TaxTMI 
TaxTMI 
2019 (12) TMI 667
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....ere conjunctures and surmises, ignoring the factual matrix of the company as well as the nature of the transactions undertaken by the appellant. 1.2 That the Ld. AO has failed to appreciate the submissions made/ contentions raised by the appellant and further erred in making several observations and inferences in the impugned assessment order which are factually incorrect and legally untenable. Transfer Pricing ("TP") Grounds 2. That, in framing the impugned assessment order, the reference made by the Ld. AO under Section 92CA(1) of the Act suffers from jurisdictional error, as the Ld. AO had not recorded any reasons nor he had any material whatsoever on the basis of which he could even reach a prima-facie opinion, that it was 'necessary or expedient' to refer the matter to the learned Deputy Commissioner of Income Tax, Transfer Pricing Officer -1(1 )(1), New Delhi (hereinafter referred to as "Ld. TPO") for computation of arm's length price ("ALP"). 3. That on the fact of the case and in law, the Ld. AO/ Ld. TPO / Hon'ble Dispute Resolution Panel ("Hon'ble DRP") has erred by not accepting the economic analysis undertaken by the Appellant in accor....
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....ed in selecting companies like Infobeans Technologies Limited and Persistent Systems Limited which are earning super normal profits. 8. That on the facts of the case and in law, the Ld. TPO has erred in committing certain computational errors while computing operating margin of Persistent Systems Limited. 9. That on the facts of the case and in law, the learned TPO has grossly erred in treating foreign exchange gain/ loss as nonoperating item while determining the arm's length price of the international transaction of the Appellant without considering the terms & conditions of the intercompany transactions of the Appellant with its associated enterprises. 10. That on the fact of the case and in law, the Ld. TPO / Hon'ble DRP has erred in not allowing a risk adjustment to the Assessee on account of the fact that the Appellant is a captive service provider for its associated enterprises in relation to provision of CSD services and is remunerated on a cost plus basis irrespective of the outcome of the services provided and hence undertakes no market risk, product/ service liability risk, credit risk, capacity utilization risk etc. as against comparable compa....
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.... OP/TC) for analysis. The margin of the assessee worked out to 7.99% as against mean margin of the comparables selected by assessee at 7.20%. The TPO noted that the assessee had adopted weightage average margins of the comparable companies and he proposed different set of filters and also proposed that only the data of contemporaneous period was to be applied. In this regard, show cause notice was issued to the assessee and as against 07 comparables selected by the assessee, 03 were accepted and the balance were rejected. The TPO in final analysis selected 16 comparables whose mean margin worked out to 23.92%. The assessee filed its objection against the same and the TPO after considering various aspect of the issue including filters to be applied in final analysis selected 14 comparables and proposed an upward adjustment of Rs. 70,29,58,610/-. 4. In the second segment of provision of technical support services, the TPO again proposed revised filters and applied the date for contemporaneous period and proposed an adjustment of Rs. 24,58,39,400/-. The Assessing Officer issued draft assessment order to the assessee, against which objections were filed before the Dispute Resolution....
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....ct company and was also carrying on the business of software development services but no segmental were available, hence the margin of the said concern need to be excluded. In this regard, he placed reliance on the order of the Tribunal in assessee's own case in ITA No.6979/Del/2017 relating to 2013-14 order dated 09.05.2019. He further pointed out that the concern Mindtree Ltd. was also engaged in diversified field. He fairly submitted that the said concern was selected because it was engaged in the provision of software services, but no segmentals were available and in the absence of the same, the said concern could not be applied. He also placed reliance on the order of the Tribunal in this regard and he further invited attention to the financials of the said concern and prayed for its exclusion. 7. Coming to the next concern, which as per the assessee needs to be excluded is i.e. Acropetal Technologies Ltd. The Ld.AR for the assessee pointed out that the said concern was not functionally comparable to the assessee as it was engaged in providing both software services and product development. Our attention was drawn to the financials of the said concern at page 376 & 377 o....
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.... 4. Persistent Systems Ltd. 5. Sagarsoft (India) Ltd. 6. T V S Infotech Ltd. 7. Mindtree Ltd. 8. Sasken Communication Technologies Ltd. 9. Maveric Systems Ltd. 10. Acropetal Technologies ltd. 11. The first objection which has been raised by the assessee is against the inclusion of the concern, Persistent Systems Ltd. The annual report of the said concern is placed at pages 183 to 260 of the Annual Report Compilation. The Revenue has been shown from operations and the said concern has recognized sale of software services at Rs. 11,841 million. The said company in the notes forming part of financial statements under the head 'segment information' had reported as under:- 26. Segment Information "The company's operations predominantly relate to providing software products, services and technology innovation covering full life cycle of product to its customers. The primary reporting segments are identified based on review of market and business dynamics based on risk and returns affected by the type or class of customers for the services provided which are as follows:- a. Telecom and Wireless b. Life science a....
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....venue from both software services and products. The reporting under the head 'income from operations' was from software services/products/solutions. Under the head 'direct cost', the assessee had debited cost of materials, project expenses and selling and marketing expenses, which constitute 84% of the total cost. In such facts and circumstances, the concern Acropetal Technologies Ltd. cannot be held to be functionally comparable to the assessee, which is purely engaged in providing software services to its AE. Hence, we direct its exclusion. 15. The last concern which is under adjudication is Infobeans Technologies Ltd. The Annual report of the said concern is at pages 261 to 282 of the Paper Book of Annual Report Compilation. At page 267 of the Paper Book of Annual Report Compilation, the Revenue is recognized from operations and at page 274 of the Paper Book of Annual Report Compilation, the break-up is given up for sale of export as revenue from operations. Further, for the year under consideration, Infobeans Technologies Ltd. had declared that it was engaged in providing custom development services to offshore and was engaged in software engineering services in different fi....