TaxTMI 
TaxTMI 
2019 (5) TMI 621
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....ernational transactions (IT) of provision of software development services, provision of ITeS and interest on receivable of INR 103068942/- was incorporated. The returned income of the assessee of INR 403452480/- was assessed at INR 506521422/- 2. The assessee has raised the following grounds of appeal:- "1. That the Ld. AO erred in proposing to assess the income of the Assessee at INR 50,65,21,420 as against the returned income declared by the Assessee at INR 40,34,52,480 by making an addition of INR 10,30.68,942 by holding that the Assessee's international transaction does not satisfy the arm's length principle envisaged under the Act. 2. That the Ld. AO/ Learned Deputy Commissioner of Income Tax, Transfer Pricing Officer 1 (3)( 1) ("Ld. TPO") erred on facts and in law in enhancing the income of the Assessee by INR 1,70,08,093/- pertaining to provision of Contract Software Development ("IT") services and INR 8,60,59,465 pertaining to provision of Information Technologies Enabled Services ("ITES") to its Associated Enterprises ("AEs") that do not satisfy the arm's length principle envisaged under the Act and in doing so, have grossly erred in: 2.1. erroneously rejecting the....
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....52480/-. The learned assessing officer noted that the assessee has entered into 7 different international transactions as under. Serial number nature of transactions amount 1 Provision of ITeS 2084634357 2 Provision of software development services 424154453 3 Purchase of fixed assets 4470279 4 Cost of reimbursement paid 24907654 5 Cost of reimbursement paid on account of repairs and maintenance 722944 6 Cost of reimbursement received receivable 58127705 7 Interest on loan 774141 4. Therefore, the learned assessing officer referred the matter to the learned transfer pricing officer for determination of arm's-length price of these transactions. 5. The provisions of software development services of INR 4 24154453/- was benchmarked by the assessee by adopting the transactional Net margin method [ TNMM] as the most appropriate method [ MAM] by selecting 8 comparable having mean of the profit level indicator [PLI] of operating profit/operating cost [OP/OC] was 13.35% and the PLI of the assessee company of the segment was arrived at 14.53 percent and therefore the assessee stated that the about transaction is at arm's-length. 6. With respect to ....
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....efore the learned dispute resolution panel was filed by the assessee and the learned dispute resolution panel granted certain relief to the assessee and thereafter based on above the adjustment in provision of software development services adjustment was made of INR 17008093/-, in provision of ITeS services of INR 8 6059465/-. Consequently the assessment order u/s 143 (3) read with section 144C of the Act was passed incorporating the above two adjustment. Interest on overdue on receivable of rupees 1384/- was made. Consequently 3 adjustment on account of arm's-length price of the international transaction was made which are contested before us. 11. Ground number 1 of the appeal is general in nature and in fact supports ground number 2 and therefore they are taken together for the disposal. 12. The ground number 2 relates to the transfer pricing adjustment made by the learned TPO on the basis of the direction of the Ld DRP in determination of arm's-length price by the TPO wherein an adjustment of INR 17008093 pertaining to the contract software development activities of the assessee and INR 86059465/- pertaining to the provision of information technologies enable services [ ITes] ....
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....ng expenditure and therefore it is not a comparable company. Before us it was also contended that Infosys BPO Ltd is backed by the Infosys group which is one of the largest group in the IT segment. He further submitted that the turnover of the assessee is only INR 2,129,900,000 whereas the turnover of the Infosys BPO Ltd is 2323,00,00,000 and further there is no brand expenditure incurred by the assessee whereas the assessee that the Infosys BPO Ltd comparable company has incurred the brand expenditure of INR 50,000,000 and has a goodwill of 19,00,00,000 which is absent in the case of the assessee company. He therefore submitted that there is usually difference between the scale of the business of these two companies which is 10 times bigger on the basis of the turnover then the assessee company. He further referred to the several decisions of the coordinate benches as well as the honourable jurisdictional High Court in case of H & S software development and knowledge management centre private limited in ITA number 912 - 2017 wherein it has been held that Infosys BPO Ltd is the corporate entity having a significant brand presence for profits and large corporate size which could no....
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....management services to organizations that outsource their business processes and Infosys BPO is majority owned and controlled subsidiary of Infosys Ltd. Rich industry experience held the company to understand the evolving needs of the clients better and provided them with the ability to offer appropriate solution across different industry verticals and horizontals , quickly. Further in paragraph number 1 it is stated that the company is committed to providing best- in - class services to both horizontal and vertical focus areas. The horizontal solutions comprises of sourcing and procurement, customer services, finance and accounting, legal process outsourcing, sales and fulfillment, analytics, business platform, business transformation services, human resources outsourcing, technology solution optimization. While vertical solution included financial services and insurance, manufacturing, energy utilities, communication and services, retail, consumer packaged goods, logistics and life sciences. On looking at the horizontal services, which comparable company provides it is apparent that on this ground itself the same is not comparable with the assessee company. On looking at page num....
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....elopment activities and follows business group strategy direction and decision. It does not own any intellectual property right associated with the software development efforts. It undertakes contract software development based on the framework provided by the receiver. This framework comprises of product portfolio objectives, target markets, target customers, competition, ideal solutions and technological partnerships. It undertakes recording and documentation function with respect to the software modules that it develops. It receives technical assistance from the holding company during the coating and documentation functions. The holding company supervisors and managers the coating and documentation function being performed by the assessee. It is responsible for day-to-day project management and deliverable of the model of the software being developed. It has to closely interact with its associated enterprises. The design and development function is undertaken by the assessee pertaining to a particular model based on the specifications provided. It is responsible for the quality of the work undertaken by 8 and 6 to ensure that the work performed complies with the quality standa....
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.... technologies Ltd has been excluded from the comparability analysis following the decision of the honourable jurisdictional High Court. Therefore respectfully following the decision of the coordinate bench in assessee's own case we also direct the learned AO/transfer pricing officer to exclude Infosys technologies Ltd from the comparability analysis of software development segment. 25. The next comparable data challenge before us is the inclusion of persistent systems Ltd included by the learned transfer pricing officer for which which assessee prays for the exclusion. However the assessee has submitted that if the Infosys Ltd has been excluded from the final list of the comparability analysis the ground of the assessee for the exclusion of this comparable will become academic in nature in respect of software development segment. As we have already directed the learned AO/TPO to exclude the Infosys Ltd from the comparability analysis, we leave the ground of contest of the assessee for exclusion of persistent systems Ltd open. 26. Accordingly ground number 2 of the appeal of the assessee is allowed with above directions. 27. The ground number 3 of the appeal is with respect to th....