TaxTMI 
TaxTMI 
2019 (10) TMI 192
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....bad on facts and in law, and is in violation of the principles of natural justice. Without prejudice to the above, the order issued by the AO is bad in law insofar as the fact that the AO did not issue to Telelogic India Private Limited (`the Appellant or 'the Company'), a show cause notice, as per proviso to section 92C(3) of the Income-tax Act, 1961 ['the Act']. c) The AO has erred in law in making a reference to the Deputy Commissioner of Income Tax - Transfer Pricing - V [`TP0'], inter alia, since he has not recorded an opinion that any of the conditions in section 92C(3) of the Act, were satisfied in the instant case. The AO also erred in not following the provision contained in section 92CA (1) of the Act. 2.The fresh comparable search undertaken by the TPO is bad in law. a) The AO/TPO erred on facts and in law in conducting fresh benchmarking analysis using non contemporaneous data and substituting the Appellant's analysis with fresh benchmarking analysis on his own conjectures and surmises. Thus the Appellant prays that the fresh benchmarking analysis conducted by the learned TPO is liable to be quashed. b....
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....anies based on their financial results without considering the functional comparability. k) The AO/TPO erred on facts and in law in considering a set, of 'secret data', i.e. data which was not available in public domain, in arriving at a fresh set of companies using his power under section 133(6), which is grossly unjustified. l) The AO/TPO also erred on facts and in law in excluding the foreign exchange gain or loss while calculating the net margins of the comparable companies. 4. Erroneous data used by the AO/TPO a) The AO/TPO has erred in law in using data, which was not contemporaneous and which was not available in the public domain at the time of conducting the transfer pricing study by the Appellant. b) The AO/TPO erred in law in not applying the multiple-year data while computing the margin of alleged comparable companies as such data had an influence in determining the pricing policy of the Appellant. 5. Non-allowance of appropriate adjustments to the comparable companies, by the AO/TPO The AO/TPO erred in law and on facts in not allowing appropriate adjustments under Rule10B to account for, inter alia,....
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....tions/ disallowances made in earlier years' assessment orders are deleted by the appellate authorities. 10 Short grant of credit for Tax Deducted at Source (`TDS') The learned AO has erred in granting short credit of TDS amounting to Rs. 43,686 inspite of clear directions of the Hon'ble DRP in this regard. 11 Non issue of refund The learned AO has erred in considering that refund of Rs. 1,120,000 has been issued to t Appellant under section 143(1) of the Act when no such refund has been issued to the Appellant inspite of clear directions of the Hon'ble DRP in this regard 12 Interest under section 234B of the Act. The learned AO has erred in levying interest under section 234B of the Act amounting to Rs. 2,049,088. 13 Interest under section 234D of the Act. The learned AO has erred in levying interest under section 234D of the Act amounting to Rs. 173,600 where no refund has been issued to the Appellant. 14 Penalty under section 271(1)(C) The learned AO has erred in initiating penalty proceedings under section 271(1)(c) of the Act. 15 Directions issued by the Honorable ....
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....obal support business, telecasting and global services (primarily characterised as ITES services) to its associated enterprises. Ld.TPO observed that assessee has entered into following international transaction with its associated enterprises: S.No Particulars Amount(in Rupees) 1. Payment of royalty towards software product distribution 4,09,60,721/- 2. India global services 1,50,98,435/- 3. Global support services 5,91,07,951/- 4. International telemarketing 1,18,03,842/- 5. Rendering of software development services 14,13,65,683/- 6. Reimbursement of expenses 12,87,191/- 7. Recovery of expenses 2,00,07,085/- Ld.AR submitted that except for software development services and ITES services rendered to AE all other transactions have been held to be at arms length price by Ld. TPO. From TP study is observed that assessee had used TNMM as the most appropriate method by using OP/OC as PLI for computing net margin of assessee. Ld.AR submitted that in the above table, transactions at Serial No.2, 3 and 4 pertains to ITES segment and transaction at Serial No.5 pertains to software development service segment. ....
