TaxTMI 
TaxTMI 
2020 (5) TMI 73
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....is Tribunal. The Assessee filed M.P.No.279 to 281/Bang/2017 pointing out certain errors in the order of the Tribunal inasmuch as the name of the Assessee had changed from M/S.Sungard Solutions (India)Pvt.Ltd. to M/S.FIS Solutions (India) Private Limited consequent to global acquisition and this aspect was not intimated to the Tribunal. Another mistake that was pointed out was that the Assessee had sought exclusion of two comparable companies chosen by the Transfer Pricing Officer(TPO) viz., M/S.Bodhtree Consulting Ltd., and M/S.Thirdware Solutions Ltd. The Tribunal omitted to adjudicate on the exclusion of the aforesaid two comparable companies. The Tribunal by its order dated 1.1.2019 recalled all the orders with a direction to the parties to file fresh Form No.36 in the name of the new entity and decide the appeals afresh. This is how these three appeals are listed for hearing before us. The parties submitted before us that the arguments advanced would be the same as was submitted when the appeal was originally heard and decided and that only on the exclusion of the two companies M/S.Bodhtree Consulting Ltd., and Thirdware Solutions Ltd., the arguments would be advanced. Accor....
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....a) Ltd. 8.07 9 Geometric Software Solutions Company Ltd. 20.34 10 Tata Elxsi Ltd. 24.35 11 Visualsoft Technologies Ltd. 23.52 12 Sasken Communication Technologies Ltd. 14.42 13 iGate Global Solutions Ltd. 4.32 14 Flextronics Software Systems Ltd. 32.19 15 L&T Infotech Ltd. 10.33 16 Satyam Computer Services Ltd. 29.44 17 Infosys Technologies Ltd. 42.83 Arithmetical Mean 26.59 3. The working capital adjusted Arithmetic Mean profit margin of the above comparables was arrived at by the TPO at 29.09%. The TPO computed the addition to be made to the total income on account of determination of ALP at Rs. 1,52,11,661/- as follows: Computation of arm's length price by TPO and the adjustment made: Arm's Length Mean Margin 26.59% Less: Working Capital Adjustment (2.50)% Adjusted mean margin of the comparables 29.09% Operating Cost Rs. 10,34,33,155/- Arm's Length Price (ALP) 124.57% of Operating Cost Rs. 13,35,21,860/- Price Received Rs. 11,83,10,199/- Short fall being adjustment u/S. 92CA Rs. 1,52,11,661/- 4. The addition sugg....
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....or application of the RPT filter should be 15% of the total revenue from SWD services should be with related party and only then a company can be regarded as not comparable by application of the RPT filter. So also the revenue is aggrieved by exclusion of companies by application of high turnover and abnormal profits filter. There is one corporate tax issue raised by the revenue in its appeal and the same is in relation to expenditure incurred on travelling and technical fees and other expenses were directed to be excluded both from the export turnover and total turnover by the CIT(A) while computing deduction u/s.10A of the Act. This issue is no longer res integra and has been settled by the Hon'ble Karnataka High Court in the case of Tata Elxsi 349 ITR 98 (Karnataka) wherein it was held that whatever is excluded from the Export turnover should also be excluded from the total turnover. Hence, there is no merit in this ground of appeal of the revenue. 7.1 RPT filter of 0%:- We have heard the ld. AR as well as ld. DR and considered the relevant material on record. The TPO applied the filter of 25% of RPT while selecting the comparables. Whereas the CIT(A) has applied a filter of ....
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....companies as held by the special bench of this Tribunal in case of Maersk Global Centres (India) (P.) Ltd. Vs ACIT (147 ITD 83) (Special Bench, Mumbai). 11. In Assessee's appeal, the assessee in seeking exclusion of 10 companies out of 17 selected by the TPO. At the time of hearing the ld. AR of the assessee has said at bar that the assessee does not press ground no. 5 wherein the assessee is seeking inclusion of certain companies in the set of comparables. Thus in view of the statement of the ld. AR of the assessee the ground no. 5 of the assessee's appeal is dismissed being not pressed. The other corporate issues raised by the Assessee in this appeal are infructuous because those issues arise out of order passed by CIT(A) u/s.154 of the Act and the Assessee has filed separate appeal against the said order and hence those grounds do not require adjudication in this appeal by the Assessee. 12. As regards the functional comparability of the 10 companies the ld. AR of the assessee has submitted that an identical set of comparable was considered by the coordinate bench of this Tribunal in case of ITO Vs. M/s. Net Devices India Pvt. Ltd. in IT(TP)A No. 1099/Bang/2011 vide order d....
