AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (9) TMI 658
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....herwise failing the test of comparability; [corresponding to ground no. 3 d] 2. That on the facts and circumstances of the case and in law, the learned AO and the learned CIT (A) erred in; upholding inclusion of E-Infochips Ltd selected by the learned TPO, whereras the same should be excluded for the reasons of functional dissimilarity and otherwise failing the test of comparability; [corresponding to ground no. 3 d] 3. That on the facts and circumstances of the case and in law, the learned AO and the learned CIT (A) erred in; upholding inclusion of ICRA Techno Analytics Ltd selected by the learned TPO, whereas the same should be excluded for the reasons of functional dissimilarity and otherwise failing the test of comparability; [corresponding to ground no. 3 d] 4. That on the facts and circumstances of the case and in law, the learned AO and the learned CIT (A) erred in; upholding inclusion of Infosys Ltd selected by the learned TPO, whereas the same should be excluded for the reasons of functional dissimilarity and otherwise failing the test of comparability; [corresponding to ground no. 3 d] 5. That on the facts and circumstances of the case ....
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....to ground no. 3 d] 12.That on the facts and circumstances of the case and in law, the learned AO and the learned CIT (A) erred in; upholding rejection of FCS Software Solutions Limited selected by the learned TPO as part of show cause notice which passes the TPO's test of comparability but later excluded in the transfer pricing order. [corresponding to ground no. 3 d] That the Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this Appeal". Brief facts of the case are as under: 2. Assessee filed its return of income for year under consideration declaring total income of Rs. 10,11,87,793/-. The return was processed under section 143(1) and case was selected for scrutiny. Notice under section 143(2) was issued to assessee in response to which representative of assessee appeared before Ld.AO and filed requisite details as called for. 2.1 Ld.AO observed that assessee is a company engaged in business of software development. As assessee entered into international transaction with its associated enterprise, issue was referred to Ld.TPO under se....
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.... Average margin 24.82% 2.5 He thus proposed an adjustment of Rs. 1,65,11,013/- being shortfall. Ld.AO restricted working capital adjustment in respect of comparables 1.63% and denied any adjustment on account of risks to assessee. 2.6 As distribution segment was in accordance with independent search carried out by Ld.AO, no adverse inference was drawn regarding the same. 3. Aggrieved by order of Ld.TPO/AO, assessee filed appeal before Ld.CIT (A), who upheld action of Ld.AO/TPO. 4. Aggrieved by order of Ld.CIT (A), assessee is in appeal before us now. Ground no.1 to 12 4.1 At the outset, Ld.AR submitted that, following comparables deserves to be excluded on functional dissimilarities: • Acropetal Technologies Ltd (segment-IT services) • E- Infochips Ltd • ICRA Techno Analytics Ltd • Infosys Ltd • Persistent Systems Ltd • Sasken Communication Technologies Ltd • Tata Elxsi Ltd (segmental) It is also been submitted that following comparables are to be included: • LGS global Ltd • Spry Resources India Ltd • Thinksoft Global Services L....
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....t exposed to market risk, product/service liability risk, credit risk. In the present facts of case, assessee is not exposed to foreign exchange risk also, as invoices are raised in Indian rupees. 4.7 Thus assessee has been characterised as a contract service provider which assumes less than normal risk associated with carrying out software and hardware development services. On the basis of above, we shall undertake the comparability analysis in respect of comparables alleged for exclusion by assessee. Acropetal Technologies Ltd (segment-IT services) 5. Ld.AR submitted that this company, operates in three segments and segmental results are not available placing reliance upon annual reports placed at page 585-664 of paper book. It has been submitted that revenue recognition is from export sales. It has been submitted that this comparable provides end to end solutions to its customers and is committed to delivering cost-effective software product, services and solutions to its customers. It is also been submitted that this comparable does not satisfy service revenue filter which has been applied by Ld. TPO. 5.1 Ld. CIT DR placed reliance upon orders passed by authoriti....
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....y revenue is concerned, the said ground of appeal is weak and any event comparability of companies that were excluded by the DRP were on valid grounds contemplated by the relevant statutory provisions of the act and rules. As far as ground No. 5 in revenue's appeal is concerned, the revenue seeks to challenge the exclusion of AE Infotech Ltd. On the ground that it failed direct software service income filter at 75%. At the outset, the assessee submits that E Infotech Ltd was excluded by the DRP on the ground that: (i) no segmental information is regarding its diverse functions is available; (ii) it failed the software service income filter and 75%; (iii) there were major fluctuations in profit and turnover every years which seems to be influenced by extraordinary/peculiar circumstances; and (iv) there is a presence of inventory (page 10 and 11 of the DRP's directions). The revenue, in its appeal has challenged its exclusion only on the 2nd ground. In other words, the revenue has not challenged its exclusion on the other grounds stated hereinabove and thus its exclusion on these grounds have attained finality and cannot be disturbed by this Hon'ble Tribunal. Even otherwise, we are o....
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....or exclusion of this company. Respectfully following the same we direct Ld. AO/TPO to remove this comparable from final list. Infosys Ltd 8. This company has been included by Ld.TPO which is objected by assessee due to very high turnover, which is more than 200 crores. It has been submitted by Ld.Counsel that this company for during year ending 31/03/10 had turnover of about Rs. 21,140 crores, which is much higher than that of assessee. Further she submitted that this company is a joint and software development space while assessee is a small captive service provider, providing exclusive services only to its AE's. It is also been submitted by Ld.Counsel that this company has heavy R&D expenses and thus has intangibles associated with it. 8.1 Ld. CIT DR placed reliance upon the order of Ld. TPO. We have perused submissions advanced by both sides in the light of the records placed before us. 8.2 It is observed that this company provides solutions that span entire software run life-cycle encompassing technical consulting, design, developed meant, re-engineering, maintenance, systems integration, package evaluation and implementation, testing and infrastructure managemen....
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....le of product and revenue from software services include network engineering services. It is also been submitted that this company offers combination of research and development consultancy, wireless software products and services. The segmental details of the sale software product and revenue from software services are not available. 10.1 On the contrary Ld. CIT DR placed reliance upon order passed by Ld.TPO. We have perused submissions advanced by both sides in the light of records placed before us. 10.2.Assessee has placed annual report of this company at page 1529-1652 of paper book. It is observed at page 1619 of paper book wherein the segment policy and identification of segments has been details in respect of this company which reads as under: "Identification of segment: The group is focused in the telecommunication space. The risk and returns of the group are predominantly determined by the nature of the solutions offered to its customers, which may be in the form of products or services. The primarily reporting segments are software services, software products, network engineering services and automotive, utilities and industrial." 10.3 The re....
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....tion of this order is extracted and reproduced below :- " .... Tata Elxsi is engaged in development of niche product and development services which is entirely different from the assessee company. We agree with the contention of the learned Authorised Representative that the nature of product developed and services provided by this company are different from the assessee as have been narrated in para 6.6 above. Even the segmental details for revenue sales have not been provided by the TPO so as to consider it as a comparable party for comparing the profit ratio from product and services. Thus, on these facts, we are unable to treat this company as fit for comparability analysis for determining the arm's length price for the assessee, hence, should be excluded from the list of comparable portion." As can be seen from the extracts of the Annual Report of this company produced before us, the facts pertaining to Tata Elxsi have not changed from Assessment Year 2007-08 to Assessment Year 2008-09. We, therefore, hold that this company is not to be considered for inclusion in the set of comparables in the case on hand. It is ordered accordingly." Respectfully followin....