TaxTMI 
TaxTMI 
2020 (3) TMI 243
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.... wholly owned subsidiary of Microsoft Corporation, US (M S Corp.). The Asssesse company is engaged primarily in rendering Software Development Research and Development Services to its Associated Enterprise (AE) M.S.Corp. The assessee company filed the Original Return of Income on 28.11.2014 with total income of Rs. 18,21,06,039 and filed the Revised Return of Income on 30.03.2016 with total income of Rs. 17,22,00,910. Subsequently, the case was selected for scrutiny under CASS and Notice under Section 143(2) & 142(1) of the act were issued. In compliance the learned Authorized Representative appeared from time to time and submitted the details. The Assessing Officer find that the assessee has international transactions and the matter was referred with prior approval of PrCit to the Transfer Pricing Officer (TPO). The assessee is engaged in Software Development Segment (SDS) and the financials are referred at Para 2.3 and 2.4 of T.P. Order which is as under : 5. The assessee filed the TP Study Report in Software Development Services and adopted 22 comparables for analysis and PLI of Op/Oc is 12.64%. Whereas the TPO has rejected the TP Study and applied filters and dealt on the fu....
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....y is engaged in developing software products Pinnacle and was rejected by the DRP in assessee own case for the Assessment Year 2011-12. Further has high brand value and incurred huge expenditure in R & D with exceptional areas of operation and earned super natural profits and is engaged in diversified activities. We found that the comparable was excluded by the co-ordinate Bench decision of the Tribunal in the case of M/s. Marwell India P. Ltd. Vs. DCIT in IT(TP)A No.3082/Bang/2018 for the Assessment Year 2014- 15 Dt.23.10.2019 at page 20 para 4.2 (b) which read as under : "4.2 (b). Infosys Ltd: It has been submitted by Ld.Counsel that this comparable has been included by Ld.TPO in finalist. It has been submitted that this comparable is not comparable due to high turnover and intangibles owned by this company. It has been submitted that Hon'ble Delhi High Court in case of CIT vs Agnity India technologies reported in (2013) 36 Taxmann.com 289 has held this company to be bad comparable to a company which is captive service provider under the segment. It has been submitted that this company provides end to end business solutions that leverage technology to enable cli....
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.... of coordinate bench of this Tribunal. Ld. CIT DR on the contrary placed reliance upon orders passed by authorities below. We have perused submissions advanced by both sides in the light of the records placed before us. On perusal of the annual reports placed at page 573 of paper book volume 2, it is observed that this company has developed its own product by the name "PAPA". It is observed that this company has incurred huge expenses towards import of software services evidencing outsourcing of software services unlike that of assessee. It is also observed that this company is into production of software product and therefore cannot be functionally is held similar to a contract service provider under this segment like that of assessee. Ld.Counsel placed reliance upon decision of coordinate bench of this Tribunal in case of Nomura Research Institute Financial Tech (India) Pvt. Ltd., vs DCIT in ITA No. 284/Kol/2016 vide order dated 26/10/2018. Respectfully following the same we direct Ld. AO/TPO to exclude this comparable from the finalist." Accordingly, we rely on the tribunal and direct the TPO to exclude this comparable from the final list s....
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.... Respectfully following the same we are of considered opinion that this company deserves to be excluded from the final list." We, respectfully follow the coordinate Bench decision, and direct the TPO to exclude the comparable from the final list of comparable for determination of ALP. (iv) L & T InfoTech Limited, turnover is Rs. 4643.94 Crores, and during the year has undertaken capital expenditure of Rs. 12348 Lakhs which works out to approximately 1.5 times of turnover of the assessee being Rs. 84 Crores.The comparable is engaged in provision of software sales of products and no segmental information is available and is engaged in resale of products and packages and has High brand value with extraordinary events and operates in different modelof business. We support our view relying on the decision of the co-ordinate Bench of the Tribunal in the case of Marwell India Pvt. Ltd. Vs. DCIT (supra) at page 23 para 4.2 (e) of the order which read as under : "4.2 (e). Larsen and Toubro Infotech Ltd: It has been submitted by Ld.Counsel that this company has been included by Ld.TPO, though it is not comparable with that of assessee as it is a huge company own....
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....see engaged in providing services such as Agile, analytics and information management, application development and maintenance, business process management, business technology consulting, Cloud, Digital business, independent testing, infrastructure management services, mobility, product engineering and SAP services. Ld.AR referred to page 1088 in support. It is further been submitted that this company does not have segmental information on the basis of which revenue earned from different verticals could be identified. This company also owns huge intangibles and therefore deserves to be excluded. On the contrary Ld. CIT DR placed reliance upon orders passed by authorities below. We have examined the annual reports of this company and it is observed that this company carries out research and development activities and has created large intangibles. Under such circumstances we do not find this company to be comparable with that of a captive service provider like assessee. We therefore direct the Ld. AO/TPO to exclude this comparable from the final list." Considering the functional dissimilarity and High turnover criteria and judicial decision, we direct ....
