TaxTMI 
TaxTMI 
2018 (11) TMI 1710
X X X X Extracts X X X X
X X X X Extracts X X X X
....d Enterprise CAE'), thereby making an adjustment of Rs. 7,51,51,293 to the total income of the Appellant u/s 92CA of the Income-tax Act, 1961. 2. While doing so, the Ld. DRP /Ld. TPO /Ld. AO erred in: 2.1 rejecting the transfer pricing study which was maintained in good faith and with due diligence; 2.2 rejecting the search process followed by the Appellant and carrying out fresh comparability analysis for determining the ALP; 2.3 rejecting use of multiple year data; 2.4 using the data available at the time of assessment proceedings instead of that available as on the date of preparing the TP documentation; 2*5 rejecting, modifying and applying certain filters while undertaking the comparability analysis; 2.6 including following companies in the comparability analysis which are different from the Appellant in terms of the functions performed, asset used and risks assumed; a . RS Software (India) Ltd. b. Mindtree Ltd. c. Kals Information Systems Ltd. d. CG....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l stating that during the Transfer Pricing proceedings, the Transfer Pricing Office (TPO) has applied Related Party Transaction (RTP) filter of more than 25% and the assessee is now seeking the application of RPT filter @ 15% instead of 25%. Additional Ground of appeal:- "8. On the facts and in the circumstances of the case and in law, the Hon'ble Dispute Resolution Panel (DRP) erred in upholding the action of the Ld. A.O. / TPO in not excluding companies which had related party transactions exceeding the tolerance limit of 15% during the year under consideration." 4. It is further submitted that on this issue the facts are already recorded and the TPO has applied the RTP filter of more than 25% and therefore, this ground may be admitted and adjudicated. Observing that the facts are already on record on this issue and the dispute is only with regard to the rate of RTP filter to be adopted, we deem it fit and proper to admit the ground and adjudicate as under:- 5. At the outset, Learned Counsel for the Assessee submitted that the assessee does not wish to press the Grounds No.2.2 to 2.5 and 2.7 to 2.9, 4.1, 5 and Ground n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the assessee's TP study and therefore, rejected the same and conducted independent analysis of the companies adopted by the assessee and has arrived at the final list of 9 comparable companies, whose average margin was 19.96%. Thereafter, after giving working capital adjustment of 0.28%, the TPO arrived at the ALP of 19.68% and proposed the adjustment accordingly. In accordance with the said proposal, the A.O. passed a draft assessment order against which the assessee raised its objections before the DRP. The DRP, however, confirmed the draft assessment order and in accordance therewith, the final assessment order has been passed, against which the assessee is in appeal before us. 9. As far as the additional ground is concerned, the Learned Counsel for the Assessee has drawn our attention to page 6 of the TPO's order wherein the TPO has enumerated the filters adopted by the assessee and as to whether such filters are appropriate or otherwise. At item 8 of the table on page 6 of his order, the TPO has accepted that the companies having related party transactions of less than 25% of sales is an appropriate filter. However, while searching....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... on the other hand, supported the orders of the authorities below and placed reliance upon the decision of the TPO at para 6.7 of his order in particular. 12. Having regard to the rival contentions and the material on record, we find that the assessee is into software development services, whereas Persistent Systems Limited is into both the software products, services and technology innovation; and the segmental details are not available. This is evident from the financials of Persistent Systems Limited and the report of the Director at page 918 of the paper book. At page 1039, it has been clearly mentioned that the Persistent Systems Limited is a global company specializing in software products, services and technology innovation. From the list of intangible assets at page 1051 of the paper book, we find that the assessee has been claiming depreciation both on tangible and intangible assets for the periods ending 31.03.2012 and 31.03.2013. From page 1059 of the paper book, we find that the final segmental results of each segment is not available and therefore, we are of the opinion that the TPO ought to have excluded this company from the final li....
X X X X Extracts X X X X
X X X X Extracts X X X X
....his company is not a comparable to the assessee-company and has to be excluded from the final list of comparables. A.O is directed accordingly. 14. The next company, which is sought to be excluded by the assessee is CGVAK Software & Exports Ltd. According to the assessee, this company is engaged in OPD which is different from software development services and the company earns revenue from software services, software products as well as BPO services and that though the breakup of revenue between the software services and BPO are available, the break up of Operating Cost (OC) and the net profitability between them are not available. In support of the contention that the said company should be excluded in such circumstances, Learned Counsel for the Assessee relied upon the following decisions: (i) Agilis Information Technologies Intl. P. Ltd vs. ITO - ITA No. 1063/Del/2016 (ii) PCIT vs. Saxo India (P) Ltd - ITA No.682/2016 - Delhi High Court (iii) PCIT vs. Cashedge India P. Ltd vs. ITA 279/2016 (Delhi High Court) 15. Learned Departmental Representative, however, supported the orders of the authorities below. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e data available and made available, undoubtedly, the object of the statute is to "pull in transactions which otherwise escaped the radar of tax assessment under one head or the other. The transfer pricing methodology - shorn of its details is an attempt by each nation to locate the incidents of income which would be subjected to levy within its jurisdiction where international transactions are involved. This exercise does not compare with other income assessments where the methodology adopted in their domestic jurisdiction will differ". The TNMM method depends on accurate data with respect to all the three elements - wherever they apply. In the Comparable Uncontrolled Price (CUP) method - which is premised upon the elements in Rule 1 OB(l )(a), the methodology adopted is the price charged or paid for property transfer or services provided in the Comparable Uncontrolled transaction. Therefore, the nature of the transaction and the appropriate filter determines the elements that are to be considered in TNMM. Therefore, the costs, sales and assets employed wherever relevant are to be applied. From this perspective, the revenue's contention that segmental data was available, canno....
X X X X Extracts X X X X
X X X X Extracts X X X X
...."no adjustment of interest on receivables" is required as it has already been considered while computing the working capital adjustment. Having gone through the said decision, we find that vide para 9 of its order, the Tribunal has held as under: "During the TP proceedings u/s 92CA of the Act, the TPO considered the above TP documentation and accepted that after allowing working capital adjustment (WCA in short), the price received by the assessee within + /- 5% of the average margin of the comparables and therefore, no adjustment was proposed. Thereafter, he proceeded to consider the receivables at the end of the year and noticing that a sum of Rs. 21,96,43,078/- has been received after a considerable delay, proposed to charge interest thereon. He accordingly charged interest @ 14.75% p.a on the outstanding receivables. This, in the opinion of the Counsel for the assessee, is not warranted as this already got factored in the working capital adjustment allowed by the TPO. We have gone through the TP study of the assessee and also the TP order of the TPO. Though the A.O. has stated that the working capital adjustment is allow....