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....ny is also engaged in the distribution of software products and providing trunky project which include a bundle of activities such as providing software product combined with implementation and customer services. In support of his contention, he has relied upon the following decisions : i) M/s. McAfee Software (India) Pvt. Ltd. in IT(TP)A Nos.4/Bang/2012 & 1388/Bang/2011. ii) M/s. Sunquest Information Systems (India) Pvt. Ltd. in IT(TP)A No.1302/Bang/2012. IT(T.P)A No.1099/Bang/2011 & C.O. No.19/Bang/2012 iii) M/s. Symbol Technologies India Pvt. Ltd. in IT(TP)A No.391/Bang/2012. iv) Textron Global Technology Centre Pvt. Ltd. in IT(TP)A No.29/Bang/2012. 9.2 The learned Departmental Representative has submitted that the TPO has analysed the functions of this company and it was found that this company is engaged in the similar activity of providing software development services. He has relied upon the orders of the authorities below. 9.3 We have heard the rival submissions as well as considered the relevant material on record. The learned Authorised Representative of the assessee has contended that this company is having diversifie....
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....erate as full-fledged risk taking entrepreneurs Operate at minimal risks as the 100 percent services are provided to AEs Nature of Services Diversified-consulting, application design, development, re-engineering and maintenance system integration, package evaluation and implementation and business process management, etc. (refer page 117 of the paper book) Contract Software Development Services. Revenue Rs. 9,028 Crores Rs. 16.09 Crores Ownership of branded/proprietary products Develops/owns proprietary products like Finacle, Infosys Actice Desk, Infosys iProwe, Infosys mConnect, Also, the company derives substantial portion of its proprietary products (including its flagship banking product suite 'Finacle') Onsite Vs. Offshore -As much as half of the software development services rendered by Infosys are onsite (i.e., services performed at the customer's location overseas). And offshore (50.20 percent) (Refer page 117 of the paper book) than half of its service, income from onsite services. The appellant provides only offshore services (i.e., remotely from India) Expenditure on Advertising/Sales promotion and brand building Rs. 61....
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....t, as against the margin of 17 percent shown by the assessee. Details of these companies are mentioned in para 5 of the impugned order." Following the decision of the Hon'ble Delhi High Court (supra), we do not find any reason to interfere with the impugned order of the CIT (Appeals) on this issue. C.O. No.19/Bang/2012 12. The assessee has raised the following grounds in the cross objections : "1. That the order of the learned CIT (Appeals) resulting in income of the Respondent being subject to tax, is bad in law, without application of mind and liable to be quashed. 2. That the learned CIT (Appeals) erred in not entirely deleting the adjustment to the arm's length price made by the ld. Assessing Officer / TPO amounting to INR 12,882,925 in respect of the software development services. 3. That in making an adjustment to the Respondent's transfer price, on the facts and in the circumstances of the case, the learned CIT (Appeals) erred in : a) Upholding the comparability analysis performed by the ld. TPO in the TP order. b) Arbitarily rejecting the filters applied by the Respondent while undertaking the TP St....
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....cs Software Systems (Seg.). 15.1 The learned Authorised Representative of the assessee has submitted that though the assessee did not raise any objection before the authorities below in respect of the comparability of these two companies however in view of the various decisions of the Tribunal, these two companies are found to be not comparable with the software development services provider. Thus the learned Authorised Representative has submitted that the assessee has raised objection by filing the additional grounds which may be admitted for deciding the comparability of these two companies on merits. 15.2 On the other hand, the learned Departmental Representative has objected to the admission of the additional grounds raised by the assessee when the assessee has not raised any objection before the authorities below and the objections proposed to raise by the assessee now was not available with the authorities below for their consideration. 15.3 We have heard the rival submissions as well as considered the relevant material on record on the admissibility of the additional grounds raised by the assessee. We find that there are some decisions of....
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....ssee has placed reliance on the decision of the Hyderabad Bench of ITAT in the case of NTT Data India Enterprise Application Services Pvt. Ltd. (supra), we find that the Tribunal has recorded the submissions of the counsel of the assessee in para 7 as under : "7. Bodhtree Consulting Ltd. The learned counsel submitted that this company should be rejected under the following TPO's filters : - Related party transactions filter : As per Schedule 4 of the balance sheet, the company has investments in Perigon, LIC, USA and as per the response under Section 133(6); the company has export sales to Perigon LIC, USA of Rs. 133.90 lakhs being 34.68% of the total turnover. - Functionally different filter : The company in its response to notice under Section 133(6) has stated that it provides e-paper solutions, data cleansing software, website development and other customized software and also state that the e-paper solutions and data cleansing services would come under the category of IT enabled services." However, the Tribunal did not propose to give any finding on this issue as the assessee did not press the exclusion of the said company as eviden....
