TaxTMI 
TaxTMI 
2019 (10) TMI 1487
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....and its Associated Enterprises ("AEs") while conducting the transfer pricing analysis and adopted an entirely flawed approach to reach a conclusion that the Appellant is not compensated at arm's length for its Software Development Services Segment. 3. On the facts and in law, the Ld. TPO erred in not discharging his statutory onus to establish that any of the conditions specified in clause (a) to (d) of section 92C(3) of the Income Tax Act, 1961 ("Act") have been satisfied before disregarding the arm's length price determined by the Appellant and proceeding to determine the arm's length price himself. 4. On the facts and in law, the Hon'ble DRP and Ld. TPO/AO have erred in rejecting the economic analysis undertaken by the Appellant without proper justification and conducting a fresh search using arbitrary filters for identifying companies comparable to the Appellant. 5. On the facts and in law, the Ld. TPO / AO and Hon'ble DRP grossly erred in not accepting the comparable companies proposed by the Appellant, as the said comparable companies met the FAR (functions performed, assets employed and risk assumed) test stated under Rule 10B(2) of the Income Tax ....
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....,28,377 out of the total reimbursement of Rs. 20,83,040 is liable to withholding tax provisions of S. 195(1) of the Act and failing to appreciate that payment of training expenses does not fall within the meaning of FIS under Article 12 of the India-Singapore tax treaty. B. Other Grounds 15. On the facts and in the circumstances of the case, the Ld. AO erred in levying interest under section 234B and 234D of the Act. 16. On the facts and in law, the Ld. AO and the Hon'ble DRP erred on facts and in law in initiating penalty under section 271(1)(c) and 271AA of the Act. 3. G&D India was incorporated in 2001 as 100 percent subsidiary of G&D GmbH, with its corporate office located in Gurgaon. The company initially specialized in currency automation systems, later adding its business in the fields of telecommunications, electronic payment, transportation, health care and identification. G&D has enjoyed business relations with India since, the 1990s and sold the first banknote processing systems to India on 1997. G&D India holds significant market share in the currency automation equipment segment, the Reserve Bank of India (RBI) being one of its major custo....
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.... year data. The assessee's own margin is worked out to be 11.61% for Software Development Services. Based on the analysis, the assessee has concluded that its international transactions are at arm's length. SIM CARD DISTRIBUTION: 6. The assessee has used TNMM as the method and Net Operating Profit Margin based on Costs (NCP Margin) as the PLI. The assessee has arrived at a set of 04 companies with an average margin of 0.14%. The assessee has used multiple year data. The assessee's own margin is worked out to be (6.78%) for Sim Card Distribution Segment. Based on the analysis, the assessee has concluded that its international transactions are at arm's length. Transfer pricing analysis by the TPO: 7. As per the audit report, the assessee operates in the following primary business segments: * Trading in bank note processing machines and related maintenance services * Trading in sim/smart cards * Software services 8. In the software development services segment, the TPO has used current year data and selected the following comparables. He has computed the PLI (OP/OC) at 22.92% and made an adjustment of Rs. 1,79,43,149/-. In the ....
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....applied while examining the comparables selected by the taxpayer while searching for additional comparables. 12. The P&L account of the comparable showed the following: Software development expenses Salaries and consultancy charges including bonus, Incentive, gratuity and leave encashment Rs. 135,160,463 Contribution to provident fund Rs. 3,851,751 Staff welfare expenses Rs. 1,395,789 Onsite Development Expenses - technical sub-contractors Rs. 557,762,834 Third party items bought for service delivery to client Rs. 1,036,118 Rs. 699,206,955 13. The turnover of the company excluding other income is Rs. 141,65,28,000/-. Thus, we observe that the comparable selected by the revenue fails their own filter choosen by the TPO on account of employee cost less than 25% of the total cost. Hence, we hereby direct that the asset comparable be excluded from the TPO study. E-infochips Limited: 14. The TPO held that this comparable passes all the filters. The ld. AR primarily argued that it fails the TPO's own filter of software revenues. We have gone through the filters taken up by the TPO. The TPO has applied filters so as to ....
