AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (7) TMI 979
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....11 are general in nature, hence, do not require adjudication. Considering the above, these grounds are dismissed. 3. Further, on the instructions of the assessee he submitted that grounds no.3, 4, 7, 8, 9, 12, 13, 14, 16, 17, 18, 20 and 21 are not to be pressed. Considering the aforesaid submissions of the learned Sr. Counsel for the assessee, all these grounds are dismissed as not pressed. 4. Thus, the surviving grounds which need to be adjudicated are, grounds no.6, 10, 15, 19, 22 and 23. The major issue pertaining to the transfer pricing adjustment arises in grounds no.10 and 15 relating to selection/rejection of certain comparables for benchmarking the international transaction with Associated Enterprises (AEs)relating to provision of Information Technology Enabled Services (ITES). 5. Brief facts relating to this issue are, the assessee, an Indian company, is a subsidiary of M/s. Beaumont Development Centre Holding Ltd. and part of Accenture Group. The assessee basically provides services to its AEs across the globe under three segments viz. software development service (SDS), ITES, consultancy Services under IPSA. As stated, the dispute in these grounds is basically c....
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....l relief to the assessee by accepting assessee's claim to include R. Systems International Ltd. as a comparable. 7. Before us, though, the assessee has challenged selection / rejection of eight comparables, however, the Learned Sr. Counsel put much stress for rejection of two comparables viz. Genesis International Corporation Ltd. and Cross Domain Solutions Ltd. At the outset, we will deal with the acceptability or otherwise of these two comparables. i) GENESYS INTERNATIONAL CORPORATION LTD. 8. This company, though, was selected by the assessee as a comparable in the transfer pricing study report by using multiple year data, however, before the Transfer Pricing Officer, the assessee objected to selection of the company due to functional difference and exceptional year of performance. However, rejecting the objections of the assessee, the Transfer Pricing Officer selected this company as a comparable. Learned DRP also upheld the decision of the Transfer Pricing Officer by holding that once the company was selected as comparable by the assessee, it cannot be excluded. 9. Objecting to the selection of this company, the learned Sr. Counsel for the assessee submitted, ....
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.... fact that the assessee itself had selected it as a comparable in transfer pricing study report. Thus, he submitted, it cannot be rejected as a comparable. 12. In rejoinder, the learned Sr. Counsel for the assessee submitted, merely because the company was wrongly selected as a comparable in the transfer pricing study report, it cannot be retained as a comparable even if it is functionally dissimilar to the assessee. He submitted, though, the assessee might have selected it as a comparable initially, however, if subsequently information available in the public domain indicate that the company is functionally different, assessee cannot be prevented from objecting to the selection of the company as a comparable. For such proposition, he relied upon the following decisions:- i) Tata Power Solar Systems Ltd., ITA no.1120/2014 (Bom.); ii) M/s. Quark Systems India Pvt. Ltd., ITA no.594/2010 (P&H); iii) M/s. Symantec Software Solutions Pvt. Ltd., ITA no.7623/Mum./2012; iv) M/s. Aptean Software India Pvt. Ltd., IT(TP)A no.1285/Bang./2012 and IT(TP)A no.207/Bang./2014; v) M/s. Citrix R&D India Pvt. Ltd., IT(TP)A no.1289/Bang./ 2014; v....
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....le to the assessee. As regards the reasoning of the Department that the company was selected by the assessee as a comparable in the transfer pricing study report, we must observe, the comparables selected by the assessee in the transfer pricing study report are not sacrosanct. Had it been the case, all companies selected by the assessee have to be accepted by the Transfer Pricing Officer. After all, the purpose of comparative analysis is to find out suitability of a company as a comparable. In fact, the duty of the assessee and the Transfer Pricing Officer is to find out comparables which are functionally similar. If the company, though, is selected by the assessee is not found to be functionally similar it has to be rejected. Applying the aforesaid principle, in many cases the Transfer Pricing Officer does not accept the comparables selected by the assessee, as, in his view they are functionally dissimilar to the assessee. Therefore, only because assessee has selected a particular company as a comparable in the TP analysis, it cannot be treated as comparable if it is functionally different. Moreover, in the judicial pronouncements, referred to above,it has been held that the compa....
