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2018 (11) TMI 1652
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....ntly, the case was selected for scrutiny under CASS. 2.1 In the year under consideration, the international transactions and services rendered to AE falls within the ambit of Arm's length price transactions. The assessee filed an audit report in form 3CEGB containing the details of transactions with the AE. As the value of international transactions with AE exceeded Rs. 15 cores, the cases were referred to the TPO for the purpose of determining Arm's Length Price. 2.2 The TPO passed an order u/s 92CA(3) of the Act on 30/12/2013 in which, he arrived ALP of the assessee at Rs. 24,28,49,732/- and the short fall of Rs. 14,27,31,508/- was held as adjustment u/s 92CA of the act. 2.3 In conformity with the order of the TPO, the AO passed the draft assessment order adding the shortfall adjustment of Rs. 14,27,312,508/- to the taxable income of the assessee. 3. Aggrieved with the above order, the assessee filed objections before the DRP, who directed the TPO vide its order dated 28/11/2014 to recompute the adjustment u/s 92CA at Rs. 11,23,43,569 as against the original TP adjustment of Rs. 14,27,31,508/-. The TPO passed the order accordingly. 4. The AO passed the final assess....
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....ms & Solutions Ltd. (Merged) 11.37 13 RS Software (India) Ltd. 9.88 14 Sasken Communication Technologies Ltd. 25.23 15 Tata Elxsi Ltd. (Seg.) 17.24 16 Thinksoft Global Services Ltd. 11.22 17 Zylog Systems Ltd. 18.62 18 Persistent Systems Ltd. 31.57 Total 40.84 Average 22.69 b) Final comparables selected for customer support & transaction services (ITES) segment: S. No. Name of the company OP/OC 1. Accentia Technologies Ltd. 43.62 2. Acropetal Technologies Ltd. (Seg.) 10.12 3. Axis IT & T Ltd. 11.89 4. Cosmic Global Ltd. 16.59 5. Eclerx Services Ltd. 42.17 6. Infosys BPO Ltd. 31.63 7. TCS e-Serve International Ltd. 51.51 8. TCS e-Serve Ltd. 67.58 9. Jeevan Softech Ltd. (Seg.) 8.04 10. Microgenetics Systems Ltd. 6.60 11 Crossdomain Solutions Pvt. Ltd. 17.13 Total 306.88 Average 27.90 8.1 After applying the average margins of the comparables to the financials of the assessee, the TPO determined the arm's length price of the assessee as under: ....
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....he assessee on negative working capital and directed the TPO to delete the negative working capital adjustment. 10.3 After the above direction of DRP, AO passed final assessment order after necessary modification, the final ALP adjustment u/s 92CA is as under: Adjustment made u/s 92CA for international transaction relating to SDS 9,06,46,781 Adjustment made u/s 92CA for international transactions relating to ITES 11,23,43,569 11. Aggrieved by the direction of DRP in directing to exclude the above companies, the revenue is in appeal before us. 12. Considered the rival submissions and perused the material on record. With regard to exclusion of Infosys Technologies Ltd and L&T Infotech in the SDS segment, the issue is squarely covered by various decisions of ITAT, Hyderabad including the decision in the case of Wissen Infotech Pvt. Ltd. in ITA No. 99/Hyd/2015 wherein the Bench has held as under: "27. As regards Revenue's appeal against the exclusion of Infosys Technologies Ltd & L&T Infotech Ltd, we find that in several cases, the Coordinate Benches of this Tribunal have directed exclusion of these companies as they are having super ....
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.... that in the case of Agilent Technologies International P. Ltd., the ITAT, Delhi Bench has upheld selection of M/s. Eclerx Services Ltd. A copy of the said order is filed before us. Assessee's contentions therein that the KPO services are distinct from BPO services and are not comparable, has been rejected by the Tribunal. However, since a uniform and consistent stand has to be taken in the case of the same assessee on similar facts and circumstances, we, respectfully following the decision of the Coordinate Bench in assessee's own case, do not see any reason to interfere with the order of the DRP. Ground No.2 is accordingly rejected." Following the said decisions of ITAT, we uphold the directions of DRP in directing to exclude the said companies in both SDS and ITES segments for computation of ALP. Accordingly, we dismiss ground No. 2 raised by the revenue in this regard. 13. As regards ground Nos. 3 & 4 regarding working capital adjustment, the TPO determined the ALP for the international transactions with AEs by making a negative working capital adjustment for the differences in the working capital between the assessee and the companies considered as comparables. ....
