TaxTMI 
TaxTMI 
2021 (7) TMI 1301
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....d international transaction with its associated enterprises that exceeded Rs. 15 crores. Accordingly, reference was made under section 92C of the Act, to the Ld.TPO. The Ld. TPO on receipt of reference called upon assessee to file economic details of the international transaction entered into by assessee with its AE. 2.2 From the details filed by assessee, Ld.TPO observed that assessee had following international transaction with its associated enterprises: 2.3 The Ld.TPO observed that assessee considered following 12 comparables having average margin of 10.01%: 2.4 The assessee computed its margin at 4.83% by using OP/TC as PLI and TNMM as most appropriate method. As margin was within the permissible range it held its transaction to be at arms length. 2.5 Dissatisfied with the selection of comparables by assessee, the Ld.TPO carried out fresh search, thereby shortlisted 14 comparables with average margin of 13%. The assessee further filed additional comparables from which the Ld.TPO accepted 2 comparables. The final list of comparables selected by the Ld. TPO consisted of following 10 companies with average margin of 23.63% 2.6 The Ld.TPO granted the working capital....
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....evelopment service segment. The Ld. TPO in the Transfer Pricing order has analysed functions performed by assessee which are as under: Assets owned: 5.1 In the transfer prising study report at page 91 of paper book, it has been submitted that assessee does not own any intangibles and neither does it undertake any research and development on its own account that leads to the development of nonroutine intangibles. It has been mentioned that assessee uses the trademark, processes, know-how, technical Tata software, operating/quality standards etc their blend/owned by the AE. It has been submitted that this assessee does not own any nonroutine intangibles. Other assets owned by assessee are in respect of land, buildings, computer equipments, office equipment furniture fixtures etc which are used to carry out day to day business activities. 5.2 Risk assumed: in the TP study report reveals that assessee is a risk insulated company for SWD services to its AE and their affiliates. Except for foreign exchange risk, assessee do not undertake any other risk as compared to its AE. 5.3 Characterisation: based on the above assessee has been characterised as a risk insulated company p....
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....provisions under chapter X of the Act mandates ALP to be determined only in respect of transactions with associated enterprises. Any adjustment which is in close of domestic transactions is uncalled for under this chapter. We accordingly direct the Ld. AO/TPO to restrict the adjustment if any that may be computed are wildly or giving effect to the order only in respect of the transactions that assessee had with its associated enterprises. Accordingly this ground raised by assessee stands allowed for statistical purposes. 11. Ground No. 6 is in respect of the depreciation disallowed on computer peripherals at 60%. 12. The Ld.AR submitted that DRP had directed the Ld.AO to grant depreciation at 60% on computer peripherals which has not been followed while passing the final assessment order. We thus direct the Ld. AO to comply with the directions of DRP in accordance with law. Accordingly this ground raised by assessee stands allowed for statistical purposes. 13. Assessee vide application dated 25/11/2020 has raised following additional ground No. 8: 13.1 The above additional ground is a part of the grounds relating to the determination of assessed income in the hand....
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.... time of preparing the TP documentation; [corresponding to ground no. 2.2] 2.3. Disregarding application of multiple year/ prior year data as used by the Appellant in the TP documentation; [corresponding to ground no. 2.3] 2.4. Disregarding certain filters as applied by the Appellant in selection of the comparable companies at the time of TP documentation. [corresponding to ground no. 2.4] 2.5. Applying/ modifying certain filters while undertaking comparability analysis; [corresponding to ground no. 2.5] 2.6. Including following companies in the comparability analysis which are different from the Appellant in functions, asset base and risk profile - • Infosys Limited • Larsen & Toubro Infotech • Persistent Systems Limited Document 2 . Genesys International Corp. Limited Sasken Communication Technologies Limited [corresponding to ground no. 2.6] 2.7. Not considering following company similar to the Appellant in functions, asset base and risk profile while performing comparability analysis - Akshay Software Technologies Private Limited Sankhya Infotech Limited [corresponding to ground no. 2.7] ....
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....9 10,460,670,322 12,412,509,011 TNMM Document 5 Sl. Name of the comparable 1 Helios & Matheson Information Technology Ltd. Weighted Average (%) 12.25 2 LGS Global Ltd. 8.77 Melstar Information Technologies 3 Ltd. -7.38 4 Persistent systems & Solutions Ltd. 12.83 5 Synetairos Technologies Ltd. 13.06 6 E-Zest Solutions Ltd. 7 IDBI Intech Ltd. 26.97 4.00 8 Ideavate solutions Pvt ltd 30.64 9 Jeevan Scientific Technologies Ltd. 4.04 Proteans software solutions pvt. 10 Ltd 0.43 Allied Digital Services Ltd. 11 (solutions Mindtree Ltd ((IT Services -0.76 12 segment) Average 14.35 10.01% Document 6 Sl. No. Name of the Taxpayer OP/OC 1. Datamatics Global Services Ltd. 14.57% 2. Genesys International Corpn. Ltd. 30.09% 3. ICRA Techno Analytics Ltd. 17.24% 4. Infosys Ltd. 43.10% 5. Larsen & Toubro Infotech Ltd. 25.47% 6. Mindtree Ltd. 15.01% 7. Persistent Systems Ltd. 27.20% 8. RS Software (India) Ltd. 15-34% Sasken Communication Technologies 9. Ltd. 12.15% 10. ....
