TaxTMI 
TaxTMI 
TaxTMI 
2019 (2) TMI 1322
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....the loss declared by the Appellant in its return of income amounting to INR 2,57,12,740/- by making an upward adjustment of INR 50,764,694/- and INR 53,37,240/- with respect to Transfer Pricing and Corporate Tax matters, respectively. Part I - Transfer Pricing Grounds 3. That on facts of the case and in law, the DRP/TPO/AO have erred in rejecting the economic analysis undertaken by the Appellant for international transaction pertaining to provision of IT services ("impugned transaction"). 4. That on facts of the case and in law, the DRP/TPO/AO have erred in rejecting the comparable companies (viz. ADC India Communications Ltd., CMC Ltd., DCM Ltd., Glodyne Technoserve Ltd., Microland Ltd. and ORG Informatics Ltd.) which were considered as comparable by the Appellant for benchmarking the impugned transaction without considering the fact that these companies were engaged in providing similar services as compared to the Appellant. 5. That on facts of the case and in law, the DRP/TPO/AO have erred in recharacterizing the nature of the impugned transaction as provision of IT enabled services ("ITeS") by stating that there is no difference between IT services and ITeS services as ....
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....ing the operating costs pertaining to related and unrelated segments on the basis of the respective segmental revenue of the Appellant without appreciating the segmental details submitted by the Appellant and redetermined the operating cost of the Appellant for benchmarking the impugned transaction. 12. That on facts of the case and in law, the DRP/TPO/AO have failed to include foreign exchange gains/losses and provision for doubtful debts while computing the operating margins of the Appellant and the comparable companies. 13. That on facts of the case and in law, the DRP has grossly erred in giving a direction to carry out a fresh calculation of the margins of comparables as per the guidelines provided by the Safe Harbour Notification dated 18 September 2013, without understanding that: * Appellant has not applied for being assessed under safe harbor provisions * Safe Harbour provisions do not reflect arm's length nature of margins * Safe Harbour Rules cannot be applied retrospectively and are only applicable for assessment year ("AY") 2013-14 and AY 2014-15 on specific application by a taxpayer 14. That on facts of the case and in law, the DRP/TPO/AO have failed to ma....
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....pellant was engaged in provision of IT services to its AEs. The said services were primarily in the nature of technical support pertaining to installation and implementation of goods sold directly by its AE in India. Broad portfolio of services includes: * Installation and commissioning * Integration services * Maintenance and support Services * Warranty Services During the relevant AY, the assessee company undertook the following international transactions with its AEs, which were duly reported in the Accountant's Report (Form No, 3CEB), filed along with the assessee's return of income. S. No. International Transaction Method Applied Amount 1 Trading of Goods RPM 14,45,29,350 2 Provision of IT Services TNMM 17,82,69,410 Payment of provision of IT Services TNMM 10,65,67,562 3 Business support services TNMM 5,03,07,734 4 Purchase of fixed assets CUP 1,31,46,625 5 Reimbursement of Expenses NA 91,29,510 6 Recovery of Expenses NA 35,30,701 A reference was made u/s 92CA of the Income Tax Act, 1961 by the DCIT, Circle - 11(1), New Delhi for determination of Arm's length price for the international transactions undertaken by the assesse....
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.... 6. The Ld. AR submitted that on Aggregation of international and domestic segments pertaining to IT segment, the segmental bifurcation of revenues and expenses into international and domestic segments given to the lower authorities are as under: Particulars International Segment Domestic Segment Total Revenue 178,289,410 61,200,528 239,469,938 Direct Cost 130,598,176 33,217,100 163,815,276 Indirect Cost 38,004,171 33,407,526 71,411,697 Total Operating Cost 168,602,347 66,624,626 235,226,973 Operating Profit 96,67,063 -54,24,098 4,242,965 NCP 5.73 -8.14 1.80 However, the Ld. AR submitted that the TPO disregarded the above segmental information and did not consider the submissions of the assessee company and the DRP also confirmed the action of the TPO. The Ld. AR pointed out that in the peculiar circumstances of the present case, to compute the arm's length price of the aforementioned transaction, the segmental profitability of the assessee company needs to be taken into consideration as against aggregation of international and domestic segment of the assessee company. The Ld. AR further submitted that in the instant case, the objective is to compute t....
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....y people having high end technical skills as the basic maintenance of the computer systems does not require people having high skilled technical knowledge. For IT service segment the functional analysis and risks assumed has been provided below: Functions performed: 1. Installation and commissioning: The assessee company is engaged in the installation and commissioning of IT Products (both hardware and software) sold by its AE's to third party customers in India. The services rendered range from integrating new technologies in IT infrastructure to providing support services. 2. Integration Services: The assessee company provides services pertaining to integration of new elements to existing infrastructure such as high end servers, storage solutions, internal and external networks as well as infrastructure software. 3. Maintenance and Support services: To support the range of servers, desktops, notebooks and handheld devices, the assessee company also provides repair and maintenance services in relation to the products sold directly by the AEs to customers in India. 4. Warranty Service: The AEs of the assessee company have passed on their warranty obligations/ AMC to the as....
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....consideration as against aggregation of international and domestic segment of the assessee company. Thus, in the present case the arm's length price of the related party transactions of the assessee company has to be computed with its AE's on segmental basis and not that of profitability of the entire segment which include both AE and non AE transaction. This submission of the Assessee is well formed and is accepted as the assessee company has given all the information relating to international segment and domestic segment with the related party sales transaction of the assessee company with its AE's. Besides that the TPO has also re-characterized the assessee's limited risk IT services as ITeS, thereby rejecting the functional analysis as documented in the Transfer Pricing Documentation. The TPO while re-characterizing the IT services as IT enabled Services has not given any finding or reasons as to why the same is done. Thus, on both account that is aggregation of international and domestic segments pertaining to IT segment and the re-characterization of the IT services as IT enabled Services, the issues need to be addressed by the TPO after taking into account all the relevant e....