TaxTMI 
TaxTMI 
2016 (6) TMI 1361
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....djustment of Rs. 25,13,81,559 in relation to the international transaction of provision of software development services. 2. Ground No. 2 - On the facts and circumstances of the case, the Hon'ble DRP erred in directing the Learned AO/ TPO to make an adjustment of Rs. 2,63,31,853 on account of notional interest on the alleged overdue receivables from AEs. 2.1. Without prejudice to above, the Learned TPO erred in inadvertently considering the interest on overdue receivables as per the submission dated 22 October, 2012 instead of submission dated 1 November, 2012 (referred to in the TP Order). Accordingly, the adjustment in relation to notional interest on overdue receivables amounted to Rs. 2,63,31,853 instead of Rs. 1,08,69,820. 3. Ground No.3 - On the facts and circumstances of the case, the Hon'ble DRP erred in not directing the Learned AO/ TPO to grant working capital adjustment by making an incorrect observation that the Appellant did not claim the working capital adjustment in its TP study. The Appellant prays that the Learned AO/ TPO be directed to grant the working capital adjustment. DT Grounds: 4. Ground No. 4 - ....
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.... 10A should be allowed to an undertaking even after slump sale. 6. Ground No. 6 - Grant of lesser deduction under section 10A of the Act in respect of remaining units 6.1 On the facts and circumstances of the case and in law, the Learned AO erred in reducing foreign currency expenses only from export turnover and not from total turnover thereby reducing the benefit of deduction under section 10A by Rs. 6,89,82,112 in respect of the remaining units. 7. Ground No.7. Denial of set-off of brought forward losses and unabsorbed depreciation of Sema Software India Private Limited 7.1 On the facts and circumstances of the case and in law, the Learned AO erred in denying the set-off of brought forward losses and unabsorbed depreciation of entity taken over i.e. Sema Software India Private Limited. Ground No. 8- Short credit of TDS, advance taxes and self assessment tax 8.1 On the facts and in the circumstances of the case, the Learned AO has erred granting short credit of TDS, advance tax and self assessment tax to the extent of Rs. 99,05,886, Rs. 82,00,000 and 15,79,545 respectively. Ground No.9- Excess levy of interest under section 23....
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....s AEs and there is no dispute on the selection of TNMM as MAM. The TPO carried out a fresh search of comparables and in the final Accept-Reject Matrix, it contained 14 comparables as per the table given in para 10 at the page 29 of TPO's order, according to which the margin of the assessee taking OP/TC as its PLI (Profit Level Indicator) came out to be 21.52% as against 14.76% as shown by the assessee for its software segment. Consequently, an adjustment for Rs. 24,96,72,932/- was proposed by the TPO. Further, for the SSIPL software development segment, the assessee had shown OP/TC of 14.16% as against 21.52% as determined by the TPO on the basis of Accept-Reject Matrix of the comparables. Consequently, an adjustment of Rs. 17,08,627/- was proposed by the TPO. Thus, aggregate adjustment of Rs. 25,13,81,559/- (i.e. Rs. 24,96,72,932 + 17,08,627) was proposed by the TPO in its order. 4.2. Being aggrieved, the assessee had filed an objection before the DRP where no relief was given and order of the TPO was upheld. 4.3. Being aggrieved, the assessee filed an appeal before the Tribunal. 4.4. During the course of hearing before us, Ld. Counsel of the assessee submitted that with ....
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.... blindly. It was further submitted that in the case laws relied upon by the Ld. Counsel, many objections made on behalf of the revenue were not considered. It was further submitted that there is no relation between margin and turnover and therefore, there was no justification of removing comparables like Infosys Ltd, merely because it has a large scale of operations. He relied upon the judgment of Mumbai Bench of ITAT in the case of Willis Processing dated 01.03.2013 in support of his proposition that Infosys Ltd. should not be excluded. He also relied upon the judgment of Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) P. Ltd. v. DCIT 376 ITR 183. 5.2. We have gone through the orders of the lower authorities and submissions made by both the sides before us. The undisputed facts before us are that during the year under consideration turnover of the assessee of software development segment was Rs. 423.71 crores and SIPL segment was Rs. 2.10 crores as against turnover of Rs. 20,264 crores of the Infosys Ltd., which is more than 45 times of the turnover of the assessee company. Further, expenditure incurred on brand building, advertising/sales promo....
