TaxTMI 
TaxTMI 
TaxTMI 
2020 (5) TMI 73
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.... 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. Accordingly, we proceed to decide these appeals on a....
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.... 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 suggested by the TPO was incorporated in the draft order of assessment of the AO. The Assessee did not prefer any objections to the draft assessment order before the Dispute Resolution Panel (DRP) and hence a fina....
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....nue 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 0% RPT. We find that 0% related party transaction is an impossible situation and therefore if the said filter is applied then the comparable companies will not be available for determining the arms length price. Thus to avoid....
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....ut 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 dated 25.05.2016 and further vide order dated 23.11.2016 in MP No. 100/Bang/2016. Thus the ld. AR has submitted that the functional comparability of these 10 companies have been examined by the coordinate bench and found to be not compa....
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....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 diversified activities including software product as well as trunky project. We find that as per Schedules 12 as well as 14 of the balance sheet of this company, this company has sale of license, purchase of license and purchase of AMC charges. The details of the sales in Schedule 12 and details of purchase in Schedule 14 are as under : SCHE....
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....wnership 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 Crores Rs. Nil (as the 100 percent services are provide to AEs) Expenditure on Research & Development Rs. 102 crores Rs. Nil Other 100 percent offshore (from India) 6. Learned counsel for the Revenue has submitted that the tribunal after recording the aforesaid table has not affirmed or given any finding on the differences. This is partly correct as the tribunal has stated that Infosys Technologies Ltd. should be excluded from the list of comparables for the ....
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....d 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 Study. c) Modifying some of the filters applied by the ld. TPO in the TP order, without providing an opportunity of being heard to the appellant. d) Arbitrary arriving at a set of companies as comparable to the Respondent. e) Disregarding application of multiple year / prior year data and holding that current year (i.e. opportunity of being heard to the appellant. f) Upholding the ld. TPO's approach of using data as at the time of assessment proceedings. g) Upholding the approach adopted by the ld. TPO of collecting selective information of the companies by exerci....
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....ative 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 this Tribunal wherein the comparability of these two companies have been considered and decided by this Tribunal. Therefore, once the assessee has brought on record some decisions of the Tribunal wherein these two companies were held to be not good comparables then the facts and circumstances and in the interest of justice, we admit the additional grounds raised by the assessee. Accordingly, we will deal with the comparability of these two companies on merits. 16. Bodhtree Consultancy Ltd. 16.1 The learned Authorised Representative of the assessee has submitted that this company is required to be rejected the RPT of 34.68% of the total sale which is in excess of 15% taken as proper threshol....
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.... 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 evident from the finding of the Tribunal in para 9 as under : "9. Even though detailed submissions were made with reference to the above 7 companies, the learned counsel fairly admitted that even one company i.e. Exensys Software Solutions Ltd. is excluded, inclusion of other companies will become academic in nature as the arm's length margin is within Assessee's margin of 16.74%. With reference to this company, the learned counsel referring to replies given to AP/TPO in response to the notices under Section 133(6) and their annual reports, which are available in its paper book, submitted that this company is functionally different and the operations are exceptional as there was a merger in the year with another company which had a material/significant impact on t....
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....ntention, 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. Ltd. (ITA No.1280/Hyd/2010) 17.2 On the other hand, the learned Departmental Representative has submitted that the TPO has examined the functional comparability of this company and it had qualified all the parameters and filters applied by the TPO. The objections raised by the assessee at this stage were not available before the TPO and therefore the same cannot be accepted in the absence of the examination of the fact by the TPO. 17.3 We have heard the rival submissions as well as considered the relevant material on record. At the outset, we note that the comparability of this company has been examined by this Tribunal in various cases as relied upon by the learned Authorised Representative of the assessee. In the case of McAfee Software (India) Pvt. Ltd. (supra), the co-ordinate bench of this Tribunal has again considered this i....
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....r 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 marketing expenses. 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. (IT(TP)A No.1302/Bang/2011 & 92/Bang/2012) iii) Textron Global Technology Centre Pvt. Ltd. in IT(TP)A No.29/Bang/2012. 18.1.2 On the other hand, the learned Departmental Representative has relied upon the orders of the TPO. 18.1.3 We have considered the rival submissions as well as relevant material on record. At the outset, we note that the functional comparability of this company has been examined by the Tribunal in a series of the cases as relied upon by the learned Authorised Representative of the assessee. In the case of ITO Vs. M/s. Sunquest Information Systems (India) Pvt. Ltd. (IT(TP)A No.1302/Bang/2011 & 92/Bang/2012), the Tribunal has considered and decided an identical issue in paras 19 ....
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....arded as a comparable. The same is directed to be excluded from the list of comparable companies." A similar view has been taken by the Tribunal in the other decisions as relied upon by the ld. A.R. Following the earlier order of the Tribunal where it was found that this company is engaged in the business of development of software products and services as well as training, it cannot be considered as a good comparable of software development services provider. Accordingly, we direct the A.O/TPO to exclude this company from the list of comparables. Foursoft Ltd. 18.2. We have heard the learned Authorised Representative as well as learned Departmental Representative and considered the relevant material on record. At the outset, we note that the RPT of this company is 19.89%. Therefore in view of our finding on the threshold limit of RPT at 15%, this company cannot be considered as a good comparable having more than 15% RPT. We find that this fact of RPT at 19.89% has not been disputed by the Revenue. Accordingly, we direct the A.O./TPO to exclude this company from the list of comparables. Geometric Software Solutions Ltd. 18.3.1 The learned Authorised Representative of ....
