TaxTMI 
TaxTMI 
2021 (1) TMI 537
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.... These cross-appeals impugn the common order dated 14.09.2018 passed by the learned ITAT, New Delhi in respect of AY 2011-12, in ITA No. 1479/Del/2016, filed by the Assessee and ITA No. 691/Del/2016 filed by the Revenue (hereinafter referred to as the 'Impugned Order'). The aforesaid ITAs assailed the order dated 16.01.2016 of the Ld. Assessing Officer (hereinafter referred to as 'AO'). 3. Briefly stated, the factual matrix giving rise to the present appeals is as follows: 3.1. That Microsoft India (R&D) Pvt. Ltd. (hereinafter referred to as the 'Assessee') is a private limited company which was set up in India in May 1998 and is a subsidiary of Microsoft Ireland Research Ltd. (99.99% shareholding); the ultimate parent company being Microsoft Corporation, USA. The Assessee is engaged, inter alia, in rendering software development services and information technology enabled services. 3.2. The Assessee filed its return of income on 29.11.2011, declaring an income of Rs. 2,01,64,26,819/- and same was processed under Section 143(1) of the Act. The case of the Assessee was selected for scrutiny assessment and notice under Section 143(2) was issued. 3.3. The....
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....cluded in the list, the Tribunal has completely erred in excluding them. 6. The reasoning of the learned ITAT for excluding the three comparables, as mentioned in the impugned order is as extracted hereinbelow: "(ii) Infosys Technology Ltd. 39. The second company under challenge is Infosys Technology Ltd., which was included by the TPO in the final tally of comparables. The assessee objected to such inclusion by contending, inter alia, that it is engaged in noteworthy R&D activities apart from having significant intangible assets and exceptionally high turnover. The assessee also submitted that this company is functionally not comparable as is also having revenues from software products. The assessee's objections have been recorded on pages 80-82 of the TPO's order. Not convinced, the TPO held this company to be comparable, which has been assailed in the impugned order. 40. Having heard both the sides and perused the relevant material on record, we find from the Annual report of this company, a copy of which is available on pages 1653 onwards of the paper book, that this company is also engaged in earning revenue from Licensing of software products. Th....
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....tion further in the context of the transfer pricing, it transpires that if an assessee fails to report an otherwise comparable company, then the TPO is obliged to include the same in the list of comparables, and in the same manner, if the assessee wrongly reported an incomparable company as comparable in its TP study and then later on realizes and claims that it should be excluded, there should be nothing to prohibit it from claiming so, provided the company so originally reported as comparable is, in fact, not comparable. Simply because a company was wrongly, chosen by the assessee as comparable, cannot tie its hands from contending before the Tribunal that such a company was wrongly considered as comparable which is, in fact, not. There is no qualitative difference between a situation where an assessee claims that a wrong company inadvertently included for the purpose of comparison should be excluded and the situation in which the Revenue does not accept a particular company chosen by the assessee as comparable. The underlying object of the entire exercise is to determine the arm's length price of an international transaction. Simply because a company was wrongly considered by th....
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....from software development support and maintenance services was earned by Wipro Technology Services Ltd., from Citi Group Inc., by means of master service agreement entered into between Wipro Ltd., its parent company and Citi Group Inc., a third person. 46. Rule 10B(l)(e)(ii) provides that it is the net profit margin realized from a comparable uncontrolled transaction, which is considered for the purposes of benchmarking. The epitome of 'comparable uncontrolled transaction' is that the companies or transactions, in order to fall within the ambit of subclause (ii) of rule 10B(l)(e), should be both comparable as well as uncontrolled. 'Uncontrolled transaction' has been defined in Rule 10A(a) to mean: 'a transaction between enterprises. other than associated enterprises, whether resident or non-resident.' This shows that in order to be called as an uncontrolled transaction, it is essential that the same should, be between the enterprises other than the associated enterprises. Section 92B(2) provides that: 'A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of sub-section (1), be deemed to be a transaction enter....
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....les. Similar view has been taken by the Delhi Bench of the Tribunal in the case of Saxo India (P) Ltd. (2016) 67 taxmann.com 155 (Delhi-Trib.). This order of the Tribunal stands affirmed by the Hon'ble Delhi High Court vide its judgment dated 28.09.2016 in ITA no.682/2016, C.M. APPL.35744-35746/2016 by holding that no substantial question of law arises from the Tribunal order." [Emphasis Supplied] 7. We notice that insofar as Infosys Technology Limited and Persistent Systems Limited are concerned, the learned ITAT observed that while the profit of the aforesaid three comparables is derived from both software development services as well as software products, however there is no precise information about the contribution made from the income derived from the sale of software to the total income of the companies. Thus, in the absence of segmental information provided by the companies in respect of the software services, the aforesaid companies have been excluded from the list of the comparables. We do not find any perversity in the approach adopted by the learned ITAT which would call for our inference. The third comparable viz Wipro Technology Services Limited has been held to....