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....lower authorities in the tally of comparables by arguing that it is engaged in OPD and there is a difference in OPD and IT services and that the assessee is having revenue from other sources and no segmental data is available. It was also submitted that in the assessment year 2012-2013, it is an abnormal year of operation and it is owning various intangibles. For this purpose, he relied on the order of the Bangalore Bench of the Tribunal in the case of NXP Semiconductor India Private Limited in IT(PA) No. 1634/Bang/ 2014 for assessment year 2009-2010 order dated 22nd July, 2015. 6.1 We have carefully gone through the order of the co- ordinate Bench in the case of NXP Semiconductor India Pvt. Ltd. (supra) for the assessment year 2009-2010, wherein it was observed that Persystent Systems Limited was engaged in product development and product design and analysis services is functionally different from a pure software service provider and therefore, excluded it from the list of comparables for software development services. The same view was taken in the case of Saxo India Pvt. Ltd. in ITA No.6148/Del/2015 - order dated 05th F....
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....ot only to building features for the current release but must also contribute enhancements and provide feedback for future releases of the product." 6.2 Persystent Systems Limited having revenue of 8103.64 Million from software services and other income of 323.76 million from income from other sources. Assessment year 2012-2013 is an abnormal year of operation to Persystent Systems Limited, which is evident from the annual report placed on record by the assessee in its paper book. Further, Persystent Systems Limited is having intangibles to the tune of 2402.67 million as evident from its balance sheet ended on 31.03.2012. Being so, it is not comparable to assessee's case. We, therefore, direct the TPO to exclude Persystent Systems Limited from the list of comparables. LARSEN & TOUBRO INFOTECH LIMITED 7. The learned AR relied on the order of the ITAT Bangalore Benches in the case of CGI Information Systems and Management Consultants Private Limited in IT(TP)A No.586/Bang/2015 order dated 11.04.2018 and submitted that it was excluded from the list of comparables for the reason that Larsen & Toubro Infotech Limited was a soft....
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....sulting Ltd., Infosys Ltd., Kals Information Systems Ltd. and Tata Elxsi Ltd. to be not proper comparables. Relevant paras of the order dt.14.8.2014 is reproduced hereunder :- 26.2 Infosys Technologies Ltd.:- As far as this company is concerned, it is not in dispute before us that this company has been considered to be functionally different from a company providing simple software development services, as this company owns significant intangibles and has huge revenues from software products. In this regard, we find that the Bangalore Bench of the Tribunal in the case of M/s. 3DPLM Software Solutions Ltd. v. DCIT, ITA No.1303/Bang/2012, by order dated 28.11.2013 with regard to this comparable has held as follows:- "11.0 Infosys Technologies Ltd. 11.1 This was a comparable selected by the TPO. Before the TPO, the assessee objected to the inclusion of the company in the set of comparables, on the grounds of turnover and brand attributable profit margin. The TPO, however, rejected these objections raised by the assessee on the grounds that turnover and brand aspects were not materially relevant in the software development ....
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....ive submitted that comparability cannot be decided merely on the basis of scale of operations and the brand attributable profit margins of this company have not been extraordinary. In view of this, the learned Document 14 Departmental Representative supported the decision of the TPO to include this company in the list of comparable companies. 11.4 We have heard the rival submissions and perused and carefully considered the material on record. We find that the assessee has brought on record sufficient evidence to establish that this company is functionally dis-similar and different from the assessee and hence is not comparable and the finding rendered in the case of Trilogy E-Business Software India Pvt. Ltd. (supra) for Assessment Year 2007-08 is applicable to this year also. We are inclined to concur with the argument put forth by the assessee that Infosys Technologies Ltd is not functionally comparable since it owns significant intangible and TIMI has huge revenues from software products. It is also seen that the break up of revenue from software services and software products is not available. In this view of the matter, we ho....
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.... develops software. But that "does not mean that this company is in the business of software development. The business profile of this company as per the annual report does not show that this company is into software development service. The only line of business that this company carries on rendering-GIS based services and this-is clear from the annual report which specifics I at since the company carries on only one line of business viz GIS based services there is no need to give any segmental results. In the circumstances, we are of the view that there is no basis for the TPO to conclude that this company is predominantly into software development services, The presence of intangible assets is indicative of the fact that this company is not in software development services business. The TPO has overlooked this aspect and proceeded on the basis that the presence of intangible assets would not be significant. Rule 108(2) of the Income Tax Rules, 1962 (Rules) specifically Document 16 provides that for the purposes of sub-rule (1) of Rule 10B, the comparability of an international transaction with an uncontrolled transaction sha....