TaxTMI 
TaxTMI 
2019 (2) TMI 1754
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.... 2011-12, the assessee filed its return of income on 28.11.2011 declaring NIL income. The case was taken up for scrutiny by issue of notice u/s 143(2) of the Act and subsequently a reference was made by the Assessing Officer (AO) u/s 92CA of the Act to the Transfer Pricing Officer (TPO) for determination of the arms length price (ALP) of the international transactions entered into by the assessee with its AEs. The TPO passed an order u/s 92CA of the Act dated 29.10.2015 proposing an adjustment of Rs. 73,13,781/- to the international transactions pertaining to the software development services of the assessee. After receipt of the TPO's order, the AO passed the draft order of assessment u/s 143(3) r.w.s. 144C(1) of the Act dated 24.02.2015; wherein the assessee's income was determined at Rs. 84,12,937/- by virtue of additions, inter alia, including the TP adjustment of Rs. 73,13,781/- proposed by the TPO. 2.3 Aggrieved by the draft order of assessment dated 24.02.2015 for Assessment Year 2011-12, the assessee filed its objections thereto before the DRP; which issued its directions thereon u/s 144C(5) of the Act on 19.11.2015. Pursuant to the directions issued by the DRP, the AO pa....
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.... and doubtful debts as extraordinary in nature. 9. The Hon'ble DRP has erred in not adjudicating upon the comparability of certain TPO's proposed companies which have been objected by the Appellant. 10.The learned AO/learned TPO/Hon'ble DRP has grossly erred in not rejecting the following companies as comparables: * Acropetal Technologies Ltd * E Zest Solutions * E-infochips Ltd * ICRA Techno Analytics Ltd * Persistent Systems & Solutions 11.The Ld. DRP while rejecting Infosys Ltd. on upper limit of turnover filter has grossly erred in not adjudicating on the following grounds: * Functional dissimilarity * Engaged in R &D * Lack of segmental data * Presence of brand * Incorrect computation of mark-up 12.The Ld. DRP while rejecting Larsen & Tourbo Infotech Ltd. on upper limit of turnover filter has grossly erred in not adjudicating on the following grounds: * Functional dissimilarity * Lack of segmental data * Presence of intangibles * Presence of brand * Incorrect computation of mark-up 13.The Ld. DRP while rejecting Tata Elxsi on upper limit of turnover filter has grossly erred in not adjudicating on the follo....
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....nt expenditure typically includes the cost of developing prototypes, transportation costs and other incidental costs and were incurred by the assessee in connection with development of telecommunication product in the relevant assessment year. c. The learned DRP/AO ought to have appreciated that the research and development cost was incurred by the assessee for upgrading the telecommunication products for meeting with the customer/market requirements and were not incurred towards purchase of any capital equipment/creating any distinct technology towards prototypes development. d. The learned DRP/AO ought to have appreciated that the research and development cost are incurred by the assessee on a yearly basis for upgrading its telecommunication product and hence unlikely as observed by the DRP/AO are revenue in nature duly allowable under section 37 of the Income-tax Act, 1961 ("the Act") being expenses incurred wholly and solely for business purposes. e. The learned DRP/AO ought to have appreciated that research and development cost being recurring in nature and incurred for continuous upgradation of its telecommunication product, the same could not be held to be expenses ....
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....he year, provisions of section 40(a)(ia) does not apply to the said amount. d. The Learned AO/DRP erred in not placing reliance on the decision of the Hon'ble Supreme Court in CIT vs. M/s. Vector Shipping Services Ltd ITA No 122 of 2013 wherein it has been held that for disallowing expenses on the ground that TDS has not been deducted, the amount sought to be disallowed should be payable and not which has already been paid by the assesse by the end of the year. 21. Set-off of carry forward loss-Rs. 264,753,889 a. The learned AO pursuant to the DRP directions erred in not adjusting brought forward losses amounting to Rs. 264,753,889 against the assessed income of Rs. 87,19,980 in the relevant assessment year. b. The learned AO ignoring the DRP directions erred in erroneously arriving at the demand payable of Rs. 35,66,170 by the assessee in the relevant assessment year. c. The learned AO ought to have appreciated that on set off of brought forward losses amounting to Rs. 264,753,889 against the assessed income of Rs. 87,19,980 there would be no tax liability arising in the hands of the assessee in the relevant assessment year. 22. Interest under section 234D-Rs....
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....206061496 Expenditure (OC)** 208343599 Operating Profit (OP) -2282103 OP/OC -1.09% OP/OR 1.10% * Excluding other income ** excluding Foreign exchange 5.3 As per the assessee TP report, it had two segments, namely software development services (SWD) and pre and post sales support services and the OP/OC margin of both the segments was shown at 16%. The assessee conducted a TP study for the international transactions and selected 22 comparables in respect of software development activity by applying TNMM as the most appropriate method (MAM). Based on the study conducted and the comparability analysis conducted, the assessee concluded that the international transactions it had entered into were at arms length. 5.4 The TPO examined the assessee's TP report and rejected the same for various reasons laid out in his TP order. The TPO then conducted a fresh search, applying various criteria / filters; adopting TNMM as the MAM and finally selected the following 13 companies as the final set of comparables: 5.5 The TPO computed the ALP of the international transactions of the software development services segment of the assessee as under: 5.6 We have heard both parties, p....