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....l profile of the company is available in the annual report clearly reveals that it is functionally similar to the assessee. Therefore, it was rightly included as a comparable. 18. We have considered rival submissions and perused material on record. As could be seen from the material placed before us, the company is engaged in rendering services relating to software development and maintenance, software testing, infrastructure set-up and management, consulting service, architecture, configuration and installation, etc. Many of such services are in the nature of KPO services. Further, though, the company has earned revenue from various services provided by it, however, the segmental details are not available. In fact, the Transfer Pricing Officer himself has admitted that the Profit & Loss account of the company for the impugned assessment year is not available in public domain. As it appears, the Transfer Pricing Officer has also not called for information from the company with regard to its financial results. Therefore, in the absence of Profit & Loss account of the company in public domain, the financial results of the company cannot be reliably ascertained. In any case of the ....
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....r the assessee submitted, in pursuance to the query raised by the Transfer Pricing Officer under section 133(6) of the Act, the company has furnished its financial results for the financial year 2008-09 and 2009-10. In this context, he drew our attention to the financial results for March ending 2008 and 2009 as found place in the annual report of the company placed at Page-638 of the paper book. The learned Sr. Counsel submitted, the aforesaid information was obtained by the Transfer Pricing Officer himself in course of proceedings. Therefore, it cannot be said that the financial results of the company for the financial year followed by the assessee are not available. The learned Sr. Counsel submitted, even otherwise also if the financial data of the comparable relating to the financial year followed by the assessee can reliable to be ascertained, there is no defect in accepting the company as a comparable if otherwise it is functionally similar to the assessee. In support of such contention, he relied upon the following decisions:- i) M/s. Mercer Consulting (India) Pvt. Ltd., ITA no.101 of 2015 (P&H); ii) Aegis Ltd., ITA no.1213/2014 ITAT, Mumbai; iii) ....
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....e learned Sr. Counsel. As regards the decision of the Hon'ble Jurisdictional High Court in PTC Software India Pvt. Ltd. (supra) cited by the learned Departmental Representative, a reading of the judgment would reveal that the financial results of the comparable corresponding to the financial year followed by the assessee was not available, hence, it was rejected. It is relevant to observe, in assessee's own case in assessment years 2007-08 and 2008-09 the Transfer Pricing Officer himself has accepted this company as a comparable in spite of the fact that its financial year was not matching with that of the assessee. The reason for which the Transfer Pricing Officer accepted the company as comparable in those years is, the financial results of the company corresponding to the financial year followed by the assessee were available with him. Factual position is no different in the impugned assessment year. In view of the aforesaid, we do not find any infirmity in the decision of learned DRP in accepting this company as a comparable. Therefore, Revenue's ground on the issue is dismissed. 24. In the course of hearing, learned Sr. Counsel for the assessee had submitted, with exclu....
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....up comparables. Thus, he submitted, similar direction may be given in this year also. The learned Sr. Counsel further submitted, if the services provided under IPSA are considered as part of BPO service segment, the operating margin for combined BPO service segment for the impugned assessment year would stand revised to 18.33%. 29. The learned Departmental Representative agreed that the issue is covered by the decision of the Tribunal in assessment year 2008-09. 30. We have considered rival submissions and perused the material on record. As can be seen, identical dispute arose in assessee's own case for the assessment year 2008-09. While deciding the issue in IT(TP)A no.7686/Mum./2012, dated 20th July 2018, the Tribunal has directed as under:- "52. We have considered rival submissions and perused materials on record. Undisputedly, the assessee has rendered services to its overseas A.E. under two different agreement viz. DCA and IPSA. While the services rendered under the DCA have been treated to be in the nature of software development and ITES, services rendered under the IPSA has been segregated by the assessee into two categories. As could be seen from the submiss....
