TaxTMI 
TaxTMI 
TaxTMI 
2021 (9) TMI 383
X X X X Extracts X X X X
X X X X Extracts X X X X
....S' for short) by the Assessee to its Associated Enterprises ('AE' for short), which was subsequently reduced to Rs. 1,11,82,20,792/- on giving effect to the directions of the Dispute Resolution Panel ('the DRP'). 3. The assessee is a wholly owned subsidiary of Dell International Inc. The assessee is primarily engaged in the business of providing IT support services/SWD services and IT Enabled services to its AEs. During the previous year relevant to the assessment year 2010-11, the international transactions that took place between the assessee and its AEs were the provision of SWD services and ITES by the assessee for which a TP adjustment was made by the TPO (vide rectified order dated 03.03.2015) totaling to Rs. 1,26,90,33,692/- i.e., Rs. 46,85,29,023/- in the SWD segment and Rs. 80,05,04,669/- in the ITES segment. Incorporating the said TP adjustment, the Assessing Officer ("AO") passed a draft assessment order dated 30.03.2015. Aggrieved, the assessee filed its objections before the DRP, which, vide its directions dated 15.12.2015 granted partial relief to the assessee. Pursuant to the directions of the DRP, the AO passed the final assessment order dated 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cted by the assessee, the TPO accepted 2 comparables viz., Thinksoft Global Services Ltd. and Mindtree Ltd. and rejected the remaining 10 comparables. 8. The TPO selected the following comparables and their arithmetic mean was as follows: Sl. No. Name of the company Margin Unadj (%) Margin - WC adjusted (%) 1. ICRA Techno Analytics Ltd. (seg) 24.94 28.46 2. Infosys Ltd 44.98 48.53 3. Kals Information Systems Ltd. (seg) 34.41 34.22 4. Larsen & Toubro Infotech Ltd. 19.33 23.25 5. Mindtree Ltd. (seg) 14.83 16.55 6. Persistent Systems & Solutions Ltd. 15.38 18.95 7. Persistent Systems Ltd 30.35 31.87 8. R S Software (India) Ltd. 10.29 14.28 9. Sasken Communication Technologies 17.36 20.26 10. Tata Elxsi (seg) 20.93 20.99 11. Thinksoft Global Services Ltd. 17.05 17.77 Arithmetical Mean 22.71 25.01 9. The TPO computed ALP of the SWD services segment as follows: Arm's Length Mean Margin 22.71% Less: Working Capital Adjustment -2.30% Adjusted mean margin of the comparables 25.01% Operating Cost Rs. 4,32,71,91,110/- Arm's Length Price - 125.01% of Operating Cost Rs. 5,40,94,21,607/- Price Received Rs. 4,94,08,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ionally different from the assessee. (Ground No. 3) iv. That the DRP erred in excluding KALS Information Systems Ltd. on the ground that it is functionally different from the assessee. (Ground No. 3) 13. We shall take up the assessee's appeal for consideration first. In its appeal, the assessee has sought exclusion of 3 comparable companies that remain after the order of the DRP viz., (i) Larsen & Toubro Infotech Ltd. (ii) Sasken Communication Technologies Ltd. and (iii) Persistent Systems Ltd. 14. As far as exclusion of this Larsen & Toubro Infotech Ltd., (L & T) is concerned, the exclusion of this company was sought by the assessee for the reasons that (i) the turnover of the company was far in excess of that of the Assessee's and (ii) that the same was engaged in product development and infrastructure management services for which segmental details are unavailable. The DRP failed to adjudicate on the ground of the Assessee seeking exclusion of this company. It was submitted that L & T is not comparable to the Assessee on various counts. It is submitted that L & T is engaged in designing and developing high quality independent solutions and has income from sale of sof....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... engaged in high-end software products and services that are not similar to the services rendered by the assessee. The company develops and owns several patents and earns returns on the same while the assessee neither develops nor owns any patents. Moreover, the company incurs significant expenditure on research and development activities. The company is therefore not comparable to the Assessee. Reliance was placed on the decision of this Tribunal in DCIT v. Electronics for Imaging India P. Ltd. [ (2016) 70 taxmann.com 299 (Bang - Trib.)] and ACIT v. Broadcom India Research (P.) Ltd. [2016] 72 taxmann.com 77 (Bangalore - Trib.), where the said company was directed to be excluded/exclusion upheld in the case of assessees similar to the assessee herein. The learned DR relied on the order of the DRP. 18. We have carefully considered the rival submissions. In the case of Electronics for Imaging (supra), it was held that this company derives income from 3 segments viz., (i) software services; (ii) software products and (iii) other services. The segmental operating margins are however not available. Therefore the operating margin for the SWD service segment of this company cannot be com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat of the assessee. Hence this company cannot be regarded as comparable. For the very same reason this company was regarded as not comparable with a SWD service provider in the case of Electronics for Imaging (supra). 