TaxTMI 
TaxTMI 
2019 (4) TMI 1310
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....43(2) was issued to the assessee. The AR of the assessee furnished the required information. 2.1 The assessee company is 100% Export Oriented Undertaking claiming deduction u/s.10B of the I.T. Act, 1961. During the financial year relevant to the AY 2008-09, assessee company was in receipt of Rs. 15.99 crores from AEs for providing IT Enabled services. As verified, assessee did not file Form 3CEB report. As the assessee's international transactions during the year exceeded 15 crores, the case was referred to Transfer Pricing, Officer for determination of Arm's length Price. The TPO vide order dated 31-10-2016 determined the ALP at Rs. 18,88,23,969/- and held that the total income of the tax payer should be enhanced by Rs. 2,86,24,167/-, by observing as under in his order 2.2 Assessee has entered into following international transactions, as per 3CEB report/TP document: AE Nature of transaction Amount (Rs. Wissen Infotech Inc Provision of software development services 15,99,99,548 2.3 The TPO noted that assessee has used Prowess and Capitaline data base in search for comparable companies in the TP documentation. After applying certain filters, the a....
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.... margin of the remaining 16 comparables, as per the directions of the DRP, the arm's length price was reworked out at Rs. 18,77,04,788/- and the adjustment u/s 92CA(3) for the year under consideration at Rs. 2,75,04,986/- instead of Rs. 2,86,24,167/- made by TPO. 4. The AO, thereafter, passed final assessment order u/s 143(3) rws 147 r.w.s. 92CA(3) rws 144C of the Act, on 27/10/2017, against which, the assessee is in appeal before us raising the following grounds of appeal: "1. The Learned(Ld.) Dispute resolutions panel (DRP)/ Assessing Officer (AO) are erroneous in law and on the facts of the case. 2. The DRP/AO ought to have accepted the profit margin (OP/OC) of 6.27% adopted by the appellant as having complied with the arm's length principle. 3. The Ld DRP/AO are not justified in law in considering wrong comparables and consequently arriving at an arm's length margin of 24.11% after making Working capital adjustment of 1.39% and thereby making an adjustment of Rs. 2,75,04,986/-. 4. The AO erred in not giving full effect to the directions of Ld. DRP in respect of excluding the company Wipro Limited (Seg) as a comparable company in co....
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.... 7 Quintegra Solutions Ltd 8 Softsol India Limited 7 As regards Avani Cincom Technologies Ltd, AR submitted that this company cannot be a comparable to the assessee company as the company is into both segments product and software services and further, segment-wise data is not available. The TPO included this company in the final set of comparables only on the basis of information obtained under section 133(6) of the Act. He relied on the following cases: 1. Invensys Development Centre (P) Ld., Vs. aCIT, [2015] 68 SOT 247 (Hyd.) 2. United Online Software Development (India) (P) Ltd., Vs. ITO [2016] 69 Taxmann.com 446 (Hyd.) 7.1 The ld. DR, on the other hand, submitted that the assessee objects for inclusion of the said company on the ground that it has products and offers services and segmental information is not available. However, it has only one segment as seen from the annual report. The information obtained u/s 133(6) was shared with the assessee also by the TPO. 7.2 Considered the rival submissions and perused the material on record. We find that the coordinate bench of this Tribunal in the case of United Online Software Development (India....
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....ITAT Delhi in case of Cash Edge India Pvt. Ltd. in ITA No. 5848/D/2012 for AY 2008-09 6.3 It is to be noted that in the case of 3DPLM Software Solutions Ltd, (TS-359-ITAT-2013(Bang)-TP) AY 2008-09, the coordinate bench has taken this company as comparable. 6.4 Ld. AR submitted that this company is engaged in providing open and end to end web solutions, software consultancy, design and development of software and also submitted that this is into business of software products. For that he submitted snap shot of companies profile from the net in page 561 of the paper book, which states as "we also provide product engineering and enterprise services to Fortune 500 firms and SMES". Also "As a partner of industry leading technology providers, Bodhtree delivers best-in-class solutions that are tailored to meet the needs of global SME's and fortune listed organizations". Ld AR also submitted a letter from Chartered Accountats, M/s Gokhale & Co., which is addressed to ACIT (TP), Hyderabad (Refer pages 563 & 564 of the paper book). M/s Gokhale & Co., submits details about the Bodhtree e paper solutions. 6.5 After analyzing the above submissions, we are of the view ....
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....ssions of the assessee that this company is functionally different from the assessee. It has also been so held by co-ordinate benches of this Tribunal in the assessee's own case for Assessment Year 2007-08 (supra) as well as in the case of Triology E-Business Software India (P.) Ltd. (supra). In view of the fact that the functional profile of and other parameters of this company have not changed in this year under consideration, which fact has also been demonstrated by the assessee, following the decision of the co-ordinate benches of the Tribunal in the assessee's own case for Assessment Year 2007-08 in ITA No.845/Bang/2011 and Triology E-Business software India (P.) Ltd. case (supra), we hold that this company ought to be omitted form the list of comparables. The A.O/TPO are accordingly directed." We notice that the decision of the ITAT Bengaluru bench cannot be relied as it refers to AY 2007-08 and it is based on several other decisions. We notice that similar to assessee, Celestial Bio Labs also offers several services to its AEs and since we are determining with ALP based on TNMM, we consider the average margin of all the several activities carried on by the assesse....
