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2018 (7) TMI 2150
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....e and void abinitio. 2. That assessing officer erred on facts and in law in determining income of the appellant at Rs. 6,91,16,570 against the total income returned by the appellant of Rs. 2,86,27,959. Transfer Pricing Matters: 3. That the assessing officer erred on facts and in law in making an addition of Rs. 3,87,23,769 to the income of the appellant, on account of the alleged difference in the arm's length price of the international transactions of rendering software services undertaken during the previous year, on the basis of the order passed under section 92C(3) of the Act by the TPO. 3.1 That the TPO / DRP erred on facts and in law in not appreciating that outsourcing costs, being pass through items, ought to be excluded from the cost base of the of the appellant for the purpose of bench marking analysis, applying TNMM('transactional net margin method'). 3.1.1. That the TPO/ DRP erred on facts and in law by not adjudication on the aforesaid ground. 3.2 That the TPO I DRP erred on facts and in law in rejecting the following companies by applying filter of 75% export sales: (i) Blue Star Infotech....
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....acts and in law in computing the average margin (OP/OC) of the comparables at 19.64% as against 18.25%. 3.10. That the TPO erred on facts and in law by failing to appreciate that there should be no transfer pricing adjustment in respect of provision for software development services as the appellant's margin at 13.14% falls within +/-5% range after taking into consideration correct margin of the comparable companies at 18.25%. 3.11. That the TPO / DRP erred on facts and in law in not allowing appropriate risk adjustment for the purpose of benchmarking the international transaction of provision of software services undertaken by the appellant allegedly holding that in absence of robust and reliable data risk adjustment could not be considered. Corporate Tax Matters: 4. That the assessing officer erred on facts and in law in disallowing deduction under section 10A of the Act to the extent of Rs. 17,64,838/- with respect to unbilled revenue of Rs. 95,58,274 recorded by the appellant. 4.1. That the assessing officer erred on facts and in law in reducing the unbilled revenue amounting to Rs. 95,58,274 from export turnover for the purpose ....
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....d to Ld.TPO under section 92CA of the Act. Ld.TPO called for various details and observed that assessee is engaged in the business of providing software development and related services to its Associated Enterprises. It was observed that assessee undertook following international transactions:- No Nature of transaction Approach to taxpayer Value of transaction 1. Provision of oftware development services TNMM OP/OC Rs. 56,99,17,912/- 2. Payment of outsourcing costs TNMM OP/OC Rs. 5,64,57,819/- 3. Payment of management services TNMM NA Rs. 11,24,993/- 4. Payment of lease rent TNMM NA Rs. 52,54,085/- 5. Purchase of fixed assets TNMM NA Rs. 2,74,068/- 6. Reimbursement of expenses to AEs TNMM NA Rs. 1,11,32,096/- 7. Payment of royalty for using brand name TNMM NA Rs. 8,81,159/- Ld.TPO computed Arm's length price with respect to software development services at Rs. 63,41,55,955/- and proposed an adjustment of Rs. 6,13,66,720/-. Assessee filed objections before DRP against draft assessment order passed by Ld.AO. DRP issued directions u/s 144C(5), pursuant to....
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....ich are functionally different. C) Ld.TPO considered incorrect profit margin despite DRP directions. Issue A 4.4. Ld.Counsel submitted that earning from foreign exchange fluctuation has to be treated as operating income of assessee, however, even after directions by DRP, Ld.TPO failed to consider it. He placed reliance upon the decision of Hon'ble Delhi High Court dated 08/02/16 in the case of DCIT vs. Agilis Information Technologies International Pvt.Ltd., in ITA No. 907/2015, wherein decision of DCIT vs. Fiserve India Ltd dated 06/01/16 has been followed. Hon'ble Court refused to admit the appeal of revenue, against order of Coordinate Bench on the issue that foreign exchange fluctuations are operating expenses. Ld.Counsel submitted that this issue is now squarely covered in favour of assessee by decision of jurisdictional High Court. 4.5. Ld. DR, however, placed reliance upon the order of Ld. TPO/DRP. 5. We have considered rival submissions advanced by both sides in light of records placed before us. 5.1. It is observed that in assessee's own case for AY 2009-10 Coordinate Bench of this Tribunal in ITA No. 926/Del/2014 and 2776/Del/2015 has held foreign e....
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....erformed by assessee, assets involved and Risks assumed by assessee for the year under consideration. Functions performed from the TP study place in the paper book at page 14-102, it is observed that assessee is engaged in providing software development services to its group AE, for which assessee is compensated in accordance with the fee schedule set forth in each purchase order. This broadly assessing performance the following functions: Marketing and business development assessee identifies customers and marketing lies with AE group concerns. Assessee has no role to play in the business development efforts of AE however assessee has to participate in competitive bidding for obtaining contracts for services from its AE's. Conceptualisation and design of software assessee has no involvement in specifications/requirement analysis. All such activities are carried out by AE and assessee simply engaged in provision of software-based on requirements/specifications and instructions provided by AE. Provision of software development services Assessee works on different projects which involve provision of software services to the NEC group/its customers on the....