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....d., 25.81% 25 Triton Corp.Ltd., 34.93% 26 Vishal Information Technologies Ltd 51.19% 27 Wipro Limited., 29.70% Arithmetic Mean 30.21% He thus proposed adjustment of Rs. 1,30,25,605/- under ITES segment. 4. Software Development Service Segment: Is in respect of software development service segment, assessee had earned margin of 13.33%. It was submitted that assessee selected following 55 comparables having an average margin of 14.64% (before working capital): Sl.No. Name of the company 1 Akshay Software Technologies Ltd., 2 A S M Technologies Ltd., 3 Aztecsoft Ltd., 4 Blue Star Infotec Ltd, 5 Bodhtree Consulting Ltd. (SWD Seg.), 6 BT TechNet Ltd., 7 C M C Ltd., 8 Computech International Ltd., 9 Essel Software & Services Ltd., 10 Exensys Software Solutions Ltd., 11 FCS Software Solutions Ltd., 12 Geomeric Software SolutinsCo.Ltd., 13 Goldstone Technologies Ltd., 14 HCL Technologies Ltd., 15 Helios & Matheson Information Technology Ltd., 16 Hexaware Technologies Ltd., 17 ICSA (India) Ltd., 18 Infosys Technologies Ltd.,....
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....4.52% 19 Quintegra Solutions Ltd., 12.56% 20 R S Software (India) Ltd., 13.47% 21 R Systems International Ltd.(Seg.) 15.07% 22 Sasken Communication Technologies Ltd.(Seg.) 22.16% 23 SIP Technologies & Exports Ltd., 13.90% 24 Tata Elxsi Ltd.(seg.) 26.51% 25 Thirdware Solutions Ltd., 25.12% 26 Wipro Ltd. (Seg.) 33.65% Total 25.14% It has been submitted that Ld.TPO denied working capital adjustment, as assessee did not provide segment wise breakup of creditors debtors etc., and also excluded foreign exchange gain/loss from operating revenue. He thus proposed adjustment of Rs. 1,46,97,412/-. 4. Aggrieved by proposed adjustment, assessee filed objection before DRP. DRP after dealing with objection raised by assessee, upheld comparables selected by Ld.TPO, however granted working capital adjustment under both segments, if details are provided by assessee. Under ITES segment DRP did not direct for adjustment on depreciation. 4.1 Upon receipt of DRP directions, assessing officer passed final assessment order by making an addition in the hands of assessee as under: Net Profit of STP Unit ....
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....on Information Technology Limited, Infosys Technologies Limited, Kals Information Systems Limited, Sasken Communication Technologies Limited, Tata Elxsi Limited and Wipro Limited as comparables for the software development services rendered by the Appellant. 4. The additional grounds of appeal (enclosed herewith) relates to rejection of Cosmic Global Limited, Maple E-solutions Limited, Spanco Limited, Triton Corporation Limited and Wipro Limited as comparables for the Information Technology enabled services (`IT Enabled services') rendered by the Appellant. The Appellant had selected these companies as comparables in its Transfer Pricing study. The TPO has also selected these companies as comparables in the order passed u/s 92CA. The Appellant had raised objection before lower authorities against inclusion of these companies in the list of comparables. With respect to rejection of a comparable, the ground pertains to question of law and facts. The Appellant submits that it is not estopped from rejecting companies selected as comparables in the Transfer Pricing study based on facts available in the public domain. The Appellant humbly prays that the add....
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.... • I Services India Pvt. Ltd., • Maple Evolution Ltd • Mould-Tech Technologies Ltd (segmental) • Spanco Ltd • Triton Corpn. Ltd • Vishal Information Technologies Ltd Before we analyse these comparables it is sine qua non to understand functions performed, assets employed and risks assumed by assessee under this segment. Functions: In TP study, assessee has been set to be providing global support business/tele-calling/global, consultancy services to the group companies and also provides after sales services and training. Telelogic India performs all routine functions required to render these services to Telelogic Group of companies. Assets employed: It has been submitted that assessee does not own any intangible assets and has got routine assets as listed in the balance sheet for the year ending. Risks Assumed: Under ITES service segment, assessee is said to be risk mitigated as the group companies compensate assessee for the cost incurred in providing the services, except for foreign exchange risk as the invoice is raised by assessee in foreign currency and employee hiring and retention r....