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....aintained by the Appellant in accordance with the provisions of the Act read with the Income Tax Rules, 1962 ('Rules') and making adjustment of Rs. 11,23,43,569. Not considering the segmental financials submitted by the Assessee 2. Disregarding the segmental financials for software and ITES transactions submitted by the Assessee. Rejection of use of contemporaneous data and multiple year data 3. Using single year data of companies to determine the arm's length price of the international transactions without considering the fact that the same was not available to the Appellant at the time of complying with the transfer pricing documentation requirements and disregarding the Appellant's claim for use of multiple year data for computing the arm's length price. Selection of comparables - Software segment 4. Not undertaking an objective comparative analysis and interalia selecting the following companies as comparable to the software services of the Appellant: * Comp-U-Learn Tech India Ltd; * E Infochips Bangalore Ltd; * Persistent Systems Ltd; * Sasken Communication Technologie....
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....(1)(e); Corporate Tax Issues * Imposition of interest u/s 234B and 234C of the Act. * Initiating penalty proceedings. 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." 17. Ground Nos. 1, 2, 3, 7 and 10 were not pressed by the ld. AR of the assessee at the time of hearing. Hence, these grounds are dismissed as not pressed. 18. As regards ground No. 4 regarding selection of comparables towards software segment, the assessee objected to the selection of following companies as comparable to the software services of the assessee: 1. Comp-U-Learn Tech India Ltd. 2. E Infochipts Bangalore Ltd. 3. Persistent Systems Ltd. 4. Sasken Communcation Technologies Ltd. 5. Kals Info Systems Ltd. and 6. Tata Elxsi Ltd. (Seg). 18.1 As regards Comp-U-Learn Tech India Ltd., objecting to the aforesaid company as comparable, the AR of the assessee submitted that the said company has revenue from ITES and software, further segmental details are not available. He sub....
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.... services. The Coordinate Bench of the Tribunal in the case of M/s. Wissen Infotech Pvt. Ltd in ITA No.99/Hyd/2015 for the A.Y 2010-11 has taken note of these dissimilarities to hold that it is different in line from the activities of the said assessee company and following the decision of the Coordinate Bench in the case of Pegasystems Worldwide Services (P) Ltd, and E-Infochips Bangalore Ltd, has TAXPUNDIT.ORG ITA No 486 of 2015 Cordys Software India P Ltd Hyderabad. Page 9 of 22 directed the exclusion of the said company. Facts and circumstances of the case before us being similar, respectfully following the above decisions, we direct the AO to exclude this company from the final list of comparables." Facts and circumstances in the present case are being similar, following the above decision, we direct the AO to exclude the said company from the final list of comparables. 18.4 As regards E Infochips Bangalore Ltd, objecting to the aforesaid company as comparable, the AR of the assessee submitted that the said company is engaged in both IT and ITES and segmental data is not available. It has fluctuations in margins and the company is having an amalgamation status. He submit....
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.... Ltd., ITA No. 771/Ahd/2014 AY 2009-10 1.2 Ld. DR relied on the orders of revenue authorities and submitted as under: i) that the company is engaged in development of software (Annexure to directors report. Hence it is not functionally different.) ii) As per schedule 7 & 8 of P&L A/c, the income derived is from software services. iii) In notes to accounts, it was mentioned as revenue from software development. iv) Hence this company cannot be rejected as comparable. 1.3. Considered the submissions of both the parties and perused the material facts on record. We find that the coordinate bench in the case of Pegasystems Worldwide India Pvt. Ltd. (supra) held as under: "8.3. After considering the rival contentions and perusing the annual reports placed on record, we are of the opinion that this company cannot be selected as comparable company for TP analysis. First of all, this company is engaged in both software development as well as ITES. Assessee being only captive service provider, the above company cannot be considered as comparable on functional basis. Not only that, as pointed out, segmental information pertaining to the ab....
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....2 companies rework the addition as per facts and law. Needless to state that A.O/TPO shall grant adequate opportunity of hearing to the Assessee. The issue of respect to determination of ALP is thus set aside to the file of A.O/TPO and the ground of appeal raised by the Assessee is thus allowed for statistical purposes." 1.5 In view of the above, in line with the decisions of the various benches of this Tribunal, we hold that this company is to be omitted from the list of comparable companies. With regard to DR submissions, he strongly submitted that in the case of M/s Virtusa India (supra), the matter was remitted back to the AO, in this case also, it should be remitted. We observe that the observations of the coordinate bench also that when the segmental data is not available, we cannot keep the company as comparable. In the present case also, there is no segmental data available on record. Hence we do not find merits in the submissions of the DR" 14. Respectfully following the same, we direct the AO to exclude this company from the list of comparables." Facts and circumstances in the present case are being similar, following the above decision, we direct the AO to ex....
