TaxTMI 
TaxTMI 
2020 (8) TMI 808
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....regard are as follows:- "1. The directions of the Dispute Resolution Panel are opposed to law and facts of the case. 2. On the facts and in the circumstances of the case, as per the directions of the Dispute Resolution Panel, whether working capital adjustment can be made on the basis of advance received from AEs in absence of debtors and inventory in the case of assessee for calculating the cost of working capital built in the profit margin. 3. On the facts and in the circumstances of the case the Dispute Resolution Panel is not justified in directing the TPO to adjust the profit margin of the assessee for the entire amount of advances received from AE on the ground that there is time value for money. 4. On the facts and in the circumstances of the case, the Dispute Resolution Panel erred in directing the TPO/A0 to exclude the comparable M/s Infosys Ltd., M/s Persistent System Ltd., M/s KALS Information Systems Ltd. & M/5 Sasken Communication Technologies Ltd. without considering the facts discussed by the TPO for selection of the comparables in the case of assesse and without appreciating the fact that these are qualifying all the qualitative a....
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..... .............. 7. The learned AO / learned TPO erred in application of different financial year ending filter. .......... 9. The learned AO/ learned TPO/learned DRP erred in applying onsite filter to reject the companies that are comparable to the Appellant. 10. The learned AO / learned TPO erred in computation of working capital adjustment. ........... 13. The learned AO / learned TPO erred in computation of the mark-up of the Appellant. The learned TPO has erred in considered "Retirement provision written back" as non-operating in nature." The other grounds of assessee's appeal in Assessee's appeal were not pressed. 4. The assessee is a company. It is a subsidiary of Infineon Technologies Asia Pacific P. Ltd. The assessee rendered Software Development Services (SWD services) and marketing support services. During the previous year relevant to AY 2010-11, the assessee rendered SWD services to its Associated Enterprise [AE]. As required under the provisions of section 92 of the Act, the assessee has to establish that the price received in the international transaction from the AE was at arm's length. The assesse....
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....ree Ltd.(seg) 14.83% 6 Persistent Systems & Solutions Ltd. 15.38% 7 Persistent Systems Ltd. 30.35% 8 R S Software (India) Ltd. 10.29% 9 Sasken Communication Technologies 17.36% 10 Tata Elxsi (seg) 21.88% 11 Thinksoft Global Services Ltd. 17.65% AVERAGE MARGIN 21.98% 7. The TPO computed the ALP and the suggested addition to the total income as follows:- "3.9.4 Computation of Arms Length Price The arithmetic mean of the Profit Level indicators is taken as the arms length margin. Please see Annexure B for details of computation of PLI of the comparables. Based on this, the arms length price of the services rendered by the taxpayer to its AE(s) is computed as under: SOFTWARE DEVELOPMENT SERVICES Arm's Length Mean Margin on cost 21.98% Less: Working Capital Adjustment (Annex. C) 0.30% Adjusted margin 21.68% Operating Cost 150,79,56,951 Arms Length Price (ALP) @ 121.68% of Operating Cost 183,48,82,018 Price Received 157,51,33,244 Shortfall being adjustment u/s 92CA: 25,97,48,774 "The above shortfall of Rs. 25,97,48,774/- is treated ....
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....the very same aforesaid order of the Tribunal, Persistent Systems Ltd. & Sasken Communication Technologies Ltd. was excluded from the list of comparable companies on the ground that these companies were engaged in diversified activities and earning revenue from various activities including licensing of products and income from maintenance contracts. Sasken Communication Technologies Ltd. was having income from 3 segments and there was no segmental reporting so that the operating margins of SWD services of this company can be compared with the assessee. As far as Kals information Systems Ltd. is concerned, the Tribunal in the very same aforesaid order at para 15 held that this company was into software products and the segmental results of the SWD services were not available, hence not comparable. In the light of the aforesaid decision of the Tribunal, we do not find any merit in ground No.4 raised by the revenue. 11. As for ground No.5 of the revenue is concerned, in the aforesaid order of Tribunal i.e., CSG Systems International (I) P. Ltd. (supra), vide para 9, the Tribunal held that Tata Elxsi cannot be regarded as a comparable company on the ground that this company was enga....
