TaxTMI 
TaxTMI 
2021 (11) TMI 1032
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....nds relating to transfer pricing matters 2. That on the facts and in law, the Ld. CIT(A) erred in upholding the action of the learned Assessing Officer ('Ld. AO')/ learned Transfer Pricing Officer ('Ld. TPO') of rejecting the contemporaneous transfer pricing documentation maintained by the Appellant. 3. That on the facts and in law, the Ld. CIT(A) erred in upholding the action of the Ld. AO/ Ld. TPO in not considering the multiple year/prior year data of comparable companies while determining the arm's length price in relation to the Appellant's international transactions with its Associated Enterprises (AEs). 4. That on the facts and in law, the Ld. CIT(A) erred in upholding the action of the Ld. AO/ Ld. TPO in determining the arm's length mark-up/ price using only FY 2009-10 data, which was not available to the Assesseeat the time of complying with the contemporaneous transfer pricing documentation requirements. 5. That on the facts and in law, the Ld. CIT(A) erred in upholding the action of the Ld. TPO of the rejection/modification of certain quantitative and qualitative filters that were applied by the Assesseeand ....
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.... selected as comparables to the Appellant. Grounds relating to other than transfer pricing matters 12. That on the facts and in law, the Ld. CIT(A) erred in confirming the action of the Ld. AO in disallowing depreciation under section 32 of the Act amounting to INR 6,088,697 by applying the provisions of section 40(a)(1)/(ia) of the Act. 13. That on the facts and in law, the Ld. CIT(A) erred in not following the decision of the jurisdictional Bangalore Tribunal in the case of Wipro vs. DCIT (ITA No. 972/Bang/2011). 14. That on the facts and in law, the Ld. CIT(A) erred in holding that the capitalised software on which depreciation has been claimed under section 32 of the Act is a revenue expenditure. 15. That on the facts and in law, the Ld. CIT(A) further erred in holding that 'thus the entire amount of purchase of software on which TDS has not been deducted is to be disallowed.' 16. That on the facts and in law, the Ld. CIT(A) erred in upholding the action of the Ld. AO in not granting depreciation on goodwill to the assesseeamounting to INR 12,092,590 under section 32 of Act. 17. That on the facts and in law,....
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....ng Electronics Company Limited. 5. During the previous year relevant to the assessment year 2010-11, one of the international transactions that took place between the Assessee and its AEs was the provision of SWD services for which a TP adjustment of Rs. 29,15,57,492/- was made. 6. The Assessing Officer ("AO") passed an assessment order dated 22.04.2014 incorporating the aforesaid TP adjustment and recomputing the total income of the Assessee. The AO also made a (i) disallowance under Section 40(a)(ia) of the Act of depreciation claimed on software (ii) disallowance of depreciation on goodwill and (iii) restriction of depreciation on server at 15%. 7. Aggrieved, the Assessee preferred an appeal to the CIT(A), wherein vide the order dated 26.07.2019, the CIT(A) partly allowed the appeal. To the extent aggrieved by the CIT(A)'s order, the Assessee has preferred the present appeal before this Hon'ble Tribunal. To the extent the CIT(A) granted relief to the Assessee, the Revenue has preferred the above appeal before this Hon'ble Tribunal. ASSESSEE'S SUBMISSIONS: A. DETAILS OF INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE: Particulars Amount in Rs. ....
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....echnologies Ltd. 9% 2. Compulink Systems Ltd. -7% 3. FCS Software Solutions Ltd. 39% 4. Goldstone Technologies Ltd. 12% 5. LGS Global Ltd. 23% 6. Larsen & Toubro Infotech Ltd. 22% 7. Mindtree Ltd. 22% 8. PSI Data Systems Ltd. 5% 9. Polaris Software Lab Ltd. 11% 10. Reliance Infosolutions Pvt Ltd. 1% 11. Sasken Communication Technologies Ltd. 13% 12. Synetarios Technologies Ltd. 21% 13. Thinksoft Global Services Ltd. 18% 14. Zensar Obt Technologies Ltd. 19% 15. Crazy Infotech Ltd. 1% 16. Teledata Marine Solutions Ltd. 3% Arithmetical Mean 13% NOTE: Out of the 16 companies selected by the Assessee, the TPO accepted 4 companies highlighted above, viz. Larsen & Toubro Infotech Ltd., Mindtree Ltd., Sasken Communication Technologies Ltd. and Thinksoft Global Services Ltd. and rejected the remaining 12 companies. B.5. Filters applied by the TPO: Step Description 1. Companies for which current year data was available - accepted 2. Companies whose software development service income < Rs. 1 crore - rej....
