Rastogi Group is under serious indictment as the Rastogi family had cheated the Government of India to the tune of Rs. 54 crore in the late 1980s and mid 1990s. Therefore, the financials of the company cannot be relied upon. Without prejudice to the aforesaid submissions, he submitted, the company otherwise fails the export turnover filter of more than 75%. In support of his contention, the learned Sr. Counsel relied upon the following decisions:- i) M/s. Capital IQ Information Systems Pvt. Ltd. v/s DCIT, ITA no.196/Hyd./2011, dated 23.11.2012; ii) Stream International Services Pvt. Ltd. v/s ACIT, ITA no. 8290/ Mum./2011, dated 10.10.2014; and ....
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....LTD. 117. Objecting to the selection of this company the learned Sr. Counsel for the assessee submitted, looking at the profit margin earned by the company in the impugned assessment year compared to the preceding two years, it is an exceptional year of operation for the company. He submitted, the revenue from software activity in the impugned assessment year is Rs. 86.73 crore as compared to Rs. 143.43 crore in the immediately preceding year. Whereas, the expenditure incurred on software development is Rs. 30.44 crore as against Rs. 104.35 crore in the immediately preceding year. Therefore, it is an exceptional year of operation for the company. He submitted, this company provides diversified services such as application support services, infrastructure management services, e-learning and digital consulting and I.T. consulting services. He submitted, none of these services are comparable to software development services provided by the assessee. Without prejudice to the aforesaid submissions, he submitted, as per the annual report of the company, the revenue earned from software development services does not satisfy the more than 75% service income filter applied by the Transfe....
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....y to the department, issue relating to acceptability or otherwise of this company as a comparable requires to be restored to the Assessing Officer / Transfer Pricing Officer for fresh examination keeping in view the submissions made by the assessee and the decisions relied upon. Accordingly, we restore the issue relating to the selection of this company as a comparable to the Assessing Officer / Transfer Pricing Officer for deciding afresh after due opportunity of being heard to the assessee. iii) BODHTREE CONSULTING LTD. 121. Objecting to the selection of this company the learned Sr. Counsel for the assessee submitted, it is engaged in providing a wide range of software services and standard software solution. He submitted, segmental data relating to the different varieties of services rendered by the company are not available. He submitted, as per the information available in the website of the company, it offers a wide array of services which include product engineering, analytic services, cloud services, enterprise services, etc. He submitted, as per the website, the company is also engaged in providing software solutions like Share Tree, Tele Tree, Secure Tree, App....
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....fresh keeping in view the submissions of the assessee and the decisions to be relied upon. iv) ACROPETAL TECHNOLOGIES LTD. 124. Objecting to the selection of this company the learned Sr. Counsel for the assessee submitted, the employee cost of the company works out to 8.20% of its revenue. Therefore, it fails the employee cost filter of 25% applied by the Transfer Pricing Officer himself. Further, he submitted, as per Schedule-5 of the financial statement, the company owns substantial intangible assets which work out to 13.68% of the total fixed assets of the company. Therefore, he submitted, the company cannot be treated as comparable. In support of his contention, learned Sr. Counsel relied upon the following decisions:- i) Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/Mum./ 2012, dated 27.07.2018; ii) Accenture Services Pvt. Ltd. v/s ACIT, IT(TP)A no.7686/Mum./ 2012, dated 20.07.2018; iii) B.P. India Services Pvt. Ltd. v/s ACIT, [2015] 55 taxmann.com 150 (Mum.); and iv) Ness Technologies India Pvt. Ltd., ITA no.7016/Mum./2012, dated 24.09.2014. 125. The learned Departmental Representative relied upon the observations of the Tran....
