TaxTMI 
TaxTMI 
2020 (12) TMI 213
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....nues, thereby seeking exact comparability while searching for comparable companies of the assessee under TNMM method, whereas requirement of law and international jurisprudence require seeking similar comparable companies. Also, the nature of activity, i.e. software development remains the same, irrespective of the company engaged in providing onsite offshore services. 3. The DRP erred in directing the AO to exclude M/s. Larsen & Toubro info Tech Ltd. and MIs. Acropetal Technologies Ltd,. on the ground that they have significant onsite revenue, without appreciating the fact that onsite developments of software entails more cost and thereby results in power profit margins. 4. The DRP erred in directing the AO to exclude M/s. Acropetal Technologies Ltd., from the list of final comparable also for the reason that clear segmental information of the employee cost was not available. Without appreciating that proper segmental information was available on prowess database as well audited finials. 5. The DRP erred in directing to exclude E-infochips Ltd, from the list of comparables holding these no segmental information is available and that it fails 75% services....
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....ire seeking similar comparable company and moreover, the requirement of law and international jurisprudence require seeking similar comparable companies while searching for comparable companies under TNMM. The DRY has also not appreciated that there have been no projects in visual computing labs during the relevant previous year. Corporate issue:- 11. The DRP erred in directing the AO to follow the ratio laid down by the Honble court in the case of Tata Elxsi Limited 349 ITR 98 and exclude travel and conveyance expenses as well as expenditure on repairs and maintenance, from the total turnover also, while computing the deduction u/s. 10 A of the I.T. Act, Without appreciating the fact that there is no provision in section 10 A that a such expenses should be reduced from the total turnover also, as clause (iv) of the explanation to section I OA provides that that Such expenses are to be reduced only from the export turnover." CO No. 7/B/2017 (by assessee) 1. The directions dated December 28, 2015 passed by the Honorable Dispute Resolution Panel ("DRP") in so far as it relates to the following ground are opposed to law and facts of the case. ....
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....r software development services rendered by it and applied TNMM as most appropriate method to compute arms length of the international transaction by using OP/OC as PLI. Assessee had computed the margin of comparable at 10.22%, thereby holding the transaction to be at arms length. Name of company Margin Akshay Software Technologies Ltd. M/s.CG-VAK Software & Exports Ltd Evoke Technologies Pvt.Ltd Helios & Matheson Information Technology Ltd. LGS Global Ltd M/s.LGS Global Ltd. M/s.Melstar Information Tecnology Ltd. RS Systems International Ltd RS software (I) Ltd M/s.Sasken Cmmunication Technology Ltd Mean 12% 6. Ld. TPO though agreed with most appropriate method, however, was of the opinion that, TP study filed by assessee was unreliable. Ld. TPO thereafter applied certain filters and selected following 13 comparables. Sl. No Company name Net margin as per TP order 1 Acropetal Technologies Ltd. 31.98% 2 E Zest Solutions 21.03% 3 E-Infochips Ltd 56.44% 4 Evoke 8.11% 5 ICRA Techno Analytics ....
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....le profit by following decision of Hon'ble Karnataka High Court in case of CIT vs. Yukogava India Ltd. reported in (2012) 21 Taxmann.com 154. 13. On receipt of DRP directions, Ld. AO passed final assessment order by making, transfer pricing addition as per proposed adjustment by Ld. TP O. 14. Aggrieved by order of Ld. AO, revenue is in appeal before us. Assessee filed cross objection against the appeal filed by revenue. In revenue's appeal, grounds raised pertain to application of "on-site revenue filter" and selectively rejecting certain comparables. It has also been alleged that DRP excluded E-Infochips Ltd., on the ground of having service income less than 75% of sales, which is alleged to be contrary to observations of Ld. TPO. It is also alleged that certain comparables have been excluded functional incomparability. Revenue alleged exclusion of following comparables: * M/s. Acropetal Technologies Ltd. * M/s. L&T Infotech Ltd. * E-Infochips Ltd. * ICRA Techno Analytics Ltd. * E zhest Solutions Ltd. * Infosys Technologies Ltd. * M/s. TATA Elxi Ltd. 15. Other issues alleged by revenue is in respect of....
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....e development services to its associated enterprises. For the provision of said services, BCTPL is compensated on a cost plus basis. Assets Owned: 24. It has been submitted that assessee owns routine tangible assets like, furniture, fixtures, computers etc. It is also submitted that it does not possess nor does it develop any non-routine valuable intangibles. Risk Assumed: 25. Assessee does not bare any contract and service liability risk as it render services solely to AE. It has been submitted that assessee is compensated on a cost plus basis and is therefore insulated from the risk of under utilisation of capacity. It is also submitted that Foreign exchange fluctuation on risk is also vests with AE. Characterisation 26. Based on the above, it can be concluded that assessee is bearing substantially less than normal risks, as it performs limited functions with guidance provided by AE. We first take up appeal filed by revenue in ITA No. 482Bang/2016 Ground No. 2-4: 27. Ld. CIT. DR submitted that, DRP applied applying "on-site revenue filter" selectively respect of following comparables: * Acropetal Technologies Ltd * L&T Infotech Ltd., ....