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....; and relevant observation from this judgment are reproduced hereunder: "5. The tribunal has observed that the assessee was not comparable with Infosys Technologies Ltd., as Infosys Technologies Ltd. was a large and bigger company in the area of development of software and, therefore, the profits earned cannot be a bench marked or equated with the respondent, to determine the results declared by the respondent- assessee. In paragraph 3.3 the tribunal has referred to the difference between the respondentassessee and Infosys Technologies Ltd. For the sake of convenience, we are reproducing the same:- " Basic Particular Infosys Technologies Ltd. Agnity India Risk Profile Operate as fullfledged risk taking entrepreneurs Operate at minimal risks as the 100% services are provided to AEs Nature of Services Diversified-consulting, application Contract Software design, development, re-engineering Development Services and maintenance system integration, package evaluation and implementation and business process management, etc. (refer page 117 of the paper book) Revenue Rs. 9, 028 Crores Rs. 16.09 Crores Ownership of Develops/owns prop....
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....hnologies as comparable to work out the mean. 8. It is a common case that Satyam Computer Services Ltd. should not be taken into consideration. The tribunal for valid and good reasons has pointed out that Infosys Technologies Ltd. cannot be taken as a comparable in the present case. This leaves L&T Infotech Ltd. which gives us the figure of 11.11 %, which is less than the figure of 17% margin as declared by the respondent-assessee. This is the finding recorded by the tribunal. The tribunal in the impugned order has also observed that the assessee had furnished details of workables in respect of 23 companies and the mean of the comparables worked out to 10%, as against the margin of 17% shown by the assessee. Details of these companies are mentioned in para 5 of the impugned order. 9. In view of the aforesaid position, we do not think that any substantial question of law arises for consideration. The appeal is dismissed." 5.4. Similarly, in the case of OSI Systems Pvt. Ltd. (supra), the Hyderabad Bench had taken a similar view and relevant observations of the Bench are reproduced hereunder: "26.2 Infosys Ltd.:- As far as this company is concerned, it is....
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....ers assuming limited risk ; (iii) the company has generated several inventions and filed for many patents in India and USA ; (iv) the company has substantial revenues from software products and the breakup of such revenues is not available ; (v) the company has incurred huge expenditure for research and development; (vi) the company has made arrangements towards acquisition of IPRs in 'AUTOLAY', a commercial application product used in designing high performance structural systems. In view of the above reasons, the learned Authorised Representative pleaded that, this company i.e. Infosys Technologies Ltd., be excluded from the list of comparable companies. 11.3 Per contra, opposing the contentions of the assessee, the learned Departmental Representative submitted that comparability cannot be decided merely on the basis of scale of operations and the brand attributable profit margins of this company have not been extraordinary. In view of this, the learned Departmental Representative supported the decision of the TPO to include this company in the list of comparable companies. 11.4 We have heard the rival submissions and perused and carefully considered the material on recor....
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....xpenditure on advertisement, sales and promotion etc., which are borne by the associated enterprises. Even from the test of 'FAR' i.e. function performed, assets employed and risk assumed, comparability analysis miserably fails in this case. The comparison of function and profile as has been reproduced in para 6(iv) above, mostly shows that the profit level indicators in relation to return of cost, return of sales and return of assets are huge between Infosys and the assessee company and therefore, the Infosys cannot be treated as comparable entity for making comparability analysis with the assessee company. The comparability of Infosys Technology of the company as that of an assessee has been dealt with ITAT Delhi Bench in the case of 'Agnity India Technologies Private Limited' (ITA No.3856/Delhi/2010), wherein it was held that Infosys is a giant in the area of development of software and it assumes all risks, leading to higher profit and cannot be compared with the company which is a captive unit of its parent company assuming only limited currency risk. In view of the above finding, we hold that the Infosys cannot be taken as a comparable for determining the arms length price in....
