TaxTMI 
TaxTMI 
2018 (7) TMI 2087
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....rovides services to its parent company in the designing and development of integrated circuits, software and computer aided design tools. During the previous year relevant to the Assessment Year (`AY' for short) 201112, the Assessee provided SWD services to its AEs at a price of Rs. 1,49,91,75,237/- towards which the TPO made an adjustment of Rs. 20,08,18,017/-. Initially, a draft assessment order dated 27.03.2015 came to be passed by the Assessing Officer (`AO' for short) in which, inter alia, the aforesaid TP adjustment was proposed to be incorporated. The net margin on cost earned by the assessee is as under : Operating Income Rs. 149,91,75,237/- Operating Cost Rs. 136,89,75,080/- Operating Profit (Op. Income - Op. Cost) Rs. 13,02,00,157/- Operating/Net margin (OP/TC) 9.51% The assessee had selected sixteen comparables in its TP study, as under : SI. No. Name of the company Average NPI 1 Akshay Software Technologies Ltd. 4 2 Bells Softech Ltd. 5 3 FCS Software Solutions Ltd. 30 4 Helios & Matheson Information Technology Ltd. 16 5 LGS Global Ltd. 15 6 Mindtree Ltd 21 7 Omni Ax'S S....
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.... Persistent Systems Ltd : 05. The assessee is seeking exclusion of persistent Systems Ltd, it was submitted by the assessee that that this company is functionally dissimilar to it as it invests in intellectual property led solutions and also has a dedicated team for research and IP development. It also owns several IPs such as ChemLMS, ViewMOR etc. During the relevant financial year 2010-11, the company derived 8.8% of its total revenue from activities related to such IPs, and the relevant extract from its annual report is produced at pages 102-105 of the paper book. Even otherwise, the Assessee submits that this company is functionally dissimilar to it as it is engaged in rendering IT services and in the development of software products without there being separate segmental information disclosed in its Annual Report for such activities. The Assessee places reliance on the decisions of this Hon'ble Tribunal in Applied Materials India Pvt. Ltd. v. ACIT [TS-815-1TAT-2016(Bang)-TP at paras 9.2.1 to 9.2.4 on pages 18-22] and Commscope Networks (1) Pvt. Ltd. v. ITO [TS-161-ITAT-2017(Bang)-TP at para 9 on pages 16-17] where, in the cases of assessees similar to the assessee he....
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....mpany, viz. Persistent Systems Limited, for which no adjustment can be made to its margin to eliminate the material effects thereof and, therefore, the sad company cannot be considered as a comparable to the Assessee. The relevant extracts of its Annual report are available at page Nos. 112-114 of the paperbook. The Assessee places reliance on the decisions of this Hon'ble Tribunal in Applied Materials India Pvt. Ltd. v. ACTT [TS-815-1TAT2016(Bang)-TP at paras 9.2.1 to 9.2.4 on pages 18-22] and Commscope Networks (I) Pvt. Ltd. v. ITO [TS-161-ITAT2017(Bang)-TP at para 9 on pages 16-17] where, in the cases of assessees similar to the assessee herein, the said company was directed to be excluded for the same assessment year. 06. On the other hand the Ld. DR relied upon the orders passed by the lower authorities, in support of his plea that these three companies should not be excluded from the list of comparables. 07. We have heard the rival contentions and perused the material on record. The assessee relies upon the decision of this Tribunal in the matter of Applied Materials India P. Ltd v. ACIT (73 taxmann.com 160), wherein the Tribunal after thoroughly examining the....
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....t material on record. The DRP has reproduced the break-up of revenue in the impugned order as under:- Amount in Rs. lakhs Year ended March 31, 2010 Year ended March 31, 2019 Software Services 37,736.22 40,531.20 Software products 2,041.00 6,146.43 Other services 372.77 1,297.05 Total revenues 40,150.89 47,974.68 29. Thus, there is no dispute that this company earns revenue from 3 segments. However, the segmental operating margins are not available. Therefore, in the absence of segmental relevant data and particularly operating margins, this composite data cannot be considered as comparable with the assessee for software development services segment. Accordingly, we do not find any error or illegality in the findings of the DRP. Persistent Systems and Solutions Ltd.: The Assessee submits that this company is functionally dissimilar to it as it is engaged in diversified activities, being the rendering of software services and licensing and royalty of software products, without there being separate segmental details for the aforesaid diverse activities. During the financial year 2010-11, this company also recorded an ab....
