TaxTMI 
TaxTMI 
2019 (8) TMI 1479
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.... without appreciating the fact that the function carried out is "Software Development" irrespective of whether onsite or offshore. (iii) Whether the Hon'ble DRP in correct in excluding M/s RS Software Pvt. Ltd. and M/s Acropetal Technologies and M/s L&T Infotech ltd on the ground that they have significant onsite revenue without appreciating the fact that onsite development of software entails more cost and thereby results in lower profit margins. (iv)Whether the Hon'ble DRP was right in seeking exact comparability while searching for & comparable companies of the assessee under TNMM method whereas requirement of law and international jurisprudence require seeking similar comparable companies. (v) Whether the Hon'ble DRP has erred on fact in deleting M/s E-infochips as a comparable on the ground that it fails the filter of service income less than 75% of the sales, when the said company has service income being 100% of the sales. (vi)Whether Hon'ble DRP erred in fact in rejecting the company/s Infosys Technologies Ltd., as a comparable on the ground that it is functionally different when the primary source of income of the comparable is from provis....
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....results in lower profit margins. (iv)Whether the Hon'ble DRP was right in seeking exact comparability while searching for &Imparable companies of the assessee under TNMM method whereas requirement of law and international jurisprudence require seeking similar comparable companies. (v) Whether the Hon'ble DRP has erred on fact in deleting M/s E-infochips as a comparable on the ground that it fails the filter of service income less than 75% of the sales, when the said company has service income being 100% of the sales. (vi)Whether Hon'ble DRP erred in fact in rejecting the company/s Infosys Technologies Ltd. as a comparable on the ground that it is functionally different when the primary source of income of the comparable is from provision of software development services. (vii) Whether while seeking the exact comparability as mentioned above the DRP was right in fact and in law in imposing condition beyond law whereas the requirement of law is to acknowledge only those differences that are likely to materially affect the margin. (vii) Whether the Hon'ble DRP is correct in fact and law in disregarding the position of law that there could be ....
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.... * rendering services in the fields of e-commerce, E solutions, e-services, Internet security and management. 2.3. Ld.TPO observed that assessee used TNMM as most appropriate method for determining ALP of international transaction, with OP/OC as PLI and computed its margin at 8.67% as compared to following 17 comparables selected having average margin of 8.07% and thus treated the transaction with AE to be at arms length price. Sl.No. Name of the comparables 1 Bells Softch Ltd. 2 CG Vak Software & Exports Ltd. 3 Goldstone Technologies Ltd 4 KLG Systel Ltd. 5 Intertech Communications Ltd 6 Larsen & Toubro Infotech Ltd 7 LGS Global Ltd. 8 Mascon Global Ltd 9 Mindtree Ltd. 10 Ontrack Systms Ltd 11 Onward Technologies Ltd. 12 Powersoft Global Solution Ltd 13 R S Software (India) Ltd., 14 R Systems International Ltd. 15 Sonata Software 16 Tata Elxsi Ltd. 17 Techprocess Solutions Ltd. 2.4. Ld.TPO subsequently applied various filters and selected following 13 comparables which included 9 new comparables and four companies selected by assessee. Sl.No. Name PLI 1 Acropetl Technologies Ltd(Seg.) 31.98% 2 e-Zest Solutions (from Capitaline) 21.03%....
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....y deposits being deleted by Ld. CIT (A) 5.3. In cross appeal filed by assessee, it is observed that assessee is challenging inclusion of three comparables on the basis of functional dissimilarities, being ; * Persistent Systems and Solutions Ltd; * Persistent Systems Ltd; It has been submitted by Ld.AR that assessee do not wish to press CG-Vak Software and Exports Ltd, R Systems International Ltd, Mascon Global Ltd, Akshay Software Technologies Ltd, Think Soft Global Services Ltd, Evoke Technologies Ltd, RS Software (India) Ltd, Tata Elxi Ltd, for exclusion. 5.4. Ground No. 4.1.: It is further submitted that ground relating to operating margins on account of foreign exchange fluctuation as operating revenue has been granted by Ld.AO subsequently and therefore this ground becomes infructuous. 5.5. It has been submitted by Ld.AR that assessee do not wish to press Ground No. 5.2 which is relating to risk adjustment denied by Ld.AO. 5.6. It has been submitted by Ld.AR that assessee do not wish to press Ground No. 8 5.7. Additional ground Assessee raised Additional Grounds vide application dated 06/12/17, by submitting that inadvertently these comparables were not raised at th....
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....o apply "on-site revenue filter" subsequently and exclude comparables, which is not as per procedures laid down under law. She submitted that "on-site revenue filter" applied by DRP subsequently, neither been applied by assessee in transfer prising study, nor been considered by Ld.TPO, while conducting analysis under section 92CA of the Act. 8.1. Placing reliance upon decision of this Tribunal in case of Asstt. CIT v. Broadcom Communication Technologies (P.) Ltd., [2017] 88 taxmann.com 309 (Bang. - Trib.), she submitted that new filter suo moto cannot be applied by DRP selectively, but should be applied to all comparables. She further submitted that RS Software India Ltd., rejected by DRP was acceptable to assessee as well as Ld.TPO. 8.2. In support of aforestated view reliance was also placed on decisions of Delhi Tribunal in case of Dy. CIT v. Vertex Customer Services [IT Appeal No.5228 Delhi 2018 vide order dated 6-11-17] and Aircom International India (P.) Ltd. v. Dy. CIT [2017] 83 taxmann.com 173 (Delhi - Trib.). It has thus been contended by her that entire analysis needs to be revisited based upon new filter, applied by DRP and therefore needs to be set-aside to Ld.TPO. 8....