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.... that this company is involved exclusively into software testing and has created innovations in the software testing. It is also observed that this company is acquired hundred percent shares in a U.S.-based software testing service company called Gallop Solutions Inc based in Texas USA. It is also observed that this company has been listed on Bombay stock exchange, Bangalore stock exchange and maybe Madras stock exchange with a paid-up capital of Rs. 22.92 crores. It is an undisputed fact that entire revenue has been generated by this company from software testing services rendered to its independent clients as against simple testing carried out by assessee of integrated circuits along with designing, customer support of integrated circuits related ancillary services provided by assessee only to its AE. Considering the holistic approach having regards to the annual reports of this company and the specialised services provided by this company to its own clients in the field of software testing as against captive service provided by assessee exclusively to its AE, we are of considered opinion that this company cannot be held as a good comparable with that of assessee. ....
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....he assessee and was rejected by TPO. The learned Authorized Representative submitted that it is functionally similar and is engaged in design and development services of software applications including customized and packaged software and also providing services testing and passes the filters applied by the TPO and selected for comparable. We found the comparable was not part of the TP Study of the assessee and has to be verified. Accordingly, we restore this issue to the file of TPO to verify and examine the comparable for determination of ALP. (iv) Sybrant Technologies Private Limited, it has margin of 15.25% and turnover of Rs. 3.52 Crores and was rejected on the ground that it was not considered by the assessee in TP Study. The learned Authorized Representative submitted that it is engaged in development of embedded software and project management in the field of Information Technology . We found that this comparable was not part of the TP Study of the assessee, hence has to be tested on functional profile. Accordingly, we restore this comparable to the file of TPO to examine and verify functionality for determination of ALP. (v) Lucid Software Limited, has a margin of (-....
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....tors as well. Similar is the position for the preceding year as well, which depicts that there was opening stock of connectors. In that view of the matter, it becomes evident that this company was already into manufacturing of connectors, which product has been considered as similar by the DRP. Ex consequenti, the relevant contrary finding recorded by the DRP about that company not engaged in manufacturing of connectors during the A.Y. 2007-08 is, therefore, not correct. As FCI Technology Services Ltd. is not a persistent loss making company and further the functional similarity has not been disputed by the TPO, we order to include this company in the list of comparables." We found this comparable was included by the Pune Bench of the Tribunal for the Assessment Year 2009-10. whereas in the present case, the Assessment Year is 2014-15 and also the observations of the TPO that it is a loss making company for the year ending March, 2013 and March, 2014. Considering the functionality and precedent losses and the decision of the co-ordinate Bench of the Tribunal, we restore this comparable to the file of TPO to examine and verify the functional profile for inclusion in determination....
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....ent order are not in accordance with law, invalid and void in law. Upholding of same by Ld. DRP by relying on section 292B is unlawful and invalid. Further, proceedings including impugned order and notice of demand dated 24.09.2018 are not in accordance with law and invalid. That on facts and in law, transfer pricing adjustment of INR 10,15,92,292 made by Ld. AO pursuant to directions of Ld. DRP is bad in law inter-alia for the reason that: a) b) order of Ld. TPO is bad in law in as much as based on an invalid reference made bvi Ld. AO without complying with statutory requirements; Appellant's AE being chargeable to tax at a higher rate in the US, there was no question of shifting of any profit from a low tax paying country to a high tax paying country That on facts and in law, Ld. DRP/ AO /TPO have erred by: a) b) Using single year data of companies to determine the arm's length price of the Impugned Transaction and disregarding the Appellant's claim for use of multiple year data for computing the arm's length price; and Rejecting data used by Appellant which was available to it at the relevant time and proceeding to use dat....
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....nder section 92CA(3) of the Act has computational errors while computing operating margin of comparable companies as well as tested party. That on facts and in law, Ld. TPO has erred, by not discharging the statutory onus to establish that the conditions specified in clause (a) to (d) of Section 92C(3) of the Act have been satisfied before disregarding the ALP determined by the Appellant and proceeded to determine the ALP himself. That on facts and in law, Ld. AO/Ld. TPO have erred by: a) b) Exercising powers under section 133(6) of the Act to obtain information which was not available in public domain and relying on the same for comparability purposes; and Selectively using power section 133(6) of the Act to collect information for only one company i.e. Persistent Systems Limited, where there are various other companies whose complete business/financial information is not available in public domain to determine comparability. The Ld. AO/Ld. TPO has thus resorted to selective approach in regard to using power under section 133(6). Document 3 15. That on the facts and circumstances of the case, Ld. AO has erred in levying Interest unver....