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....data collected by the TPO u/s 133(6) of the Act to divulge the amount of revenue from software development services alone to the exclusion of revenue from product licences. As the assessee is not engaged in the sale of any software products, this company on entity level, cannot be considered as comparable. The Delhi Bench of the Tribunal in the case of Toluna India Pvt. Ltd. vs. ACIT vide its order dated 26.8.2014 has held Persistent Systems Ltd. to be incomparable with Toluna India Pvt. Ltd., also a company engaged in providing software development services to its related parties alone. Similar view has been taken by the Tribunal in Lear Automotive India Pvt. Ltd. vs. ACIT (ITA No.5612/Del/2011) vide its order dated 22.12.2014. The ld. DR could not point out any distinguishing feature in the factual matrix of the assessee in question and Toluna India Pvt. Ltd., and Lear Automotive India Pvt. Ltd. Since both these companies are also engaged in the business of providing software development services to its AEs, similar to the activity done by the assessee, respectfully following the precedents, we order for the exclusion of this company from the list of comparables." Simila....
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.... the said company from the final list of comparables. 18.13 As regards Kals Information Systems Ltd. (seg), objecting to the aforesaid company as comparable, the AR of the assessee submitted that the said company has inventory which is 26% of total revenue and is engaged in development of software products. He submitted that the ITAT has rejected this company in the following cases: 1. Open Text Corporation India Pvt. Ltd., ITA No. 486/Hyd/2015- FY 2009-10 2. Sterling Commerce Solutions India Pvt. Ltd., IT(TP) No. 546/Bang/2015. 3. Pegasystems Worldwide India Pvt. Ltd., ITA No. 1758/Hyd/2014. 4. Sum Total Systems India Pvt. Ltd. Vs. DCIT, ITA No. 255/Hyd/2015 - FY 2009-10 5. DE Shaw Software Pvt. Ld., ita No. 304/Hyd/2015 FY 2009-10 6. Target Corporation of India Pvt. Ltd., ITA No. 323/Bang/2015 7. Oakton Global Technology Services Pvt. Ltd., ITA No. 434/H/2015 18.14. The ld. DR, on the other hand, relied on the orders of revenue authorities. 18.15. Considered the rival submissions and perused the material on record. In the case of Open text Corporation India Pvt. Ltd. (supra), the coordinate bench of Hyderabad....
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....ged in development of software and software products and a training centre engaged in training of software professionals on on-line projects. This indicates that company is engaged in development of software and products and its inventory also indicates that Assessee has been using its readymade libraries for sales. This company was rejected in earlier year on functional analysis by ITAT in the case of Planet Online Pvt. Ltd., in ITA No. 464/Hyd/2014 where in it was held that company is engaged in development of software products. Since its annual report states the same facts in this assessment year also, we are of the opinion that the company cannot be selected as a comparable as it was engaged in development of software and software products. Accordingly, Assessee's objections are accepted and AO is directed to exclude the company." 2.4 In the case of Planet Online Pvt. Ltd. (supra), the coordinate bench held as follows: 26.3 KALS Information Systems Ltd.:- As far as this company is concerned, it is not in dispute before us that this company has been considered as not comparable to a pure software development services company by the Bangalore Bench of the Tr....
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.... is contrary to the annual report of this company as highlighted by the Assessee in its letter dated 21.6.2010 to the TPO. We also find that in the decision referred to by the learned counsel for the Assessee, the Mumbai Bench of ITAT has held that this company was developing software products and not purely or mainly software development service provider. We therefore accept the plea of the Assessee that this company is not comparable." Following the aforesaid decision of the Tribunal, we hold that KALS Information Systems Ltd. should not be regarded as a comparable." 2.5 In view of the above, in line with the decisions of the various benches of this Tribunal, we hold that this company is to be omitted from the list of comparable companies". 19. Respectfully following the same, we direct this company to be excluded." Facts and circumstances in the present case are being similar, following the above decision, we direct the AO to exclude the said company from the final list of comparables. 18.16 As regards Tata Elxsi Ltd. (seg), objecting to the aforesaid company as comparable, the AR of the assessee submitted that the said company has revenue from product de....