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....idered for benchmarking, effect of different volumes of turnover is automatically ironed out. Therefore, simply excluding the comparable because turnover of this company is more than Rs. 100 crore is not a proper reason". The decision in case of FIS Global Solution s Ltd also considers to the decision of Delhi High Court in Chryiscapital Advisors India Pvt Ltd." 10.2 Considered the rival submissions and perused the material on record. We find that the coordinate bench of this Tribunal in the case of United Online Software Development (India) (P) Ltd. directed to exclude the said company by observing as under: "1. Infosys Technologies Ltd. 1.1 The ld. AR objecting to the aforesaid company being treated as comparable, relied on the decision of the ITAT, Hyderabad in assessee's own case for AY 2007-08 and 2005-06. 1.2 The ITAT in AY 2007-08 vide ITA No. 1658/H/2011 and others held as follows: "7.2.3. We have considered the submissions of the parties and perused the materials on record. On considering the same, we are of the view that this company cannot be considered as comparable to Assessee due to various factors such as its size, turnover,....
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....ourt in a judgement dated 19.7.2013 in the case of Agnity India Ltd. upheld the decision of ITAT Delhi Bench in excluding Infosys Technologies Ltd., as a comparable in view of its size. Therefore, keeping in tune with the consistent view of different Benches of the Tribunal in respect of the aforesaid company, we direct the AO/TPO to exclude the aforesaid company from the list of comparables." 1.4 The ld. AR also placed reliance on the following decisions: 1. Invensys Development Centre India Pvt. Ltd., 1692/H/12 AY 2008-09 2. 3DPLM Software Solutions Ltd, (TS-359-ITAT-2013(Bang)- TP) AY 2008-09. 3. Cash Edge India Pvt. Ltd., ITA No. 5848/D/12 - AY 2008-09. 1.5 The ld. DR, on the other hand relied on the orders of revenue authorities. 1.6. After considering the submissions of both the parties and keeping in tune with the consistent view of different benches of the Tribunal in respect of the aforesaid, we direct the AO/TPO to exclude the aforesaid company from the list of comparables." "After considering the submissions of both the parties and keeping in tune with the consistent view of different benches of the Tribunal ....
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....ition to the business of providing services. 16. Ld. D.R. had argued that the TPO had taken segmental figures only to make the comparison. Therefore, we hold that this issue can be examined by the Assessing Officer afresh to ascertain as to whether segmental data relating to the provision of services were used or consolidated results were used for making comparison. 17. As regards the last argument of the Ld. A.R. regarding inclusion of finance and bank charges in operating expenses while computing the margin and comparables, we are in agreement with the argument of the Ld. A.R. that finance and bank charges form part of operating expenses and need to be included while calculating margin of comparables. 18. Therefore, in view of the facts and circumstances of the present case and in view of the discussions made above and in view of various judicial pronouncements, we direct the Assessing Officer to re-adjudicate the issue of arms length pricing and determine the same by excluding the comparables having turnover of more than Rs. 200 crores. The Assessing Officer will also take into account the bank and finance charges as part of operating expenses....
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....We find that the coordinate bench of this Tribunal in the case of United Online Software Development (India) (P) Ltd. directed to exclude the said company by observing as under: 9. Persistent Systems Ltd. 9.1 Objecting to the aforesaid company as comparable, ld. AR submitted that this company is engaged in software product designing and analytical services. It has also expenditure in R&D. The ld. AR relied on the decision of the coordinate bench of ITAT Bangalore in case of 3DPLM Software Solutions Ltd. (supra) wherein the bench held as follows: 17.3 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the details on record that this company i.e. Persistent Systems Ltd., is engaged in product development and product design services while the assessee is a software development services provider. We find that, as submitted by the assessee, the segmental details are not given separately. Therefore, following the principle enunciated in the decision of the Mumbai Tribunal in the case of Telecordia 41 IT(T.P)A No.1303/Bang/2012 Technologies India Pvt. Ltd. (supra) that in the absence of segmental deta....
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....ovider as is the assessee in the case on hand. It is also seen that this company is also engaged in proprietary software products and has substantial R&D activity which has resulted in creation of its IPRs. Having applied for trade mark registration of its products, it evidences the fact that this company owns intangible assets. The co-ordinate bench of this Tribunal in thecase of 24/7 Customer.Com Pvt. Ltd. (ITA No.227/Bang/2010 dt.9.11.2012) has held that if a company possesses or owns intangibles or IPRs, then it cannot be considered as a comparable company to one that does not own intangibles and requires to be omitted form the list of comparables, as in the case on hand. 18.3.2 We also find from the Annual Report of Quintegra Solutions Ltd. that there have been acquisitions made by it in the period under consideration. It is settled principle that where extraordinary events have taken place, which has an effect on the performance of the company, then that company shall be removed from the list of comparables. 18.3.3 Respectfully following the decision of the co-ordinate bench of the Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. (supra), we direct that this compa....
