TaxTMI 
TaxTMI 
2017 (7) TMI 1406
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....on, operation support, network, performance support and product development. The return of income for the assessment year 2009-10 was filed on 30/09/2009 declaring income of Rs. 5,84,447/-. The assessee-company also reported the following international transactions: Provision of software development services ... Rs. 17,86,70,411/- 3. The assessee-company had also submitted transfer pricing study report adopting the operating profit to total cost (OP/TC) as a profit level indicator for the transfer pricing study. The assessee-company applied Transactional Net Margin Method [TNMM] which was considered to be the most appropriate method for purposes of benchmarking the international transactions. The assessee-company's profit margin was computed at 15.83% and the assessee-company claimed that the same was comparable with other companies rendering software development services. For the purpose of transfer pricing study, the assessee-company had chosen 11 comparable entities and arithmetic average of operating profit margins of said comparables was computed at 15.52%. According to the assessee-company, its PLI was much higher than the arithmetic mean of the comparable entities.....
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....es Ltd. (seg) 4,05,31,20,000 3,18,69,97,000 27.91% 7 Persistent Systems Ltd. 5,19,69,10,000 3,67,52,70,000 41.40% 8 Zylog Systems Ltd. 7,34,93,51,475 6,81,69,98,160 7.81% 9 Mindtree Ltd. (seg) 7,93,22,79,326 5,74,06,73,058 5.52% 10 Larsen and Toubro infotech 19,50,83,81,374 15,64,12,76,626 24.72% 11 Infosys Ltd. 2,02,64,00,00,000 1,39,17,00,00,000 45.61% Average mean 24.32% 6. The TPO computed average profit margin of the comparables finally Selected at 24.32% and after giving working capital adjustment of 1.33%, the adjusted arithmetical mean PLI was determined at 25.65%. On the above said basis, the TPO computed the transfer pricing adjustment as follows: Arm's Length Mean Margin on cost 24.32% Less: Working Capital Adjustment (Annex. C) (1.33)% Adjusted margin 25.65% Operating Cost Rs. 15,53,07,521/- Arm's Length Price (ALP) @ 125.65% of Operating Cost Rs. 19,51,43,900/- Price Received Rs. 17,86,70,411/- Shortfall being adjustment u/s. 92CA: Rs. 1,64,73,489/- 7. The AO passed draft assessment order dated 1....
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....ellant vis-a-vis the comparables. • 1.7 by using single year data for computation of margin of comparable companies by rejecting the multiple year data used by the Appellant. • 2. The learned Assessing Officer has erred in initiating penalty proceedings under Section 271(1)(c) of the Income Tax Act mechanically and without recording any adequate satisfaction for such initiation. The Appellant prays that each of the above grounds be considered discretely and without prejudice to each other. The Appellant craves leave to add, omit or alter grounds of appeal before or during the hearing of the appeal. 10. The Revenue is also in appeal before us in IT (TP) A No. l95/Bang/2014 raising the following grounds of appeal: • The directions of the Dispute Resolution Panel are opposed to law and facts of the case. • On the facts and in the circumstances of the case the Dispute Resolution Panel erred in law in directing the AO to exclude reimbursement of specific expenditure both from the export turnover as well as from total turnover for the purpose of computation of deduction u/s. 10A, without appreciating the fact that the statute a....
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....nternational India v. Jt. DIT [2016] 72 taxmann.com 11 (Delhi - Trib.) (iii) Pratham Telecom India Pvt. Ltd. v. Asst. Commissioner [2016] 74 taxmann.com 107 (Mum. - Trib.). He also submitted that no new segment exclusion can be entertained. (iii) We have considered rival submissions and perusal material on record. This company was included by the TPO. It was contested that this company cannot be included because of abnormal profit at 63.24%. However the TPO had rejected this contention by holding that no company can be excluded on reason of abnormal profits or losses. This finding has been confirmed by the Hon'ble DRP. (iv) Being aggrieved, the assessee is before us in the present appeal. (v) On perusal of Annual Report of the company which is placed at pages 1 to 37 of the paper book, it is clear that the company is engaged in only one segment i.e. software development segment. Clause 3 of Schedule 12 mentions as under: 3. Revenue recognition Revenue from software development is recognised based on software developed and billed to clients. In Annexure III to the Director's Report placed at page 12 of the Annual Report (page 15 of the pap....
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....ices, industrial design and engineering services and visual computing labs and system integration services segment. There is no sub-services break up/information provided in the annual report or the databases based on which the margin from software services activity only could be computed. The company has also in its response to the notice u/s. 133(6) stated that it cannot be considered as comparable to any other software services company because of its complex nature. Hence, Tata Elxsi Ltd., is to be excluded from the list of comparables. (iii) Respectfully following the ratio of the above decision, we direct the TPO/AO to exclude this company from the list of comparables. Infosys: 14. This Company was included by the TPO. It was not contested before the TPO. However, before the DRP it was contested on the ground that it is a giant company and engaged in software development and software Product Company owning intangibles and huge revenue from software products. Reliance in this regard was placed on the decision of the co-ordinate bench in the case of 3DPLM Software Solutions Ltd. v. Dy. CIT [2014] 42 taxmann.com 333 (Bang. - Trib.) and 24/7 Customer.Com (P.) ....
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....h of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. in ITA No. 227/Bang/2010 has held that a company owning intangibles cannot be compared to a low risk captive service provider who does not own any intangible and hence does not have an additional advantage in the market. It is submitted that this decision is applicable to the assessee's case, as the assessee does not own any intangibles and hence Infosys Technologies Ltd. cannot be comparable to the assessee; (ii) the observation of the ITAT, Delhi Bench in the case of Agnity India Technologies Pvt. Ltd. in ITA No. 3856 (Del)/2010 at para 5.2 thereof, that Infosys Technologies Ltd. being a giant company and market leader assuming all risks leading to higher profits cannot be considered as comparable to captive service providers assuming limited risk; (iii) the company has generated several inventions and filed for many patents in India and USA; (iv) the company has substantial revenues from software products and the break up of such revenues is not available; (v) the company has incurred huge expenditure for research and development; (vi) the company has made arrangements ....