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....al in the assessee's own case has decided an identical issue by holding that this company cannot be compared with the assessee. 18.4.2 On the other hand, the learned Departmental Representative has relied upon the order of the TPO and submitted that the predominant activity of this company is software development and therefore it is considered as functionally comparable. 18.4.3 We have heard the rival submissions as well as considered the relevant material on record. At the outset, we note that the functional comparability has been considered by this Tribunal in assessee's own case for the Assessment Year 2006-07 vide order dt.30.6.2015 in ITA No.1485/Bang/2010 in para 13 to 18 as under : "13. Having regard to the rival contentions and the material on record, we find that being the very same assessment year viz., 2006-07 in the case of M/s.Ariba Technologies India Pvt. Ltd. this Tribunal had occasion to go into the comparability of these companies with the said company and the Tribunal has held it to be functionally dissimilar from the similar activity of software development service. We find that the Tribunal, at para.12 & 13 of its order, has held as under: "12. T....
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.... comparison to the Assessment Year 2006-07. We further note that a similar view has been taken by this Tribunal in the other cases as relied upon by the assessee pertaining to the Assessment Year 2005-06. Accordingly, by following the earlier decisions of this Tribunal, we are of the view that this company cannot be considered as a good comparable to the assessee. Hence, the Assessing Officer / TPO is directed to exclude this company from the list of comparables. Satyam Computer Services Ltd. 18.5.1 The learned Authorised Representative of the assessee has submitted that the financial results and information of this company is not reliable due to the financial irregularity and fraudulent activities by the Directors 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. Agnity India Technologies Pvt. Ltd. (ITA No.3856/Del/2010). 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. 18.5.2 On the other hand, the learned Departmental Repre....
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.... Tribunal has ordered the exclusion of three companies on the ground of having more than 15% RPT at page 15 as under : Sl. No. Comparable Company Name % of RPT Over sales 1. Aztec Software Limited 17.78 2. Geometric Software Limited 19.34 3. Megasoft Limited 17.08 We find that the company Aztec Software Ltd. and Megasoft Ltd. are not part of the TPO set of comparables therefore these two companies are wrongly mentioned in the above said list. Hence the impugned order is modified under para 7.3 last part and may be read as under : Sl. No. Comparable Company Name % of RPT Over sales 1. Geometric Software Limited 19.34 6. The next mistake has been pointed out by the learned Authorised Representative that in para 8.1, the name of the comparable company has been mentioned as Acentia Software Solution Ltd. whereas correct name of the company is Exensys Software Solutions Ltd. This mistake has been repeated again in para Nos.8.2 & 8.3. he has further submitted that in para 8.3 there is a reproduction of finding by the Tribunal in case of M/s. Textron Global Technology Centre Pvt. Ltd. however wrong part of the said order has been reproduced in the impugned order.....
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....comparable with the assessee. 8.2 On the other hand, the learned Authorised Representative of the assessee has submitted that the CIT (Appeals) has excluded these two companies by considering various facts on functional comparability as well as extra-ordinary events during the year under consideration and not merely on the basis of high profit margins. He has further submitted that the company like Exensys Software Solutions Ltd. is functionally different and there is an extra ordinary event of amalgamation during the year under consideration with M/s. Honlool India Ltd. He has referred the Annual Report of this company in support of his contention. The learned Authorised Representative has further submitted that even otherwise this company is engaged in diversified operation including software products as well as intangible assets, brands which comprise a substantial part of growth of assets. Therefore, this company cannot be considered as comparable to the assessee which is a captive service provider. In support of his contention, the learned Authorised Representative has relied upon a number of decisions of this Tribunal including the following decisions : i) M/s. McAfee Sof....
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....rs Ltd., from the list of comparable companies." A similar view has been taken by the Tribunal in the cases as relied upon by the assessee. Accordingly, we find that this company is functionally different from the assessee which is a captive service provider. Hence we concur with the view of the CIT (Appeals) though on a different reason and direct the A.O./TPO to exclude Exensys Software Solutions Ltd. from the list of comparables." 15. Following the orders of the coordinate bench (supra) we direct the AO / TPO to exclude 8 companies from the set of comparables and reconsider the functional comparability in case of Geometric Software Solutions Ltd., and in the case of M/S.Bodhtree Consulting Ltd., by verifying the R.P.T. 16. Since we have directed the AO / TPO to exclude certain companies from the set of comparables and also remanded certain companies for verification of facts, therefore, the TPO/AO is directed to recompute the arms length price on the basis of the remaining set of comparables. Needless to say the benefit of proviso to section 92C(2) of the Act shall also be considered. 17. In the appeal in IT(TP)A No. 1379/Bang/2011 against the order passed u/s. 154, the ass....