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....e regular office equipments like computers furniture and fittings software's etc which are accounted after depreciation as on the date of your ending. Thus in the TP study report assessee has been categorised as a full-fledged enterprise no real service provider engaged in the business of software development services. Based upon the above analysis we shall undertake the comparability. (i) Persistent Systems Ltd 6. Ld. Counsel submitted that this comparable has been included by Ld. AO/TPO. It was submitted by Ld.Counsel that this comparable has already been rejected by Coordinate Bench of this Tribunal in assessee's own case for Assessment Year 2010-11 in ITA No.1102/Del/2015. Ld.Counsel placed reliance upon various other decisions like in case of Cash Edge India Pvt. Ltd., vs. ITO in ITA No. 279/2016, wherein Hon'ble Delhi High Court observed this company to be dealing in software products and earns income from sale of both software products as well as services. It has also been observed that for the year under consideration this company was having insufficient segmental information. 6.1. Ld. CIT DR placed reliance upon the order of Ld. TPO. 6.2. We have co....
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....the view taken by Coordinate Benches of this Tribunal as well as Hon'ble jurisdictional High Court, direct exclusion of this comparable from the list. Zylog systems Ltd 8. This company has been included by Ld. TPO. Ld.Counsel submitted that it provides IT services that offers differentiated services in delivering specific business and technology solutions. He submitted that this company is mainly into outsourcing of software development services and maintenance of technology services. It has been submitted that revenue earned by this company is from software services and software products which does not have separate segmental information. Ld.Counsel submitted that products delivered by this company are owned by it and therefore holds intangibles in respect of the same. He thus submitted that it cannot be considered as a captive service provider. 8.1. On the contrary Ld. DR placed reliance upon the order of Ld. TPO/DRP. 8.2. We have perused the submissions on the basis of the records placed before us. 8.3. In our view the company owns brand in respect of the products developed by it. It is also into research and development activities and owns significant intangibles....
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....he rival submissions of both sides in the light of records placed before us. Ld. Counsel submitted that Wipro Technology Services Limited (formerly Citi Technology Services Limited) ('the Company') was incorporated on 15 September, 2004. The entire share capital of the Company was held by Citicorp Banking Corporation, a company incorporated under laws of Delaware, USA, upto 20 January, 2009. It was submitted that Wipro Limited (Wipro) executed agreement with Citigroup Inc. for acquiring all of Citigroup interest in the Company w.e.f. 21 January 2009. On 21 January 2009, Wipro signed master service agreement (MSA) with Citigroup Inc. for delivery of technology infrastructure services, application development and maintenance services After acquisition by Wipro, name of Company was changed to Wipro Technology Services Limited ('WTS' or 'the Company') on 16 March 2009." 10.3. It is observed from the above that, Wipro Technology Services Ltd., which was earlier Citi Technology Services Ltd., was held by Citi Corp. Banking Corporation, USA upto 20th January, 2009. Wipro Ltd., parent company of which executed agreement with Citi Group Inc., for acquiring Citi Technology Services ....
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....determined in substance between the third person and AE. When we consider section 92B(2) in combination with Rule 10A(a), it follows that transaction between non-AEs shall be construed as a transaction between two AEs, if there exists a prior agreement in relation to relevant transaction between third person and AE. If such an agreement exists, third person is also considered as an AE, and transaction with such third person becomes 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). Adverting to the facts of the instant case, we find that Wipro Technology Services Ltd. earned 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 a....
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....,314/-under profit and gains from business, which is supported by Form 56F issued by a Chartered Accountant. Ld.Coundel submitted that Competent Authority as specified under section 10 A (3) means, Reserve Bank of India and Reserve Bank of India allowed a period of 12 months from the date of export for STPI unit for purposes of realisation and repatriation of export value. He further submitted that based on the above, recognised unbilled revenue has been recorded mandatorily as per Accounting Standards-9 on a proportionate completion method. 11.7. Ld.AO disallowed claim of assessee on the basis that the unbilled portion of revenue was received by assessee during Financial Year relevant to Assessment Year 2012-13 and the said clause of 10 A ends with assessment year 2011-12, which means assessee cannot claim deduction under section 10 A beyond assessment year 2011-12. In this regard we are of the opinion that RBI had allowed assessee to receive unbilled revenue from the export within a period of 12 months from the date of export. And section 10 A (3) allows the period granted by appropriate authority, in this case being RBI. The agreements entered into by assessee with the partie....
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....lso functionally similar to that of assessee. He placed reliance upon the order of Ld. TPO. 15.2. On the contrary Ld.Counsel submitted that Infosys Ltd. has been rejected as a comparable by Coordinate Benches of this Tribunal in various cases like Alcatel Lucent India Pvt. Ltd. for Assessment Year 2003-04, 2004-05 and 2011-12. Copies of the respective orders are placed in the case law paper book. The decision by Hon'ble Delhi High Court in case of M/s Agnity India Technologies Pvt.Ltd in ITA No. 1204/11, upheld the decision of this Tribunal in ITA No. 3856/Del/2010. It has been submitted that this company has significant R&D expenditure and advertising/sales promotion expenses, brand building expenditure, whereas assessee do not undertake any of these expenditures. In respect of the product development, Ld.Counsel submitted that Infosys develops its own proprietary products and owns intangibles in respect of the same and therefore cannot be considered as functionally similar. 15.3. We have perused the submissions in the light of records placed before us. 15.4. It is observed that this company is involved in integrated services and therefore it is functionally dissimilar. U....