TaxTMI 
TaxTMI 
2018 (10) TMI 1797
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....he Appellant, is bad in law and liable to be quashed. Transfer Pricing Related 2. That the learned AO and the learned DRP erred in upholding the rejection by the learned Transfer Pricing Officer ("the learned TPO") of the analysis undertaken by the Appellant in its Transfer Pricing ("TP") documentation, and thereby erred in not appreciating that the Appellant had prepared the TP documentation is bona fide and in good faith. 3. The learned AO and the learned DRP erred in law and on facts in disregarding application of multiple year/prior year data as used by the Appellant in the TP documentation and holding that only current year (i.e., Financial Year 2012-13) data for comparable companies should be used. 4. The learned AO and the learned DRP erred in law and on facts in upholding the use of data which was not contemporaneous and which was not available in the public domain at the time the TP documentation was prepared by the Appellant. 5. The learned AO and the learned DRP erred on facts and in law in upholding the acts of the learned TPO: (a) in rejecting the comparability analysis of the Appellant in the TP documentation and i....
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.... brand value. 10. The learned AO has erred in law and on facts by upholding the actions of the learned DRP which has not adjudicated/commented on the specific ground taken by the Appellant and thereby implying to uphold the actions of the TPO to include Persistent Systems Limited as a comparable to the Appellant. Whereas this company should have been excluded on the grounds that there exists extraordinary events during the year, has diversified operations, is engaged in software product development and it has significant research & development expenditure. Consequently, a rectification petition before the learned DRP has been filed and the Appellant awaits an opportunity for a hearing. 11. The learned AO and the learned DRP have erred in law and on facts in upholding the actions of the TPO by excluding Akshay Software Technologies Ltd. as a comparable to the Appellant on the grounds that it is functionally not comparable, whereas this comparable should have been included on the ground that it is functionally comparable to the Appellant and also on the ground that it passes all the filters applied by the learned TPO. 12. The learned AO and the learned DRP ....
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.... considering the submission made and the Appellant awaits an opportunity for a hearing. 17. The learned AO and the learned DRP have erred in law and on facts in upholding the actions of the TPO by excluding Ace BPO Services Pvt. Ltd. as a comparable to the Appellant on the ground that the annual report does not contain RPT disclosures and thereby fails RPT filter, whereas this company should have been included on the ground that it is functionally comparable and that it passes all the filters applied by the learned TPO. 18. The learned AO and the learned DRP erred in law and on facts in upholding the actions of the TPO in not appreciating the low risk nature of the software development and IT enabled services provided by the Appellant and thereby upholding the selection of high profit making entrepreneurial companies as comparables and consequently, rejecting the Appellant's request to provide for an appropriate adjustment towards the risk differential. 19. The learned AO and the learned DRP erred in law and on facts in upholding the actions of the TPO in computing the working capital adjustment for the purpose of determining the arm's length pric....
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....assessee selected 7 comparables having arithmetic mean of 13.78% and the TPO also selected 7 comparables but only two comparables are common i.e. RS Software (India) Ltd. and Mindtree Ltd. He further submitted that the average arithmetic mean of these 7 comparables selected by the TPO was worked out at 20.90% and accordingly, the TPO made TP adjustment of Rs. 30,00,49,230/-. When the assessee carried the matter in appeal before the DRP, the DRP selected 6 comparables after excluding one comparable i.e. Tech Mahindra Ltd. (seg). He submitted that as per ground no. 9 of the assessee's appeal, Larsen & Toubro Infotech Ltd. should be excluded from the list of final comparables in respect of software development services segment and as per ground no. 10 of the assessee's appeal, another comparable i.e. Persistent Systems Ltd. should be excluded from the list of final comparables. Regarding the assessee's request for exclusion of Larsen & Toubro Infotech Ltd. i.e. ground no. 9 of the assessee's appeal, he submitted that this issue is covered in favour of the assessee by the Tribunal order rendered in the case of Pitney Bowes Software India (P.) Ltd. v. Addl. CIT [2018] 92....