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....ee and if need arises the information under Section 133(6) of the Act may also be called for and decide the RPT issue. 17. Flextronics Software India Pvt. Ltd. 17.1 The learned Authorised Representative of the assessee has submitted that this company is having hybrid model of supplying both products and services. It offers new product design and development to enhancing and testing their current products. These services are provided for fixed networks, mobile networks, voice over packet and data network. Thus the learned Authorised Representative of the assessee has submitted that this company is functionally different from the assessee. He has contended that this company is engaged in the R&D activity as it is evident from the Annual Report of this company. In support of his contention, he has relied upon the following decisions : i) M/s. McAfee Software (India) Pvt. Ltd. in IT(TP)A Nos.4/Bang/2012 & 1388/Bang/2011. ii) M/s. Sunquest Information Systems (India) Pvt. Ltd. in IT(TP)A No.1302/Bang/2011 & 92/Bang/2012. iii) M/s. Intoto Software India Pvt. Ltd. (ITA No.1196/Hyd/2010) iv) M/s. CNO IT Services (India) Pvt. Lt....
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....opment services as well as software products and further also incurred R&D expenditure. Therefore, the same was found to be dis-similar to this pure software development services provider in the capacity of captive service provider. By following the earlier order of the Tribunal, we direct the Assessing Officer/TPO to exclude this company from the list of comparables. 18. The assessee has raised objections against the inclusion of the following companies by the TPO : (i) Sankya Infotech Ltd. (ii) Foursoft Ltd. (iii) Geometric Software Solutions Ltd. (iv) Tata Elxsi Ltd. (Seg.) and (v) Satyam Computer Services Ltd. (i) Sankya Infotech Ltd. 18.1.1 The learned Authorised Representative of the assessee has submitted that this company is functionally dis-similar as this company is product based company and also engaged in R&D activity and development of niche product for the transportation and aviation fields. This company also owns intangibles. Thus this company cannot be considered as a good comparable when it is engaged in software products for transportation and aviation industry and incurred selling and marketi....
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....xtract from the Annual report substantiating that the company also engages in different activities is reproduced below: "2. Activities The company as engaged in the business of development of Software Products & Services and training. The production of software is not capable of being expressed in any generic unit and hence 11 is riot possible to give the information as required by certain clauses of paragraphs 3.4C and 4 D of Part II of Schedule VI of the Companies Act, 1956." The Delhi Tribunal in ITO v. Colt Technology Services India Pvt. Ltd. (judgment dated 23.10.2012 in ITA No. 609I/Del/2011 for the assessment year 2005-06) has held that the said company is not a comparable to the assessee therein which was also in the business of software development. 20. The submissions made by the learned counsel for the Assessee are considered. The activities set out above and the decision of the Delhi ITAT rendered in the context of a software development company such as the Assessee makes it amply clear that this company Sankhya cannot be regarded as a comparable. The same is directed to be excluded from the list of comparable companies." A s....
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....bility of this company to the record of the A.O./TPO for proper verification of the facts as contended and produced by the assessee before us and then decide the issue after giving an opportunity of hearing to the assessee. Tata Elxsi Ltd. (Seg.) 18.4.1 The learned Authorised Representative of the assessee has submitted that this company is functionally different from the assessee as this company is engaged in the diversified activity of software development segment as well as in product design, this company also incurred deferred and promotional expenses and engaged in the activity such as hardware design, industrial design and engineering and visual computing. In support of his contention, he has relied upon the following decisions : i) M/s. McAfee Software (I) Pvt. Ltd. in IT(TP)ANos.4/Bang/2012 & 1388/Bang/2011. ii) M/s. Citrix R&D India Pvt. Ltd. in IT(TP)A Nos.841/Bang/2013 & 172/Bang/2013. iii) M/s. Symbol Technologies India Pvt. Ltd. in IT(TP)A No.391/Bang/2012. iv) M/s. Textron Global Technology Centre Pvt. Ltd. in IT(TP)A No.29/Bang/2012. He has further submitted that for the Assessment Year 2006-07, the Tribu....
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....entirely different from the assessee company. We agree with the contention of the learned AR that the nature of product developed and services provided by this company are different from the assessee as have been narrated in para 6.6 above. Even the segmental details for revenue sales have not been provided by the TPO so as to consider it as a comparable party for comparing the profit ratio from product and services. Thus, on these facts, we are unable to treat this company fit for comparability analysis for determining the arms length price for the assessee, hence, should be excluded from the list of comparable parties." 15. In view of the above, the ld. counsel for the assessee fairly admitted that comparable company at Sl.No.6 viz., Flextronics Software Systems Pvt. Ltd. should be taken as a comparable, while comparable at Sl.No.24 viz., Tata Elxsi Ltd. should be rejected as a comparable." 18. In view of the aforesaid decision, we hold that Tata Elxsi has to be excluded from the list of comparable chosen by the TPO. Respectfully following the same, we direct the AO to exclude these companies from the final list of comparables." We find that th....
