TaxTMI 
TaxTMI 
2020 (5) TMI 355
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....the order of the Learned TPO which has not considered the following companies as functionally not comparable: a. With respect to software development services: (a) ICRA Techno Analytics Limited; (b) KALS Information Systems Limited; (c) Persistent Systems & Solutions Limited. b. With respect to IT-enabled services: (a) Accentia Technologies Limited; (b) ICRA Online Limited. 3. The Hon'ble DRP and the Learned AO erred in confirming the order of the Learned TPO which arbitrarily restricted the working capital adjustment at 1.98% to the software development services and at 0.23% to the IT- enabled services segment. 4. The Hon'ble DRP and Learned AO erred in not allowing the set-off of the brought forward loss pertaining to AY 2009-10 of Rs. 1,58,84,554/- (which was claimed by the Appellant in its income-tax return). On the above and such other grounds as may be urged at the time of hearing your appellant prays your Honour to consider the facts and circumstances of the case and render justice. Grounds raised by revenue in its appeal are as under: On the facts and in the circumstances of the case the Learned Dispute Resolution Panel erred in directing the AO ....
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....lowing international transactions: S. No Type of transaction Amount (Rs) 1. Software Development Services 32,04,99,033/- 2. ITES 7,82,60,272/- 4. Ld.TPO observed that assessee used TNMM as most appropriate method and OP/OC as PLI to determine arm's length margin of both segments, being software development service segment and IT enabled service segment. 5. Assessee computed its margin at 15% under both segments by using 16 comparables under software development service segment and 15 comparables under IT enabled service segment. On the basis of average margin determined by assessee, transactions were held to be at arms length as it was within +/- 5% range. 6. Ld.TPO applied various filters to the comparables enlisted by assessee in the TP study for both segments and shortlisted a set of 11 comparables with an average margin of 22.71% and set of 10 comparables with an average margin of 26.86%. The details of comparables finally selected by Ld.TPO for both segments are as under: Software Development Service Segment: Sl.No Name PLI 1 ICRA Techno Analytics Ltd.(seg) 24.94% 2 Infosys Ltd 44.98% 3 Kals Information Systems Ltd.(seg) 34.41% 4 Larsen & Turbo Inf....
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.... fulfilling turnover criteria prescribed in Rule 10 B of the Income tax Rules, 1962. 11.1. Revenue is also aggrieved by direction of DRP to grant ad hoc 1% risk adjustment without any basis. 11.2. It is also been submitted that decision of Hon'ble Karnataka High Court in case of CIT vs M/s.Tata Elxsi Ltd (supra) has not been accepted by Department and further appeal is pending before Hon'ble Supreme Court, revenue is aggrieved by deduction granted to assessee under section 10A of the Act. 12. Ground No.2-3 Ld.CIT DR argued that revenue seeks exclusion of Infosys Ltd., Larson & Tubro Infotech Ltd., Mindtree Ltd., Persistent Systems Ltd., Sasken Technologies Ltd., Infosys Ltd., and TATA Elxsi Ltd. by applying turnover filter. 12.1. Ld.CIT.DR submitted that when companies functionally similar to assessee, and is potentially comparable, the same cannot be excluded merely because of high or low turnover. Ld.CIT DR placed reliance upon decision of Hon'ble Delhi High Court in case of Chriscapital Investment Advisers (India) Pvt. Ltd vs DCIT reported in 56 Taxmann.com 417 (2015). 12.2. Ld.AR submitted that authorities below applied lower limit of turnover filter of Rs. 1 crore and ig....
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....pline requires that the Tribunal should follow the decision of a non-jurisdiction High Court, even though the said decision is of a non- jurisdictional High Court. We however find that the Hon'ble Bombay High Court in the case of Pentair Water India (P.) Ltd. (supra) has taken the view that turnover is a relevant criterion for choosing companies as comparable companies in determination of ALP in transfer pricing cases. There is no decision of the jurisdictional High Court on this issue. In the circumstances, following the principle that where two views are available on an issue, the view favourable to the Assessee has to be adopted, we respectfully follow the view of the Hon'ble Bombay High Court on the issue. Respectfully following the aforesaid decision, we uphold the order of the DRP excluding 5 companies from the list of comparable companies chosen by the TPO on the basis that the 5 companies turnover was much higher compared to that the Assessee. 17.8 In view of the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating Systems (I) (P.) Ltd. (supra) by the ITAT Bangalore Bench should continue....
