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2021 (5) TMI 864
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....Learned TPO') in respect of services availed by the Appellant from its associated enterprises; and b) Disallowance of Rs. 10,90,21,322 under section 37(1) of the Act on account of license fee and data service management charges paid to GE Capital Corporation, USA for use of 'Vision Plus' software by erroneously treating the same as capital expenditure. 2. Adjustment on account of Transfer Pricing Addition The Ld. TPO/AO/DRP erred in enhancing the income of the Appellant by Rs. 4,85,54,206 by holding that the international related party transactions relating to payment for data server management charges and other transactions, aggregated being inextricably linked to the provision of information technology enabled support services (ITES), do not satisfy the arm's length principle envisaged under the Act and in doing so have grossly erred in: 2.1 not appreciating that none of the conditions set out in section 92C(3) of the Act are satisfied in the present case; 2.2. disregarding the Arm's Length Price ('ALP') determined by the Appellant in the Transfer Pricing ('TP') documentation maintained by it as per ....
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....ion of making an addition to the returned income of the Appellant 2.9. including certain companies that are not comparable to the Appellant in terms of functions performed, assets employed and risks assumed for benchmarking the international transaction entered by the Appellant 2.10. rejecting certain companies and adding certain companies to the final set of comparables for the impugned transaction on an ad-hoc basis. The Ld. TPO has resorted to cherry picking of comparables to determine ALP for the impugned transaction; 2.11. rejecting the additional comparables introduced by the assessee without any cogent reasons; 2.12. committing errors in the computation of the operating profit margin of certain companies considered as comparable; 2.13. While calculating impugned adjustment, ld. TPO/A.O./DRP erred in: 2.13.1. incorrectly computing actual price received by not considering Rs. 28.755.543 i.e. revenue accounted for during FY 2012-13 which actually pertains to FY 2011-12; 2.13.2. computing adjustment on transactions with Computer Science Corporation which is an unrelated entity, and which has been disclosed on abundan....
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....bunal has not been appealed against before the Delhi High Court and has become final and accordingly accepted by the tax department. 3.7. That on the facts and circumstances of the case and in law, the Learned AO has grossly erred in law and in complete contravention of the provisions of section 144C(13) of the Act, neither followed the directions received from the Hon'ble DRP nor provided any evidence The Hon'ble DRP had directed the Learned AO to provide relief to the Appellant upon confirmation that the Revenue has accepted the decision of the Hon'ble Tribunal for AY 2007-08 and AY 2008-09 and has not agitated the order further. 3.8. That on the facts and circumstances of the case and in law, the Learned AO has erred in facts by making incorrect factual observations with respect to the End User License Agreement entered into between the Appellant and GECC, which are absolutely contrary to the contents of the agreement. 3.9. Without prejudice to the above, the Learned Assessing Officer 3.9.1. erred in facts and in law in disallowing the entire amount without regarding the fact that the said sum was already disallowed by the Appellan....
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....NR) Method Selection Profit Level Indicator (PLI) No of comparables 1 Payment of the transactions 44,91,106 TNMM OP/TC 8 2 Payment for software licenses, data server management services and CIS training IITes) 24,01,26,768 TNMM OP/TC 7 The Transfer Pricing addition made by the Transfer Pricing Officer ("TPO") is in respect to services mentioned at S. No. 2. There has been no Transfer Pricing dispute in the preceding years. For purposes of benchmarking the transaction of ITeS Services, the assessee used three-year weighted average of 7 comparables and the OP/TC was calculated at 4.91% (working capital adjusted margin was 0.95%) while the OP/TC of the assessee was 2.95%. The transactions were considered to be at arm's length on the basis of permissible range of 5%. The TPO vide order dated January 21, 2016 rejected the comparability analysis in respect to transaction of ITeS Services and conducted a fresh benchmarking study on the basis of additional/modified quantitative filters. The TPO arrived at a final list of 10 comparables out of which 3 comparables were chosen by the assessee and fresh 7 comparables were introduced by ....
