TaxTMI 
TaxTMI 
2019 (1) TMI 1895
X X X X Extracts X X X X
X X X X Extracts X X X X
....parables set, resulting in selection of comparables having abnormal/ volatile operating margins; 2.5 disregarding the ruling of Hon'ble Income Tax Appellate Tribunal ('ITAT') for AY 2007-08 in Appellant's own case, on rejection of certain functionally dissimilar comparables, disregarding relevant judicial pronouncements and relying on the judicial pronouncements that have different facts as compared to the Appellant, while making addition on account of TP adjustment." 2. Brief facts of case are as under: Assessee filed its return of income declaring 'nil' income on 30/11/11 after claiming unabsorbed depreciation of Rs. 2,00,427/-. Case was processed under section 143 (1) of the Act, and was picked up for scrutiny. Accordingly, notice under section 143 (2) along with questionnaire and notice under section 142 (1) was issued to assessee. In response to statutory notices, representative of assessee appeared before Ld.AO and filed requisite details as called for. During assessment proceedings on verification of documents filed, Ld. AO observed that assessee entered into international transaction with its associated enterprises. Report in Form 3 CEB was filed by assessee ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2.7 Dissatisfied with the compatibility analysis carried out by assessee, Ld.TPO conducted fresh search and arrived at set of following 20 comparables with an average of 23.64%. Sl. No. Company Long Name OP/OC 1 Acropetal Technologies limited (Segment) 36.69% 2 Akshay Software Technologies Ltd. 0.16% 3 Celstream Technologies Pvt. Ltd. 12.26% 4 Evoke Technologies Pvt. Ltd. 8.11% 5 E-infochips Limited 56.44% 6 e-Zest Solutions Limited 34.83% 7 iGate Global Solutions Ltd. 23.71% 8 Infosys Ltd. 43.53% 9 Kireeti Soft Technologies Ltd. 3.63% 10 Larsen & Toubro Infotech Ltd. 18.40% 11 Mindtree Limited (Segment) 10.74% 12 Persistent Systems & Solutions Ltd. (Merged) 22.12% 13 Persistent Systems Ltd. 23.08% 14 R S Software (India) Ltd. 16.20% 15 Sankhya Infotech Limited 26.20% 16 Sasken Communication Technologies Ltd. 24.36% 17 Tata Elxsi Ltd. (Segment) 13.00% 18 Thirdware Solutions 16.19% 19 Wipro Technologies Limited 54.42% 20 Zylog Systems Ltd. 28.74% Average 23.64% 2.8 Ld.TPO dete....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly issues raised by assessee in Ground No. 2.3-2.5, pertains to comparables wrongly included/excluded by Ld.TPO. 3.1 Ld. Counsel submitted that assessee objects inclusion of following comparables: * Acropatel Technologies Ltd., (Information Technology service segment); * E-Infochips Ltd; * Wipro Technology Solutions Ltd; * Infosys Technologies Ltd; * Sasken Communication Technologies 3.2 Before we deal with the comparability analysis, it is sine qua non to understand functions performed, assets owned and risks assumed by assessee before us. Functions: 3.3 In transfer pricing study placed at page 1-64 of paper book, it is observed that assessee undertakes sales and marketing activities in India in order to promote market and solicit customers for printed courseware in India under overall global policy of Element K group in this regard. It is observed that assessee is primarily engaged in distribution of printed courseware developed and owned by EK USA and other 3rd parties. 3.4 Sales and marketing: assessee is responsible for marketing of courseware in Indian market. The activities of Indian entity included development and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y, for sale of courseware in India, EK India is responsible for undertaking all functions related to the marketing and distribution of the printed courseware of Element K in India, including activities like sales and marketing, client interface, identification and development of business partner network, invoicing, collection and post sales support etc. Further, with respect to sale of courseware in AsiaPac region (outside India), the Indian entity acts as a marketer/ commission agent wherein the printing and sale of courseware is undertaken by the US entity. General Management Functions The functions addressed below are common functions that are carried out by any business irrespective of their size and type. These functions are drivers of every business and are indispensable in the economic environment. * Corporate Strategy Determination: Generally, all policies within EK India are determined by its own management who continuously monitor the economic environment surrounding the Indian entity, assess their strategic position within the industry' and target to achieve its corporate objective with guidance from EK USA. * Finance, Acc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... vide order dated 14/11/14 as well as for assessment year 2008-09 in ITA No. 6 to 77/del/2012 vide order dated 22/11/2017. 3.7 It has been submitted that this Tribunal while excluding Infosys Technologies Ltd., followed decision of Hon'ble Delhi High Court in the case of CIT vs Agnity India Technologies Pvt. Ltd., reported in (2013) 219 Taxmann 26. 3.8 Ld. CIT(DR) though objected to exclusion of Zylog Systems Ltd., and Infosys Technologies Ltd., could not controvert their exclusion in assessee's own case. Further, he has not been able to bring out any distinguishing factor factually, for us to take a contrary view. 3.9 Therefore, respectfully following the same, we also direct Ld.TPO to exclude Infosys Technologies Ltd., from the list of comparables. 4. We shall now deal with remaining comparables independently as under: 1. Acropatel Technologies Ltd., (Information Technology service segment): Ld.TPO included this company in the list of comparables. Ld.Counsel contended that this company is functional dissimilar, as it is engaged in diversified activities and has three segments namely; engineering design services, information technology services and healthcare seg....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... no related party transaction during the year under consideration. We have heard the rival submissions of both sides in the light of records placed before us. We find from Annual report of this company placed in paper book at page 81-149, that schedule of Income indicates its operating revenue from software development, hardware maintenance, information technology, consultancy etc. There is no segmental information available as regards revenue from sale of products and revenue from software development segment. As assessee is simply engaged in rendering software development services and there is no sale of any software products, this company, in our considered opinion, ceases to be comparable. It is obvious that from common pool of income from both streams of software products and software services, one cannot deduce revenue from software services and no one knows impact of revenue from Products on overall kitty of profit, which may be significant. Since no segmental data of this company is available indicating operating profit from software development services, we order to exclude this company from the list of comparables. 3. Wipro Technology Solutions Ltd: This Co....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in respect of comparability of this comparable has been dealt with by coordinate bench of Delhi tribunal in Saxo India Pvt.Ltd vs. ACIT (supra) as under: "We have noticed above from the language of Rule 10B(1)(e)(ii) 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 sub-clause (ii) of rule 10B(1)(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 necessary that the same should be between enterprises, other than 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 entered into between two associated enterprises, if there exist....