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....ther submitted by the Ld. Counsel that as per law, an assessee can show even before the appellate authority for the first time that a particular company is not comparable with the assessee company, even if, it was selected as a comparable company inadvertently or by mistake by the assessee in the transfer pricing report and for this purpose Ld. Counsel relied upon following judgments: (i) OSI Systems P. Ltd. v. DCIT (ITA No.542 & 683/hyd/2014 (ii) Mindteck India Ltd. vs. DCIT- ITA No.70/Bang/2014 (iii) Q Logic India P. Ltd. vs. DCIT- ITA No.227/Pun/2014 (iv) Lionbridge Technologies P. Ltd. vs. ITO (ITANo. 668/Mum/2014 6.3. Per contra, Ld. CIT-DR vehemently opposed the submissions of the assessee. It was submitted by him that this company was selected by the assessee himself and therefore, now at this stage the assessee cannot itself take a U-turn and make out a distinction between the assessee and said comparable. In response to the judgments quoted by the Ld. Counsel in his support, it was stated by Ld. CIT-DR that there cannot be an absolute and open ended law that assessee can include or exclude any comparable at any stage. 6.4. We have ....
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.... "26.1 Bodhtree Consulting Ltd.:- As far as this company is concerned, it is not in dispute that in the list of comparables chosen by the assessee, this company was also included by the assessee. The assessee, however, submits before us that later on it came to the assessee's notice that this company is not being considered as a comparable company in the case of companies rendering software development services. In this regard, the ld. counsel for the assessee has brought to our notice the decision of the Mumbai Bench of the Tribunal in the case of Nethawk Networks Pvt. Ltd. v. ITO, ITA No.7633/Mum/2012, order dated 6.11.2013. In this case, the Tribunal followed the decision rendered by the Mumbai Bench of the Tribunal in the case of Wills Processing Services (I) P. Ltd., ITA No.4547/Mum/2012. In the aforesaid decisions, the Tribunal has taken the view that Bodhtree Consulting Ltd. is in the business of software products and was engaged in providing open & end to end web solutions software consultancy and design & development of software using latest technology. The decision rendered by the Mumbai Bench of the Tribunal in the case of Nethawk Networks Pvt. Ltd. (supra) is in rel....
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....assessee were also perused. Perusal of the same shows, that there has been a consisted change in the operating margins. The chart filed by the assessee in this regard is given as an annexure to this order. It appears to us that the revenue recognition method followed by the assessee is the reason for the drastic variation in the profit margins of this company. In the given circumstances, we are of the view that it would be safe to exclude Bodhtree consulting from the final list of comparables chosen by the assessee. We hold and direct accordingly." 6.8. Similar view has been taken by the Hon'ble Pune Bench in the case of Q Logic India P. Ltd. (supra) and by Hon'ble Mumbai Bench of the Tribunal in the case of Lionbridge Technologies P. Ltd. (supra). Thus, keeping in view facts and circumstances of this case and position of law as discussed above, we find this company as not comparable with the assessee company and the same is directed to be excluded. 7. Sonata Software Ltd. It has been submitted by the Ld. Counsel that in the case of this company related party transactions are to the tune of Rs. 50.38% and to show this fact, our attention was drawn upon the financial statem....
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....al in the case of Symantec Software Pvt. Ltd. for A.Y. 2006-07. Before the DRP also, assessee was not given any relief on the ground that claim of the assessee was not supported with proper workings and detailed explanation together with demonstration of risk of the assessee and those of comparables. 8.1. We have gone through the orders of the lower authorities and submissions made before us by both the sides. During the course of hearing it has been shown to us that assessee had given proper working in the Transfer Pricing Report as well as subsequent proceedings before the lower authorities. Our attention was drawn on various pages of the paper book showing that requisite details were supplied to the lower authorities but no specific query or doubt was raised by any of the authorities. It is noted by us that Hon'ble Delhi Bench of the Tribunal in the case of Mercer Consulting India Ltd. vs. DCIT (ITA No.966/Del/2014 for A.Y. 2009-10 order dated 06.09.2014 observed with regard to granting of working adjustment as under: "16.1. The next issue raised by the ld. AR is against nongranting of working capital adjustment claimed by the assessee for the first time before....
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.... 10.1. During the course of hearing both the parties agreed that this issue is covered by the order of the Tribunal in assessee's own case for A.Y. 2007-08 in ITA No.1778/Mum/2012 vide order dated 13.01.2016. 10.2. We have gone through the order of the lower authorities as well as that of the Tribunal for the earlier year and find that identical issue has been decided by the Tribunal in A.Y. 2007- 08 with the following observations: "3.3. We have heard the rival submissions and perused the material before us. We find that while recommending upward adjustment for charging interest for the delayed receipts the TPO had considered the terms and conditions of the agreement entered in to by the assessee with its AE.s., that the agreement stipulates that for delayed payment(beyond a period of one month)the AEs. had to pay interest @2%,that the AO had called for details in that regard about the period of delay and as per the AO the assessee did not provide the necessary information, that as per the direction of the AO the assessee had calculated the interest amount for the delayed receipts from its AEs. In our opinion, the transaction in question is an international transact....