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....ables fails in turnover filter of 1 to 200 Crores. It has been submitted that companies having turnover of more than 200 Crores have to be eliminated from list of comparables as laid down in several decisions referred to by Ld.AR: • Genisys Integrating Systems (India) (P.) Ltd. v. Dy. CIT [2012] 20 taxmann.com 715(Bang-Trib) • CIT v. Pentair Water India (P.) Ltd. [2016] 69 taxmann.com 180 (Bom) • Commissioner of Income-tax v. Agnity India Technologies (P.) Ltd (2013) 36 taxmann.com 289(Delhi) It is submitted that HCL Comnet Systems and Services Ltd., Infosys BPO Ltd., and Wipro Ltd., have high turnover of more than 200 crore, and therefore, cannot be compared with assessee which is captive service provider. Ld.AR submitted that, assessee's turnover was Rs. 8.6 Crore.He submitted that Ld.TPO had applied lower turnover filter and excluded companies whose turnover was less than Rs. 1 Crore. Further assessee contentded, before DRP that while Ld.TPO excluded companies with low turnover, he failed to apply same yardstick to exclude companies with high turnover. He submitted that reasons given by authorities below for exclusion of companies wi....
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....al that turnover filter is a relevant filter. This Tribunal in case of Genesis Integrating Systems India Pvt. Ltd., vs DCIT reported in (2012) 20 taxman.com 715. In facts of present case, assessee has been set to be providing global support business/tele-calling/global, consultancy services to group companies and also provides after sales services and training. 11.1 It is observed that comparables sought to be excluded are 100 % Software Development Companies, having high turnover, and therefore respectfully following aforestated view in case of Genesis Integrating Systems India Pvt. Ltd., vs DCIT (supra), these comparables are to be excluded because they have high turnover of more than 200 crore. It is submitted that subsequently this Tribunal in case of Yodlee Infotech Pvt. Ltd vs ITO in IT(TP)A no. 108/Bang/2014 For assessment year 2009-10, vide order dated 12/12/14, excluded these companies following Genesis Integrating systems Indi Pvt.Ltd vs.DCIT(supra). Reliance has been placed on decision of this Tribunal in case of Autodesk India Pvt.Ltd. vs DCIT reported in (2018) 96 Taxmann.com 263 followed similar view to exclude identical comparables by applying turnover filte....
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....ssee have been undertaken by this company. Under such circumstances, we are of the considered opinion that this company is not functionally similar as well as the risk profile is quite different from that of assessee and accordingly cannot be considered to be a fit comparable. We direct this company to be excluded from the list of comparables. b) Bodhtree Consulting Ltd., Eclerx Services Ltd., and Mold-Tek Technologies Ltd., It has been submitted by Ld.AR that, Bodhtree Consulting Ltd., Eclerx Services Ltd., and Mold-Tek Technologies Ltd., were excluded from list of comparables by this Tribunal in case of First Advantage Offshore Services (P.) Ltd. (supra) for functional dissimilarity. This Tribunal observed that these companies are into business of Knowledge Process Outsourcing (KPO)and thus held these companies un comparable with an assessee which is engaged in IT enabled services. Relevant paragraphs of order of Tribunal in case of First Advantage Offshore Services (P.) Ltd. (supra) are extracted hereunder: "39, Having heard both the parties and having considered their rival contentions, we find that the assessee had raised elaborate objections to each of the c....