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....gmental details are not available. There is abnormal growth in revenue @ 38% in FY 2011-12 vis-a-vis FT 2010-11. The Ld. AR relied upon following decisions: * Rampgreen Solutions (P) Ltd. Vs. CIT [2015] 377 ITR 533 (Del HC) * Pr. CIT v Actis Global Services Pvt. Ltd: [Delhi High Court in ITA No. 417/2016, Order dated August 5, 2016] * Pr. CIT v BC Management Services Pvt. Ltd: [2018] 403 ITR 55(Del HC) * Pr. CIT v evalueserve (SEZ) Gurgaon Pvt. Ltd: [Delhi High Court in ITA No. 241/2018, Order dated February 26, 2018] * Pr. CIT v H&S Software Development and Knowledge Management Centre Pvt. Ltd: [Delhi High Court in ITA No. 912/2017, Order dated January 3, 2018] * Timex Group India Ltd. vs. DCIT: [2019] 102 taxmann.com 459(Del I TAT * Inductis India Pvt. Ltd. Vs. ACIT (2019) 101 taxmann.com 110 (Del ITAT) 5.2. The Ld. DR relied upon the order of the TPO/AO and the DRP. 5.3. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the functions of Eclerx Services Limited are different than the functions of the assessee company. Besides this, significant ....
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....al available on record. It is pertinent to note that the functions of TCS-e-Serve Limited are different than the functions of the assessee company. Besides this, TCS e-Serve has a very high turnover. There was acquisition by TCS Limited/Brand Value of TCS in the present assessment year. All these factors determines that TCS E-Serve Ltd. is not a good comparable. Therefore, we direct the TPO to exclude this comparable from the final set of comparables. 5.7. Infosys BPO Ltd.: The Ld. AR submitted that this comparable company is functionally different and has diversified business which comprises customer service outsourcing, finance and accounting, human resources outsourcing, legal process outsourcing, sales and fulfillment, sourcing and procurement outsourcing etc. Infosys BPO is engaged in the providing high-end integrated services by assisting its clients in improving their competitive positioning by managing their business processes in addition to providing increased value. The brand value of Infosys BPO Ltd. enjoys the benefit of brand value of "Infosys", one of world's leading companies. It has consistently spent substantial amount of money on brand building. There was a....
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....overy and disease life cycle management. There is significant AMP expenses. Acropetal has incurred significant AMP expenses amounting to Rs. 21,80,89,723/-. There was extra-ordinary economic event during the relevant Previous year. Acropetal acquired two US based companies subsequent to which it will get into IP development by exploring the expertise and design skills available in the Silicon Valley. It can be seen that Acropetal has unallocable expenditure amounting to Rs. 23,76,51,122 which has not been allocated to any of the operating segment and thus the financial information relating to the three segments is not reliable. The Ld. AR relied upon the following decisions: * Timex Group India Ltd. vs. DCIT: [2019] 102 taxmann.com 459(Del ITAT) * Inductis India Pvt. Ltd. v. ACIT: [2019] 101 taxmann.com 110(Del ITAT). 5.11. The Ld. DR relied upon the order of the TPO/AO and the order of the DRP. 5.12. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that Acropetal Technologies Ltd. (Healthcare Segment) is functionally different as the Healthcare Segment has been taken into account. The company ....
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....rder of the DRP. 5.18. We have heard both the parties and perused all the relevant material available on record. As per the submissions of the Ld. AR, this company was rejected as a comparable on the ground that it has different financial year ending. The contention of the Ld. AR that the data for the entire FY can be extrapolated from its quarterly filings made in the stock exchange, appears to be plausible when the same is available in the public domain. The reliance of the decision of McKinsey Knowledge Centre (supra) is relevant wherein it is held that if the data pertaining to a comparable having a financial year ending other than end-March can be reasonably extrapolated and used. Therefore, we direct the TPO/AO to verify this comparable and its functions as well as the principle laid down in the decision of the Hon'ble Delhi High Court and if found suitable, this comparable be included in the final list of the comparables. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. 6. Thus, Ground No. 2.1 to 2.12 are partly allowed for statistical purpose. 7. As regards to Ground No. 2.13.1 relating to incorrect compu....
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....ruing to the company for rendering these services was not recognized by the Assessee. Subsequently, during F.Y. 2012-13, the company entered into an agreement with SBI and the assessee recognized the revenue amounting to Rs. 49,535,290 pertaining to the period 01 September 2010 to 31st March 2012 (out of which Rs. 2,87,55,643 pertains to F.Y. 2011-12). This has been duly recorded by the statutory auditor in its report for F.Y. 2012-13. In the financial statement for the relevant year (F.Y. 2011-12), the auditor has made a clear disclosure that no revenue has been recognized on account of services rendered to SBI despite having incurred a cost of Rs. 3.2 crore. These facts were totally ignored by the TPO/AO and therefore, in the interest of justice, we deem it proper to remand back this issue to the file of the TPO/AO for proper verification and adjudication as per the facts and law. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Hence, Ground No. 2.13.1 is partly allowed for statistical purpose. 10. As regards to Ground No. 2.13.2 relating to incorrect calculation of Proportionate Adjustment by the TPO, the Ld. AR submit....