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.... co-ordinate benches (supra), we hold that this company is to be omitted from the list of comparables to the assessee in the case on hand." 11.2 Ld. DR relied on the orders of revenue authorities. 11.3 Respectfully following the said decision, we direct the AO/TPO to exclude the said company as comparable from the list of companies." We notice that assessee has adopted 10% RPT whereas TPO adopted 25% filter for RPT. Generally, the %age of RPT is determined based on the availability of comparables. When the comparables are more, the RPT filter is adopted at minimum level whereas when the comparables are less, the RPT % are fixed liberally. Generally, it is selected between 15% or 25% depending upon the availability of comparables. In the given case, TPO has selected 19 comparables. Therefore, it shows that comparables are reasonably more, hence, TPO could have applied 15%. In the given case, out of 19 comparables, assessee accepted only 7 and balance it objected. Therefore, in our considered view, in the restricted atmosphere of selection of comparables, the %age should be 25% not 15%. The more we restrict, chances of loosing reasonable comparability. Therefore,....
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....at the assessee has arranged its affairs in such a manner so as to show lesser taxable income in India. This view has been endorsed by the Ahmedabad Tribunal in the case of Motif India Info tech Pvt Ltd ITA No.3043/ Ahd/2010 for A Y 2006-07. 37. In our considered opinion, in a case where the international transaction entered into by the assessee with the AEs giving rise to exempt income in the hands of the assessee is to be benchmarked with the ALP determined in accordance with the provisions of Transfer Pricing to ensure that no excess exempt income is disclosed by the assessee and assessee is entitled for exemption of income u/s lOA of the total income determined as per the Transfer Pricing Provisions only and where the assessee has claimed more exempt income, then exemption u/s lOA shall be allowed in accordance with the profit compared as per ALP only. 38. Keeping in view the above in mind in the instant case we find that as per the decisions of the lower authorities the assessee has not reported any excess exempt income from its international transactions with AE. On the other hand as per the opinion of the lower tiuthorities in the instant case exem....
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....d shifted profits) to an overseas jurisdiction for the purpose of avoiding tax in India. The reference by the OR to the proviso to section 92C(4) is completely out of context and irrelevant. The DR ought to have appreciated that the proviso comes into play only once a transfer pricing adjustment is made. By quoting OECD guidelines, the Id. DR does not get much help. The Id. DR ought to have appreciated that what is relevant in the Indian context are the specific provisions of the Circular No. 14/2001. As submitted above, at para 55.5 of the said Circular, the CBDT has clearly mentioned that the intention of the transfer pricing provisions is to curtail avoidance of taxes by shifting profits outside India." In the case of Cotton Naturals (J) (P.) Ltd. v. DCIT [2013] 32 taxmann.com 219 (Delhi - Trib.) the Hon'ble Delhi Tribunal held as under: "18. We further note that assessee's profits are exempt u/s. 10B. Hence, there is no case that assessee would benefit by shifting profits outside India. This view is supported by Bangalore Tribunal decision in this case Philips Software Centre (P.) Ltd. v. Asstt. CIT [2008J 26 SOT 226 and Mumbai Tribunal in the....
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.... On the above facts we would like to rely on the recent decision by Mumbai Tribunal in the DClT v. Tata Consultancy Services Ltd ITA No: 7513/M/2010 for the AY 2005-06 wherein it was held "54. For the above discussion, the assessee's support to the impugned order on both counts is found to be correct. The AO erred in not himself examining the issue of TP and with the approval of the Id. CIT, made a reference to the TPO u/s 92CA(1) of the Act; that the AO as well as the Id. CIT(A) failed to apply their mind to the TP Report filed by the assessee, or to any other material or information or document furnished. The TPO made an adjustment which was incorporated by the AO in the assessment order. Thereby. the AD as well as the Id. CIT(A) did not discharge necessary respective judicial functions conferred on them under sections 92C and 92CA of the Act. Further, the assessee is also correct in contending that no TP adjustment can be made in a case like the present one, where the assessee enjoys u/s 10A or 80HHE of the Act, or where the tax rate in the country of the Associated Enterprises is higher than the rate of tax in India and where the establishment of tax avoidance or m....
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.... be removed while calculating profit of margin of the assessee or to the method adopted for the comparables. 17.1 The ld. DR filed written submissions wherein it was stated as under: 3. On the ground of treating FBT is treating as expenditure, it is humbly submitted that it is essential to know about the objective of levy of FBT which is available in Circular no: 8/2015. The relevant portions of the circular are quoted as under. The objective is as follows: "2. Objective: 2.1 The taxation of perquisites or fringe benefits is justified both on grounds of equity and economic efficiency. When fringe benefits are under-taxed, it violates both horizontal and vertical equity. A taxpayer receiving his entire income in cash bears a higher tax burden in comparison to another taxpayer who receives his income partly in cash and partly in kind, thereby violating horizontal equity. Further, fringe benefits are generally provided to senior executives in the organization. Therefore, under-taxation of fringe benefits also violates vertical equity. It also discriminates between companies which can provide fringe benefits and those which cannot thereby adversely affecti....