TaxTMI 
TaxTMI 
2019 (2) TMI 1754
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....ment services. 2.2 For Assessment Year 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 t....
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....es. 8. The learned AO/learned TPO/Hon'ble DRP erred in not considering the provision for bad 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 * Presenc....
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....vis-àvis comparable companies. The Hon'ble DRP jr4ered--' in not adjudicating upon the same. II. Corporate Tax 19. Research and Development Expenses -Rs. 3,54,424 a. The learned DRP/AO has erred in disallowing Rs. 3,54,424 towards research and development expenditure by treating the same as capital in nature. b. The learned DRP/AO ought to have appreciated that the research and development 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 telec....
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....of non-deduction of tax at source ignoring that the lease line services availed by the assessee being standard facilities and not any technical or managerial services, payment made towards the same does not fall within the ambit of section 194J and hence tax at source is not deductible on the same. c. Notwithstanding anything and without prejudice to our above contentions, the learned AO/DRP ought to have appreciated that the assessee having already paid the internet charges of Rs. 7,40,542 during the 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 asse....
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.... dismissed as not pressed. Transfer Pricing Issues 55.1 Before proceeding to adjudicate on the issue of exclusion and / or inclusion of comparable companies in the final set of comparables, the brief facts relating to TP issues is summarized hereunder. 5.2 For the year under consideration, the assessee had reported various international transactions, including, inter alia, software development services aggregating to Rs. 7,12,34,131/-. The financial results reported by the assessee during the year under consideration are as under: Particulars Amount (Rs.) Operating Income (OR)* 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). Base....
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....ices and solutions. (ii) owns products, (iii) is engaged in R & D activities, (iv) is having on-site development activities (v) is having marketing expenses. B. Fails Employee cost filter, as this company operates on outsourcing model and the on-site expenses is towards payment to technical sub-contractors. C. Fails 75% services revenue filter. D. Has abnormal trend of profitability. In support of its contentions for exclusion of this company, 'Acropetal' from the set of comparables, the assessee has placed reliance on the decision of the co-ordinate bench of this Tribunal in the case of Finastra Software Solutions (I) Ltd., in IT(TP)A Nos.491 and 519/Bang/2016 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 b....
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....e bench of this Tribunal in the case of Electronics for Imaging India Pvt. Ltd., in IT(TP)A No.1506/Bang/2015 and 16/Bang/2017 dated 04.07.2017. 8.2 Per contra, the learned DR for Revenue supported the orders of the authorities below. 8.3 We have considered the rival contentions / submissions and perused the material on record. We find that the assessee has raised objections against this company 'e-Zest' before the DRP on the same issues as raised before us. However, it is seen that the DRP has not adjudicated on all the objections raised by the assessee and has merely observed that the TPO has considered the objections raised by the assessee, whereas the TPO has not considered all the issues raised before us. In the judicial decisions 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 L....
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....issue on which this company has been excluded from the set of comparables is not clear from the judicial pronouncement cited by the assessee. Since the assessee has raised certain issues for exclusion of this company from the list of comparables for the first time before us, and the authorities below have not rendered any finding on the functional comparability of this company 'Einfochips' vis-à-vis the assessee in the case on hand, we deem it appropriate to remand the issue of comparability of this company, Einfochips Ltd., back to the file of the TPO, for examination / verification of the facts and adjudication on the issues raised by the assessee. Needless to add, the TPO shall afford the assessee adequate opportunity of being heard and to file details / 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' ha....
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....functionally dissimilar to the assessee in the case on hand, as it is engaged in diverse activities like software development, consultancy and systems integration, outsourced product development and that segmental details are not available. It was submitted that this company also has income from licensing of products and royalty, owns products and is engaged in R & D activities. In support of the assessee's contentions for exclusion of this company, 'Persistent' from the set of comparables, reliance was placed on the decisions of the Co-ordinate Bench of this Tribunal in the case of Finastra Software Solutions (I) Pvt. Ltd., (supra) and Electronics for Imaging India Pvt. Ltd., (supra). 11.2 Per contra, the learned DR supported the orders of the authorities below. 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 'Pe....
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....d. From the record before us, it is seen that this company, 'Thinksoft' was chosen by the assessee as a comparable in its TP study and the TPO rejected it on the ground of failing the Forex filter. The assessee disputes this finding of the TPO stating that it qualifies the forex filter. Before the DRP, the assessee has raised the forex filter issue only, but the DRP has not rendered any finding on the same. 12.4.2 We find that the Co-ordinate Bench of this Tribunal in the case of Finastra Software Solutions (India) Pvt. Ltd., (supra), cited by the assessee has only rendered a finding on the issue of whether this company can be excluded on grounds of working capital adjustment. However, it is seen that another Co-ordinate Bench in the case of ACIT Vs. Marvell India Pvt. Ltd., (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 r....
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....ld the issue on principles, without examining the actual nature of these expenses. In the factual matrix as laid out above and respectfully following the decision of the Tribunal in the assessee's own case for Assessment Year 2006-07 (IT(TP)A No.1178/Bang/2010 dated 17.11.2017), we remand the issue of the assessee's claim of Research and Development expenditure to the file of the AO for fresh examination / consideration of the facts of the case and then adjudicate this matter. Needless to add, the AO is directed to afford the assessee adequate opportunity of being heard and to file details / submissions required, which shall be considered before deciding this issue. We hold and direct accordingly. 14. Ground No. 20 - Internet access charges 14.1 In the course of assessment 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. ....
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....evenue's appeal is rejected. There is no other ground in the revenue's appeal." 14.2.2 Respectfully following the decision of the Co-ordinate Bench of this Tribunal in the assessee's own case for Assessment Year 2009-10 (supra), we decide this issue in favour of the assessee. Consequently, ground No. 20 of assessee's appeal is allowed. 15. In the result, the assessee's appeal for Assessment Year 2011-12 is partly allowed. Pronounced in the open court on 22nd February, 2019. ============= Document 1 Sl.No Name Sales Cost PLI 1 Acropetal Technologies Ltd.(seg) 814,016,893 616,754,876 31.98% 2 e zest solutions (from Capitaline) 112866098 93255341 21.03% 3 E-infochips Ltd 260384251 166447527 56.44% 4 Evoke (from Capitaline) 144869912 133996568 8.11% 5 ICRA Techno Analytics Ltd. (in 158401000 126894000 24.83% 6 000) Infosys Ltd 253850000000 177,030,000,000 43.39% 7 Larsen & Toubro Infotech Ltd. 23318122096 19,764,861,289 19.83% 8 Mindtree Ltd.(seg) 8,783,000,000 7,937,143,242 10.66% 9 Persistent Systems & Solutions Ltd. 189,490,457 155,172,089 22.12% 10 Persist....