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.... Ltd., Mindtree Ltd., Persistent Systems Ltd., Sasken Technologies Ltd., Infosys Ltd., and TATA Elxsi Ltd., for having high turnover as compared to a captive service provider like assessee. 13. Ground no.4 Ld.CIT DR submitted that DRP provided risk adjustment at 1% on ad hoc basis without having a scientific approach. He submitted that there are various factors that needs to be considered for providing risk adjustment which assessee has to establish in its case having regards to comparables finally selected. 13.1. We have perused submissions advanced by both sides in light of records placed before us. We have perused orders passed by authorities below on the basis of records placed before us. It is noted that risk adjustment has been provided at risk adjustment on ad hoc basis at 1%. Ld.CIT DR submitted that there is no scientific manner which has been applied by DRP. Assessee is a low risk bearing company for SWD and ITES segment. Therefore while computing risk adjustment, risk assumed by comparables for earning revenue under particular segment needs to be analysed. Assessee is directed to provide for necessary details in respect of all comparables finally selected. If that in....
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....per TP documentation assessee is engaged in the business of providing IT and ITES services to Marlabs US. It has been recorded that assessee at the request of Marlabs US in accordance with performance standards and rules as specified by Marlabs US provides services to Marlabs US. Ld.TPO has analysed functions performed by is assessee under both segments as under: "As per the Service Agreement: "Exhibit A: Services description of services: provider shall, at customers request and in accordance with such performance standards and rules as customer makes available to provide from time to time provide services to customers. These services include but are not limited to providing support services for the customers staffing business, software development or support for software development, various business process supports, accounting and related services, etc,...... as per the TP document: Marlabs India is engaged in the business of providing IT and ITES services to Marlabs US. Marlabs India shall, at the request of Marlabs US and in accordance with such performance standards and rules as Marlabs US makes available to Marlabs India from time to time, provide services to Marl....
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.... to exclude this company from the final list. b) ICRA techno analytics Ltd: Ld.AR submitted that this company is functionally not comparable as the service segment comprises of software development, software consultancy, engineering services, web development, web hosting etc for which no segmental information is available. Ld.CIT DR placed reliance upon the orders passed by authorities below. We have perused submissions advanced by both sides in light of records placed before us. It is observed that this company is engaged in diverse is filed activities of software development and therefore cannot be regarded as functionally comparable with assessee that is rendering captive services to its associated enterprises. We therefore do not find this company to be functionally comparable with assessee. Accordingly this comparable is directed to be excluded from final list. c) KALS Information Systems Ltd: Ld.AR submitted that assessee had objected for inclusion of this comparable as it develops and sales software products. In support of assessee had relied upon decision of this Tribunal in case of DCIT vs M/s.Electronics for Imaging India Pvt.Ltd in ITA (TP) A No. 212/Bang/2015 by....
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....owever it is observed that this company had undergone acquisition which is an extraordinary event and can impact the profits for the year under consideration. Under such circumstances we are of the opinion that this company cannot be considered to be comparable with that of assessee for the year under consideration. Accordingly direct this company to be deleted from the finalist. b) ICRA Online Ltd Assessee objected for inclusion of this comparable. Ld.AR submitted that this company is functionally not comparable under this segment as is then in high-end KPO services whereas assessee is carrying out back office services. He also submitted that this company fails RPT filter applied by Ld.TPO. On the contrary Ld. CIT DR placed reliance on view taken by this Tribunal in case of Swiss Re Shared services (India) Pvt.Ltd vs ACIT (supra). We have perused submissions advanced by both sides in light of records placed before us. The annual report of this company is placed at page 1738-1760 of index to annual reports paper book volume 2. It is observed that this company has 3 reportable segments being information services, outsourced services, software services. Further it is observed ....