AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2020 (11) TMI 958
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....of Incometax, Transfer Pricing -i(i)(i) ("learned TPO") in not accepting the Transfer Pricing ("TP") Study/economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Income-tax Rule, 1962 ("the Rules"), conducting a fresh economic analysis for the determination of the Arm's Length Price ("ALP") in connection with the impugned international transactions, and holding that the Appellant's international transactions are not at arm's length. 3. That the Hon'ble DRP has erred in upholding the learned TPO's approach using data as at the time of assessment proceedings, instead of that available as on the date of preparing the TP documentation for comparable companies while determining ALP, ignoring the fact that this data was not available to the Appellant at the time of complying with the TP documentation requirements. 4. That the Hon'ble DRP erred in upholding the approach of the learned TPO, in rejecting the Appellant's contentions against the use of information under section 133(6) of the Act, as that tantamounts to choosing secret comparable companies whose information were not available in pub....
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....ated party transactio] filter of 25% applied by the learned TPO. Additionally, without prejudice to the above contention, the learned TPO has earned in margin computation of the comparable, hence the crfr operating margin is to be considered. 12. That the Hon'ble DRP erred in upholding the approach of the learned TPO, in law and in facts by including Larsen & Toubro Infotech Private Limited, as a comparable whereas this company should have been excluded on grounds of functional dissimilarity. Additionally, without prejudice to the above contention, the learned TPO has earned in margin computation of the comparable, hence the correct operating margin is to be considered. 13. That the Hon'ble DRP erred in upholding the approach of the learned TPO, in law and in facts by including Persistent Systems Limited, as a comparable whereas this company should have been excluded on ground of functional dissimilarity. Additionally, without prejudice to the above contention, the learned TPO has earned in margin computation of the comparable, hence the correct operating margin is to be considered. Information Technology Enabled Services 14. The Hon'....
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....ch statements, documents and papers as may be considered necessary either at or before the appeal hearing." 3. Ld.AR submitted that failure to raise this ground at an earlier stage was not willful and that no new facts needs to be investigated upon in order to adjudicate these grounds. It has been submitted that by way of abundant caution assessee raises exclusion of certain comparables on turnover filter. He also submitted that in the event these comparables are excluded based on turnover filter other grounds relating to exclusion of the same comparables on other dissimilarities need not be adjudicated. 4. On the contrary Ld.DR submitted that turnover filter is not a relevant criteria based on which comparables could be considered for exclusion. He thus objected for admission of additional ground. 5. We have perused the submissions advanced by both sides and records placed before us. 6. The additional ground raised vide application dated 09/06/2020 is fundamental to the appeal and the nonadmission of the same would result in an incomplete appreciation and adjudication of the matter. The Petitioner submits that failure to raise this ground at an earlier stage either nei....
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....e technologies Ltd. * Evoke Technologies Pvt. Ltd. 15. In Ground 10, 12, 13 assessee alleges following comparables for exclusion being: * CG-VAK Software and Exports Ltd. * Larsen and Toubro Infotech Pvt Ltd. * Persistent Systems Ltd. 16. Ld.AR submitted that, in respect of ITeS services, assessee wishes to allege following comparables for exclusion raised in Ground 15-17. He submitted that these comparables are to be excluded on turnover filter which has been raised by way of additional ground * Capgemini Business Services(India) Ltd., * Infosys BPO Ltd., * Harton Communications Ltd., Brief facts of the case are as under: 17. Assessee filed its return of income for year under consideration on 30/11/2013 declaring total income of Rs. 5,34,58,390/-. It has been submitted that assessee is engaged in the business of development and technical maintenance work in certain intellectual property and knowhow related to certain products and systems. Ld.AO noted that during the year assessee had international transaction more than Rs. 15 Crores, and therefore, the case was referred to Ld.TPO to determined arm's length ....
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....ables under both segments: SWD Segment S.No. Comparables Margin 1. CG-VAK Software Exports Ltd. 20.54% 2. ICRA Techno Analytics Ltd. 17.10% 3. Larsen & Toubro Infotech Ltd. 26.06% 4. Mindtree Ltd. (Seg) 18.19% 5. Persistent Systems Ltd. 28.27% 6. RS Software (India) Ltd. 17.41% 7. Tech Mahindra Ltd (Seg) 18.72% Average Margin 20.90% ITES Segment S.No. Comparables Margin 1. Acropetal Technologies Ltd. 24.16 2. Microgenetic Systems Ltd. 16.34 3. Jindal Intellicom Ltd. -3.00 4. Hartron Communications Ltd (Seg) 44.07 5. Microland Ltd. 8.62 6. Capgemini Business Services (India) Pvt. Ltd. 26.78 7. Tech Mahindra Ltd (Seg) 22.27 8. e4e Healthcare Business Pvt. Ltd. 17.26 9. Infosys BPO Ltd. 29.28 Average Margin 20.64 21. Ld.TPO thus computed shortfall being the proposed adjustment under both segments as under: SOFTWARE DEVELOPMENT SERVICES Arm's Length Mean Margin on cost 20.90% Less: Working Capital Adjustment -1,38% (As per ....
