AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (4) TMI 1511
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....g companies are not comparable as their turnover was in excess of Rs. 500 Crores. i. Mindtree Limited {segmental} (1255.8 Cr) ii. Larsen & Turbo Infotech Ltd (2959.5 Cr) iii. Persistent Systems Ltd (810.36 Cr) 2.2 The Hon'ble DRP ought to have appreciated that even the Safe Harbour Rules are treating companies with turnover of Rs. 500 crores as a separate class. 3. Companies having diverse activities and hence not comparable with the Appellant. The LTPO/Hon'ble DRP ought to have appreciated that the following companies having regard to the diverse nature of functions could not be compared to the appellant which renders simple software coding services to its associated enterprise. i. Thirdware Solutions Limited ii. Acropetal Technologies Limited iii. Spry Limited 4. Comparables accepted by the Learned TPO but excluded by the Hon'ble DRP The Hon'ble DRP erred in incorrect reasoning and inconsistent positions in regard to their own positions elsewhere in the order and excluding the following comparables which have been accepted by the Learned TPO and the appellant. i. Sankhya Infotech ii. Kals Information Systems Limited iii. Goldstone Technologies Limited ....
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....r relevant to the AY 2012-13, the assessee has entered into the international transaction with the AE for an amount of Rs. 22.52 Cr. as under: Sl. No. Name of the Associated enterprise Description of the transactions Amount (In Rs) 1 JSS Group Holdings Software Development services 7,16,13,370 2 Shlpnet As, Norwa 15,16,33,240 3 ISS Group Holdings, UK Miscellaneous Expenses 3,11,454 4 Inchcape Shipping Services (Dubai) LLC, UAE Reimbursement of expenses 62,821 5 Inchcape Shipping Services (UK) Limited 3,59,305 6 ISS UK Hub Office, UK 6,37,081 7 Shipnet Asia Pte Ltd, Singapore 1,06,800 8 Shipnet As-Norway 3,46,889 9 ISS Shipping India Pvt. Ltd 1,47,943 10 Inchcape Shipping Services India Private Limited 3,376 Total Rs. 22,52,22,278 4.0 The AO has referred the international transaction to the TPO for determining the ALP of international transaction: The assessee has adopted the TNMM as most appropriate method and conducted the TP study and held the international transactions of the assessee with AE are at Arm's Length price. 4.1 Functions performed by M/s. Shipnet Software Services India Private Limited and its AE's are described as under:....
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....15.01 R S Software India Ltd 15.31 Larsen & Toubro Infotech 23.82 Persistent Systems Ltd 24.59 Thirdware Solutions Ltd 28.18 Goldstone technologies ltd 10.88 CTIL Umited 15.83 Acropetal technologies ltd 10.87 Spry Resources P Ltd 25.18 NDS Infotech Ltd 3.56 Sankhya Infotech 5.59 Kals Information 7.05 Average 15.20 Average mean of the comparable companies was worked out to 15.20%. The assessee has claimed economic adjustment towards unutilized premises amounting to Rs. 1,41,92,554/-, adjustment towards depreciation and working capital. After careful study of the objections raised by the assessee, the TPO rejected the objections of the assessee and calculated the PLI of the assessee @8.35% as against the average mean margin of comparables @15.20% and accordingly determined the ALP of international transaction at Rs. 23.73 Cr. against the operating revenue of the assessee at Rs. 22.32 cr. and suggested for upward adjustment of Rs. 1.41 crores as under: 8. PLI Calculation: The PLI calculation of the assessee is as follows: Description (Rs. in Cr.) Operating Revenue 22.32 Operating cost 20.60 Operating Profit 1.72 OP/OC (%) 8.35% AL....
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....see companies is Rs. 22 Crrores and the turnover of the comparable companies selected by the TPO/AO was more than Rs. 800 Cr. The Ld DRP considered the issue of high turnover and relied on the decision of ITAT Bangalore Bench in the case of Society General Global solution Centre (P) Ltd v. DCIT (2016) 69 taxmann.com 336 and Symantec Software Solutions (P)Ltd v ACIT (2011) 11 taxmann.com 264(Mum) and held that the assessee has not made out a case as to how the high turnover has impacted the margins and accordingly rejected the assessee's objection to exclude the above three companies from the list of comparables. As per Rule 10B, for selection of a comparable, Turnover and brand value are not the criteria. The criteria is Functions, Assets and Risks involved. The Ld.TPO in her order observed that the companies have been identified as comparable companies on the basis of FAR and no serious FAR based divergences have been brought by the assessee. The assessee is in the service sector where fixed costs are nominal and cost of service is proportionate to the services rendered by the assessee. The Ld. AR relied on Hon'ble Bombay High court decision in Tax Appeal No.18 of 2015 CIT v. M/s.....