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....32. In ground no.19, the assessee has raised the issue of working capital adjustment. 33. We have considered rival submissions and perused the material on record. It has been brought to our notice by the learned Sr. Counsel for the assessee that while deciding similar issue in assessee's own case for the A.Y. 2008-09 in ITA no.7686/Mum./ 2012, dated 20th July 2018, the Tribunal has issued the following directions:- "41. Comparability issues relating to these comparables are left open for adjudication, if warranted, in any other assessment year. Pertinently, in course of hearing learned senior counsel for the assessee submitted that assessee's claim of working capital adjustment was not properly considered either by the Transfer Pricing Officer or by the DRP. He submitted, the Transfer Pricing Officer himself has allowed working capital adjustment in Assessment Year 2012-13. In this context he drew our attention to Transfer Pricing Officer's order for the said assessment year placed at page 1256 of the paper book. Thus, he submitted, Transfer Pricing Officer may be directed to allow working capital adjustment in similar line. Learned Departmental Representative submitted....
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....ar 2008-09, the Tribunal following the decision of the Hon'ble Supreme Court in Yokogawa India Ltd., 391 ITR 274 (SC) has allowed assessee's claim of deduction under section 10A of the Act unit-wise. The observations of the Tribunal in his regard are as under:- "58. We have considered rival submissions and perused materials on record. The dispute between the assessee and the Department is limited to the issue as to whether deduction under section 10A of the Act has to be allowed from the gross total income before setting offof loss or deduction under section 10A of the Act is to be allowed from the total income after reduction of loss. The Assessing Officer has allowed deduction under section 10A of the Act after setting-off of loss on the reasoning that as per the amended provisions of section 10A of the Act deduction has to be computed on the total income. However, in our considered view, the issue now stands settled by the decision of the Hon'ble Supreme Court in Yokogawa India Ltd. (SC) wherein, the Hon'ble Supreme Court has held that even after amendment made to section 10A of the Act by making it a deduction provision instead of exemption provision, there....
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....en accepted by the DRP in assessment year 2013-14 and 2014-15. 44. The learned Departmental Representative also agreed that the issue is covered by the decision of the Tribunal. 45. We have considered rival submissions and perused the material on record. While deciding identical issue in assessee's own case for the assessment year 2008-09, the Tribunal has held as under:- "62. We have considered rival submissions and perused materials on record. As could be seen from the facts on record, as per the terms of the IPSA agreement the assessee was required to provide certain services including content development and image development and web development. The Transfer Pricing Officer while examining the nature of services rendered under the IPSA agreement has classified it to be in the nature of ITES. While doing so, he has also referred to CBDT notification no.SO-890(E), dated 26th September 2010. A careful reading of the observations of the Transfer Pricing Officer in Para-15.2 of his order would clearly establish that by referring to the CBDT notification under consideration he has concluded that the income from IPSA agreement either has to be classified under software....
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....of the order. Therefore, separate adjudication is not required. 51. In ground no.2,the Revenue has challenged the decision of learned DRP in directing that the adjustment to be made by the Transfer Pricing Officer is to be restricted only to the international transaction 52. Having considered rival submissions, we do not find any infirmity in the decision of learned DRP on the issue as the arm's length price of the transaction which requires adjustment is the international transaction with the AE. Therefore, any adjustment on account of arm's length price has to be restricted to the international transaction with AE. This view has also been approved by the Hon'ble Jurisdictional High Court in CIT v/s Hindustan Unilever Ltd., [2016] 72 taxmann.com 325 (Bom.). In view of the above, ground raised is dismissed. 53. In the result, Revenue's appeal is dismissed. ITA no.501/Mum./2015 Assessee'sAppeal - A.Y. 2010-11 54. Grounds no.1, 2 and 6, being general in nature, do not require adjudication. 55. In grounds no.13 to 19, the assessee has challenged selection / rejection of certain comparables under Information Technology (IT) Service and Infor....