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.... notice u/s 133(6) the company has merely stated that it is engaged in SDS. iii) This company was considered as comparable in the AY 2008- 09, which the DRP has upheld. iv) Hence, this company cannot be rejected as a comparable. 3.3 Considered the submissions of both the parties and perused the material facts on record. We find that the coordinate bench in the case of Pegasystems Worldwide India Pvt. Ltd. (supra) held as under: "12.1. It was the objection of Assessee that above company is predominantly into product design services, Innovation Design Engineering and visual computing labs division which are specialized services. He referred to the order of ITAT in AY. 2009-10 in the case of Planet Online Pvt. Ltd., in ITA No. 464/Hyd/2014 (supra), wherein this company was rejected on the reason that it is engaged in multiple segments. There is no break- up in the annual report and data on which margin from software services activity only can be computed is also not available. Moreover, the company itself has indicated that it cannot be compared with any other software service company because of its complex nature. Similar view was taken by many of ....
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....comparables." 3.5 In view of the above, in line with the decision of the various benches of this Tribunal, we direct the AO to exclude this company as comparable". 23 Respectfully following the same, we direct the AO to exclude this company from the final list of comparables." Facts and circumstances in the present case are being similar, following the above decision, we direct the AO to exclude the said company from the final list of comparables. 18.9 In view of the above findings, the TP)/AO is directed to recompute the ALP excluding the aforesaid companies from the list of final comparables. 20. Ground No. 5 is regarding rejection of following comparables by the TPO/DRP: 1. Akshay Software Technologies Ltd. 2. CG VAK Software and Exports Ltd. and 3. Satyam Computers Services Ltd. 20.1 As regards Akshay Software Technologies Ltd., the TPO rejected this company as comparable by observing that the company in its annual report states that its export revenue from Dubai accounted for 90% of total income and due to steep pricing pressure and huge discounts requested by the clients, its business severely got affected. The DRP conf....
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....regard, our attention was drawn to page 818 to 824 of the assessee's paperbook wherein annual report of this company has been provided. Attention was drawn to the fact that in the profit & loss account of the audited accounts, the cost of services has been shown as an expenditure and in Schedule 15 to the Notes to Accounts, it has been elaborated as follows:- Cost of services: Cost of Services - Overseas 2,77,32,337 Cost of Services - Domestic 2,58,40,435 Transcription charges 3,97,389 Web Designing Charges 1,64,602 Staff Welfare 11,43,144 Staff Training 3,63,496 Contribution to PF & ESI 15,47,906 Gratuity 13,04,894 Ex Gratia 0 HRD Expenses 3,10,871 5,88,05,074 (iii) It was submitted by the ld. counsel for the assessee that the TPO ignored the contribution to PF & ESI, Gratuity and Ex Gratia payments and arrived at the employee cost. According to the ld. counsel for the assessee, doing so was not proper. If all the employee costs are properly considered, then this company can pass the filter applied by the TPO for excluding it. (iv) We have considered the submission of the ld. counsel for ....
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....e amount of $ 2.5 billion over a period of 9.5 years. This definitely is an exceptional circumstance which has been taken note of by the TPO in the case of M/s. IGS Imaging Services (India) P. Ltd., to exclude the same from the list of comparable. This exceptional circumstance was not taken note of by the TPO and the DRP failed to appreciate the objection of the assessee in proper perspective. Any circumstance which would influence or result in abnormal result in the financials of a company have to be adjusted or where no adjustment can be done to make it comparable to the tested party, such a company has to be excluded from the list of comparables. This Tribunal in a number of decisions held that exceptional circumstance is a reasonable filter to exclude a company from the list of comparables. Therefore, we direct the A.O/TPO to exclude this company from the final list of comparables. Accentia Technologies Ltd., 18.1. For the relevant A.Y. 2010-11, the Ld. counsel for the assessee has drawn our attention to the information available on Accentia Technologies Ltd., to demonstrate that the said company is into diversified knowledge process outsourcing activities. It....
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....ting the net margins under the TNMM. 26. Having gone through the decision of the Coordinate Bench of the Tribunal, we find that the Tribunal has held that bad debts and provision for bad and doubtful debts are part of the operating expenses and that the margins of the companies should be computed by including bad debts and provisions of bad debts as provisions of expenses for the purpose of computing P&L of comparable companies. 27. The learned DR has not been able to bring any other material, contrary to the above decision, to our knowledge. In fact the Tribunal has followed the decision of the Coordinate Bench of the Tribunal at Delhi in the case of Sony India (P) Ltd vs. DCIT in ITA No.1189/Del/2005 and others. Respectfully following the same, we remand the issue to the file of the AO with a direction to recompute the margins of the companies by including the bad debts/provision for bad and doubtful debts as operating income of those companies as well as the assessee. Thus, this ground is allowed for statistical purposes. 28. As regards ground No. 9 with regard to foreign exchange fluctuation as operating in nature, we find that this issue is squarely covered by the dec....