TaxTMI 
TaxTMI 
2019 (12) TMI 78
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....tions and in view of the provisions of sec. 92 of the Income Tax Act, 1961 (Act), income arising from such international transactions has to be determined having regard to Arms Length Price (ALP). The issues to be decided in the cross appeals are determination of ALP of the international transaction of providing SWD services and ITES by the Assessee to its AE. 3. We will first deal with dispute with regard to determination of ALP in providing SWD services. During the previous year 2010-11 relevant to the assessment year 2011- 12, the Assessee rendered software development (technical support) to its AEs. As regards the international transaction of provision of software development (SWD) services to its AEs, the Assessee received consideration of Rs. 47,51,99,133/- for rendering Software Development Services from its AE. In support of its claim that the price charged by it in the international transaction the Assessee filed a Transfer Pricing study (TP Study) in which the Assessee adopted Transaction Net Margin Method (TNMM) as the Most Appropriate Method (MAM) for determination of ALP. The profit level indicator (PLI) chosen for the purpose of comparison of profit margin of compa....
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....arned counsel for the Assessee pressed for adjudication only the following issues, viz., (i) not including one comparable company which it had chosen in its Transfer Pricing Analysis (TP Analysis) viz., LGS Global Ltd.,(relevant ground of appeal being 8.3 of revised grounds of appeal) and (ii) the action of the CIT(A) in not excluding 7 out of the 11 retained as comparable companies by the DRP viz., (a) Acropetal Technologies Ltd., (b) E-Zest Solutions Ltd., (c) Infosys Ltd., (d) Larsen & Toubro Ltd., (e) Persistent Systems & Solutions Ltd., (f) Persistent Systems Ltd., and (g) Sasken Communication Technologies Ltd. The relevant Ground of appeal in Assessee's grounds of appeal is Ground No.8.2 (of revised grounds of appeal). 9. We will first deal with the plea of the Assessee for exclusion of comparable companies chosen by the TPO. The first company which the Assessee seeks exclusion is Accropetal Technologies Ltd. On exclusion of this company, we have heard the rival submissions. We find that the TPO has himself applied a filter for exclusion of companies for the purpose of comparison, viz., revenue from software development service should be more than 75% of the total operatin....
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.... a SWD service company. ITAT Bangalore in the case of Applied Materials Pvt. Ltd., a company which was also engaged in providing software development services, in IT (TP) A.No.17 & 39/Bang/2016 for AY 2011-12 order dated 21.9.2016, was pleased to remand the question of exclusion of this company for fresh consideration by the AO/TPO. Respectfully following the decision of the Tribunal in the case of Applied Materials Pvt. Ltd. (supra), we set aside the order of the TPO/DRP/AO including this company as a comparable company and remand the issue of comparability of this company be considered afresh by the TPO/AO. There is no discussion on the functional comparability of this company in the case of Autodesk India Pvt. Ltd. (supra) and it would be appropriate to follow the decision in the case of Applied Materials Pvt. Ltd.(supra) as was done in the case of Telsima Communications Pvt. Ltd. (supra) which decision was placed before us by the learned DR. 11. The Assessee seeks exclusion of the following 3 companies by placing reliance on the decision of ITAT in the case of Aplied Materials Pvt. Ltd., (supra) as well as the case of Autodesk India Pvt. Ltd. (supra). Both the aforesaid comp....
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....by it as its product. 14. We have considered the rival submissions. The Assessee in support of its claim that this company is engaged in diverse activities has pointed out to page 527, 431, 438, 494, 496 and 518 of the paper book which contains the annual report and financials of this company. The presence of extraordinary events has also been pointed out from the annual report. Presence of R & D activities and existence of IPR's has also been pointed out. In these circumstances and in the absence of a clear finding on the above aspects by the DRP, the general remarks by the TPO based on which the DRP considered this company as a comparable cannot be accepted. It would be appropriate to remand to the TPO the question of comparability of this company afresh in the light of the aspects pointed out by us. We hold and direct accordingly. 15. We now come to the plea of the Assessee for inclusion of LGC Global Ltd. As far as LGC Global Ltd., is concerned, ITAT Bangalore in the case of Applied Materials Pvt. Ltd., a company which was also engaged in providing software development services, in IT (TP) A.No.17 & 39/Bang/2016 for AY 2011-12 order dated 21.9.2016, was pleased to remand ....
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.... Rs. 1,73,43,035/- was added to the total income of the Assessee on account of adjustment on account of determination of ALP. 18. The addition suggested by the TPO was added to the total income of the Assessee by the AO in the draft order of assessment and the final order of assessment because the Assessee chose not to prefer filing any objections before Disputes Resolution Panel (DRP). The Assessee however preferred appeal before CIT(A), who by the impugned order gave the following directions: (i) Acropetal Technologies Ltd.: The TPO had considered Engineering Design Services Segment (EDS) as akin to ITES and doing so was held to be not proper by the CIT(A). The CIT(A) however found that there was a "Health Segment" which had revenue of Rs. 10.81 Crores and this segment was akin to medical transcription which was in the nature of ITES and he directed the TPO to consider the segmental margin of this segment and take this company as a comparable company. (ii) The TPO excluded Mindtree Ltd., as not comparable company based on the TPO's report in which the TPO conceded that this company was not comparable with ITES. (iii) The Assessee sought exclusion of ....
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....6 of its order was pleased to remand to TPO/AO for fresh consideration, the comparability of this company with the Assessee. Following the said decision, we set aside the order of the AO in this regard and remand to the TPO/AO for fresh consideration the comparability of this company with the Assessee on the lines indicated in the order in the case of M/s. Zyme solutions Pvt. Ltd. (supra). 22. As far as the comparability of the company iGate Global Solutions Ltd., is concerned, the argument of the learned counsel for the Assessee was that segmental details of this company were not available and therefore comparability of this company with the Assessee cannot be ascertained. The learned DR prayed that the comparability of this company can be remanded to the TPO/AO to enable them to issue notices u/s.133(6) of the Act to get the required segmental details to consider the comparability of this company. We accept the prayer of the learned DR and remand for consideration afresh the comparability of this company by the TPO/AO after exercising powers u/s.133(6) of the Act. 23. The AO/TPO is directed to determine the ALP in the SWD segment as well as in the ITES segment on lines indi....