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.... Proportionate factor 13.34% 6.16% 12. The Ld. DR relied upon order of the TPO/AO and DRP. 13. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that as per the TP study of the assessee, the total related party transactions for the transaction of ITes Services is Rs. 24,01,26,768/- and the same also includes Rs. 12,92,90,597/- paid by the Assessee to CSC Australia Pty Ltd., a third party for the receipt of data processing and related services as per the Master Technology Services Agreement between GE Capital Corporation USA and Computer Sciences Corporation, USA as per the contentions of the Ld. AR. The Ld. AR's submission during the hearing was that this transaction was reported as an international transaction only out of abundant caution. But, the related party transaction or AE transactions amounts to only Rs. 11,08,36,171/-. After perusal of the records, these facts have to be verified by the TPO/AO which was not done by the Revenue authorities. It appears that the Computer Sciences Corporation, USA and CSC Australia Pty Ltd., both are not associated enterprises of the assessee as set out by the ....
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....ated as capital in nature. The Ld. AR submitted that this issue is covered in favour of the Assessee by the decision of this Tribunal in Assessee's own case for Assessment Year 2007-08 (ITA No. 2806/Del/2011, Order dated October 16, 2015), 2008-09 (ITA No. 2124/Del/2013, Order dated October 16, 2015), 2010-11 (ITA No. 6836/Del/2014, Order dated October 5, 2017) and 2011-12 (ITA No. 4975/Del/2015, Order dated September 1, 2017). The Ld. AR further submitted that the Revenue has not filed any appeal before the Hon'ble Delhi High Court on this issue and, thus, the matter has attained finality. 15. The Ld. DR relied upon the order of the TPO/AO and the DRP. 16. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that this issue is covered by the order of the Tribunal in assessee's own case and there is no appeal filed by the Revenue before the Hon'ble High Court. The Tribunal in A.Y. 2007-08, 2008-09, 2010-11 and 2011-12 held as under: "7. We have considered the rival submissions, perused the orders of the authorizes below, material available on record and gone through the case laws cited by bo....
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....than for archival backup purposes; (c) use the Licensed Program for any purpose other than as permitted by clause 2.2 of license, sell or otherwise alienate the Licensed Program in any manner whatsoever; or (d) Duplicate, market, license or develop software programs that compete with the Licensed Program and/or exploit commercially the Licensed Program in any manner whatsoever." Similarly, clause 5 and its sub-clauses give the right of termination of license agreement to either parties under various circumstances. It is worthwhile to note that in case of default, if any, committed by the assessee, the rights of assessee to use the software would stand terminated forthwith. Under clause 5.5, the assessee is required to deliver the licensed program back immediately to GECC(USA) after removing the same from its systems on termination of agreement. Clause 5.5 of the agreement reads as under: "5.5 Upon termination of this Agreement the right to use the Licensed Program shall end and GECBPMS shall, with immediate effect: (a) deliver to GECC the Licensed Program; and (b) purge all copies of the licensed program stored in any CPU or oth....
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....ve any effect of providing enduring benefit and the payment made to GECC(USA) is only the license fees and not the price for acquisition of capital asset. The assessee did not acquire any ownership on the software and after termination of license agreement, all the rights and title remained with GECC(USA). The ld. DR failed to dislodge the findings of the ld. CIT(A) given in the orders passed for subsequent years after considering the same license agreement and various decisions of Hon'ble High courts and Supreme Court. It is also a matter of record that the assessee has returned its income for the relevant previous year at Rs. 152.88 crores whereas the amount expended towards use of routine application software is Rs. 2.19 crores which is 1.43%. This shows that implies that this software only is not the soul of assessee's business as argued by the ld. DR. In the case of southern Switchgear Ltd. (supra), the technical knowledge and information remained with the assessee even after termination of agreement which constituted enduring benefit to the assessee whereas in the present case, the software in question is an application software and after termination of license agreem....