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.... * The CIT(A) accepted the contentions of the Assessee and directed exclusion of Kals Information Systems Ltd.(seg) * Rejecting the contentions of the Assessee, the CIT(A) upheld the selection of the following companies * ICRA Techno Analytics Ltd.(seg) * Infosys Ltd. * Persistent Systems Ltd. * Tata Elxsi Ltd. (seg) * The CIT(A) rejected the contention of the Assessee that working capital adjustment ought to be granted on actuals without there being adhoc upper cap or restriction and directed to delete the entire working capital adjustment granted by the TPO. 8. Now the crux of the argument of the ld.AR is that following comparables are to be excluded. 1. ICRA Techno Analytics Ltd. 2. Infosys Ltd. 3. Persitent systems Ltd., 4. Tata Elxsi Ltd., 5. Cat Technologies Ltd., 9. ICRA Techno Analytics Ltd. According to the assessee this comparable is functionally different engaged in rendering diverse services and there is no availability of segmental data and also incorrect margin computed by the TPO and he also submitted that this comparable has been excluded in the ....
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...., it has huge turnover and significant brand value, incurs high sales and marketing expenses and focuses heavily on R&D activities. Further it was submitted that in the case of Electronics and Imaging India Pvt. Ltd. cited (Supra), it was considered as not comparable. 13. The ld.DR relied on the order of CIT(A). 14. We have heard both the parties and perused the materials on record. As rightly pointed out by the ld.AR that this company has considered as not comparable in the case of Electronics and Imaging India Pvt. Ltd. cited Supra, wherein it has held as follows:- "17. The assessee objected against the selection of this company on the ground that this company has a big name and brand value and therefore it has a bargaining power. It also contended that the turnover of this company is Rs. 21,140 crores, which is 442 times higher than the assessee. 18. The DRP accepted the objections of the assessee and by following the decision of the Delhi 3s of the Tribunal in the case of Agnily India Technologies (P.) Ltd. v. ITO [20153 58 taxmann.com 167/154 lTD 293 (Delhi - Trib.), directed the TPO to exclude this company from the Fm of comparables. 19. We ha....
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.... an acquisition and restructuring during the year under consideration. 25. The DRP has noted the fact that this company has reported the entire receipt from sales and software services and product. Therefore, no segmental information was found to be available for sale of software services and product. Further, the DRP has noted that as per Note I of Schedule 15, this company is predominantly engaged in outsource software development service. Apart from the revenue from software services, it also earns income from licence of products, royalty on sale of products, income from maintenance contract, etc. These facts recorded by the DRP has not been disputed before us. 26. Therefore, when this company is engaged in diversified activities and earning revenue from various activities including licencing of products, royalty on sale of products as well as income from maintenance contract, etc., the same cannot be considered as functionally comparable with the assessee. Further, this company also earns income from outsource product development. In the absence of any segmental data of this company, we do not find any error or illegality in the findings of the DRP that this c....
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.... India (P.) Ltd. v. Asstt. CIT [2012 137 lTD 1/22 taxmann.com 96. 31. The DRP found that this company is not functionally comparable with assessee company as it is engaged in diversified activities even in the software development services. The DRP has followed the decision of the Mumbai Bench of the Tribunal in the case of Telcordia Technologies India (P.) Lid (supra). 32. We have heard the Id. DR as well as Id. AR and considered the relevant material on record. We find that this company even in the software development segment is engaged in diversified activities of product design services, innovation design, engineering services, visual computing labs, etc. We further note that in the case of Telcordia Technologies India (P.) Ltd. (supra), the Mumbai Bench of the Tribunal vide its order dated 11. 5.2012 in para 9.7 has held as under:- "7.7 From the facts and material on record and submissions made by the learned AR, it is seen that the Tata Elxsi is engaged in development of niche product and development services which is entirely different from the assessee company. We agree with the contention of the learned AR that the nature of product developed an....
