AI Drafter 
TaxTMI 
TaxTMI 
2021 (7) TMI 723
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....assessee is a subsidiary of M/s. ARM Ltd., UK. The assessee is engaged in the business of providing software development services and marketing support services to its Associated Enterprises. The assessee is contesting the transfer pricing adjustments made in respect of software development services. The revenue from software development services was Rs. 131.22 crores. The TPO made TP adjustment of Rs. 4.93 crores, which stood enhanced to Rs. 5.42 crores on giving effect to the directions of Ld. DRP. 4. The assessee adopted TNM method as most appropriate method and OP/OC as profit level indicator. The assessee declared profit margin of 14.91% for the year under consideration. The assessee selected 9 comparable companies, whose average arithmetic mean of margin was 10.28%. Accordingly, the assessee contended that its international transaction in providing software development services was at arm's length. 5. The TPO did not accept the TP study of the assessee. He selected following 7 comparable companies whose average margin was 20.90%. After giving working capital adjustment of 1.69% the average margin was arrived at 19.21% by TPO. Accordingly, he made transfer pricing ad....
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.... by TPO in page 11 of order passed by him. Accordingly, the Ld. DR submitted that this company should not be included. With regard to M/s. Akshay Software Technologies Ltd., the Ld. D.R. invited our attention to page 27 of the order passed by TPO, wherein the TPO has held that functional profile of this company is different from that of a software development activity. 9. In the rejoinder, the Ld. A.R. submitted that it is true that the assessee had included M/s. CG-VAK Software Exports Ltd. as its own comparable. However, there is no bar that the assessee cannot challenge the same before the higher forums. In this regard, the Ld. A.R. placed his reliance on the decision rendered by Hon'ble Bombay High Court in the case of CIT Vs. M/s. Tata Power Solar Systems Ltd. (Income Tax Appeal No. 1120 of 2014 dated 16.12.2016). In the above said case, the Tribunal had held that merely because the assessee has included certain comparable companies in the list of comparable companies in its TP study, the same would not by itself estop a party from establishing that these companies are not comparable. In the above said case, the assessee had sought exclusion of two companies named M/s. ....
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....eld to be functionally comparable in the case of M/s. NXP India Pvt. Ltd. (supra). 11. We heard rival contentions on this issue and perused the record. We notice that the Ld. A.R. has convincingly refuted the arguments of Ld. D.R. on the exclusion of M/s. C.G. Vak Software Exports Ltd. and also on objections raised for inclusion of two comparable companies. In any case, the claim of the assessee for inclusion/exclusion is covered by the decision rendered by the coordinate bench in the case of M/s. NXP India Pvt. Ltd. (supra). For the sake of convenience, we extract below the observations made by the co-ordinate bench in respect of the above said four companies in the case of M/s. NXP India Pvt. Ltd:- (A) COMPANIES SOUGHT TO BE EXCLUDED:- I. Larsen & Toubro Infotech Limited 22. The learned AR relied on the order of the co-ordinate Bench in the case of Metric Steam Infotech (India) (P.) Ltd. v. Dy. CIT [IT (TP) Appeal No. 1418 & 2735 (Bang.) of 2017, dated 27-2-2019], wherein the Tribunal held as under:-- "11. As far as L&T Infotech Ltd. and Persistent Systems Ltd. are concerned, our attention was drawn to the decision of ITAT Hyderabad Bench in....
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....,536 and it is also engaged in outsource product development, as is evident from the attached notes forming part of the accounts. The learned AR also submitted that C.G. VAK Software & Exports Limited was not considered as a comparable in the case of EPAM Systems India (P.) Ltd. v. Asstt. CIT [2018] 100 taxmann.com 335 (Hyd. - Trib.), the Tribunal held as under:-- "16. Having regard to the rival contentions and the material on record, we find that the assessee has raised its objections before 10 the TPO but he held that it is functionally similar. We have gone through the annual reports of CGVAK Software & Exports Ltd. and find that the said company is having revenue from both software services and BPO services but there is no segmental data with regard to each of these transactions. Therefore, as held by the Coordinate Bench of the Tribunal in a number of cases (cited supra), we hold that this company cannot be taken as a comparable to the assessee-company. Accordingly, we direct the TPO to exclude this company from the final list of comparables." 24.1 Similarly, in the case of ION Trading India (P.) Ltd. v. ITO [2016] 70 taxmann.com 349 (Delhi - Trib.), held as ....
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.... the total revenue of the company as evident from the financial statement placed on record at paper book page No. 1831. Being so, we direct the TPO to consider this company as comparable to the assessee's case while selecting the comparables. 12. Following above said decision rendered by the co-ordinate bench, we direct exclusion of Larsen & Toubro Infotech Ltd. and CG VAK Software Exports Ltd. We also direct inclusion of M/s. R. systems International Ltd. and M/s. Akshay Software Technologies Ltd. Accordingly, we direct the AO/TPO to redetermine the ALP of the transactions in terms of discussions made supra. 13. The next issue relates to the addition made u/s. 28(iv) of the Act. The AO noticed from the notes given under Fixed Asset Schedule of the Annual Report that the assessee has received tangible assets worth Rs. 12,65,000/- free of cost from its holding company (AE), i.e., ARM Limited, UK. The AO proposed to assess the above said amount as income of the assessee u/s. 28(iv) of the Act as it was a benefit received in exercise of profession. 14. The assessee submitted before the AO that it is providing contract design & development services to its Holding company. ....
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....n such assets as the actual cost under section 43(1) has to be taken at "NIL", does not have any connection with the applicability of clause (iv) of section 28. Accordingly the above objection is rejected." 18. The Ld. A.R. submitted that, in order to invoke the provision of section 28(iv) of the Act, a benefit or perquisite ought to arise at the threshold. He submitted that the products received by the assessee from its AE are products which are required to be validated, since they have been developed on the basis of services rendered by the assessee. He submitted that these products were supplied purely on commercial expediency and it does not result in any benefit to the assessee. The Ld. A.R. also submitted that the capital assets received are not in the nature of "income" and hence it cannot be treated as a trading receipt. The Ld. A.R. placed his reliance on the following case law for this proposition:- (a) Mahindra & Mahindra Ltd. vs. CIT (2003)(128 Taxman 394)(Bom) (b) Logitronics (P) Ltd. vs. CIT (2011)(197 Taxman 394)(Delhi) 19. The Ld. D.R., on the contrary, supported the orders passed by Ld. DRP and the AO. 20. We heard rival contentions on th....