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....ider like assessee. 33. At this juncture, we note that application of 'suo moto' on site revenue filter has been considered by this Tribunal for same assessment year in following cases, where DRP excluded same comparables. We also not that, DRP therein excluded same set of comparables, based on identical observations: * DCIT vs. CGI Information Systems & Management Consultation (P.) Ltd. reported in [2018] 93 taxmann.com 9 * DCIT Vs. Herbalife International India (P.) Ltd. reported in [2019] 111 taxmann.com 244 * HP decision 34. We note that under similar circumstances this Tribunal in case of DCIT vs. CGI Information Systems (supra) observed as under: "19. Acropetal Technologies Limited-As far as exclusion of this company as a comparable company is concerned, it is seen from the Directions of the DRP at paragraph 2.7 at page-9, that this company was excluded on the grounds that: (i) the segmental information containing the break-up of its export sales and employee costs, was not available and it was not possible to ascertain if it passed the export earnings and/or employee costs filters; and (ii) a substantial portion of its softwa....
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...., for the purposes of comparability to the Assessee's software development services; and (iii) predominantly engaged in the onsite development of software in FY 2010-11. The learned DR submitted before us that the Assessee's profile also is similar to the profile of L & T Infotech Ltd. and therefore this company should be included as comparable company. He also submitted that what is the quantum of on-site revenue has not been spelt out by the DRP. In this regard it was argued by him that on-site revenue beyond 25% of the total revenue of the company would be beyond the tolerance level and without a finding that on-site revenue is more than 25% of the total revenue, this company ought not to have been excluded from the list of comparable companies. We agree with the submission of the learned DR that for application of on-site revenue filter, the DRP ought to have given a finding regarding the quantum of revenue from on-site software development. Nevertheless, this company goes out of comparability on the ground that the profit margins adopted by the TPO was from 3 divisions of the Assessee. We also find, as submitted by the learned counsel for the Assessee this company was ....
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....nch of this Tribunal in case of Electronics for Imaging India Pvt. Ltd. (supra) wherein, E-Infochips Ltd. is excluded for failing in service income filter. We have perused submissions advanced by both sides in light of records placed before us. 39. It is observed that this Tribunal in case of Autodesk India Pvt. Ltd. vs. ACIT (supra) excluded E-Infochips Ltd., by following view taken by this Tribunal in case of Commscope Network (India) Pvt. Ltd. Limited vs. ITO in IT (TP) A/Bang/2016 dated 22/02/17 wherein, this company was excluded for reason that, there is no segmental information regarding diverse functions performed by this company and that there was major fluctuation in its profits, which influenced turnover of this company. We also note that this Tribunal in case of DCIT vs. CGI Information Systems (supra) had encountered with an identical situation for year under consideration. This tribunal observed as under: "24. As far as ground No. 4 raised by revenue is concerned, the said ground of appeal is weak and any event comparability of companies that were excluded by the DRP were on valid grounds contemplated by the relevant statutory provisions of the act and rule....
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....IT. DR thus submitted that, these comparables are into SWD and is functionally similar with assessee and deserves to be included. 43. On the contrary, Ld. AR relied on decisions of coordinate bench of this Tribunal in case of Applied Material India Pvt. Ltd. reported in TS-815-ITAT-2015, and GT Nexus Software Pvt. Ltd., Vs. DICT in IT(TP) A Nos. 31&409/Bang/2016 dated 18/4/2017 for same assessment years, which is followed in plethora of other decisions of this Tribunal for exclusion of these comparables. He submitted that all these comparables have been excluded from DCIT vs. LSI India Research Pvt. Ltd. reported in (2017) 83 taxmann.com 357 for assessment year 2011-12, being the Transferee Company as under: "9. Now we decide about the remaining six comparables excluded by the DRP and other four comparables retained by the DRP for which the assessee is seeking exclusion. We find that out of these six comparables excluded by the DRP, one comparable i.e. ICRA Techno Analytics Ltd. is having RPT in excess of 15% and therefore, for this reason alone this company has to be excluded although, the DRP has excluded it for a different reason that it is having various activities ....
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....ven comparables also. Exclusion of E-Infochips Ltd. is covered in favour of the assessee by the tribunal order rendered in the case of Saxo India Pvt. Ltd. v. ACIT in ITA No, 6148/Del/2015 dated 05.02.2016 Para 10.1 & 10.2 available at pages 221 to 223. Respectfully following the same, we uphold its exclusion. In this manner, we uphold the exclusion of six comparables excluded by DRP out of 9 comparables excluded by DRP and exclude 4 comparables retained by DRP and we have already held that out of 9 comparables excluded by DRP, 3 have to come back being 1.) Evoke Technologies Pvt. Ltd., 2) Mindtree Ltd. (Seg) and 3) R.S. Software (India) Ltd. Now, we decide about LGS Global Ltd. As per the tribunal order rendered in the case of Applied materials India Pvt. Ltd. v. ACIT (Supra), this is a good comparable and therefore, we direct the A.O. and TPO to include this comparable. So, there should be 4 comparables in the final list of comparable and on the basis of that, the AO/TPO should work out the ALP". 10. As per the above two paras, reproduced from the order of the Tribunal rendered in the case Commscope Networks (India) (P.) Ltd. (Supra), we find that in that case, the Tribu....