TaxTMI 
TaxTMI 
2018 (10) TMI 1841
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....he provision of software development services to Global Logic Inc and other Global Logic Group Companies. The international transactions reported for the year under consideration are : (i) software development and related services Rs. 1,69,68,10,990/- (ii) reimbursement of expenses from associated enterprise [AE]. Rs. 13,72,80,256/- 4. During the course of T.P. assessment proceedings, the TPO noticed that the assessee has used TNMM as the most appropriate method and OP/TC as the PLI. It was found that the assessee has arrived at a set of 22 of companies with average margin of 13.60%. It was also noticed that the assessee has used multiple year data and the assessee's own margin is worked out to be 13.79%. 5. After going through the TP report and comparables, the TPO analysed the comparables with remarks as under: SI. Name of the Comparable Remarks 1 Akshay Software Technologies This is a suitable comparable. 2 Ltd.Ancent Software International Ltd. This company is having sales below Rs. 5 crores. Hence, not a suitable comparable. 3 Aztecsoft Ltd. (consolidated) Annual Report for the current year is not availabl....
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....e (India ) Ltd. 7 Sasken Communication Technologies Ltd. 8 Thirdware Solutions ltd. 9 Zylog Systems Ltd. 7. The TPO found that the following set of comparables which have been rejected by the assessee which are, in fact, good comparables: SI. No. Company Long Name TPO's Remarks 1 Ceistream Technologies Pvt Ltd. You have rejected this company on the ground mentioned in Accept/Reject matrix that 'Insufficient financial or. descriptive information to perform analysis'. However; the annual report of the company has been perused which is available on the public domain. This is very much an IT company and passes all filters too. Hence, this is a robust comparables in your case. 2 Kireeti Soft Technologies Ltd. 3 Wipro Technologies Limited 4 Infosys Ltd You have rejected this company on the ground mentioned in Accept/Reject matrix that functionally different. However, the annual report of the company has been perused which is available on the public domain. This is very much an IT company and passes all filters too. Hence, this is a robust comparables in your case. 5 Igate Global Solution Ltd 6 Persi....
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....A.Y 2010-11 and 2012-13 in assessee's own case. 12. Rebutting to the contention of the ld. AR, the ld. DR stated that the assessee may be following a certain policy in respect of hedging of forex, but we do not know hedging policies of comparable cases as they may be following different hedging policies and it is not possible to find out details of hedging policies followed by comparable companies. 13. The ld. DR heavily relied upon the observations of the TPO made at par 5.1 of his order. 14. We have given thoughtful consideration to the orders of the authorities below. In so far as removing forex fluctuation gain from operating profit is concerned, the Hon'ble High Court of Delhi in the case of Fiserv India Pvt Ltd in ITA No. 17/2016 vide order dated 06.01.2016 has decided this issue in favour of the assessee and against the Revenue, The relevant findings of the Hon'ble High Court read as under: :8. The ITAT has also dealt with the issue of foreign exchange fluctuation as operating income/exp /expenses and held that this issue is no longer res integra and is in favour of the Assessee by the decision of the Coordinate Bench of ITAT in Westfalia Separator ....
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..... Even otherwise, the decisions referred to by the ITAT in the impugned order on the issue also answer the question in favour of the Assessee and against the Revenue." 16. Considering the facts of the case in hand, in the light of the decisions of the Hon'ble Jurisdictional High Court of Delhi [supra] we direct the Assessing Officer to treat the forex fluctuation gain as operating income for calculation of OP/OC. The assessee succeeds on this point. 17. The next issue relates to inclusion of Infosys Ltd and Wipro Technologies as good comparables. 18. In so far as Infosys is concerned, the Tribunal in assessee's own case in A.Y 2007-08 and 2008-09 has rejected the same as comparable to the assessee in ITA No. 5809/DEL/2011 and ITA No. 122/DEL/2013 respectively. The relevant findings of the coordinate bench read as under: 2007-08 "17. The TPO included this company despite the assessee's objections that it was a very high turnover company with functional dissimilarity. 18. It is an undisputed fact that the assessee rendered services to its AEs without the assistance of its intangible assets or by retaining any rights in intellectual property in ....
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....sessee company. Respectfully following the judgment of the Hon'ble jurisdictional High Court in Agnity India (supra), we hold that Infosys Technologies Ltd., cannot be treated as comparable with the assessee company. This company is, therefore, directed to be excluded from the list of comparables. 19. Respectfully following the findings of the coordinate bench, we direct the Assessing Officer/TPO to exclude Infosys Ltd as comparable. 20. In so far a WIPRO Technologies Services Ltd is concerned, the same was excluded by the Tribunal in the case of Microsoft India [R&D] Pvt Ltd. in ITA No. 1479/DEL/2016 and 691/DEL/2016. The relevant findings of the coordinate bench read as under: "45. The TPO proposed to include this company in the list of comparables despite the assessee's objection that it has more related party transactions. After going through the Annual report of this company, it is ITA Nos.1479 & 691/Del/2016 noticed that it was earlier Citi Technologies Ltd. On 21.1.2009, Wipro Ltd. signed a master agreement with Citi Group Inc., for delivery of technology Infrastructure Services and application development and maintenance services for a period of six y....
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....mes international transaction within the meaning of section 92B. Once there is a transaction between two associated enterprises, it ceases to be an 'uncontrolled transaction' and, thereby, goes out of reckoning under Rule 10B(1)(e)(ii). 47. Coming back to the facts of this company, we find that Wipro Technology Services Ltd. earned a revenue from Master services agreement with Citigroup Inc. for the delivery of technology infrastructure services. This agreement was, in fact, executed between the assessee's AE, Wipro Ltd., and Citigroup Inc., a third person. This unfolds that the transaction of earning revenue from software development support and maintenance services by Wipro Technology Services Ltd., is an international transaction because of the application of section 92B(2) i.e., there exists a prior agreement in relation to such transaction between Citigroup Inc. (third person) and Wipro Ltd. (associated enterprise). In the light of this structure of transaction, it ceases to be uncontrolled transaction and, hence, Wipro Technology Services Ltd., disqualifies to become a comparable uncontrolled transaction for the purposes of inclusion in the final list of ....
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....cation order dtd 24.11.2016 Assessed Income as per order .......... (A) 218,298,137 41,20,25,971 Tax liability under normal provisions of the Act (B =30% * A) 65,489,441 123,607,791 Less: MAT Credit (C) (20.312.967) - Income tax....... (D = B - C) 45,176,474 123,607,791 Add : Surcharge (E = 7.5% * D) 3,388,236 9,270,584 Add : Education Cess [F = (D + E)* 3%] 1,456,941 3,986,351 Tax including surcharge and cess [G = D+E+F] 50,021,651 136,864,727 Less: MAT Credit (C) - (20.312.967) Less : Foreign tax credit (H) (2,277,420) (2,277,420) Less : Tax Deducted at Source (I) (13,640,365) (13,451,016) Less : Advance Tax (J) (46,272,422) (46,272,422) Returned Tax / Assessed Tax [K = G-C-H-I-J] (12,168,556) 54,550,902 Add: Interest under section 234A - - Add: Interest under section 234B - 31,639,522 Total Tax and Interest - Returned / Assessed (12,168,556) 86,190,424 27. Similar issue was considered by the Hon'ble Allahabad High Court in the case of Vacement India 369 ITR 304. The relevant findings read as under: "The only question which is rais....