TaxTMI 
TaxTMI 
2020 (5) TMI 211
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....n pursuance of the directions issued by the Dispute Resolution Panel ('DRP'), Bengaluru dated August 23, 2017, under section 253 of the Income- tax Act, 1961 ('Act') on the following grounds: That on the facts and in the circumstances of the case and in law and based on the directions of the DRP: A. Grounds of appeal relating to transfer pricing matters specific to software development services segment The learned TPO/ learned AO have erred, in law and in facts, by not appreciating the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Rules, conducting a fresh economic analysis for the determination of the ALP in connection with the impugned international transaction and holding that the Appellant's international transaction is not at arm's length. 2. The learned TPO/ learned AO have erred, in law and in facts, by determining the arm's length margin/price using only FY 2012- 13 data, which was not available to the Appellant at the time of complying with the transfer pricing documentation requirements. 3. The learned TPO/ learned AO have erred, in law and i....
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....erred in law and in facts by restricting the credit for Minimum Alternate Tax while computing the total tax payable by the Appellant. 15. The learned AO has erred in law by levying interest of INR 7,78,07,682 under section 234B of the Act and INR 25,38,505 under section 234C of the Act, which is on account of the adjustments proposed to the returned income MODIFIED GROUNDS OF APPEAL 3. The learned TPO/ learned AO have erred, in law and in facts, by accepting/rejecting certain companies based on unreasonable comparability criteria: 3.1 following companies should not be treated as comparable companies: a) Larsen & Toubro Infotech Limited b) Persistent Systems Limited c) CG - Vak Software & Exports Limited 3.2 following companies should be treated as comparable companies: a) Akshay Software Technologies Limited b) IDBI Intech Limited C) Spry Resources India Private Limited The Appellant submits that each of the above grounds is independent and without prejudice to one another. The Appellant craves leave to add, alter, amend, vary, omit or substitute any of the aforesaid....
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.....17% for software dev S.No Comparables Margin 1. Akshay Software Technologies Ltd. 4.45% 2. Helio and Matheson Information Technology Ltd. 15.78% 3. R S Software (India) Ltd. 15.67% 4. Spry Resources India Pvt.Ltd. 21.01% 5. Think software global services Ltd 6.34% 6. IDBI Intech Ltd 15.78% Average margin 13.17% 5. Ld.TPO applied various search filters and rejected the comparables selected by assessee in its TP study. The final comparables selected by Ld.TPO was as under: S.No Comparables Margin 1. CG-V a case software exports Ltd 20.54% 2. ICRA techno analytics Ltd 17.10% 3. Larsen and Toubro Infotech Ltd 26.06% 4. Mind tree Ltd (SEG) 18.19% 5. Persistent systems Ltd 28.27% 6. RS software (India) private limited 17.41% 7. Tech Mahindra Ltd (SEG) 18.72% Average margin 20.90% 6. Ld.TPO thus proposed adjustment being shortfall at Rs. 25,04,82,139/-. 7. On the basis of draft assessment order, assessee raised objection before DRP, wherein comparables selected by Ld.TPO was challenged for various functional dissim....
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....ed under this segment. Functions: 17. In TP study, it has been submitted that, there is a service agreement for provision of software research and development services entered into by assessee, with its associated enterprise in UK from 01/04/2006. As per the agreement, remuneration received by assessee on is cost +15% mark up. 18. Main function performed by assessee, is in respect of R&D functions, wherein assessee focuses on developing existing technologies for direct customer application. It has been submitted in TP study that assessee has a small team which works on new initiative projects, wherein assessee primarily carries out limited documentation of designs and limited integration. In TP study, entire project is conceptualised, designed and codified by UK associated enterprise. Assets owned 19. Assessee owns routine assets like furniture fixtures, office space etc. Any intangible developed during the process of research carried out by assessee exclusively belongs to the associated enterprise. Risks assumed. 20. As per TP study, assessee has been held to be bearing limited risk of market and foreign exchange risks to the extent that, remuneration received....
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....s and support services that it does at the behest of its associated enterprises. In our view this comparable undertakes complete responsibility of the entire life-cycle involved in a software development whereas assessee participates only to a limited extent on behalf of its associated enterprises at their behest. Whatever functions performed by assessee in providing it services under this segment are very limited as compared to this comparable. 25. In our considered opinion the Ltd functions performed by assessee cannot be compared to a full-fledged software development service provider like this company. 26. On the basis of above, we direct the Ld.AO/TPO to exclude this company from final list. b) Persistent Systems Ltd 27. It has been submitted that this comparable has been included by Ld.TPO even though it was objected by assessee for functional dissimilarities. Ld.AR submitted that this company is engaged in both product and development of software development services and therefore cannot be compared to a contract software development service provider like assessee. It is also been submitted that there are significant research and development expenditure that resu....
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....are services for which segmental information is are available. Note 29 at page 1 to 10 reveals that this company earns foreign currency from export of software services. 31. On the contrary Ld. CIT DR submitted that submitted that it is an accepted position that this company is providing ERP products and services. Further it is also an admitted position that this company is operating in variance segments including software product however the segmental information available is only as income from software services. Ld.CIT DR submitted that going by the para meters applied by assessee to exclude Persistent Systems Infotech Ltd., this comparable also deserves to be included as there is sale of products for which segmental information is are not available. He also refer to the decision of this Tribunal in case of M/s Metricstream Infotech (India) private limited vs. DCIT in ITA (TP) A No. 1418 and 273518/2017 for assessment year 2013-14 wherein this comparable has been upheld for exclusion. 32. We have perused submissions advanced by both sides in light of records placed before us. We also perused decision relied upon by Ld.CIT DR in case of M/s Metricstream Infotech (India) Put....