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....s. Following are the relevant observations:- "25. The assessee is seeking inclusion of another company viz. Akshay Software Technology Ltd. which was rejected by the TPO. 26. The learned Authorised Representative of the assessee has submitted that the TPO has rejected this company on the ground that this company has 90% of the revenue earned from Dubai office whereas the assessee has earned 100% revenue from India operations. The learned Authorised Representative has pointed out that this fact has been inappropriately interpreted by the TPO as the Annual Report of the company clearly stated that the company has its offices only in Mumbai and USA and no office at Dubai. He has referred the objections raised before the DRP at pages 156 & 157 of the paper book and submitted that the assessee has reproduced the Director's Report wherein it is stated that the company's outsourcing business from clients in Dubai facing steep pricing pressure due to which the income for the year was lower in comparison to the earlier year. The assessee has specifically mentioned that the export income from Dubai accounted for 90% of total income. The learned Authorised Representa....
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....6.10.2016 the TPO is directed to consider the advance received from AE as trade payable and considered for working capital adjustment. It was held in the said decision that advances received from AE par take the character of trade payables which is to be adjusted against future invoice. The advance received from the AE dispenses with the necessity to borrow for working capital and has direct bearing on the profitability of the concerned. The grievance of the assessee is accordingly allowed. The AO is directed to compute the working capital adjustment by considering the advances received from AE as part of the average trade payable. 20. The next aspect to be considered is Ground No.13 with regard to computation of OP/OC of the assessee. The plea of the assessee is that OP/OC should be computed as done by the assessee by considering the retirement provision written back as part of operating expenditure. The assessee's claim that for earlier AY its operating profit was considered after treating the provision for retirement benefit no longer required as part of operating expenses. This aspect was not verified either by the DRP/AO/TPO. Hence we deem it fit and appropriate to set asid....
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....0- 11, the assessee filed the return of income on 8th October, 2010 declaring a total income of Rs. 78,696,350/-. During the course of assessment proceedings, the AO has requested the assessee company to provide information on whether taxes have been withheld on GLM charges (project specific costs) of Rs. 78,696,346/- debited to the Profit & Loss Account. In response, a detailed submission dated 26.02.2014 was made by the Assessee. The Assessee explained that the payments towards usage charges of Electronic Design Automation (EDA) tools (software) by the Assessee were initially paid by Infineon Technologies AG, Germany ("Infineon Germany") and cross-charged to the assessee without any markup depending on their software tools usage. The assessee company reimburses these charges to Infineon Germany, without any mark up. The payment being a pure reimbursement does not result in income; therefore, there is no requirement for tax to be deducted at source. Hence, the provisions of section 195 of the Act are not applicable. Alternatively it was submitted that the payment is towards the usage charges of copyrighted software and not towards a right in copyright of the software. The assessee....
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....yalty and hence chargeable to tax in India in the hands of the recipient non-resident. The AO placed reliance on decision of the Hon'ble Karnataka High Court in the case of CIT (IT) v. Samsung Electronics India (P.) Ltd. 345 ITR 494 (Karnataka) wherein it was held that payment for purchase of off the shelf software was akin to a payment for right to use software and was in the nature of royalty and the person making payment to a non-resident has to deduct tax at source on such payment. 24. The DRP confirmed the order of AO. In appeal before the Tribunal, the submission made was that even assuming that the payment in question is not in the nature of reimbursement, but was a consideration for purchase of standard off-the-shelf product and in the nature of royalty, the assessee did not deduct tax at source on the ground that as on 31.3.2010, the last date of the previous year, the law in this regard was that payment for purchase of off-the-shelf software was not in the nature of royalty and therefore there was no obligation to deduct tax at source from payments made to non-residents. In this regard, the ld. counsel for the assessee placed reliance on the decision of ITAT Bangalore ....