TaxTMI 
TaxTMI 
2021 (2) TMI 671
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....ting that there is no amendment to the definition of "income" and the charging or computation provision relating to income under the head "Profits & Gains of Business or Profession" do not refer to or include the amounts computed under Chapter X and therefore addition made under Chapter X is bad in law and c.Passing the order without demonstrating that the Appellant had any motive of tax evasion. GROUNDS RELATING TO TP ADJUSTMENT 3. The learned CIT(A) has erred in confirming the action of the TPO in: a. computing the arm's length price based on the data for the Financial Year 2008-09 of the comparables, which was not available when the Appellant undertook transfer pricing documentation and reporting obligations; b.Rejecting following comparables selected by the Appellant on unjustifiable grounds; i. CG-VAK Software & Exports Ltd; ii. Lanco Global Systems Ltd; and iii. Quintegra Solutions Ltd. c. Ignoring the following additional comparables proposed by the Appellant without giving any cogent reasons and on unjustifiable grounds i. Evoke Technologies Pvt Ltd; and ii.TVS Infotech Ltd d.Rejecting the transfer pricing analysis undertaken by the Appellant on ....
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...., alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing, of the appeal, so as to enable the Income-tax Appellate Tribunal to decide the appeal according to law. The Appellant prays accordingly. Brief Facts of the case are as under: 2. The assessee is a company. It was incorporated in June, 2000. M/s. Versata International Inc., USA holds the entire share capital of the assessee, except two shares. The assessee provides software research & development services for Versata International Inc. on a contract basis and as requested by Versata International Inc. For year under consideration, assessee provided software research and development services and call centre services to Versata International and is compensated on cost plus basis, details of which are as under: Sl no Type of transaction Amount (Rs) 1 Software development & support services 32,85,06,958 2 ITES 25,42,495 3 Travel & other Expenses 1,24,90,328 3. Assessee claims that the price charged by it for services rendered to its AE was at arms' length. The assessee filed a report as required by the provisions of section 92E of the Act, in Form 3CEB....
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....ctions before the DRP. 6. The DRP rejected objections and confirmed the transfer pricing adjustment suggested by the Ld.TPO. The adjustment confirmed by the DRP was added to the total income of the assessee by the Ld.AO in the final order of assessment. Against the said order of the Ld.AO, the assessee has preferred the present appeal before the Tribunal. 7. At the outset, Ld.AR submitted that, on turnover filter, assessee wishes to argue only Ground no.4(c ). 8. The Ld.AR seeks exclusion of following comparables on turnover filter: Tata Elxsi Sasken Communication Mindtree Ltd Larson&Tubro Infotech Infosys Technologies Ltd Zylog Systems Ltd. And Bodhtree Consulting Ltd on functional dissimilarities. 9. The Ld A.R submitted that the Ld.TPO has applied filter of minimum service revenue of Rupees One crore. However, he has failed to fix any upper limit on the turnover/service revenue. She submitted that the turnover of the assessee is Rs. 22.50 crores and hence the assessee falls under the category of companies having turnover between Rs. 1.00 crore to Rs. 200 crores. She submitted that the coordinate bench has held in the assessee's own case related to Autodesk India....
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....easonable classification. Several other decisions were referred to in this regard laying down identical proposition. We are not referring to those decisions as the decision of the Special Bench on this aspect would hold the field. Reference was also made to the OECD TP Guidelines, 2010 wherein it has been observed as follows:- "Size criteria in terms of Sales, Assets or Number of Employees: The size of the transaction in absolute value or in proportion to the activities of the parties might affect the relative competitive positions of the buyer and seller and therefore comparability." 12. The ICAI TP Guidelines note on this aspect lay down in para 15.4 that a transaction entered into by a Rs. 1,000 crore company cannot be compared with the transaction entered into by a Rs. 10 crore company. The two most obvious reasons are the size of the two companies and the relative economies of scale under which they operate. The fact that they operate in the same market may not make them comparable enterprises. The relevant extract is as follows [on Rule 10B(3)]: "Clause (i) lays down that if the differences are not material, the transactions would be comparable. These differences ....
