TaxTMI 
TaxTMI 
2021 (1) TMI 160
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....nsfer pricing adjustment (b) Whether the Ld DRP was justified in directing the AO to follow the decision of Karnataka High Court rendered in the case of Tata Elxsi Ltd, i.e., exclusion of expenses incurred in foreign currency from both export turnover and total turnover. 4. The facts relating to the case are discussed in brief. The assessee company was earlier known as "ABB Global Industries & Services Ltd.". It belongs to M/s ABB group. It is providing software development services to its AE which includes developing software, configuration, testing activity. It also deputes its engineers on need basis for providing IT support. Though the assessee has entered into various types of international transactions with its AEs, we are concerned with Software development activity only, since the TPO has made transfer pricing adjustment in respect of software development services only. 5. Both the parties are in appeal in respect of addition relating to Transfer pricing adjustment. The facts relating to the same are discussed in brief. The assessee has provided software development services to its Associated Enterprises (AEs). The turnover of the assessee in the segment of Provision of....
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....ns Limited (b) Persistent Systems Limited (c) Sasken Communications Technologies Ltd and inclusion of (a) Akshay Software Technologies Ltd and (b) LGS Global Ltd (c) R.S Software Ltd (c) Mindtree Ltd. (d) Evoke Technologies P Ltd. 5.4 The revenue is challenging the decision of Ld DRP in excluding all ten comparable companies listed earlier. 5.5 The Ld A.R submitted that all her submissions are supported by the decision rendered by co-ordinate bench of Tribunal in the case of (i) M/s Applied Materials India Pvt Ltd vs. ACIT (IT(TP)A No.17 & 39/Bang/2016) (ii) Electronics Imaging India P Ltd vs. DCIT (2017)(85 taxmann.com 124)(Bang.) 5.6 The Ld A.R further submitted that the assessee is now accepting for inclusion of M/s R.S. Software (India) Ltd, M/s Evoke Technologies Ltd and M/s Mind Tree Ltd as comparable companies. He further submitted that the remaining companies have been held to be not good comparable companies by hosts of case laws. Since the comparability of companies depends upon parity of facts and since the said aspect has been examined by the Tribunal, the decisions rendered by the Tribunal may be followed. 5.7 We heard Ld D.R and perused the reco....
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....erned, vide para 8 of the order of Tribunal in Electronics for Imaging (I) Pvt. Ltd. (supra), exclusion of Acropetal was upheld on the ground that this company was into development of computer products. The Tribunal also held that L&T Infotech Ltd. had RPT at 18.66% and since the RPT was beyond the threshold limit of 15%, this company was directed to be excluded from the list of comparable companies. The Tribunal further excluded Tata Elxsi Ltd. from the list of comparables on the ground that this company was engaged in diversified activities and was not a pure SWD services provider such as the assessee. In para 9 of the aforesaid order, the Tribunal held e- Infochips Ltd., was earning revenue both from the software services and software products and though the break-up of revenue from the two segments were available, but the break-up of Operating Cost and Net Operating revenue and segmental details were not available. 12. As regards e-Zest Solutions Ltd., in the case of Symantech Software & Services (I) Pvt. Ltd. v. DCIT, ITA No.614/Mds/2016, this company was held to be engaged in Knowledge Process Outsourcing (KPO) and cannot be regarded as a SWD services company. 13. The Tri....
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....in the case of Saxo India P Ltd (supra), but finally it excluded E Zest Solutions Ltd. We noticed earlier that the Tribunal has retained this company in the case of Saxo India P Ltd. Hence, there is an error in the order passed in the case of AMD India P Ltd (supra). (e) In the case of Electronic Imaging India P Ltd (supra), the decision rendered in the case of AMD India P Ltd (supra) was followed. In view of diverse of opinions expressed in various cases, we are of the view that comparability of this company requires fresh examination as held in the case of Applied Materials India (P) Ltd. Accordingly, we restore this company to the file of AO/TPO for examining it afresh. 5.10 With regard to remaining six companies, we confirm exclusion of above said seven companies, following the decisions of Tribunal referred above. Since the assessee has sought for inclusion of three companies out of the ten companies excluded by Ld DRP, viz., M/s Evoke Technologies Ltd, R.S software India Ltd, Mindtree Limited, the ground of revenue in respect of above said three companies are allowed. 5.11 In the appeal of the assessee, the assessee seeks exclusion of all the three companies retained by....
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....ning two companies, which assessee seeks inclusion are Akshay Software Technologies Ltd and LGS Global Ltd. 5.16 We heard the parties on this issue and perused the record. With regard to M/s Akshay Software Technologies Ltd, the Ld A.R submitted that the same has been considered as good comparable in the assessee's own case in AY 2005-06. However, we notice that the co-ordinate bench of Tribunal has examined this company in the case of M/s Applied Materials India P Ltd (IT(TP)A No.17/Bang/2016 dated 21.09.2016) relating to assessment year 2011-12, i.e., for the year under consideration and held the same to be not a good comparable. 5.17 With regard to M/s LGS Global Ltd, we notice that the coordinate bench has remanded the same to the file of AO/TPO in the very same case of M/s Applied Materials India P Ltd (supra). For the sake of convenience, we extract below the relevant observations made by the Tribunal in the case of M/s Applied Materials India P Ltd (supra):- "11. The next ground of assessee's appeal is regarding seeking inclusion of some of the comparables in the set of comparable companies which are as under : (i) Akshay Software Technology Ltd. (ii) Powersoft Glob....
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....cess of 90% of its operating expenditure. In our opinion, it is normal to have a high percentage of employee cost in a software development company, especially so, when the company is involved in development of software for clients at the site of the clients. Reason given by the DRP, in our opinion, was not correct. Higher employee cost is a normal feature for a software development company for the simple reason that it is a skill oriented business. The skillset required for the employees in the case of the assessee, required knowledge of Arabic also, making it all the more scarce. In any case, for A. Y. 2009-10, M/s. Akshay Software Technologies Ltd was considered as a proper comparable and not excluded. In his order dt.07.01.2015 for A. Y. 2009- 10, after applying the onsite revenue filter of 50%, TPO himself had considered M/s. Akshay Software Technologies Ltd, as a proper comparable. As to the argument of the Ld. DR that Related Party Transaction, volume of M/s. Akshay Software Technologies was not provided by the assessee, leading to its rejection, we find that assessee had at para 5.172 and 5.173 of its objections before DRP, submitted that RPT of the said company was 4.33%....
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....ice provider the major component is employee cost and there is hardly any purchases therefore even if the employee cost is not separately reported, the composite of purchase and employee cost constitute 83.91% of sales. Thus he has submitted that this company should be included in the list of comparables. 13.3 On the other hand, the learned Departmental Representative has relied upon the orders of the authorities below and submitted that there is no dispute that this company has not reported employee cost separately and therefore it is not possible to ascertain the employee cost and to apply employee cost filter. Further this company has also shown its goodwill in its balance sheet and therefore the intangible assets renders this company non-comparable to the assessee. 13.4 We have considered the rival submissions as well as the relevant material on record. This company has shown the purchases and personnel cost at page 39 of the Annual Report as a combined expenditure as under : Purchases & Personnel Cost : Rs. 250,61,55,607. Therefore the cost of employee is not separately reported by this company. Further it is not clear whether the goodwill is self-generated or acquired i....