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....horities as well as that of the Tribunal of A.Y. 2007-08. It is noted that the assessee had incurred liquidated damages with respect to HPCL (phase 3) project for Rs. 1,08,17,012/- to be incurred for various projects. It was found by the lower authorities that these transactions were neither accrued nor crystallized during the year under consideration. The assessee provided in its books expenses incurred on the projects of HPCL (phase 3), and others for an aggregate amount of Rs. 5,49,31,772/- which was totally disallowed by the AO and confirmed by the DRP. 11.2. During the course of hearing before us, Ld. Counsel of the assessee has contested the issue by way of ground no.4.1 & 4.2 pertaining to the expenses of HPCL project only. The expenses with regard to P & G and others projects were not contested and Ground No. 4.3 to 4.6 were not pressed by the Ld. Counsel and nothing was argued with respect to these grounds and therefore, grounds Nos. 4.3 to 4.6 are dismissed. 11.3. With regard to Ground No.4.1 and 4.2 wherein the assessee has contested this issue of expenses with regard to HPCL, it is noted that similar issue has arisen before the Tribunal in A.Y. 2007-08 wherein the....
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....o show compliance of all the prescribed conditions. Reliance was placed by the Ld. Counsel on the judgment of Hon'ble Bombay High court in the case of CIT vs. Sonata Software Ltd. 343 ITR 397 wherein Hon'ble High Court held that benefit of deduction would be available even if unit is acquired under slump sale and it was further held that benefit of deduction shall not be denied merely because of change in the ownership. 12.2. Per contra, Ld. CIT-DR mentioned that there was no denial to the legal position that merely because of change in ownership benefit of deduction should not be denied, but in this case facts and evidences were not clearly brought by the assessee on record to show compliance of various other conditions and therefore, this issue should be sent back to the file of the AO for examining allowbility of deduction as per law and facts. 12.3. We have gone through the orders of the lower authorities as well as submissions made by both the sides before us. In our view, the relationship between the undertaking and the deduction can be compared with the relationship between the mother and baby that is to say that 'wherever mother goesthe baby follows'. In other words, ....
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....IOCL to the assessee, the Tribunal noted that Section 10A(9)was substituted by the Finance Act 2000 with effect from 1 April 2002. Section 10A(9) provided that where during any previous year the ownership or beneficial interest in an undertaking of the business is itxal-311- 2004 transferred by any means, the deduction under subsection (1) shall not be allowed to the assessee for the Assessment Year relevant to such previous year and the subsequent years. The Tribunal noted that if a transfer between IOCL and the assessee were to be effected after 1 April 2001, that would result in the undertaking being disentitled to the benefit under Section 10A. This was a pointer to the fact that prior to the substitution a transfer of ownership or beneficial interest in the undertaking would not disentitle an assessee to the benefit of Section 10A. (As a matter of fact it may also be noted that the provisions of Section 10A(9) were omitted by the Finance Act 2003 with effect from 1 April 2004). 12. The judgment of the Division Bench of this Court in Gaekwar Foam explains that the concept of a reconstruction of a business implies that the original business is not to cease functioning a....
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....cing foreign currency expenses only from export turnover and not from total turnover while calculating the amount of deduction u/s 10A in respect of the other units. 13.1. It was submitted by Ld. Counsel that this issue was covered in the favour of the assessee with the order of the Tribunal for A.Y. 2007-08. The Ld. DR did relied upon the order of the lower authorities. 13.2. We have gone through the orders of the lower authorities and order of the Tribunal for A.Y. 2007-08 in assessee's own case dated 13.01.2006 and find that identical issue has been decided by the Tribunal in its order with the following observations: "5. The effective Ground of appeal, filed by the AO, is about direction given by the FAA for reducing expenditure incurred in foreign currency for providing technical services from total turnover, while computing deduction u/s.10A of the Act. During the assessment proceedings, the AO asked the assessee as to why the expenses incurred in foreign exchange in providing technical services in respect of Akriti Soft Tech unit should not be excluded for export turnover. The assessee relied upon certain cases and submitted that if expenses were to be reduced....