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....omparable in assessment years 2005-06 and 2008-09. Thus, he submitted, the company should be rejected as a comparable. In this regard, he relied upon the following decisions:- i) PCIT v/s St. Ericssion India Pvt. Ltd., ITA no.821/2017 (Del.) ii) PCIT v/s Fiserv India Pvt. Ltd. (ITA no.17/2016 (Del.); iii) M/s. Bristlecone India Ltd. v/s ACIT, ITA no.1670/Mum./ 2015; iv) Open Solutions Software Services v/s DCIT, ITA no.7078/ Del./2014; v) M/s. Lime Labs India Pvt. Ltd. v/s ITO, ITA no.1703/Del./ 2015; vi) Approva Systems Pvt. Ltd. v/s DCIT, ITA no.1921/Pun./ 2014; vii) TIBCO Software India Pvt. Ltd. v/s DCIT, ITA no.276 & 334/ Pun./2015; and viii) Approva Systems Ltd. v/s CIT, ITA no.1788/Pun./2013. 60. The learned Departmental Representative relied upon the observations of the Transfer Pricing Officer and learned DRP. 61. We have considered rival submissions and perused the material on record. From the annual report of the company it is noticed that the company is also engaged in development of products and complete information relating to segmental details are not available. For this reason, learned Com....
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....TP)A no. 212/Bang./2015; vii) M/s. Softtek India Pvt. Ltd. v/s DCIT, IT(TP)A no.396 & 435/ Bang./2015; etc. 64. The learned Departmental Representative submitted, since the assessee itself had selected it as a comparable in transfer pricing study report, subsequently, it cannot claim that the company is functionally dissimilar. He submitted, before the Departmental Authorities assessee has failed to demonstrate how the company is functionally different. Therefore, there is no reason to exclude the company as a comparable. 65. We have considered rival submissions and perused the material on record. The main plank on which the assessee has sought exclusion of this company is, it is also engaged in sale of software products and the segmental details are not available. Though, the aforesaid objection was taken by the assessee before learned DRP, however, learned DRP, as it appears, has rejected assessee's contention primarily for the reason that the company was selected as a comparable in transfer pricing study report. Learned DRP has not at all dealt with assessee's contention that the company is also engaged in sale of products and segmental details are not available. ....
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....ulting services. Therefore, the company being functionally similar to the assessee is a comparable. The learned Sr. Counsel submitted, the company also does not fail the diminishing revenue filter applied by the Transfer Pricing Officer as the company has diminishing revenue only in the current year. He submitted, unless a company has diminishing revenue over the past three-year period, the diminishing revenue filter cannot be applied. He submitted, if the logic applied by the Transfer Pricing Officer to exclude the company is to be applied consistently, then, Thirdware Solutions Ltd. and Persistent Systems Ltd. cannot be treated as a comparable since they have diminishing revenue in the current year. In support of his contention, the learned Sr. Counsel relied upon the following decisions:- i) ACIT v/s Synechron Technologies Pvt. Ltd., ITA no.536/Pun./ 2015; ii) Mercedes Benz Research & Development India Pvt. Ltd. v/s DCIT, IT(TP)A no.1645/Bang./2016; iii) Transcend India Pvt. Ltd., ITA no.2754/Del./2015 and C.O. no.446/Del./2015; iv) Tata Power Solar System Ltd. v/s DCIT, ITA no.6657/Mum./ 2012; viii) M/s. Citrix R&D India Pvt. Ltd., I....