21. The assessee in its appeal has also projected its grievance on the DRP suo moto directing the exclusion of Thinksoft Global Services Ltd., R.S. Software (India) Limited and Mindtree Limited from the list of comparables. The said companies were selected by the Assessee and subsequently included by the TPO in the final list of comparables. These companies pass all the filters applied by the TPO. The assessee is seeking inclusion of the aforesaid companies as comparables. The Revenue in its appeal also seeks inclusion of these companies as comparables. In this regard, we find that the DRP has excluded the said comparables by applying the onsite revenue filter that too without putting the Assessee on notice as regards the same. We therefore hold and direct that these three companies be included as comparable companies. The relevant grounds of appeal of the assessee and Revenue are accordingly allowed. 22. Now we will take up for consideration the grounds of appeal ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e TP legislation. 27. We have considered the submission of the learned DR of the Revenue as repeated in ground No. 3. We are of the view that the differentiating factors pointed out by the assessee cannot be said to be not material differences. Even if they are to be regarded as immaterial, the quantification of accurate adjustment to account for the differences is not possible. In such circumstances, it is safe to exclude the company as a comparable. This company is being consistently excluded from the list of comparables in similar cases. Reference may be made to the decision of this Tribunal in DCIT v. Electronics for Imaging India P. Ltd. [ (2016) 70 taxmann.com 299 (Bang - Trib.)] and ACIT v. Broadcom India Research (P.) Ltd. [2016] 72 taxmann.com 77 (Bangalore - Trib.) where the said company was directed to be excluded/exclusion upheld in the case of assessees similar to the assessee herein. We therefore find no merit in ground No. 3 raised by the Revenue. 28. Tata Elxsi Ltd: As far as exclusion of this company is concerned, the grievance of the assessee projected in ground No. 4 is same as projected in ground No. 2. The DRP excluded this company as it was found to be fun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....held that material differences cannot be ignored and that the difference if any should be capable of being quantified and adjustment to the margins be accounted for. Those reasons will equally apply to ground No. 5 also. This Tribunal in DCIT v. Electronics for Imaging India P. Ltd. [ (2016) 70 taxmann.com 299 (Bang - Trib.)] and ACIT v. Broadcom India Research (P.) Ltd. [2016] 72 taxmann.com 77 (Bangalore - Trib.) directed to exclude this company on identical reasons in the case of assessees similar to the Assessee herein. We therefore find no merit in ground No. 5 raised by the Revenue. 31. The TPO is directed to compute ALP in the SWD services segment in accordance with the directions as contained in this order in accordance with law, after affording opportunity of being heard. The arithmetical mean of the working capital adjusted margins of the above comparables would fall below the Assessee's NCP margin for provision of Software Development services. Consequently, the international transaction of provision of Software Development services by the Assessee to its AE in FY 2009-10 can be concluded as being at arm's length. INFORMATION TECHNOLOGY ENABLED SERVICES (ITES) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....RP directed exclusion of: 1. Accentia Technologies Ltd. 2. Acropetal Technologies Ltd. 3. E-Clerx Services Ltd 4. Infosys BPO Ltd. 5. Jeevan Scientific Technology Limited 6. Sundaram Business Services Ltd. (suo moto) On giving effect to the above directions issued by the DRP, the final list of comparables would be as follows: Sl. No. Name of the Company 1. Fortune Infotech Ltd. 2. ICRA Online Ltd. (seg) 3. Cosmic Global 4. Informed Technologies India Ltd. Pursuant to the directions of the DRP, the TP adjustment was reworked to Rs. 71,20,03,322/- in the final assessment order dated 29.01.2016. Against the said order both the assessee and the Revenue have preferred appeals before the Tribunal. 37. In its appeal, the assessee has raised the following issues with regard to the determination of ALP in the ITES segment. That the arm's length mark-up on cost arrived under the Mutual Agreement Procedure Resolution to be applied for transactions with Non-US based entities for the ITES segment. (Additional Ground). The DRP erred in suo moto excluding Sundaram Business Services Ltd. from the list of comparable companies. (Ground No. 1.4). The DRP erred in in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....E transactions. 42. The learned Counsel for the assessee in this regard placed reliance on the decisions of this Tribunal in the case of CGI Information System & Management Consultants (P.) Ltd. v. DCIT ([2017] 81 taxmann.com 169 (Bangalore - Trib.)) and the Hon'ble Tribunal - Mumbai Bench in J.P. Morgan Services (P.) Ltd. v. DCIT ([2016] 70 taxmann.com 228 (Mumbai - Trib.)) wherein, the same margin as the US transactions was directed to be applied for the Non-US transactions. The learned Counsel for the assessee also pointed out that the Commissioner of Income-tax (Appeals) in its own case for the AYs 2005-06, 2007-08 and 2008-09, adopted the arm's length price determined in the MAP resolution for the international transactions entered into with the Non-US AEs. The learned DR could not point out any infirmity in the submissions on the additional ground of appeal made by the learned Counsel for assessee. 43. We have considered the rival submissions and find merit in the same. As pointed out by the learned Counsel for assessee, the assessee or TPO have not made any distinction between US and Non-US AE transactions. In such circumstances, the margin accepted in MAP in respe....