TaxTMI 
TaxTMI 
2019 (2) TMI 1808
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....uffers from jurisdictional error as the AO did not record any reasons in assessment order based on which he reached the conclusion that it was "expedient and necessary" to refer the matter to the Transfer Pricing Officer ("TPO") for computation of the arm's length price, as is required under section 92CA(1) of the Income Tax Act, 1961 ("Act"). 3. That on facts and circumstances of the case and in law, the TPO/AO/ Dispute Resolution Panel ("DRP") erred in making an addition of INR 42,11,57,036/- to the returned income of the Appellant by re-computing the arm's length price of the international transaction pertaining to provision of software development services under section 92 of the Act. 3.1 The TPO/ AO/ DRP erred in not accepting the quantitative filters selected by the Appellant in its transfer pricing documentation/ fresh search and instead applied his own additional/ quantitative filters which lacked valid and sufficient reasoning. 3.2 The TPO/ AO/ DRP erred in arbitrarily rejecting the set of functionally comparable companies adopted by the Appellant to benchmark the transaction of provision of software development services. 3.3 The....
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....turn of income on 28/11/2004 declaring total income of Rs. 51,39,45, 910/-. The case was selected for scrutiny and the statutory notices under the Income Tax Act, 1961 (in short the Act) were issued and complied with. In view of the International Transactions carried out by the assessee with its Associated Enterprises. The Ld. Assessing Officer referred the matter of determination of arm's length price of those international transactions to the Ld. Transfer Pricing Officer (TPO), who after considering submission of the assessee, proposed transfer pricing adjustment as under: Segments Adjustment (Rs.) Provision of Software Development Service 48,43,20,261 Provision of marketing support Services 49,80,794 Total 48,93,01,056 4. After incorporating above adjustments proposed by the Ld. TPO, the Ld. Assessing Officer issued Draft Assessment Order on 26/11/2017. Aggrieved with the adjustment proposed, the assessee filed objections before the Ld. DRP. After taking into account the objections of the assessee, the Ld. DRP issued certain directions. The Ld. TPO complying those directions recomputed the adjustment as under: Segments Adjustment (Rs.....
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....ware development services was at arm's length price. 11. The Ld. TPO however, did not accept certain filters for selecting the comparables by the assessee and he rejected 6 comparables of the assessee and accepted balance 3 comparables. The Ld. TPO introduced 5 new comparables making the total comparables to 8. The Ld. TPO worked out the average of adjusted OP/OC of the comparables at 27.27% and worked out that adjustment to Rs. 48,43,20,261/-. The Ld. DRP directed further to include/exclude certain comparables. The final list of the comparables selected by the Ld. DRP and their average margin which is worked out to 25.02 is reproduced as under: Sl. No. Name of Company As per TPO Order (adjusted OP/OC)% AS per DRP Direction (adjusted OP/OC)% 1. Akshay Software Technologies Ltd. 1.66 1.66 2. CG-VAK Software & Exports Ltd. 6.46 6.46 3. Cigniti Technologies Ltd. 2 6.33 Deleted 4. Infobeans Technologies Ltd. 49.89 49.89 5. Mindtree Ltd. 19.8 19,88 6. Persistent Systems Ltd. 37.58 37.58 7. RS Software (India) Ltd. 25.42 Deleted 8. Thirdware Solution Ltd. 50....
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....the relevant material on record. The Ld. DRP has held that company is engaged in software development services though in the company's website " automation engineering " is mentioned but that is in context of automated testing services but no separate revenue has been shown in the annual report from such testing services and thus the company has been held to be engaged in software development services only. From the profit and loss account available on page 14 of the paper book and relevant note 20 on page 21 of the paper book, we find that the company has shown revenue of Rs. 32,96,59,883/-from sale of software including domestic and export. We also find that in the balance sheet nowhere inventory of software product is shown. The Ld. Counsel is contesting that company is functionality dissimilar to the assessee and engaged in sale of software products, whereas the Ld. TPO on the basis of the information available on the website of the company, observed that the company is a software service company specialising in enterprise software development for web and mobile. Thus in view of the available information in public domain in respect of the company, it cannot be ascertained beyon....
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.... the intangible assets of the company as on 31/03/2014 consist of intellectual property of Rs. 1.5 crore and computer software of Rs. 15.50 crores. He also referred to the Annual Report of the assessee available on page 284-322 of the paper book and referred to page 303 containing details of the intangible fixed assets of Rs. 4.33 crores comprising of software of Rs. 3.33 crores, stamp duty Rs. 48.13 lakhs and assets retired from active use Rs. 52.35 lakhs. According to him the claim of the Ld. Counsel of high intellectual property is not correct and thus the company cannot be excluded on the ground of high intellectual property rights. 13.6 We have heard the rival submissions and perused the relevant material on record. The page 90 of the compendium of Annual Reports, which is annexed to the Director's Report, We find that the company along with software development services, carried out research and development in a specific areas viz. social, mobile, analytics and cloud (SMAC) computing. The Company has developed mobile apps for retail/CPG and transport and logistics, which were adjudged the best in their category at the SAP mobile apps challenge at Techd Las Vegas, October 2....
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....restored to the file of the Ld. TPO for verification of the revenue streams of the company, whether it includes revenue from sale of products. The Ld. DR also submitted that as per the balance sheet, the company has total intangible assets of Rs. 70 crores (which includes contractual rights brought forward of Rs. 54 Crores against total assets of Rs. 280 crore, which is not very significant and thus FAR of the company is similar to that of the assessee. 13.10 We have heard rival submission of the parties. We note from list of intangible assets available on page 469 of the Annual Report Compendium that the company is having net block of intangible assets as on 31st of March 2014 of Rs. 16.28 crores, which comprises only software and no acquired contractual rights. The assessee is having intangible assets in the form of software of around Rs. 3.30 crores and thus we do not find any significant variation in the intangible assets of the company visà- vis the assessee. 13.11 As far as contention of the Ld. Counsel that Revenue stream consist of royalty and maintenance contract is concerned, we find that the Ld. Counsel has relied on the notes forming part of financial state....
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....as been shown from sale of products and the expenses include purchase of stock in trade amounting to Rs. 4021.19. But on further analysis of the profit and loss account, we find that there is no change in the inventory of stock-in-trade during the year under consideration. Thus there is no effect of purchase of stock-in-trade on the revenue stream, when it has not been sold during the year under consideration. As far as contention of the Ld. Counsel that assessee is having diversify business operation is concerned, we find that for this argument, the Ld. Counsel has relied on the policies followed by the assessee for recognising Revenue from different streams of the Revenue mentioned on page 627 of the Annual Report compilation. This disclosure of accounting policies, nowhere established that assessee was having income from subscription contract or sale of user license as claimed by the Ld. Counsel of the assessee. On perusal of page 598 of the Annual Report compilation (page 78 of the annual report of the company), it is evident that operation of the company comprises of software development, implementation and support services. Further Revenue from different geographical segment ....