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....nbsp; ** 13.3.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial pronouncements cited. We find that the DRP has observed that this company, 'Acropetal', operates in three segments and the segmental results are available; while on the contrary the assessee contends that 'Acropetal' operates in four segments. Further, it is seen that even though the assessee has raised the other issues before the DRP, as laid out in para 13.1 of this order, the DRP has not rendered any finding thereon. We find that the co-ordinate bench of this Tribunal in the case of AMD India (P.) Ltd. (supra) relied on by the assessee has excluded 'Acropetal' on the ground that it fails the service income filter of 75%; a ground apparently not put forth by the assessee before the authorities below. 13.3.2 Considering the facts and circumstances of the case, as discussed above; that the DRP has not rendered findings on some of the issues raised by the assessee before it and there is a contradiction in the number of segments that this company 'Acropetal' operates in, we are of the opinion that it....
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....foresaid decision of the Special Bench (supra), we admit this additional ground raised by the assessee seeking exclusion of these two companies (i) L & T Infotech Limited (ii) Sasken Communication Technologies Limited without commenting on the merits of the case and remit the matter of their comparability analysis to the file of the TPO/A.O. for examination of the assessee's claim and to adjudicate thereon after providing the assessee adequate opportunity of being heard, which shall be duly considered. We hold and direct accordingly." 8.8. On perusal of aforestated observations by coordinate bench of this Tribunal, it is clear that, comparables were remanded for the reason that in case of Accropatel, DRP rendered finding that segmental details being available was contrary to materials, placed on record. And in case of L & T, coordinate bench sent back comparable for reason that financial details which were unavailable on public domain was subsequently available for consideration. 8.9. But, in the facts of present case, there is no such dispute between parties, and findings of DRP are concurrent with annual reports placed in paper book filed before us. Thus, in our considered ....
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....far as ground No. 5 in revenue's appeal is concerned, the revenue seeks to challenge the exclusion of AE Infotech Ltd. On the ground that it failed direct software service income filter at 75%. At the outset, the assessee submits that E Infotech Ltd was excluded by the DRP on the ground that: (i) no segmental information is regarding its diverse functions is available; (ii) it failed the software service income filter and 75%; (iii) there were major fluctuations in profit and turnover every years which seems to be influenced by extraordinary/peculiar circumstances; and (iv) there is a presence of inventory (page 10 and 11 of the DRP's directions). The revenue, in its appeal has challenged its exclusion only on the 2nd ground. In other words, the revenue has not challenged its exclusion on the other grounds stated hereinabove and thus its exclusion on these grounds have attained finality and cannot be disturbed by this Hon'ble Tribunal. Even otherwise, we are of the view that the DRP rightly arrived at the finding that companies software development service revenue for FY 2010-11 was less than 75% of its total operating revenue for the year. Thus the above action of the ....
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....y the Tribunal, observed that company having brand value as well as intangible assets cannot be compared with an ordinary entity who provide captive services. Respectfully following the decisions relied upon and cited hereinabove, we direct Ld. TPO to exclude this company from the finalist. Accordingly ground(vii) raised by revenue stands dismissed. 11. Ground No. (viii) and (xii) - (xiii) has been submitted to be general in nature hence do not require adjudication. 12. Ground No. (ix) raised by revenue is against deleting disallowance made on account of leave encashment. 13. Ld. CIT DR placed reliance upon order of Ld.AO/TPO. Ld. AR placed reliance upon the decision of DRP 13.1. We have perused submissions advanced by both sides in the light of the records placed before us. It is observed that coordinate bench of this Tribunal in case of Global e-business operations (P.) Ltd. v. Dy. CIT [ITA (TP) Appeal No. 1092 (Bang.) of 2011 vide order dated 16-1-17 for assessment year 2007-08 considered identical issue wherein it has been observed as under: "10. Before us, the ar submitted that originally, under section 40 3B certain payments were held allowable only on actual payment....
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....development services through following services: 1. services in relation to error fixing or maintenance of specific features in software and used in products of HP 2. assistance in relation to the software development in certain software feature enhancement and development for the products of HP Rendering services in fields of e-commerce, E solutions, e-services, Internet security and management. Assets employed Assessee perform software development support activity on behalf of its AE as per the specifications. Therefore all incidental intellectual property product developed or created by assessee in the course of its provision of software development services support are owned by AE. Other than these assessee owns routine tangible assets like furniture fixtures, computers, land and building etc. Risks assumed Assessee bears limited risk, in terms of foreign exchange and government policy risks all other risks are bone by AE. Thus assessee has been categorised as a low risk bearing contract service provider. Based upon the above, we shall analyse the comparables alleged for exclusion/inclusion by assessee. 17. Comparables alleged for Exclusion (a) Persistent Syst....