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....nue to provide services such as delivery of technology, infrastructure, services and application, development and maintenance to Citi Group, which were delivered by the erstwhile Citi Technology Services Ltd. The main ground for exclusion of this comparable is that its entire revenue is on account of related party transactions and it fails the criteria of RPT filter. The critical question is whether the pre-arrangement between the Citi group and Wipro Limited would make the subsequent rendition of services by this company to the Citi Group fall within the meaning of "deemed international transaction" as defined under section 92B(2) of the Act. At this juncture, it would be apposite to reproduce Section 92B (2) of the Act: "Section 92B(2): A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of sub-section (1), be deemed to be an international transaction entered into between two associated enterprises, if there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between su....
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....B(2) i.e., there exists a prior agreement in relation to such transaction between Citigroup Inc. (third person) and Wipro Ltd. (associated enterprise). In the light of this structure of transaction, it ceases to be uncontrolled transaction and, hence, Wipro Technology Services Ltd., disqualifies to become a comparable uncontrolled transaction for the purposes of inclusion in the final list of comparables under Rule 10B(1)(e)(ii). We, therefore, direct removal of this company from the list of comparables." [Emphasis Supplied] 31. We also note that the aforesaid comparable has been deleted in the case of the sister company of the assessee herein. The sister company of the assessee also operates in the same business segment as the assessee. The order of deletion has been upheld by this Court in CashEdge India (supra) for the same AY 2010-11. Since, the Courts have consistently upheld the deletion of the said comparable on account of failing the Related Party Filter, we do not see any reason to interfere with the Tribunal's order of deletion of Wipro Technology Services Ltd. 32. This brings us to the third and fourth comparable, Persistent Systems Ltd. and Thirdwar....
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....ded precisely on the same ground and the said order of the Tribunal stands affirmed by the Hon'ble High Court also. Accordingly, we direct the TPO to exclude the said comparable from the list of comparables." [Emphasis Supplied] 33. Both the aforenoted comparables have been excluded on the ground that apart from rendering software services, the companies are engaged in sale of software products and the segmental data of product and services is not available. Firstly, this is a finding of fact and secondly, in the grounds urged in the present appeal, the Revenue has not disputed this factual position. In the note of arguments filed by the appellant also, there is no challenge to this factual position. We would like to add that the respondent had brought to our notice that this Court in CashEdge (supra) for the very same AY 2010-11 and in identical business vertical i.e. captive software development services had upheld the exclusion of Persistent Systems Ltd. With respect to Thirdware Solutions and Sales Limited, we find that the ITAT has undertaken a detailed factual analysis and has given cogent reasons for the exclusion of the comparables in question. The ITAT has note....
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.... (b) Whether conclusion in impugned order classifying software development services rendered by Appellant as "High end" in nature for purposes of Chapter X of the Act is (a) contrary to facts and law as also material on record, (b) perverse as it does not consider all relevant material on record, selectively considers statements recorded by Respondent in the course of Advance Pricing Agreement proceedings and (c) unlawful and unsustainable in law as same arises from gross misinterpretation of facts, law and agreement between parties? (c) Whether impugned order, to the extent it finally upholds rejection of several companies as being not comparable to Appellant for determination of arm's length price of international transaction, is bad in law, unjust and unsustainable as interalia such conclusion arises from total misinterpretation of facts and law including impact and relevance of patents registration by and in the name of Overseas Associated enterprise, as also relevance and impact of research & development activities of such companies? (d) Whether to the extent impugned order ignores intervening decision of jurisdictional High Court on identical issues....
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....ranted such course of action. In our opinion, when the requisite materials and the intervening decision of the jurisdictional high court was available for deciding the issue urged by the Assessee, the Tribunal ought to have arrived at a conclusion rather than remanding the matter back to the Assessing Officer. 13. Accordingly, we partly allow the appeal of the Assessee on question (d) and direct the learned ITAT to take up and decide the corporate tax grounds urged by the Assessee in its appeals. Thus, the appeal of the Assessee is restored to the file of the ITAT for AY 2011-12 to the limited extent , noted above. 14. With respect to question (e) enumerated above, we notice that the learned ITAT has directed the AO to decide the issue afresh as per law after affording an opportunity of hearing to the Assessee. This direction has been made keeping in mind that the issue was neither raised before the AO nor the DRP. Further, in support of its contentions the Assessee had filed additional evidence on the availability of benefit under Section 10A of the Act in respect of the interest income. Accordingly, we find that the directions issued by the learned ITAT are appropriate and ....