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....les for the financial year 2012-13. The Appellant submits that although its RPT details are not disclosed in its annual report for FY 2012-13, the same are disclosed in its annual report for FY 2013-14. When this fact was brought to the notice of the DRP during the course of the proceedings before it, the DRP was of the view that this was new information based on data that was not available earlier and, accordingly, directed the TPO to cross-verify this information with Capgemini and to exclude it as a comparable if the Appellant's claim was found to be correct. However, despite the above direction, the TPO merely retained the said company in the list of comparables despite the fact its RPT is well in excess of the threshold at which the RPT filter has been applied by him. The Appellant submits that from a perusal of Capgemini's related party transactions, as disclosed by it in its annual report for FY 2013-14, it is wholly apparent that the ratio of its RPT to sales for FY 2012-13 is 82.32%. The relevant workings are given at page 147 of the appeal set. Therefore, as it fails the RPT filter applied by the TPO, Capgemini is liable to be excluded f....
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....Infosys BPO, reliance is placed on the common order dated 11.04.2018 of this Hon'ble Tribunal in the Assessee's own case for AYs 2010-11 and 2012-13 wherein this Hon'ble Tribunal held that Infosys BPO is not functionally comparable to the Assessee and, accordingly, directed its exclusion (pages 1471 to 1473 and 1484 - 1485 of the case-laws compilation - Vol-II). Since there is no change in the functions of the company during the assessment year in question, Infosys BPO is liable to be rejected as a comparable for this AY as well. Further, this company has been consistently rejected in cases of assessees placed similarly to that of the Appellant. Reliance is placed on the decision of the Hon'ble Delhi High Court in PCIT v. H & S Software Development and Knowledge Management Centre (P.) Ltd. [judgment dated 03.01.2018 in ITA 912/2017 at page 1520 of the case-laws compilation - Vol-II] where its exclusion was upheld on the basis that the company has significant brand presence and large corporate size, Reliance is also placed on the decisions of this Hon'ble Tribunal in e4e Business Solutions India (P.) Ltd. v. ITO [2017] 87 taxmann.com 254 (Bangalore-Trib.....
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.... the company ought to be excluded from the final list of comparables.' 6. As against this, the ld. DR of revenue supported the orders of authorities below. She also submitted that in respect of exclusion of Persistent Systems Ltd., there are various Tribunal orders i.e. Tribunal order rendered in the case of Microsoft Research Lab India (P.) Ltd. v. Dy. CIT IT (TP) Appeal No. 1276 (Bang.) of 2017, dated 3-11-2017, WM Global Technology Services (India) (P.) Ltd. v. Asstt. CIT [2018] 91 taxmann.com 403 (Bangaluru - Trib.), in the case of Pitney Bowes Software India (P.) Ltd. (supra), copy available in case law compilation filed by assessee in Vol-II and also in the case of Advice America Software Development Center (P.) Ltd. v. ITO [2018] 94 taxmann.com 179 (Bang. - Trib.) copy made available and in the case of Tecnotree Convergence (P.) Ltd. v. Dy. CIT IT (TP) Appeal No. 1616 (Bang.) of 2017. She submitted that in the case of Advice America Software Development Center (P.) Ltd. (supra), the issue was decided against the assessee and in favour of the revenue as per para 21 of this Tribunal order whereas in the case of Pitney Bowes Software India (P.) Ltd. (supra), the assessee....
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....es to the AE. In the present case also, the issue in dispute is regarding exclusion or inclusion of this comparable i.e. Larsen & Toubro Infotech Ltd. in respect of the software development services segment of the assessee company. Hence it is seen that this Tribunal order is relevant in the present case. We also find that in respect of both these comparables i.e. Persistent Systems Ltd. and Larsen & Toubro Infotech Ltd., the Tribunal order rendered in the case of Advice America Software Development Center (P.) Ltd. (supra) is against the assessee. Copy of this Tribunal order is made available before us. Paras 14 to 21 of this Tribunal order are relevant for decision in respect of exclusion of Larsen & Toubro Infotech Ltd. and Persistent Systems Ltd. respectively. Hence for ready reference, these paras from this Tribunal order are reproduced hereinbelow. "14. Larsen & Toubro Infotech Ltd. As far as this company is concerned, this company also renders SWD services. In page-15 of the TPO's order, the functional similarity of this company with that of the Assessee has been tabulated by the TPO. The objections of the Assessee for rejecting such objections has been set out ....