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.... is a captive service provider low end BPO functions to support AE. At this juncture Ld.DR placed reliance upon decision of Microgenetic Ltd reported in 87 taxman.com 262, Triology e- Business Software reported in 29 Taxmann.com 310, wherein it has been observed that, merely because that certain decisions of this Tribunal excluded certain comparables, does not ipso facto mean, such comparables should be excluded without analysing functional similarities/dissimilarities with that of assessee in present case. In support of his argument Ld.CIT DR referred to decision of this Tribunal in Sendute India Pvt.Ltd in IT (TP) A 59/B/2016 vide order dated 07/07/17. c) Bodhtree Consulting Ltd. This comparable has been included by ld.TPO in the list of comparables. Ld.Cunsel submitted that this company is functionally not similar, as it is into software development and data cleaning segment vis-a-vis captive service provider like assessee. It has been submitted that ld.TPO considered data cleaning segment as ITES, only on the basis of companies reply under 133 (6) of the Act. However on perusal of the reply it is very clear that company provides cleansing services only to those clients....
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....nvolving special knowledge and domain expertise is evident from the company's own reply to the notice u/s 133(6) which is placed at pages 976 to 979 of the paper book filed by the assessee. The Hon'ble Special Bench of the Tribunal in case of Maersk Global Centre (India) (P.) Ltd. v. Asstt. CIT [2014] 147 ITD 83/43 taxmann.com 100 (Mum.) had excluded Eclerx Services Pvt. Ltd. from the list of comparables for the reason that it is providing high end services involving specialised knowledge and domain expertise and same cannot be compared with companies which are mainly engaged in providing low end services to group companies. The relevant finding of the Hon'ble Tribunal read as follows :- "In so far as M/s eClerx Services Limited is concerned, the relevant information is available in the form of annual report for financial year 2007- 08 placed at page 166 to 183 of the paper book. A perusal of the same shows that the said company provides data analytics and data process solutions to some of the largest brands in the world and is recognized as experts in chosen markets-financial services and retail and manufacturing. It is claimed to be providing complet....
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....m functional profile of assessee. For aforesaid reasons, we direct Eclerx Services Ltd. be excluded from final list of comparables. e) Mold- Tek Technologies Ltd (Seg) This company has been included by ld.TPO. However Ld.Counsel submits that it is pioneer in structural engineering services and provides highly technical and specialised engineering services by use of information technology which is incidental. Further it has been submitted that there are no segmental information regarding this comparable and has relied upon decision of Delhi Tribunal in the case of ICC India Pvt.Ltd., vs. ACIT (supra). Ld.DR placed reliance upon order of ld.TPO. We have perused submissions advanced by both the sides in the light of records placed before us. It is observed that this company is involved in providing structural engineering services to high-rise buildings. It is observed that this company has undergone merger with Tools Pvt. Ltd., and acquisition of Crossroads IMC USA. Post amalgamation accounts of companies were revised for the financial year 2006-07 because of which this company has underwent a huge change in business module. Delhi benches of this Tribunal in Cienna Indi....
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....lude this company form the list of comparables." Even before us nothing contrary to the above findings has been brought on record by revenue. Respectfully following the same, we therefore direct Ld.TPO to exclude these comparables from final list. g) Maple Esolutions Ltd and Triton Corporation Ltd Assessee seeks exclusion of Maple Esolutions Ltd and Triton Corporation Ltd. on the ground that their financial results are not reliable. It has been submitted that comparability of Maple E Solutions Ltd., and Triton Corporation Ltd. came up for consideration before co-ordinate bench of this Tribunal in case of e4e Business Solutions India (P.) Ltd. (supra), wherein it has been held: "14. With regard to company at SI.Nos.19 & 23 of the list of comparable companies chosen by the TPO viz., M/s. Maple E solutions Ltd., and Triton Corporation Ltd., the Mumbai Bench of the Tribunal in the case of Stream International Services (P.) Ltd., (supra) in para 13(iii) at page-14 of the order held that the promoters of these two companies were involved in fraud for earlier years and hence the financial results of these companies are distorted and cannot be relied upon and in this rega....