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....nue's appeal against the aforesaid direction of DRP, the Tribunal upheld the decision of the DRP in accepting the company as a comparable. Since the aforesaid decision of the Co-ordinate Bench pertains to the very same assessment year and the factual position on the basis of which the company was accepted as a comparable is almost identical, respectfully following the decision, we direct the Assessing Officer to include this company as a comparable. 72. Since we are on the issue of acceptability or otherwise of some comparables relating to software development (IT) segment, at this stage, we propose to deal with the issue relating to rejection of FCS Software Solutions Ltd. as a comparable by learned DRP which has been challenged by the Revenue in its appeal in ITA no.459/Mum./ 2015. iv) FCS SOFTWARE SOLUTIONS LTD. 73. This company though was rejected by the assessee in its transfer pricing study report, however, the Transfer Pricing Officer accepted it as a comparable stating that it is functionally similar to the assessee. However, while considering assessee's objection, learned DRP rejected the company as a comparable since it did not qualify IT service income fil....
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....e is not acceptable as education service cannot be compared to IT service. Moreover, as rightly brought to our notice by the learned Sr. Counsel for the assessee, the company is also engaged in e- learning and digital content service which is in the nature of ITES. In view of the aforesaid, the company being functionally different from the assessee has been rightly rejected as a comparable. The decisions cited by the learned Sr. Counsel completely support our view. Accordingly, we uphold the decision of learned DRPon the issue. 77. In course of hearing learned Sr. Counsel has submitted, on exclusion of Thirdware Solutions Ltd., Persistent Systems Ltd. and FSC Solutions Ltd. and inclusion of CAT Technologies Ltd., assessee's margin would fall within +/-5% range of the arithmetic mean of the rest of the comparables in software development (IT) service segment. In view of the aforesaid, we do not intend to dwell upon the issues relating to the other comparables in IT service segment and leave the issue open relating to these comparables for adjudication if they arise in any other assessment year in future. 78. Insofar as ITES segment is concerned, at the outset, the learned Sr. ....
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....2/2016 (Del. HC); v) Bechtel India Pvt. Ltd., ITA no.1478/2015 (Del. Trib.); vi) Torus Business Solutions Pvt. Ltd., ITA no.1974/Del./2015 & ITA no.6201/Del.2015, etc. (Del. Trib.); vii) PTC Software India Pvt. Ltd., ITA no.572 & 352/Pun./2015; and viii) Ivy Comptech Pvt. Ltd., ITA no.222/Hyd./2015 (Hyd.); etc. 81. The learned Departmental Representative relied upon the observations of the Transfer Pricing Officer and learned DRP. 82. We have considered rival submissions and perused material on record. On a perusal of the annual report placed in the paper book it is noticed that the company has different segments, whereas, the segmental information relating to all the segments are not available. Moreover, during the year under consideration there is an extra ordinary event by way of amalgamation of another company. Thus, by virtue of such amalgamation, there could have been impact on the profitability of the company. Considering the aforesaid aspect, the Tribunal in assessee's own case for the assessment year 2008-09 has rejected this company as a comparable. In various other decisions cited before us by the learned Sr. Counsel for the asse....
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....ard was nullified. However, the appeal is pending for disposal before the Tribunal. He submitted, in view of the order passed by the Tribunal in assessment year 2008-09, unabsorbed depreciation amounting to Rs. 37,94,78,811, is eligible for carry forward and which will be available for set-off in the impugned assessment year. Thus, he submitted, the Assessing Officer may be directed to allow set-off of brought forward unabsorbed depreciation relating to the assessment year 2007-08 and 2008-09 after giving effect to the directions of the Tribunal in these assessment years. 91. The learned Departmental Representative submitted that necessary directions may be issued to the Assessing Officer. 92. We have considered rival submissions and perused material on record. As could be seen from the facts on record, assessee's claim of set-off of brought forward unabsorbed depreciation is dependent upon the decision of the Tribunal in assessee's appeal relating to assessment year 2007-08 and 2008-09. Therefore, after giving effect to the orders of the Tribunal in assessment years 2007-08 and 2008-09, the Assessing Officer should consider assessee's claim of set-off of brought forward unab....