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....on 01/07/2003 and with Consona Corporation on 01/01/2011. Functions: 28. Functions performed by assessee under this segment includes unit level testing and integration testing on specified parameters. Once the software is developed and tested, it is given to AE which then undertake the integration of the software into the system. The software thus integrated and bundled with the products are sold in the market. It has been submitted in the TP analysis that assessee undertakes Ltd functions under this segment and is compensated on a cost plus basis. Business process outsourcing services: 29. Assessee provides BPO service to its AE, Cimnet LLC pursuant to agreement dated 01/11/2004. Under this segment services include back-office support and designing of printed circuit boards. Functions: 30. Functions performed by assessee under this segment include Quote Data Processing, front-and engineering , PreCAM and post-CAM services. It has been recorded in the trans-apprising study at page 420-421 that assessee is compensated at cost plus basis. Assets owned: 31. It has been submitted that assessee does not own any non-routine valuable intangibles. Risks assumed: ....
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....al services, procurement, installation, implementation and support & maintenance of ERP products and services. In the case of Mercedes-Benz Research & Development India (P.) Ltd. (supra), we notice that the co-ordinate bench has considered the nomenclature of "income from software services" given under the head "Revenue from Operations" , which mentioned that the Income from software services was Rs. 19.83 crores. Now the dispute boils down to the nature of functions performed by this company. It is the responsibility of the assessee to show that both the assessee and the comparable company perform similar functions. Before us, the Ld A.R placed her reliance on the decision rendered by co-ordinate bench in order to contend that this company is comparable. However, TPO has issued notice u/s 133(6) of the Act to the above said company and collected the details of functions performed by it, wherein the nature of activities performed by this company is stated as "providing professional services, procurement, installation, implementation and support & maintenance of ERP products and services". It is pertinent to note that the above said information was given by M/s Akshay Software Techn....
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....ay be called for to verify the FAR with assessee. In the event it is found to be carrying SWD services during relevant period, and segmental details are available, the same may be considered for purpose of computing margin ALP. 46. In Ground 10 assessee alleges exclusion of CG-VAK Software and Exports Ltd. for being functionally not similar with that of assessee. CG-VAK Software and Exports Ltd. 47. Ld.AR submits that assessee seeks exclusion of this comparable for being functionally different with that of assessee. Ld.AR submitted that there are no segmental information is available in respect of this company. In support of his argument he placed reliance upon decision of coordinate bench of this tribunal in case of Tavant Technologies India Pvt.Ltd vs DCIT reported in (2020) 120 taxmann.com 122. 48. On the contrary Ld.Sr.DR placed reliance on orders passed by authorities below. 49. We have perused submissions advanced by both sides in light of records placed before us. 50. We note that there is nothing on record placed by revenue to show that Tavent technologies India Pvt Ltd (supra) is not a captive service provider. Assessee before us is also a captive service....
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....ssee has raised its objections before 10 the TPO but he held that it is functionally similar. We have gone through the annual reports of CGVAK Software & Exports Ltd and find that the said company is having revenue from both software services and BPO services but there is no segmental data with regard to each of these transactions. Therefore, as held by the Coordinate Bench of the Tribunal in a number of cases (cited supra), we hold that this company cannot be taken as a comparable to the assessee-company. Accordingly, we direct the TPO to exclude this company from the final list of comparables. " 24.1 Similarly, in the case of M/s. ION Trading India Private Limited v. ITO (ITA No. 1035/Del/2015 for the assessment year 2010-2011). The Tribunal vide its order dated 7-12-2015, held as under:- "21. We have considered the submission of the Id. counsel for the assessee and have considered the argument of the ld. DR that the assessee is not producing any product, however, we find that CG-Vak Software and Exports Limited is not only into computer software but it is a product manufacturer too. Since assessee is not into product manufacturing and the segmental details cann....
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....s follows: "17.7 We have considered the rival submissions. The substantial question of law (Question No. 1 to 3) which was framed by the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) Pvt. Ltd., (supra) was as to whether comparable can be rejected on the ground that they have exceptionally high profit margins or fluctuation profit margins, as compared to the Assessee in transfer pricing analysis. Therefore as rightly submitted by the learned counsel for the Assessee the observations of the Hon'ble High Court, in so far as it refers to turnover, were in the nature of obiter dictum. Judicial discipline requires that the Tribunal should follow the decision of a nonjurisdiction High Court, even though the said decision is of a nonjurisdictional High Court. We however find that the Hon'ble Bombay High Court in the case of CIT v. Pentair Water India Pvt. Ltd. Tax Appeal No. 18 of 2015 judgment dated 16-9-2015 has taken the view that turnover is a relevant criterion for choosing companies as comparable companies in determination of ALP in transfer pricing cases. There is no decision of the jurisdictional High Court on this issue. In t....
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....ned DR before us cannot be the basis to hold that high turnover is not relevant criteria for deciding on comparability of companies in determination of ALP under the Transfer Pricing regulations under the Act. For the reasons given above, we uphold the order of the CIT(A) on the issue of application of turnover filter and his action in excluding companies by following the ratio laid down in the case of Genisys Integrating (supra)." 54. Respectfully following the same, we also hold that turnover is a relevant criteria for considering comparables. Accordingly additional ground raised by assessee stands allowed. Assessee has alleged comparables for exclusion in Grounds 12-13 and 15-17 by applying turnover filter. We have upheld the turnover filter in that aforestated paragraphs, and that these comparables are admittedly more than 200 crores, we are of the opinion that they cannot be included in the final list for computing the arm's length margin. Accordingly grounds 12-13 and 15-17 stands allowed. Additional ground raised by assessee wide letter dated 13/10/2020 55. In respect of additional ground raised by assessee vide letter dated 13/10/2020, Ld.AR submitted that th....