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....eply as to why this company should not be considered as a comparable company. The TPO/Assessing Officer will thereafter decide the question of considering this company as a comparable company after affording opportunity of being heard to the assessee. " Learned Standing Counsel has not brought anything controverting the findings of the Tribunal in the above case. Therefore, we have no reason to differ with the reasoning adopted by the co-ordinate bench in the case of e4e Business Solutions India (P.) Ltd. (supra). Therefore, we direct the AO/TPO to exclude these companies form the list of comparables." Even before us nothing contrary to the above findings has been brought on record by revenue. Respectfully following the same, we therefore direct Ld.TPO to exclude these comparables from final list. i) Vishal Information Technologies Ltd This comparable was selected by Ld.TPO. Ld.Counsel submitted that this company is not similar in function, assets and risk profile with that of assessee and it has a different business module. Further it has been submitted that Hon'ble Delhi High Court in the case of Rampgreen Solutions Pvt Ltd., (supra) categorised this co....
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....able is set aside to Ld.TPO. k) Spanco Ltd., Assessee sought to exclude this comparable on the basis of failure of revenue filter earned from ITES segment. It has been submitted that this comparable earns only 8.21% from ITES segments and that the employee cost of this company is as lower 7.16%. It has also been pointed out that this comparable has underwent a demerger of the division during the year under consideration. In support of his submission he placed reliance upon the decision of coordinate bench of this Tribunal in case of Siemens information processing services (P) Ltd vs DCIT(supra) and AOL online India private limited reported in (2016) 68 Taxmann.com 235. Ld. DR on the contrary placed reliance upon orders of authorities below. We have perused submissions advanced by both sides in the light of the records placed before us. It is observed that coordinate bench of this tribunal in aforestated decisions have set aside this issue for verification as regarding be employee cost of 7.16% and revenue earned under ITES segment at 8.21% with a direction to exclude if the alleged fact is found to be correct. Respectfully following the same we direct Ld. AO to verif....
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....¢ Mindtree Ltd • Persistent Systems Ltd • Sasken Communications Technologies Ltd (seg.) • Tata Elxsi Ltd • Wipro Ltd (segmental) B) Ld.AR submitted that Geometric Ltd (seg) is to be excluded as related party transaction of this comparable is more than 15%. C) Ld.AR submitted that assessee seeks to exclude following comparables on functional dissimilarities: • Accel Transmatic Ltd., • Avani Cimcon Technologies Ltd., • Celestial Labs Ltd • KALS Information Systems Ltd (seg.) A. Ld.AR submitted that these comparables fails in turnover filter of 1 to 200 crores. It has been submitted that companies having turnover of more than 200 crores have to be eliminated from the list of comparables as laid down in several decisions referred to by ld. AR : Genisys Integrating Systems (India) (P.) Ltd. v. Dy. CIT [2012] 20 taxmann.com 715(Bang-Trib) CIT v. Pentair Water India (P.) Ltd. [2016] 69 taxmann.com 180 (Bom) Commissioner of Income-tax v. Agnity India Technologies (P.) Ltd (2013) 36 taxmann.com 289(Delhi) It is submitted that Flextroni....
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....ryscapital Investment Advisors (India) (P.) Ltd. v. Dy. CIT reported in [2015] 56 taxmann.com 417 and decision to the contrary by Hon'ble Bombay High Court in case of CIT v. Pentair Water India (P.) Ltd. reported in [2016] 69 taxmann.com 180 held that, since there were contrary views on the issue, therefore view favourable to assessee laid down in case of Pentair Water India (P) Ltd. (supra) should be adopted. The Ld.CIT DR submitted that turnover is not a relevant criteria to regard a company as not comparable, so long the two companies are functionally comparable. 14. We have perused submissions advanced by both sides in light of records placed before us. We have also referred to the decisions relied upon by both sides. It has been held in various decisions by this Tribunal that turnover filter is a relevant filter. This Tribunal in case of Genesis Integrating Systems India Pvt. Ltd., vs DCIT reported in (2012) 20 taxman.com 715. In facts of present case, assessee has been set to be providing global support business/tele-calling/global, consultancy services to group companies and also provides after sales services and training. It is observed that comparables s....
