TaxTMI 
TaxTMI 
2019 (9) TMI 658
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....] 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 and in law, the learned AO and the learned CIT (A) erred in; upholding inclusion of Persistent Systems ....
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....jection 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 section 92C of the Act. 2.2 On receipt of reference, Ld.TPO issued notice to assessee calling upon to file economic details of international transaction between assesse....
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....h 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 Ltd * FCS software solutions Ltd * Akshay Software Technologies 4.2 Before we undertake comparability analysis it is sine qua non to understand the functions performed, assets employed and risks assumed by assessee under software development service segment. In TP study, placed by assessee at page 509-564 FAR analysis has been carried out as under: Functions: 4.3 It has been submitted that assessee provides software an....
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....ables 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 authorities below. We have perused submissions advanced by both sides in light of the records placed before us. 5.2 It is observed from annual report at page 640 of paper book that the income has been earned by this company from 3 segments being engineering design service segment, information technology service segment and healthcare segment. Admittedly, revenue from software development service segment is only 81.40 crores out of total operating revenue of Rs. 141 crores. Thus, in....
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.... 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 of the view that the DRP rightly arrived at the finding that companies software development service revenue for FY 2010-11 was less than 75% of its total operating revenue for the year. Thus the above action of the DRP in rejecting the above companies correct." Respectfully following the view taken by coordinate bench of this Tribunal in DCIT vs M/s.CGI Information Systems and Management Consultations Pvt.Ltd (supra), we direct Ld.TPO to exclude this company. ICRA Techno Analytics Ltd 7.This comparable has been include....
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....ee 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 management services. With such diversified activities carried on this company, it is not appropriate to compared it with a one-to-one service provider like assessee. 8.3 It is observed that in case of Agnity India Technologies Pvt Ltd reported in (2015) 58 Taxmann.com 167 Delhi benches of this Tribunal after analysing various aspects took a view that this company is not a fit comparable for a captive service provider . The said view has been upheld by Hon'ble Delhi High Court wherein, Hon'ble Court upholding the view taken by the Tribunal, observed t....
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....ge 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 revenue recognition as expressed at page 1615 is from software services, product and technology licensing and installation and commissioning services. Assessee also receives revenue from royalties which is basically related to the product segment, wherein products have been licensed in earlier years. It is also observed that this company owns substantial intellectual properties in form of patents regarding the products developed by assessee.. It also owns revenue from cross licensing of such patents developed and owned by assessee. 10.4 Thus in our considered opinion the functions perfo....
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....e 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 following decision of coordinate bench of this Tribunal, we direct Ld.AO/TPO to exclude this comparable from final list. Accordingly, ground no.1 to 7 stands allowed. Comparable sought for inclusion: (Ground No.8 to 12) 13. Assessee alleged inclusion of LGS global Ltd, Spry Resources India Ltd., Thinksoft Global Services Ltd., FCS software solutions Ltd., Akshay Software Technologies. However, Ld.AR argued for inclusion of FCS Software Solutions Ltd. We are therefore inclined to consider only FCS Software for purposes of inclusion FCS Software Solutions Ltd., 14. This comparable was originally proposed by Ld.TPO in the s....