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....epresentative relied upon the observations of the Transfer Pricing Officer and the DRP. 129. We have considered rival submissions and perused material on record. As could be seen from the facts on record, this company is rendering product development services and high end technical services which come under the category of KPO services. Considering the aforesaid aspect the Tribunal in various decisions, as cited by the learned Sr. Counsel, has excluded this company as a comparable. Facts being identical, following the decisions cited before us, we exclude this company from the list of comparables. v) HELIOS AND MATHESON INFORMATION TECHNOLOGY LTD. 130. Objecting to the selection of this company the learned Sr. Counsel for the assessee submitted, the company is engaged in the activity of research and development of new services, designs, frameworks and methodologies. Further, referring to Schedule-L of the notes to accounts, he submitted, the company derives its revenue from software sales and software services and in the absence of adequate segmental break-up of software development services and software sales the company cannot be considered as a comparable. Without....
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....% in the impugned assessment year which demonstrates that the company is engaged in sale of software products. He submitted, the company is not comparable due to its scale of operation. He submitted, considering a number of economic factors and market dynamics the company having significantly high turnover cannot be considered as comparable. He submitted, the turnover of Infosys for financial year 2007-08 is Rs. 15,648 crore as against Rs. 2.59 crore of the assessee. He submitted, this company incurs significant marketing expenditure which in the financial year 2007-08 was to the tune of Rs. 730 crore. The learned Sr. Counsel submitted, the company as per the annual report is engaged in significant research and development activities which have led to creation of significant intellectual property. He submitted, the company has established a dedicated research and renovation group known as Software Engineering and Technology Labs. He submitted, in financial year 2007-08, the company has spent Rs. 201 crore on research and development expenses. He submitted, the company owns significant intangibles as it was granted two patents in financial year 2007-08 with 119 patent applications p....
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....07-08 and 119 patent applications are pending in USA and India. Further, it is a reputed company and it has enormous brand value. Moreover the turnover of this company in financial year 2007-08 at Rs. 15,648 crore makes it a giant company compared to the miniscule turnover of Rs. 2.59 crore of the assessee. The aforesaid factors, cumulatively, make this company non-comparable to the assessee. In a number of decisions of different Benches of the Tribunal, as cited by the learned Sr. Counsel, it has been consistently held that Infosys cannot be treated as a comparable to a small captive service provider. In view of the aforesaid, we hold that this company cannot be a comparable to the assessee. vii) KALS INFORMATION SYSTEMS LTD. 136. Objecting to the selection of this company the learned Sr. Counsel for the assessee submitted, as per the information available in the annual report the company is engaged in providing software services as well as sale of software product. He submitted, as per the annual report, the company holds inventory amounting to 39.02% and 54.04% of its total asset in financial year 2007-08 and 2006-07 respectively. He submitted, as per segmental in....
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....sel also express similar view. Since, most of these decisions cited by the learned Sr. Counsel, including the decision of the Hon'ble Jurisdictional High Court in PTC Software India Pvt. Ltd. (supra), pertain to the impugned assessment year, respectfully following them we exclude this company from the list of comparables. viii) PERSISTENT SYSTEMS LTD. 139. Objecting to the selection of this company the learned Sr. Counsel for the assessee submitted, it cannot be treated as comparable since it is primarily engaged in development and sale of software products, though, it also provides software services. He submitted, the financial statement of the company does not provide sufficient segmental information to determine profitability from sale of products and provision of services respectively. He submitted, unlike assessee, the company undertakes substantial research and development activities and has developed and acquired several intellectual properties. Thus, he submitted, for the aforesaid reasons the company cannot be treated as comparable. In support, he relied upon the following decisions:- i) Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/Mum./ 201....
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....ector's report, the software development services segment constitutes embedded product design, industrial design and visual computing labs. He submitted, a detailed description of this services as provided in the annual report suggests that they are not in the nature of software development services provided by the assessee. Further, he submitted, no segmental break-up is available for the software development, ITES and sale of software product undertaken by the company. He submitted, the company undertakes research and development activity and owns significant intellectual property rights. He also submitted, the company fails the export earning filter of 75% applied by the Transfer Pricing Officer. Thus, he submitted, for the aforesaid reasons this company cannot be selected as comparable. In support, he relied upon the following decisions:- i) Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/Mum./ 2012, dated 27.07.2018; ii) UCB India Pvt. Ltd. v/s ACIT, ITA no.7691/Mum./20112, 29.07.2016, [2016] 73 taxmann.com 389 (Mum.); iii) Net Cracker Technology Solutions India Pvt. Ltd. v/s ACIT, ITA no.86/Hyd./2013, dated 17.06.2015; iv) Invensys Deve....