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....16 dated 05.05.2018. 7.2 Per contra, the learned DR for Revenue supported the orders of the authorities below. 7.3 We have considered the rival contentions / submissions and perused the material on record. We find that the assessee in Form 35A had raised only two grounds of objections before the DRP in respect of 'Acropetal' namely (i) that this company fails the employee cost filter of 25% and (ii) that this company operates in a different business model. However, from the TPO's order, it is seen that the assessee had objected to the inclusion of this company, 'Acropetal' as a comparable on the ground that it operates in ITES segment and segmental details are not available. 7.3.2 From the above, it is seen that the assessee had objected to the inclusion of 'Acropetal' on different issues before different authorities. The TPO and DRP have not addressed the issues raised before them. Before us, the assessee has objected to the inclusion of this company on various issues, listed above; some of which are being raised for the first time. In the judicial decision cited by the assessee, 'Acropetal' has been excluded from the set of comparables by the co-ordinate bench of th....
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.... cited by the assessee before us, the issue of comparability of this company, 'e-Zest', has been remanded back to the file of the TPO for verification of the relevant facts as well as considering the objections of the assessee. Following the decision of the Co-ordinate Bench in the case of Electronics Imaging India Pvt. Ltd., (supra) also for Assessment Year 2011-12, we deem it necessary to remand the issue of comparability of e-Zest Solutions Ltd., to the file of the AO for examination and verification of the facts and adjudication on the issues raised by the assessee. Needless to add, the TPO will afford the assessee adequate opportunity of being heard and to file details / submissions which shall be duly considered before deciding this matter. We hold and direct accordingly. 9. E-infochips Ltd., ('E-infochips') 9.1 The assessee contends that this company, 'E-infochips', needs to be excluded as it is engaged in the business of software development and maintenance services, ITES and sale of products, but that segmental details are not available. It is also submitted that this company is engaged in engineering development services, manufactures printed circuit boards; incurs ex....
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....ails / submissions in this regard, which shall be considered before deciding the matter. It is accordingly ordered. 10. ICRA Technologies Ltd., ('ICRA') 10.1 The learned AR submits that this company, 'ICRA', is functionally dissimilar to the assessee in the case on hand, since it is engaged in the purchase and sale of software and also has income from business intelligence and analytics. It is also submitted that 'ICRA' has income from licensing and sub-licensing and owns IPRs and that were peculiar economic circumstances due to business restructuring which is an extraordinary activity. It was also submitted that the segmental details are not provided. In support of its contentions for exclusion of this company, the assessee has placed reliance on the decisions of the Co-ordinate Bench of this Tribunal in the case of Finastra Software Solutions (I) Ltd., (supra) and in the case of Electronics for Imaging India Pvt. Ltd., (supra). 10.2 Per contra, the learned DR supported the orders of the authorities below. 10.3 We have considered the rival contentions / submissions and perused the material on record. We find that the assessee had objected to inclusion of this company, 'ICR....
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..... 11.3.1 We have considered the rival contentions / submissions and perused the material on record. From an appraisal of the details on record, it is seen that though this company 'Persistent' was selected as a comparable by the TPO, the assessee had accepted the TPO's proposal and did not object to its inclusion in the set of comparables. However, before the DRP, the assessee raised objections seeking exclusion of 'Persistent' from the set of comparables on grounds of functional dissimilarity and also objected to the computation of mark up. However, the DRP has not rendered any findings on the issues raised. 11.3.2 We find that the Co-ordinate Bench of this Tribunal in the case of Finastra software Solutions (I) Pvt. Ltd., (supra), cited by the assessee, has not rendered any finding on the comparability of this company; 'Persistent'. In the case of Electronics for Imaging India (P) Ltd., (supra), this company 'Persistent' has been excluded on the basis of findings rendered by the DRP on the functional profile of this company. Since the assessee had accepted this company as a comparable before the TPO and the DRP has not rendered any finding on the functionality comparability....
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....td., (2017) 84 taxmann.com 212 (Bangalore - Trib.) has included it in the set of comparables rendering a finding that this company, 'Thinksoft' is into software development services. Since this company has been rejected as a comparable by the TPO only on grounds of failing the forex filter and the authorities below have not rendered any finding on the issue of functional comparability, we deem it appropriate to remand the matter of comparability of this company 'Persistent', back to the file of the TPO for verification of facts and adjudication on the issues raised by the assessee in the light of the decision of the Co-ordinate Bench in the case of Marvell India Pvt. Ltd., (supra) also for Assessment Year 2011-12, the year under consideration in the present appeal. Needless to add, the TPO shall afford the assessee adequate opportunity of being heard and to file details / submissions in the matter, which shall be considered before adjudicating the issues involved. It is accordingly deleted. 13. Ground No. 19 - Research and Development Expenditure 13.1 In the course of assessment proceedings, the AO noticed that the assessee had debited certain expenses amounting to Rs. 3,54,424....
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....proceedings, the AO observed that the assessee had debited Rs. 7,40,542/- towards internet access charges under the head "communication charges" on which tax was not deducted at source on such payments. Therefore, the AO disallowed the expenses claimed by invoking the provisions of section 40(a)(ia) of the Act. The DRP in its order, rejected the assessee's objections and upheld the action taken by the AO. 14.2.1 We have considered the rival contentions and perused the material on record. In the course of proceedings before us, it was submitted that this issue was up for consideration before the Co-ordinate Bench of this Tribunal in the assessee's own case for Assessment Year 2009-10, wherein at para 9 of its order, in IT(TP)A No.1112/Bang/2014 dated 03.08.2018, the matter was decided in favour of the assessee, as extracted hereunder: "We have considered the rival submissions. We find that this issue was decided by CIT(A) as per Para 4 of his order by following the Tribunal order rendered in the case of ACIT Vs. Twenty First Century Shares & Securities Ltd. as reported in [2013] 39 taxmann.com 176 (Mumbai - Trib.) and this judgment is dated 15.05.2013. In our considered o....