TaxTMI 
TaxTMI 
2021 (9) TMI 383
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....rmation Technology Enabled services ('ITES' 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, t....
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.... 11 R systems International 15.13 12. Compulink Systems Limited 8.39 Arithmetical Mean 12.13 Out of the 12 comparables selected 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....
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....Mindtree Ltd., Rs. Software Pvt. Ltd. and Thinksoft Ltd. from the list of comparable companies by applying the onsite revenue filter. (Ground No. 1) ii. That the DRP erred in excluding ICRA Techno Analytics Ltd. and Tata Elxsi Ltd. from the list of comparables. (Ground Nos. 2 and 4) iii. That the DRP erred in excluding Infosys Technologies Ltd. on the ground that it is functionally 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 produ....
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....o the assessee in the set aside proceedings. 17. Sasken Communication Technologies Ltd.: As far as exclusion of this company is concerned, the assessee sought exclusion of this company on the ground that this company is functionally dissimilar, which the DRP rejected. The DRP held that this company passes the 75% revenue filter. It was submitted by the learned Counsel for the assessee that the company is 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 reli....
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....e of assessees similar to the assessee herein. The learned DR relied on the order of DRP which rejected similar contention. 20. We have considered the rival submissions. We find the DRP in its order at page 8 has accepted that the Annual Report of this company and says that this company is both into SWD services and products. No segmental details are available so that the margins of the SWD segment can be compared with that 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 comp....
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.... profits. Infosys owns products and leverages on its premium banking solution Finacle @ as evidenced from its annual report. The company also focusses heavily on R & D and thus the company is thus not comparable to the assessee. 26. The plea of the Revenue in ground No. 3 is that functional comparability has to be seen broadly and not exactly and that for differences which are not material only adjustment to the margins is contemplated by the 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] 7....
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....h account for 27% of the total current assets which demonstrates that it is a product development company as against a pure software service provider like the assessee. The functions carried out by the two companies being substantially different, the company has been rightly rejected as a comparable. 30. The grievance projected in ground No. 5 by the Revenue is similar to the grievance projected in ground No. 3 regarding exclusion of Infosys Ltd. We have already 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 ....
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....3 35. Computation of arm's length price by the TPO and the adjustment made: Arm's Length Mean Margin 26.86% Less: Working Capital Adjustment -0.17% Adjusted mean margin of the comparables 27.03% Operating Cost Rs. 6,65,42,36,668/- Arm's Length Price - 127.03% of Operating Cost Rs. 8,45,28,76,839/- Price Received Rs. 7,23,48,38,888/- Shortfall being adjustment u/S. 92CA Rs. 1,21,80,37,951/- 36. The addition on account of shortfall in price received as suggested by TPO was added to the total income by the AO in the draft Assessment Order. The assessee filed objections before the DRP against the draft Order of Assessment. The DRP 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. Cosmi....
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.... as ALP mark-up for non-US based AE transactions also. It is submitted that the transactions entered by the Assessee with its US based AE is similar to the transactions entered into with the non-US based AEs and that no distinction has been made by the Assessee between the two in its TP study and while preparing its audited financial statements. It has further been submitted that no distinction has been made by the TPO also in the comparability analysis carried out by him. Therefore, the assessee prays that the Tribunal may adopt the same arm's length mark-up cost for the international transactions entered into with the Non-US AEs as well and, accordingly, dispose of the TP grounds with respect to the ITES revenue earned by the Assessee from its Non-US based AE 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 transa....