TaxTMI 
TaxTMI 
2019 (3) TMI 1887
X X X X Extracts X X X X
X X X X Extracts X X X X
....rred to as management service fees]. 3. The representatives of both the sides were heard at length, the case records carefully perused and with the assistance of the ld. Counsel, we have considered the documentary evidences brought on record in the form of Paper Book in light of Rule 18(6) of ITAT Rules. Judicial decisions relied upon were carefully perused 2. Briefly stated, the facts of the case are that the appellant-company is a wholly owned subsidiary of Aircom International Ltd., UK and part of Aircom Group. The appellant-company is engaged in the business of provision of software development services, software deployment services, consultancy services, software sub-licensing and AMC activities. 3. Return for the year under consideration was selected for scrutiny assessment and on finding that there were international transactions, the matter was referred to the TPO, who proceeded to make an upward adjustment to the international transaction for provisions of software development services and software deployment services and also proceeded to bench-mark the appellant's international transaction of provisions of intra-group services received from its AEs. 4. Pursua....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fee. In other words, if apportionment of Rs. 1,61,59,338/- is also accepted in the segment software deployment [product delivered], then, there is no question of making any adjustment in so far as intra group services is concerned. 9. Our view is fortified by the decision of the Hon'ble High Court of Delhi in Sony Ericsson Mobile Communication India Pvt. Ltd 374 ITR 118 and the relevant findings of the Hon'ble High Court read as under: "(v) Where the Assessing Officer/TPO accepts the comparables adopted by the assessed, with or without making adjustments, as a bundled transaction, it would be illogical and improper to treat AMP expenses as a separate international transaction, for the simple reason that if the functions performed by the tested parties and the comparables match, with or without adjustments, AMP expenses are duly accounted for. It would be incongruous to accept the comparables and determine or accept the transfer price and still segregate AMP expenses as an international transaction." 10. In the light of the above, we will now consider the following comparables used by the TPO for making the upward adjustment in respect of software deployment s....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Wipro Limited (Wipro) executed an agreement with Citigroup Inc. for acquiring all of Citigroup interest in the Company w.e.f. 21 January 2009. On 21 January 2009, Wipro signed a master service agreement (MSA) with Citigroup Inc. for the delivery of technology infrastructure services and application development and maintenance services for the period of six years. The MSA provides for the delivery of at least $500 million in service revenues over the period of the contract. After the acquisition by Wipro, the name of the Company was changed to Wipro Technology Services Limited ('WTS' or 'the Company') on 16 March 2009." 16.3. It is observed from the above contention reproduced in the TPO's order that Wipro Technology Services Ltd., which was earlier Citi Technology Services Ltd., was held by Citi Corp. Banking Corporation, USA upto 20th January, 2009. Wipro Ltd., parent company of the assessee, executed an agreement with Citi Group Inc., for acquiring Citi Technology Services Ltd., now called Wipro Technology Services Ltd. On 21.1.2009, Wipro Ltd. signed a master agreement with Citi Group Inc., for the delivery of technology Infrastructure Servic....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... If such an agreement exists, the third person is also considered as an AE and the transaction with such third person becomes international transaction within the meaning of section 92B. Once there is a transaction between two associated enterprises, it ceases to be an 'uncontrolled transaction' and, thereby, goes out of reckoning under Rule 10B(1)(e)(ii). 16.5. Adverting to the facts of the instant case, we find that Wipro Technology Services Ltd. earned a revenue from Master services agreement with Citigroup Inc. for the delivery of technology infrastructure services. This agreement was, in fact, executed between the assessee's AE, Wipro Ltd., and Citigroup Inc., a third person. This unfolds that the transaction of earning revenue from software development support and maintenance services by Wipro Technology Services Ltd., is an international transaction because of the application of section 92B(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 Techno....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ental data because, in the absence of accuracy, result could be widely off the mark. In our understanding of the law, the transfer pricing exercise in the profit and loss filter to be adopted invariably is premised upon accuracy as opposed to approximation with respect to operating cost and operating profits. It would not be out of place to mention here the observations of the Hon'ble High Court of Delhi in the case of Saxo India Limited [supra] which read as under: "The TNMM method depends on accurate data with respect to all the three elements - wherever they apply. In the Comparable Uncontrolled Price (CUP) method - which is premised upon the elements in Rule 10B(l)(a), the methodology adopted is the price charged or paid for property transfer or services provided in the Comparable Uncontrolled transaction. Therefore, the nature of the transaction and the appropriate filter determines the elements that are to be considered in TNMM. Therefore, the costs, sales and assets employed wherever relevant are to be applied. From this perspective, the revenue's contention that segmental data was available, cannot be accepted. The mere availability of proportion of the turnove....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ith respect to the aforesaid two segments is not available in the financial statement. The assessee company cannot be compare with this company as there is not segmental data available. Besides, this there was extra-ordinary events occurred during the year as the company has acquired M/s. Brainhunter Inc., Canada. Thus, as held by this Tribunal in various decisions companies having extra-ordinary event has to be excluded. Therefore, we direct TPO to exclude this company from comparables." 26. Respectfully following the findings of the co-ordinate bench in the absence of segmental data, we direct for exclusion of htis company from the list of comparables. To avoid repetition, observations made by us highlighting the findings fo the Hon'ble Delhi High Court while considering the comparable Persistent Systems Solution Ltd are also applicable in toto here also. 27. Having excluded the aforementioned four comparables, we are of the opinion that the margin of profit of the segmental software deployment services would be at Arm's length. 28. This brings us now to the adjustment made towards intra group services. As mentioned elsewhere, the management fee of Rs. 3,57,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ubsidiary to the parent company @ 45% of the total sale value of software and support and maintenance charge." Pursuant to this Agreement, the assessee raised invoices on certain customers in India including Idea Cellular Ltd. for upgradation of Aircom Tools. Copies of some of the invoices have been placed on pages 779 to 783 of the paper book. The invoice value has been shown as its income and the amount paid to its AE has been shown as Licence fee in its Annual accounts. We are at loss to appreciate as to how the assessee can be said to have created an `Intangible asset' by paying the Licence fee to its AE in respect of sales made. Such payment @ 45% of the invoice value was the obligation of the assessee ab initio without which it could not have procured the licnence of ENTERPRISE suite for sale in India. This amount can be loosely characterized as cost of goods transferred to the customers in India, which has necessarily to be allowed as a revenue expenditure. We, therefore, overturn the impugned order on this score and direct the deletion of addition of Rs. 67.52 lac made by the Assessing Officer." 30. Respectfully following the findings of the co-ordinate bench, this g....