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....Zest from the final list of comparables on the ground that the said company is functionally dissimilar to assessee, as it is engaged in providing e-Business Consulting services including product development services and technical services which they themselves characterize as Knowledge Process Outsourcing ('KPO') services. Whilst placing heavy reliance on the company's website handout along with the Annual Report, he submitted that the assessee being a captive software development company cannot be compared with a KPO. Additionally, he took us through the annual report to evidence that no segmental data vis-à-vis the services and products was available. We find that cloud computing has been the major source of revenue of this company, hence, functionally not comparable. In the assessee's own case for the assessment year 2008-09, this comparable has been excluded by the Co-ordinate Bench of the Tribunal relying on the decision of Sunguard Solutions India Pvt. Ltd. in ITA No. 1487/Bang./2012. Hence, keeping in view the decision of the earlier year, we direct that this comparable may be excluded from the list of comparables. Infosys Ltd.: 18. It was argued by the ld. AR t....
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....ysed. Even though TPO considered the software exports reported in earning in foreign currency as that of software development services, we are not sure whether the software exports reported therein exclusively pertain to services or products. As there are no segmental details, it is very difficult to analyse whether the incomes earned by the said company do really pertain to the similar services rendered by Assessee. As also seen from the income schedules, engineering services reported in earlier year were not there in this year, therefore, it is very difficult to analyse whether the company is functionally similar or not? Keeping in view of the above difficulties in analyzing the data and considering the reasons given by DRP in the case of M/s. Sumtotal Systems India Pvt. Ltd., (supra), we are of the opinion that L&T Infotech Ltd., cannot be selected as a comparable company. AO/TPO is directed to exclude the same from the list of comparables." 20. We find that the submissions of the ld. AR cannot be accepted as the assessee and the comparable, and the study of the TPO involves determination of ALP on software development services. In the software development services, the overs....
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.... Co-ordinate Bench of the Tribunal. Hence, keeping in view the decision of the earlier year, we direct that this comparable may be excluded from the list of comparables Sasken Communication Technologies Ltd.: 23. It was argued by the ld. AR that this comparable is functionally different as it is engaged in diversified services software products. It was argued that in the absence of sufficient segmental data and acquisition taken up during the year, it cannot be taken as a comparable. It was also argued that the comparable spent extensive expenditure on R&D too. We hold that a comparable having a merger and acquisition would cease to be comparable only if it is shown that this has resulted in material dissimilarity and has affected its margins. This is particularly true in the ITES/software filed where mergers and acquisitions are the norm rather than an exception. Such mergers and acquisitions do not often result in a substantial change in the company's functional profile. We rely on the decision of the Co-ordinate Bench of ITAT in Willis Processing Services (I) Pvt. Ltd. Vs DCIT 2013-TII-47-ITAT-Mum-TP wherein it was observed as under: "18.3 We are also of the view ....
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....company had agreed an agreement with CITI Technology Services Ltd, which is 100% subsidiary of Wipro Technology Ltd. The entire revenue during the year is covered by a master service agreement entered into by Wipro with CITI Group Services. Further, this company is also a subsidiary of Wipro Ltd., which company has a considerable brand name, therefore benefit accruing to this company from the brand name of Wipro cannot be denied. Therefore relying on the decision of the coordinate bench in the case of Agnity Technology Pvt. Ltd, in ITA No.955jDe1j2015 for Assessment Year 2010-11, wherein the Infosys owns of its brand name was held to be incomparable on the same analogy, brand value of 'Wipro' does help this comparable. Hence, we direct TPO to exclude this comparable, it is ordered accordingly." 26. Hence, we hereby direct that this may be excluded from the TP study. R Systems Ltd.: 27. The assessee sought to include this company arguing that audited quarterly results are available in the public domain and different year financial data can be used for comparison. We hold that Rule 10B(4) requires that the data to be used in analyzing the comparability of an uncontro....