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....essee has wrongly mixed up the functions of group companies of M/s.Mindtree with that of the company itself to arrive at its conclusion of functional difference. Considering above, the objection of the assessee in relation to this comparable is not accepted. 4.4 The assessee has also objected to inclusion of M/s.L&T Infotech as comparable by claiming that the same is involved in other segments of business and that segmental details are not available. However, on examining the annual report of the company it is observed that there is some resale of products, however the cost of bought out items for resale is only Rs. 22.82 crore as against total operating expenditure of Rs. 2358.85 crore i.e. a meagre 0.97%. Thus the effect of such sale would hardly be there in the case of this comparable. As regards assessee's reliance on information from the website for showing different functions performed by the company, the same is misplaced as the same represent the state of affairs at the time when website is accessed and not the past years. Further the details in the website are only indicative of the functions which the company is ready to perform but may not have been necessarily perform....
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....omparable companies selected by the TPO in the case of the above three companies are not similar to that of the assessee company and having diverse nature functions. The objections raised by the Ld.AR for each company has been examined by us and the decision of this Tribunal is as under: 9.2 M/s.Thirdware Solutions Ltd: The TPO has selected the M/s.Third Ware Solutions Ltd., with 28.18% of PLI and Rs. 105.68 Cr. turnover as comparable. The Ld.AR objected for selection of this comparable. According to the Ld.AR, the assessee's company is engaged in development, consulting and related space, major alliances such as Salesforce, oracle, Birst, SAP, Informatica and CXO, cockpit. According to the Ld.AR, the companies are functionally dissimilar which required to be excluded from the list of comparables. The assessee raised the objections before the TPO as well as the DRP and brought out the functional dissimilarity of the comparable company as discussed above. The TPO as well as DRP have summarily rejected the objections raised by the assessee. The Hon'ble Bangalore Bench in M/s.SAP Labs India Pvt. Ltd., reported in IT(TP)A No.1006/Bang/2011 dated 30.06.2016 considered the issue ....
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....Design Service and Information Technology Services. The functions performed by the Engineering Design Services segment of the company cannot be considered as comparable to the ITES/BPO functions performed by the assessee. * The performance of Engineering Design Services is regarded as providing high end services among the BPO which requires high skill whereas the services performed by the assessee are routine low end ITES- functions. * Therefore, this company could not have been selected as a comparable, especially when it performs engineering design services which only a Knowledge Process Outsourcing [KPO] would do and not a Business Process Outsourcing [BPOJ. Respectfully following the decision of ITAT Bangalore, we direct the AO/TPO to exclude the M/s.Acropetal Technologies Ltd., from the list of comparables. 9.5 M/s.Spry Resources Pvt. Ltd: The TPO selected M/s.Spry Resources Ltd., as comparable to the assessee company. The assessee objected before the TPO and the DRP. Both DRP and TPO have rejected the assessee's objection to exclude Spry Resources Ltd. as a comparable. The Ld.AR submitted that the company is mainly engaged in the government projects and in ....
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....the functions of the companies and the turnover of the company are comparable, the same should be included in the list of comparables. 10.1 We heard the rival submissions and perused the material placed before us and deal with the companies removed by the DRP independently as under: 10.2 M/s.Sankya Infotech Ltd: The DRP has found from the Annual Report of the company that it is engaged in-house research and development centre involved in the development activities of new products in the field of simulation and training. During the year the company has debited an amount of Rs. 4.94 crores as R&D expenditure and of this Rs. 4.83 crores was employee cost. That the company is in research and development and thus developing its own intangibles also becomes evident from the fact that intangible fixed assets are only Rs. 78.27 lakhs against intangible assets of Rs. 42.46 Cr. These intangibles include learning management products, training management products, simulator products, knowledge based contents etc., as against the normal intangible software purchase in case of routine software developer. From the above information it is clear that the company is in technical training an....
