TaxTMI 
TaxTMI 
TaxTMI 
2016 (10) TMI 1266
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....ate enterprises which necessitated reference to the Transfer Pricing Officer (TPO) as per the provisions of section 92CA. Accordingly, the case was referred to the TPO on 17/05/2010 for determination of Arm's Length Price with the prior approval of the CIT-I, Hyderabad. 3.1 Taxpayer's Profile: M/s Four Soft Ltd. (FSL India) was incorporated in India in 1999. For the year ended 31st March, 2008, FSL India has wholly owned subsidiaries in the following countries: 1. Four Soft Denmark A/s 2. Singapore - Four Soft Singapore Pte Ltd. 3. Netherlands - Four Soft B.V. 4. Malaysia - Four Soft Malaysia Sds Bhd. Further FSL India controls four subsidiaries in the following countries through its wholly owned subsidiary in Netherlands, namely, Four Soft B.V. 1. US - FourSoft Inc., USA 2. Netherlands - Four Soft BV Netherlands 3. Germany - Four Soft Germany Gmbh 4. UK - Four Soft UK Ltd. FSL India has branches in the following countries: Singapore - Four Soft Pte Ltd. Further FSL India indirectly controls branch in Australia through Four Soft Demark A/s B.V. and in Belgium through Four Soft UK Ltd. 3.2 Business Profile of the company: Four Soft Ltd. (FSL),....
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.... into equity 40,61,26,882 Repayment of interest on loan 40,50,447 Repayment of loan 2,03,81,362 Purchase of fixed assets from AE 1,24,514 Reimbursement of expenses by AE (receipts) 7,00,16,499 Reimbursement of expenses to AE (payments) 2,09,76,202 3.6 The taxpayer has carried out the economic analysis in search for comparables. The taxpayer has used Prowess and Capitaline Plus data base in search for comparable companies. For the software development services, after applying certain filters, the taxpayer using TNMM as MAM has short-listed 23 comparables with arithmetic mean PLI (OP/OC) was computed at 12.55%. For the transactions relating to reimbursement of expenses paid, no TP study has been carried out. Accordingly, the taxpayer holds that the transactions are within the arm's length. 3.7 On going through the TP document, the TPO noted that the method of the search process suffers from defects which resulted in selection of inappropriate comparables and rejection of companies that are appropriate comparables. He, therefore, rejected the TP document and an independent analysis has been made by aggregating all the transactions under TNMM. 3.8 The final c....
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....ution Panel (DR) raising various objections. 4. DRP has given partial relief to the assessee as under: 4.1 The DRP has deleted the company M/s Celestial Biolabs Ltd. from the list of comparables as comparable. He directed that PLI of M/s Softsol India Ltd. and M/s Kals Infomration Systems Ltd. be taken at 25.78% and 30.92% respectively. 4.2 Considering the above findings of DRP, the AO has reduced the adjustment u/s 92CA to Rs. 9,48,05,292/-. 5. As regards the ALP of interest charged on loan transactions with AEs, the DRP observed that the assessee company adopted the methodology of LIBOR being an internationally accepted norm. It is directed that there is no requirement of any change in the interest charged by the assessee from its associated enterprises. Therefore, the transfer pricing adjustment on interest charged on loan transactions with AEs gets reduced to Nil. 6. As regards the ALP of corporate guarantees given to AEs, the DRP upheld the action of TPO with regard to determination of ALP of commission on corporate guarantee. Therefore, there is no change in the TP adjustment made by the TPO. 7. In view of the above, the total shortfall being adjustment u/s 92CA a....
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....analysis to reject comparable companies having: a) Diminishing revenue/Loss making companies; b) Different financial year-end. c) Onsite revenue in excess of 75%; Selection of companies earning abnormal high margins 7. Selection of companies earning abnormal high margins as comparable to the Appellant; Selection of uncomparables 8. Not undertaking an objective comparative analysis and inter alia selecting the following companies as comparable to the software services of the Appellant: a) Avani Cincom Technologies; b) Bodhtree Consulting Ltd (Seg); - c) E-Zest Solutions Ltd; d) LGS Global Ltd; e) Persistent Systems Ltd; f) Quintegra Solutions Ltd g) Softsol India Ltd; h) Thirdware Solutions Ltd; i) Infosys Technologies Limited; j) Kals Information Systems Ltd; k) Tata Elxsi Limited (Seg); and i) Wipro Limited (Seg). Rejection of comparables 9. Not undertaking an objective comparative analysis and interalia rejecting the following comparable companies: a) Aditya Birla Minacs IT Services Ltd; b) Aditya Birla Minacs Technologies Ltd; c) CG-VAK Software Exports Ltd (Seg); d) Goldstone Technologies Ltd; e) Indium Softwa....
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....271(1(C) of the Act. The Appellant craves, to consider each of the above grounds of appeal without prejudice to each other and craves leave to add, alter, delete or modify all or any of the above grounds of appeal." 10. The ld. AR of the assessee submitted that the TPO has adopted various filters to select comparables out of which one of the filters are comparable companies should have at least 75% of its revenue from the software development services considering the fact that the assessee company is predominantly service company as the majority of the revenues are derived by the assessee from the software development services. Considering this filter, TPO should have selected only those companies which have 75% of its revenues from the services and excluded those companies in which segmental informations are not available. It is pertinent to note that the TPO has selected eight comparables in which there is no segmental information available, which are as under: 1. Avani Cincom Technologies Ltd. 2. Bodhtree Consulting Ltd. (Seg.) 3. E-zest Solutions Ltd. 4. LGS Global Ltd. 5. Persistent Systems Ltd. 6. Softsol India Ltd. 7. Thirdware Solutions Ltd. 8. ....
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....r), the margin in respect of transactions with AEs is 39.26% as against margin of 6.30% in respect of non AE transactions. Therefore, when segmental details have been furnished by the assessee the TPO should have considered them properly instead of rejecting them with broad and sweeping allegations. It seems, the TPO has not properly allocated the segmental expenditures. If the bad debts etc. are not related to AE transactions they cannot be considered as part of operating cost for determining ALP of the transactions with AE. Similarly, reimbursement on cost to cost basis also cannot be included in the operating cost. Unfortunately, the DRP without dealing with this issue at depth has finished its job by simply commenting that TPO has dealt with the issue appropriately." Since the issue in the current AY is identical to that of AY 2007-08, respectfully following the decision of the coordinate bench in that year, we remit the issue to the file of the TPO/AO to decide the issue following the directions given by the Tribunal in AY 2007-08. 15. As regards the issue of corporate guarantee, we find that this issue is squarely covered by the decision of the coordinate bench in assesse....