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....payer has taken extracts from the consolidated annual report rather than the standalone annual report relied upon by the TPO. 62. Ld. DRP observed that as per the audit report the company's exclusive business is medical transcription, training software development and consulting services as such this is the only reportable segment. On this ground Ld. DRP refused to interfere with the order of the Ld. TPO. 63. It is argued on behalf of the assessee that this company also provides software development consulting services and there are no equity transactions. It is further submitted by the Ld. AR that this company is accepted by TPO in assessee's own case in AY 2010-11 and there is no change in the buss, of the comparable or the assessee from the previous year. Revenue did not contradict this statement made on behalf of the assessee. In the absence of any proper exploration as to how a good comparable in the previous year b a bad comparable in this year, we find it difficult to sustain the opinion of the authorities below. However whether or not this company passes the RPT it question of fact and the grievance of the assessee before the Ld. DRP was assessee&#....
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....nature" in clause (b) of Explanation 3 to section 32(1) indicates that good-will would fall under the expression. The principle of ejusdem generis would strictly apply while interpreting the expression which finds place in Explanation 3(b). Goodwill is an asset under Explanation 3(b) to section 32(1) of the Act. Where the Commissioner (Appeals) held that the difference between cost of an asset and the amount paid by the assessee constituted good-will and that the assessee in the process of amalgamation had acquired right in the form of goodwill because of which the market worth of the assessee stood increase." 33. This finding was upheld by the Appellate Tribunal, and the High Court dismissed the appeal in limine holding there was no substantial question of law. 34. Accordingly depreciation and good will to be granted. This ground of assessee is allowed. 35. Thus, appeal filed by the assessee is allowed. Revenue's Appeal : Comparables :- 36. Following comparables has challenged by the revenue in its appeal. 1. LGS Global Limited., 2. KALS Information Systems Ltd., 3. Akshay Software Technologies Ltd., 37. LGS Global Limited W....
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....endered in the Sony India case, being one of the initial cases on the same issue, of the same Bench of the Hon'ble Tribunal, the action of the TPO with respect to RPT filter is held to be justified. Hence, in summation, I find that the - TPO has provided cogent reasons for rejecting some of the assessee's comparables and thus. his / her action of rejecting/introducing his own comparables is upheld .. It was pointed out that one of the assessee's comparable viz .. LGS Global satisfies the TPO's export earning filter. It was stated that the assessee follows a mercantile system of accounting and sale proceeds were realized in the next year. But for accounting purpose, the export revenue was definitely more than 75% .. The TPO is directed to look into this matter and take rectificatory action on his/her satisfaction." 27. We have heard the rival contentions of parties and have gone through the order passed by the learned CIT(A). It is contended that the learned CIT(A) instead of deciding the issue of exclusion of LGS Global Ltd., has remitted back the issue to the file of the TPO for fresh adjudication. In our view, the learned CIT(A) under the Income-tax Act i....
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....essee had objected to the same stating that on the basis of the annual report of the company, the related party transactions would only be 4.33% and that therefore, it ought to be included in the list of final comparables (Page 307 of the paper book). However, in the TP order, the TPO rejected the said company on the basis that 90% of its export revenues for the year were from Dubai operations, whereas the assessee earns 100% of its revenues from India. On the basis that the company and the assessee operated in different geographical areas, the TPO excluded the said company. The assessee submits that the company passes all the filters applied by the TPO and, therefore, the exclusion of the company solely on the basis that its operations lie in different geographical areas, which was not at all a filter applied by the TPO, is wholly arbitrary and thus the company ought to be included in final list of comparables. In fact, in the assessee's own case for the immediately preceding assessment year, Akshay Software Technologies Ltd. ('Akshay' for short) has been accepted by the TPO and confirmed by the CIT(A) as being comparable to the Assessee. In addition, Akshay i....