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....only one segment and hence this objection in our view was rightly disregarded by the revenue authorities. 19. As far as the objections regarding presence of intangibles, it is seen from the order of the TPO that the intangibles are nothing but Operating systems, office tools, development tools, testing tools etc., that are used in the process of rendering SWD services by the Assessee and therefore cannot be the basis to hold that this company is functionally not comparable with the Assessee. As far as the objection regarding presence of brand value is concerned, it has been held by the TPO that there is no intangible in the form of brand owned by this company. The scale of operations of this company cannot be the basis to hold that this company is not comparable when functionally it is found to be comparable. 20. None of the objections raised by the Assessee meet the criteria for excluding this company in terms of comparability criteria laid down in Rule 10B(2) of the Rules. We therefore uphold the inclusion of this company in the list of comparable companies. 21. Persistent Systems Ltd.: The objection of the Assessee for excluding this company from the l....
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....unal in the case of Advice America Software Development Center (P.) Ltd. (supra). It has also been submitted that on page no. 706 of Annual Report paper book, this has been reported that this company is engaged in sale of services to its related parties and this fact was also not brought to the notice of Tribunal in case of Advice America Software Development Center (P.) Ltd. (supra). When we examine paras 14 to 20 of this Tribunal order where there is discussion regarding inclusion/exclusion of Larsen & Toubro Infotech Ltd, we find that there is no discussion on these two aspects that this company is having significant amount of cost of bought-out items for resale and it is engaged in sale of services and products to its related parties and hence, in our considered opinion, this Tribunal order cannot be considered as a binding precedence because this Tribunal order is silent on these two important aspects as to this aspect that this company is having sizeable amount of bought out items for resale and have related party transactions in respect of sales of services and products. We also find that in the case of remaining three Tribunal orders i.e.Microsoft Research Lab India Pvt. Lt....
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....n of Larsen & Toubro Infotech Ltd. and Persistent Systems Ltd. after providing adequate opportunity of being heard to the assessee and the issue should be decided after considering all available Tribunal orders for Assessment Year 2013-14 in respect of exclusion of these two companies. Accordingly ground nos. 9 and 10 are allowed for statistical purposes. 12. Now we decide the issue in respect of ITES segment. In this segment, the assessee's claim is for exclusion of three comparables i.e. Capgemini Business Services (India) Ltd., Infosys BPO Ltd. and Hartron Communications Ltd. It has been submitted before us that on page no. 1429 of the Annual Report paper book is the relevant portion of the Annual Report of Hartron Communications Ltd. and it has been pointed out that it has been reported in para 1.6 of significant accounting policies to the financial statement that although all other revenues and expenses are accounted for on accrual basis except for processing charges (Export income), interest on calls in arrears, listing fee and leave encashment which are accounted for on cash basis. It has been submitted before us that this aspect of the assessee's argument was not....
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....ok. We find that on page no. 140 of the paper book is part of objections filed before DRP in form 35A against the draft assessment order. It has been submitted before DRP that Capgemini Business Services (India) Ltd. has substantial related party transactions to the extent of 82.32% for FY 2012-13 as emanating from the Annual Report for FY 2013-14 available in the public domain. Annual Report of this company i.e. Capgemini Business Services (India) Ltd. for the Financial Year 2013-14 is available on pages 1087 to 1268 of Annual Report paper book. It has been submitted that on page nos. 17 and 18 of the DRP directions, this is noted by DRP that as per the assessee's claim, the RPT% in case of Capgemini Business Services (India) Ltd. is 82.32%. The finding of DRP in this regard is given on page no. 18 of the DRP directions where it has been stated that this working is obtained from the financials of FY 2013-14 and this is the new information brought before DRP based on a new data which was not available in the public domain earlier. The DRP has rejected the assessee's contention on this basis that it is not clear why this company has reported the related party transaction in ....
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....g his decision in respect of assessee's claim for exclusion of Infosys BPO Ltd. because we find that DRP has examined all the aspects of the matter including this aspect that Infosys BPO Ltd. acquired 100% of the voting interests in McCamish Systems LLC and a categorical finding is given by DRP that the said acquisition has not increased the profitability of that company. We also find that regarding this comparable company also, the DRP has directed the TPO/AO to verify the factual position in respect of Export Revenue Filter because it has been noted by the DRP that the TPO has taken Rs. 1675 Crores as export earnings but as per page no. 26 of the Annual Report of that company, the foreign currency earnings from BPO services was given at Rs. 1356 Crores. It is noted by DRP that if the export earnings is to be taken at Rs. 1356 Crores, it may fail the Export Revenue filter and therefore, the matter was restored back to the file of AO/TPO for fresh decision after verifying the factual position in this regard. Hence, regarding the assessee's claim for exclusion of this comparable also, we find no infirmity in the directions of DRP particularly in view of this fact that the DR....