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.... financial data as it was involved in financial scam. In doing so, the CIT(A) followed the decision of this Hon'ble Tribunal in Agnity India Technologies v. ITO (ITA 3856/DeI/2010) and SAP India Pvt. Ltd v. ITO [ITA No. 398/8/2008]. Therefore the grievance as projected by the Revenue in ground No.3 is misconceived. On the facts of the present case, we are of the view that the CIT(A) rightly excluded Exensys Software Solutions Ltd., Infosys Technologies Ltd., and Satyam Computers Ltd., from the list of comparable companies." It is clear from the record that this issue was also involved in the case of Agnity India Technologies Pvt Ltd Vs. ITO (supra) wherein Delhi Bench of ITAT has excluded this company on the ground of unreliable data and information. The order of the Delhi Bench of Tribunal has been confirmed by the Hon'ble Delhi High Court. In view of the finding of the co-ordinate bench of this Tribunal, we direct the A.O./TPO to exclude this company from the list of comparables." 14. We further note that the comparability of two companies namely Geometric Software Solutions Limited and Exensys Software Solutions Limited were further dealt with in the Miscel....
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.... Tribunal name of the company has wrongly mentioned as Accentia Software Solutions Ltd. Therefore there is an apparent mistake in the paras 8.1 to 8.3 of the order which requires to be rectified. Accordingly, the name mentioned in paras 8.1 to 8.3 as "Accentia Software Solutions Ltd." be read as "Exensys Software Solutions Ltd." We further note that in para 8.3 there is a mistake in reproduction of the earlier order in the case of Textron Global Technology Centre Pvt. Ltd. and instead of the relevant finding in para 14, the wrong part of the order in para 19 & 20 was reproduced. Thus there is a mistake in the order which requires to be rectified. In view of the above facts and circumstances, mistake in paras 8.1 to 8.3 are hereby rectified and the same may be read as under : "8.1 Ground No.4 is regarding exclusion of the companies having more than 50% of profit margin. The learned Departmental Representative has submitted that the CIT (Appeals) has excluded two companies viz. Exensys Software Solutions Ltd. and Thirdware Solutions Ltd. on the ground that these companies are having abnormal profits of more than 50%. Thus the learned Departmental Representative cont....
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....05. Therefore, undisputedly there was an extra-ordinary event during the year under consideration in respect of this company. Further we find that the co-ordinate bench of this Tribunal in case of M/s. Textron Global Technology Centre Pvt. Ltd. in IT(TP)A No.29/Bang/2012 has considered the comparability of this company in paras 14 as under : "14. Ground No.3 raised by the Revenue is misconceived and the issue does not arise out of the order of the CIT(A). As we have already seen the CIT(A) rejected some of the comparable companies chosen by the TPO by applying related party transaction filter. The filter of companies dealing in software products and abnormal profits owing to amalgamation of the companies during the relevant period thereby showing abnormal profits was applied to exclude Exensys Software solutions Ltd. Infosys Technologies Ltd., was excluded for reasons of high turnover and high risk profile. Satyam Computer Services Ltd., has to be excluded from the comparable companies for non-reliability of financial data as it was involved in financial scam. In doing so, the CIT(A) followed the decision of this Hon'ble Tribunal in Agnity India Technologies v. ITO (ITA 38....
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....not adjudicate this issue while passing the main order therefore, the assessee filed a petition u/s. 154 but CIT(A) has rejected the claim of the assessee on the reason that the reversal of provision is merely an accounting entry which does not result in business income and therefore the AO was justified in excluding the said income from the business profits for computing deduction u/s. 10A. 19. Before us, the ld. AR of the assessee has submitted that this provision made in the earlier year was allowed by the AO as business expenditure and therefore it has reduced the claim of deduction u/s. 10A in the earlier years. In the year under consideration when the assessee has reversed this provision the income from business of the assessee has been enhanced and which is eligible for deduction u/s. 10A. On the other hand, the ld. DR has submitted that since this is only an accounting entry and does not result in business income during the year under consideration therefore it is not eligible for deduction u/s. 10A. 20. We have considered the rival submissions as well as relevant material on record. We note that the AO as well as CIT(A) has denied the claim of deduction u/s. 10A in r....