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...., hence, cannot be verified. Thus, he submitted, for the aforesaid reasons the company cannot be treated as comparable to the assessee. In support, he relied upon the following decisions:- i) Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/Mum./ 2012, dated 27.07.2018; ii) Accenture Services Pvt. Ltd. v/s ACIT, IT(TP)A no.7686/ Mum./2012, dated 20.07.2018; iii) NTT DATA india Enterprise Application Services Pvt. Ltd. v/s DCIT, ITA no.1862/Hyd./2012, dated 02.01.2015; iv) Aircom International India Pvt. Ltd. v/s DCIT, ITA no.6402/ Del./2012, dated 02.08.2017; v) SAP Labs India Pvt. Ltd. v/s ACIT, ITA no.981/Bang./2013, dated 06.04.2018; and vi) 3DPLM Software Solutions Ltd. v/s DCIT, ITA no.1303/Bang./ 2012, dated 28.11.2013. 146. The learned Departmental Representative relied upon the observations of the Transfer Pricing Officer and the DRP. 147. We have considered rival submissions and perused materials on record. The grievance of the assessee is, the company is involved in development of products and no segmental details are available in the annual report, hence, it cannot be treated as comparable. The Co-ordinate Be....
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.... ii) UCB India Pvt. Ltd. v/s ACIT, ITA no.7691/Mum./20112, 29.07.2016, [2016] 73 taxmann.com 389 (Mum.); iii) Net Cracker Technology Solutions India Pvt. Ltd. v/s ACIT, ITA no.86/Hyd./2013, dated 17.06.2015; iv) Invensys Development Centre India Pvt. Ltd. v/s ACIT, ITA no. 1692/Hyd./2012, dated 12.11.2014; v) Capgemini India Pvt. Ltd. v/s ITO, ITA no.7099/Mum./2012, dated 10.12.32015; vi) Aircom International India Pvt. Ltd. v/s DCIT, ITA no.6402/ Del./2012, dated 02.08.2017; vii) NTT DATA india Enterprise Application Services Pvt. Ltd. v/s DCIT, ITA no.1862/Hyd./2012, dated 02.01.2015; and viii) 3DPLM Software Solutions Ltd. v/s DCIT, ITA no.1303/Bang./ 2012, dated 28.11.2013. 149. The learned Departmental Representative relied upon the observations of the DRP and the Transfer Pricing Officer. 150. We have considered rival submissions and perused material on record. As could be seen from the annual report of the company as well as other materials placed in the paper book, this company is into diversified activities and owns substantial intangibles by way of patents and intellectual properties. The company has a huge....
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....jecting to the rejection of this company the learned Sr. Counsel for the assessee submitted, while applying the RPT filter of 25%, the Transfer Pricing Officer has included reimbursement which is improper and erroneous. He submitted, if the reimbursement is excluded, then the RPT as a percentage of revenue would be only 5.06%. Therefore, the company cannot be rejected as a comparable. In support, he relied upon the Co-ordinate Bench decision in case of Jacobs Engineering India Pvt. Ltd. v/s DCIT, ITA no.7194/Mum./2012, dated 17th May 2017. 155. The learned Departmental Representative relying upon the observation of the Transfer Pricing Officer and the DRP submitted that reimbursement since forms part of international transaction has to be included for the purpose of RPT. 156. We have considered rival submissions and perused material on record. It is evident, the Transfer Pricing Officer has rejected this company only on the reasoning that the RPT is more than 25%. In other words, the Transfer Pricing Officer finds the company to be functionally similar to the assessee. While doing so, he has observed that the company has made reimbursement of expenditure amounting to Rs. 22 c....