AI Drafter 
TaxTMI 
TaxTMI 
2020 (6) TMI 712
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....0,771 to the arm's length price of the International transactions' of provision of software development services undertaken with the associated enterprise on the basis of order passed by the Transfer Pricing Officer ('TPO')/ Dispute Resolution Panel ('DRP'). 1.2. That the DRP/TPO erred on facts and in law in considering following companies in the final set of comparable companies allegedly holding them to be functionally comparable to the appellant: (i) lnfobeans Technologies Limited (ii) Larsen & Toubro Infotech Limited (iii) Mindtree Limited (segmental) (iv) Thirdware Solution Limited (v) Tala Elxsi Ltd. (segmental) (vi) Cybercom Datmatics Information Solutions Ltd. (vii) lnteq Software Private Limited 1.3. Without prejudice, that the TPO erred on facts in considering incorrect operating profit margin of following companies: (i) Tala Elxsi Limited (ii) Larsen & Tourbo Infotech Ltd. ] 1.4. That the DRP! TPO erred on facts und in law in not allowing appropriate risk adjustment to establish comparability ell account of the appellant being a low-risk-bearing capt....
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....ent made in the preceding year, i.e. assessment year 2010-11 and 2012-13 has been deleted by the Hon'ble Income Tax Appellate Tribunal in their order dated 12.12.2017 passed in ITA No. 1104/Del/2015 and 1115/Del/2017. 2.7. That the DRP/ TPO erred on facts and in law in adding an adhoc mark-up of 400 points on the Libor rate of interest, arbitrarily on account of credit rating risk, security risk, transaction cost etc. 2.8. That the RP/ TPO erred on facts and in law in not appreciating that the in terms of Master Circular No.14/2014-15, Reserve Bank or India allows a period of 12 months to all companies for receiving repatriation of export sales proceeds, and therefore, interest if any, ought to be imputed on the period of delay beyond 12 months." 3. The first issue raised in the present appeal is against the addition of Rs. 9.24 crores (approx.) in relation to international transaction of provision of software development services rendered by the assessee to its Associated Enterprises (in short "AE"). 4. Briefly in the facts of the case the assessee has furnished its return of income declaring total income of Rs. 41.05 crores (approx.). The assessee was ....
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....parables selected by the TPO were considered and finally 10 companies were selected as comparable, whose 35th Percentile and 65th Percentile was 19.36%-28.81%; Median 22.78%. Consequent thereto, TP adjustment of Rs. 25,73,69,131/- was proposed by the TPO. 6. Second adjustment which was made in the hands of the assessee was on account of delay in receipt of payment from the AE. The TPO was of the view that where payment on account of sales to AE was realized, after significant time period, which was beyond the period specified in the Agreement then this was an international transaction, which had to be benchmarked in the hands of the assessee. The TPO relied on Explanation (1)(c) to section 92B, which was inserted by Finance Act, 2012, w.e.f. 01.04.2002 and also section 92S(v) and Rule 10B(2)(c), the TPO observed that the Transfer Pricing Regulations were to be applied keeping in mind the overall scheme of the assessee's business arrangement. The TPO held it to be international transaction within meaning of section 92B(1) of the Act and proposed an upward adjustment of Rs. 6,01,18,689/- on account of outstanding receivables. 7. The Assessing Officer issued draft assessment ord....
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....0 has directed the exclusion of two concerns i.e Larsen & Turbo Infotech Ltd. and Tata Elxsi Ltd. It was further pointed out by the Ld.AR that incase two concerns are excluded the margins of the assessee would be within 35th Percentile and 65th Percentile of mean margins of the comparables. He further pointed out that the third concern Cybercom Datamatics Information Solutions Ltd. was functionally not comparable as it was engaged in the business of development, testing, implementation and other application; though the TPO observed that it had considered the segmental detail, but the Pune Bench of Tribunal in PubMatic India (P.) Ltd. vs ACIT (ITA No.655/Pun/2017) Assessment Year 2012-13 vide order dated 09.03.2018 had excluded the said concern on account of financial dissimilarity with the concern engaged in providing software development services. He thus submitted that the margins of the said concern also should be excluded from the final set of comparables. 9. The Ld.DR for the Revenue on the other hand strongly placed reliance on the directions of the DRP and fairly conceded that as far as exclusion of Larsen & Toubro Infotech Ltd. & Tata Elxsi Ltd. are concerned then the di....
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....ly selected was as under:- S.No. Name of Company Margin as per TPO order OP/OC 1. Akshay Software Technologies Ltd. 0.07% 2. CG-VAK Software & Exports Ltd. 9.39% 3. E-Zest Solutions Ltd. 12.48% 4. Tata Elxsi Ltd. (SEGMENTAL) 18.68% 5. Mindtree Ltd. (SEGMENTAL) 22.12% 6. Inteq Software Pvt.ltd. 23.44% 7. Larsen & Toubro Infotech ltd. 25.22% 8. Infobeans Technologies Ltd. 33.06% 9. Thirdware Solution Ltd. 37.31% 10. Cybercom Datamatics Information Solutions Ltd. 70.28% 35th Percentile 18.68% 65th Percentile 25.22% Assessee's margin 18.06% 13. The limited issue which has been raised by the assessee before us is in respect of inclusion of certain concerns as functionally comparable to the assessee. First such concern against which the assessee is in appeal before us is Larsen & Toubro Infotech Ltd. and case of the assessee is that the margins of the said concern cannot be included because of functional dissimilarity and distorted segmental account. The company is engaged in the business of software product, computer programming, consultan....
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....round that where the concern had three business segments then it was not functionally similar to a concern providing only software development services. The Hon'ble Delhi High Court in ITA No.515/2017 also dismissed the appeal filed by the Revenue. 19. We are of the view that where the company i.e. Larsen & Toubro Infotech Ltd. was engaged in three business segments which are also reported in the segmental reporting in the annual report of the said company, then such a concern cannot be selected as functionally similar to the concern providing only software development services. Coming to the segmental result, the company itself had reported unallocable expenses of Rs. 193.89 crores; then such segmental detail cannot be relied upon as the margins of the said concern cannot be finalized in the final analysis. 20. The Tribunal in assessee's own case in ITA No.4740/Del/2018 relating to Assessment Year 2014-15 vide order dated 01.05.2020 has directed the exclusion of the said concern from the final list of comparables while benchmarking the ALP of the international transaction by the assessee with its AE. Before parting, we may also refer to an extraordinary event under which Lar....
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.... of the said company from the final set of comparables on account of functional dissimilarity. 24. We find merit in the plea of the assessee in this regard; as the business profile of the assessee and of the comparable company selected are similar as in earlier years. Following the same parity of reasoning, as in earlier year, we direct the exclusion of Tata Elxsi Ltd. from the final set of comparable. The Ld.AR for the assessee had pointed out that in case the margins of the two concerns i.e. Larsen & Toubro Infotech Ltd. and Tata Elxsi Ltd. are excluded from the margins of the finally selected concerns, then the 35th Percentile and 65th Percentile of the comparable would be 12.48%-33.06% as against the margin of the assessee at 18.06%. Accordingly, no adjustment has to be made in the hands of the assessee on account of ALP of the international transaction undertaken by the assessee with its AE. We direct the Assessing Officer/TPO to delete the adjustment made in the hands of the assessee. 25. Before parting, we may also consider the plea of the assessee for the exclusion of the concern Cybercom Datamatics Information Solutions Ltd. The said concern was included in the final....