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....the DRP and the same is upheld. 10.4 M/s.Goldstone Technologies Ltd: With respect to the M/s.Gold Stone Technologies Ltd., also the DRP observed that the functions of the company were dissimilar and it is only engaged in the IT segment not in software development. The findings of the DRP are made available in Para No.4.14 to 4.16 which are extracted hereunder for the sake of convenience: 4.14 While examining the annual report (Page 11 of the report) of M/s. Goldstone Technologies Ltd, this was observed by the Panel that the company is not engaged at all in the development of Software. The report of the company reads as follows: 'One area where Goldstone has succeeded is with the Business intelligence ('BI') platform, which is a "Top Driver" for the organizations' in 2012-2013. BI is a strong decision making platform and shows a positive growth curve in interactive visualization, predictive analysis dashboards and online analytical processing with highest ease of use. Goldstone has a long history and many great resources within the BI segment. Our current BI Practice is geared to provide a next generation feature rich, Low cost solution that can be deployed by both SMB's....
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....rected to exclude this company from the list of comparables. The Ld.AR of the assessee failed to rebut the findings of the DRP. The DRP relied on the decision of ITAT Bangalore in M/s. Trilogy EBusiness Software v. DCIT ITAT No.1054/Bang/2011 AY 2007-08. Therefore, we do not find any reason to interfere with the directions of the DRP and the same is upheld. 11.0 Ground No.5 is related to the inclusion of the following comparable selected by the assessee which were rejected by the TPO: * CG-VAK Software Exports * Avani Cimcon Technologies 11.1 M/s.CG-VAK Software Systems Ltd.: Both TPO & DRP have rejected the assessee's request for inclusion of the above two companies as comparables. The assessee relied on the decision of TIBCO Software India Pvt. Ltd. V. DCIT in ITA No.2536 (PN) of 2012 and argued that Persistence Loss making company is not a reason for exclusion of the comparable companies. We heard both the parties and perused the material placed on record and gone through the decision of Co-ordinate Bench in the case law cited supra. The Hon'ble ITAT in the case of TIBCO Software India Pvt. Ltd. V. DCIT in ITA No.2536 (PN) of 2012 [2015] 56 taxmann.com 91 (Pune-Tr....
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....he Hon'ble ITAT, it is also observed that the Hon'ble ITAT directed to include the company in the list of comparables for the reasons that the company is not making consistent losses. In the case of comparable company, the company is making persistent losses right from 2008-09 onwards. The assessee in its transfer document in Page No.267 of Paper Book has excluded the companies making persistent lossess from the list of comparables. When the assessee himself has accepted that companies making persistent losses as not good comparables in its transfer documentation, we do not find any reason to dispute with the assessee's stand and to include the same as comparable since the company is incurring persistent losses. Therefore, the assessee's request to include M/s.CG-VAK software Systems Ltd., in the list of comparables is rejected. 11.2 M/s.Avani Cimcon Technologies Ltd.: The assessee's requested for inclusion of M/s.Avani Cimcon Technologies Ltd., which was selected by the assessee as comparables. The TPO excluded the company from the list of comparables since the company is engaged in products such as dexchange and financials does not give segmental data of software d....
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....epreciation adjustment charged in excess of Schedule-4 of Companies Act: The DRP has rejected the assessee's request for adjustment of excess Depreciation placing reliance on the decision of Lason India Pvt. Ltd. V. ACIT [2012] 50 SOT 583/19.Taxmann.com 323 (Chennai). The Tribunal rejected the claim of the assessee with the following observations: The assessee provided depreciation on assets under SLM at the rates higher than those provided in Schedule XIV, whereas the comparables provided for depreciation as per Income tax Rules on written down value method The assessee claimed before the Tribunal that if depreciation of the assessee is also brought to the w.d.v. method, then its operating profit would be more. The Tribunal rejected this claim of the assessee. So following the decision of jurisdictional Bench the objection of the assessee cannot be accepted. Since the DRP has rejected the assessee's request for adjustment of Depreciation placing reliance on the decision of this tribunal we do not find any error in the direction of the DRP and the same is upheld. The assessee's appeal on this ground is dismissed. 15.0 Ground No.8 unutilized capacity adjustment: Th....