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....Hence we are of the opinion that RPT at 15% can rightly be applied. Since assessee had not raced this ground before any of the authorities below, we remit the question of exclusion of geometric Ltd back to the file of the AO/TPO for consideration afresh." Even in the case before us it is observed that there are 8 comparables left after exclusion of the alleged comparables. However assessee has raised this issue before us for the 1st time and accordingly respectfully following aforestated view of coordinate bench of this tribunal, we also remit this comparable back to Ld.TPO for consideration afresh. Ld.AR submitted that assessee seeks to exclude following comparables on functional dissimilarities: • Avani Cimcon Technologies Ltd., • Celestial Labs Ltd • KALS Information Systems Ltd (seg.) Accel Transmatic Ltd. It has been submitted by Ld.AR that activities of this company is different with assessee and that this company was functionally different from assessee, as it was engaged in services in form of ACCEL IT and ACCEL animation services for 2D and 3D animation and therefore Ld.AR submitted that this company was functionally diffe....
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....sidered submissions advanced by both sides and perused records placed before us. It was submitted that this company has made unusually high profit during the financial year 06-07. It is observed that Operating revenues increased 63.03% which indicates that it was an extraordinary year for this company. Even growth of software industry for previous year as per NASSCOM was 32%. The growth rate of this company was double the industry average. In view of the above, it was argued that this company ought to have been rejected as a comparable. It was observed by this Tribunal in case of Telcordia Technologies Pvt. Ltd. v. ACIT(supra ) that margin of this company is 52.59% which represents abnormal circumstances and profits. Following figures were relied by Ld.AR, as observed by coordinate bench of this Tribunal in case of First Advantage Offshore Services Pvt.Ltd. Vs DCIT(supra):- Particulars 2005-06 20006-07 20007-08 2008-09 Operating Revenue 21761611 35477523 29342809 28039851 Operating Expns 16417661 23249646 23359186 31108949 Operating Profit 5343950 12227877 5983623 (3069098) Operating Margin 32.55% 52.59% ....
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.... this company is into developing biotechnology products and provides related software development services, without any segmental details. There is no detail regarding nature of software development services performed by this comapny. Celestial labs had come out with a public issue of shares and in that connection issued Draft Red Herring Prospectus (DRHP) in which business of this company was explained as to clinical research. We are of the view that in light of submissions made by Ld.AR and the fact that this company was basically/admittedly in clinical research and manufacture of bio products and other products, there is no clear basis on which it could be held that this company is mainly in the business of providing software development services. We therefore direct Ld.TPO to exclude this company from final list. KALS Information Systems Ltd (seg.) It has been contended that this company has revenues from both software development and software products. It is also pointed out that this company is engaged in providing training and that as per the annual repot, salary cost debited under software development expenditure was Rs. 45,93,351/- which is less than 25% of softwa....
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....th assessee. Accordingly ground No. 1-6 stands allowed as indicated hereinabove. 20. Ground No. 7 is in respect of disallowance of expenses claimed by assessee from total turnover amounting to Rs. 65, 46, 623/-. This ground has been raised by assessee, is in respect of exclusion of telecommunication expenses, asset insurance expenses foreign exchange currency expenses and foreign travel expenditure while computing deduction under section 10A of the Act upheld by Ld. CIT (A). Ld.AR placed reliance upon the decision of Hon'ble Karnataka High Court in case of CIT vs Tata Elxsi Ltd reported in 349 ITR 98 and submitted that this issue stands covered in favour of assessee. On the contrary,Ld.CIT DR placed reliance upon the order passed by Ld.AO. 20.1 We have perused submissions advanced by both sides in the light of the records placed before us. It is observed that, Hon'ble Karnataka High Court in case of CIT vs Tata Elxsi Ltd(supra) on identical issue held that telecommunication expenses is to be included while computing deduction under section 10 A of the act as it is directly linked with earning of income. Ld CIT DR has not brought before us any contradictory/dist....