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....e in the paper book with its Profit and loss account at page 1025. Schedule of Income indicates its operating revenue from software development, hardware maintenance, information technology, consultancy etc. Revenue from hardware maintenance stands at Rs. 3.92 crore, which has been considered by the Transfer Pricing Officer himself as sale of products. Such sale of products constitutes 15% of total revenue. There is no segmental information available as regards the revenue from sale of products and revenue from software development segment. As the assessee is simply engaged in rendering software development services and there is no sale of any software products, this company, in our considered opinion, ceases to be comparable. It is obvious that from the common pool of income from both the streams of software products and software services, one cannot deduce the revenue from software services and no one knows the impact of revenue from Products on the overall kitty of profit, which may be significant. Since no segmental data of this company is available indicating operating profit from software development services, we order to exclude this company from the list of comparables." ....
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....mparable when this comparable is sought to be included by both the assessee as well as the Revenue as a good comparable. Therefore considering the profile of R S Software (India) Ltd, we direct the inclusion of this comparable. Mindtree Ltd and Evoke Technologies 11. Now we are left with Mindtree Ltd and Evoke Technologies Ltd. The assessee has submitted that these comparables were considered by the coordinate bench in the matter of Applied Materials Applied Materials India P. Ltd (supra), (para 21 to 21.2) as under : 21. The revenue is also seeking inclusion of the following companies which were rejected by the DRP. i) Evoke Technology P. Ltd ii) Mindtree Ltd (seg) iii) R S Software India P Ltd 21.1 At the time of hearing, the learned Authorised Representative of the assessee has submitted that the assessee has no objections if these three companies are restored to the set of comparables as the assessee did not raise any objection before the DRP but the DRP rejected this company suo moto. 21.2 In view of the fact that both the revenue as well as the assessee are seeking inclusion of these companies in the set of comparables, we set aside the direction....
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....sue was also raised in the matter of VMware Software India P. Ltd (supra), wherein the Tribunal held as under at para 34 and 35 of the order : 34. The next issue raised by the assessee is regarding restriction of working capital adjustment benefit to 1.71%. 35. We have heard the learned Authorised Representative as well as learned Departmental Representative and considered the relevant material on record. The TPO while computing the working capital adjustment has restricted the benefit to 1.71% instead considering the actual figure in respect of each and every comparable companies. We find that there is no provision under FAR analysis to restrict the working capital adjustment benefit arbitrarily. An identical issue has been considered by the co-ordinate bench of this Tribunal in the case of ARM Embedded Technologies Pvt. Ltd v. DCIT (supra) in paras 24 & 25 as under : Accordingly, we direct the AO/ TPO to recompute the working capital adjustment by taking the actual data without putting any upper limit. In view of the above, it was submitted that the TPO be directed to grant the working capital adjustment based on the actual instead of putting a c....
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....formation Technology transactions segment and therefore it satisfies software development services income filter as well as employee cost filter. 16.4 We have considered the rival submissions as well as the relevant material on record. As per the segmental reporting at page 53 of the Annual Report the income from Information Technology Services is Rs. 81.40 crores out of the total income of Rs. 141 crores. Therefore the revenue from Information Technology transactions services is less than 75% and consequently this company does not satisfy the filter of information technology revenue applied by the TPO itself. Accordingly, we do not find any reason to interfere with the order of the DRP for this issue. L&T Infotech Ltd. 19. We have heard the learned D.R. as well as learned D.R. and considered the relevant material on record. The DRP rejected this company by recording the facts at page 15 as under : On perusal of schedule to the notes of the accounts. it is noticed by us that expenses incurred in foreign currency are 938.94 crore (48.84%), out of the total expenses of Rs. 1920.46 crore debited in profit and loss account, these expenses inclu....
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.... (Supra). Respectfully following the same, we uphold the exclusion of these Seven comparables also. Exclusion of E Infochips Ltd. is covered in favour of the assessee by the tribunal order rendered in the case of Saxo India Pvt. Ltd. vs. ACIT in ITA No. 6148/De1/2015 dated 05.02.2016 Para 10.1 & 10.2 available at pages 221 to 223. Respectfully following the same, we uphold its exclusion. In this manner, we uphold the exchision of six comparables excluded by DRP out of 9 comparables excluded by DRP and exclude 4 comparables retained by DRP and we have already held that out of 9 comparables excluded by DRP, 3 have to come back being 1) Evoke Technologies Pvt. Ltd., 2) Mindtree Ltd. (Seg) and 3) R S Software (India) Ltd. Now, we decide about LGS Global Ltd. As per the tribunal order rendered in the case of Applied materials India Pvt. Ltd vs. ACIT (Supra), this is a good comparable and therefore, we direct the A.O. and TPO to include this comparable. So, there should be 4 comparables in the final list of comparable pad on the basis of that, the AO/TPO should work out the ALP. It may be pointed out that the Tribunal in the above two decisions has examined the profile of the com....