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....enario into consideration, we feel that the classification made by Dun & Bradstreet is more suitable and reasonable. In view of the same, we hold that the turnover filter is very important and the companies having a turnover of Rs. 1.00 crore to 200 crores have to be taken as a particular range and the assessee being in that range having turnover of 8.15 crores, the companies which also have turnover of 1.00 to 200.00 crores only should be taken into consideration for the purpose of making TP study." 15. It was brought to our notice that the above proposition has also been followed by the Honourable Bangalore ITAT in the following cases: * Kodiak Networks (India) (P.) Ltd. v. Asstt. CIT [2012] 51 SOT 191/18 taxmann.com 32 (Bang.) * Genesis Microchip (I) (P.) Ltd. v. Dy. CIT [2012] 135 ITD 533/20 taxmann.com 237 (Bang.) * Electronic for Imaging India (P.) Ltd. v. Dy. CIT [ITA No. 1171/Bang/2010), dated 31-1-2012] It was finally submitted that companies having turnover more than Rs. 200 crores ought to be rejected as not comparable with the Assessee. 16. The ld. DR, on the other hand pointed out that even the assessee in its own TP study has taken companies having turnove....
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....l be taken to be the arithmetical mean of such prices: Provided further that if the variation between the arm's length price so determined and price at which the international transaction has actually been undertaken does not exceed five per cent of the latter, the price at which the international transaction has actually been undertaken shall be deemed to be the arm's length price. (3) Where during the course of any proceeding for the assessment of income, the Assessing Officer is, on the basis of material or information or document in his possession, of the opinion that- (a) the price charged or paid in an international transaction has not been determined in accordance with sub-sections (1) and (2); or (b) any information and document relating to an international transaction have not been kept and maintained by the assessee in accordance with the provisions contained in sub-section (1) of section 92D and the rules made in this behalf; or (c) the information or data used in computation of the arm's length price is not reliable or correct; or (d) the assessee has failed to furnish, within the specified time, any information or document which he was require....
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....e parties to the transactions; (c) the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions; (d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail. (3) An uncontrolled transaction shall be comparable to an international transaction if- none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or reasonably accurate adjustments can be made to eliminate the material effects of such differences. (4) The data to be used in analysing the comparability of an uncontrolled transaction with an i....
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....lowing the view taken by this Tribunal in assessee's own case for assessment year 2007-08, and decisions relired by the Ld.AR herein above, we direct exclusion of these comparables final list of comparables for failing turnover filter. Bodhtree Consulting Ltd. 11. The Ld.AR seeks exclusion of Bodhtree Consulting Ltd., on functional dissimilarities. 12. He submitted that this company is functionally different and should be rejected as a comparable. Our attention was invited to the directors report in annual reports of this company for financial year 2008-09 wherein this company has been categorised to have only one segment namely software development. It is also been stated therein that this company is engaged in providing open and end to end web solutions, off shoring Tata management, Tata warehousing, software consultancy, design and development of solutions, using the latest technologies. It has thus been submitted that the activities like that management, Tata warehousing etc are not akin to the captive service provided by assessee to its AE's. Ld. ar submitted that this comparable has been excluded in various decisions by coordinate benches of this tribunal for assessment ye....
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.... safe to exclude both tree consulting from final list of comparables chosen by assessee. We hold and direct accordingly." 16. We note that the chart referred to and relied by coordinate bench of this tribunal has been also placed at page 349 of paper book filed before us. In the present facts assessee is a captive service provider and therefore there is a fixed-price project model followed in the present facts. Respectfully following the view taken by coordinate bench of this tribunal in this Tribunal in case of M/s Mindtech (India) Ltd vs DCIT in IT(TP)A No.70/B/2014 for assessment year 2009-10 (supra) we direct Ld.AO/TPO to exclude both tree from the final list of comparables. Accordingly Ground no.4(c ) stands allowed. 17. The next ground pressed by Ld. counsel is ground No. 6 is in respect of disallowance of Rs. 3,91,21,647/-being research and development expenses under section 37 of the act stating that the said expenses confer an enduring benefit and is not revenue in nature. 18. Both sides submitted that this issue stands squarely covered by the order of this tribunal in assessee's own case for assessment year 2007-08 (supra). It has been submitted that the issue has bee....