TaxTMI 
TaxTMI 
TaxTMI 
2021 (11) TMI 1032
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....d 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 application of certain additional filters to arrive at the set of comparable companies in dete....
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.... 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, the Ld. CIT(A) failed to appreciate that the difference between consideration for purchase of business and value of net assets acquired constitutes a goodwill, which is eligible for depreciation under sect....
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.... 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. Outcome of TP Order Rendering of software development services 4,760,500,236 Adjustment of Rs. 29,15,57,492/- Payment of communication charges 29,450,115 Accepted to be at arm's length Purchase of fixed assets 20,657,944 Accepted to be at arm's length Reimburseme....
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....al 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 - rejected 3. Companies whose software development service revenue is less than 75% of the total operating revenue - rejected 4. Companies which have more than 25% related party transactions of the sales - rejected 5. Companies which have export sales < 75% of the sales- rejected 6. Companies whose employee cost < 25% of their turnover - rejected 7. Companies which have persistent losses for the last three years upto and including financial year 2009-10 - rejected 8. Companies having different financial year ending (i.e. not March 31, 2010) or data of th....
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...., 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 case of Electronics and Imaging India Pvt. Ltd., in IT(TP)A No.212/Bang/2015 and CO No.94/Bang/2015 dated 24/2/2016 for the asst. year 2010-11 in para 13 as follows:- "14. At the outset, we note that apart from having the related party revenue at 20.94% of the total revenue, this company was also found to be functionally not comparable with software development services segment of the assessee. The DRP has given its finding at pages 13 to 14 as under:- "Having heard the contention, on perusal of the annual report, it is noticed by us that the segmental information is available for two segments i.e., services and sales. However, it is evident from the annual report that the service segment comprises of software development, software consultancy, engineering services, web development, web hosting, etc. for which no segmental information is available ....
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.... 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 have heard the Id. DR as well as Id. AR and considered the relevant material on record. We note that in the case of Agnity India Technologies (P.) Ltd. (supra), the Delhi Bench of the Tribunal has considered the comparability of this company and the findings of the Delhi Bench of the Tribunal has been confirmed by the Hon'ble Delhi High Court. The Hon'ble Delhi High Court has observed that this company having brand value as well as intangible assets cannot be compared with an ordinary entity provide captive service. We further note that this company provides end to end business solutions that leverage cutting edge technology thereby enabling clients to enhance business performance. This company also provides solutions that span the entire software lifecycle encompassing technical consulting, design, development, re-engineering, maintenance, systems integration, package evaluation and implementation....
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....nctionally 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 company cannot be compared with the assessee and the same is directed to be excluded from the set of comparables. (5) Sasken Communication Technologies Ltd. 27. The assessee raised objection that this company has revenue from software services, software products and other services. The DRP has come to the conclusion that this company earned revenue from 3 segments. However, no segmental information is available. Accordingly, the DRP directed the AO to exclude this company from the comparables. 28. We have heard the id. DR as well as Id. AR and considered the relevant material on record. The DRP has reproduced the break-up of revenue in the impugned order as under:- Amount in Rs. Lakhs Year ended March 31, 2010 Year ended March 31, 2019 Software Services 37,736.22 40,531.20 Software products 2,041.00 6,146.43 Other services 372.77 1,297.05 Total revenues 40,150.89 47,974.68 17. Accordingly this company is exclude....
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....t 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 and services provided by this company are different from the assessee as have been narrated in para 6.6 above. Even the segmental details for revenue sales have not been provided by the TPO so as to consider it as a comparable party for comparing the profit ratio from product and services. Thus, on these facts, we are unable to treat this company as fit for comparability analysis for determining the arm's length price for the assessee, hence, should be excluded from the list of comparable parties." 33. No contrary view has been brought to our notice regarding comparability of this company with that of a pure software development service provider. Accordingly, in view of the decision of the 1umbai Bench of the Tribunal in the case of Telcordia Technologies India (P.) Ltd. (supra), we do not find any reason to interfere with the finding of the DRP." 22. According to this comparable, we direct to exclude from the list of comparables. 23. Cat Technologies Ltd., It is submitted that the TPO had excluded the said c....
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....hether or not this company passes the RPT it question of fact and the grievance of the assessee before the Ld. DRP was assessee's rebuttal of passing of the RPT filter has not been countered by the Ld.TPO in the impugned order. As could be seen from the order of the TPO, is stated that the company is having RPT in excess of 25%, TPO did not advert to the financial of this company. So also the DRP. We, therefore, remand this matter to the file of the TPO to consider the rebuttal of the assessee that refers to the financials of this company and to reach a fresh conclusion on the aspect of this cat technologies Ltd passing or not the RPT filter." 27. The ld.DR relied on the orders of the lower authorities. 28. We have heard both the parties and perused the materials on record. In our opinion, this has to go back to the file of AO/TPO to verify the related party transaction and if there is no related party transaction, this comparable is to be considered as comparable, while determining ALP of international transactions. With these observations, we remit the issue to the file of AO/TPO for fresh consideration. 29. No other ground argued before us with regard to TP matters by the....
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....Systems Ltd., 3. Akshay Software Technologies Ltd., 37. LGS Global Limited We have heard both the parties and perused the materials on record. In assessee's own case for the asst. year 2009-10 in IT(TP)A No.55/Bang/2015 and IT(TP)A No.60/Bang/2015 vide order dated 3/3/2017 the issue is remitted back to the file of CIT(A) for fresh consideration with following findings. "23. With respect to LGS Global Ltd., the following ground was raised by the Revenue. "On the facts and in the circumstances of the case, the CIT(A) erred in directing the TPO to include M/s LGS Global Ltd, the company which was excluded by eh TPO as the same had failed to pass the TPO's filter export sales/sales ,75% this filter is also deciding factor for treating a company as a comparable and accordingly erred in including the comparable, M/s LGS Global Ltd., in Software Development Segment." 24. In this regard, the learned DR brought to our notice the order of the TP at page 45 which reads as under:- "As in the case of Aztecsoft, this company also was rejected because, the forex earnings repatriated on export sales was less than 75% of revenues earned during the year. Though export sales were 96% of ....
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....e Income-tax Act is required to decide issue at his own level and should not have remitted matter back to the file of the TPO. 28. In the light of above, this issue is sent back to the file of the CIT(A) to decide afresh on the basis of material available with him in accordance with law." 38. Following the same, we remit this issue to the file of CIT(A) for fresh consideration. 39. This ground of Revenue is partly allowed. 40. KALS Information Systems Ltd. It is dealt in the case of Electronics for Imaging India Pvt. Ltd., cited supra, wherein in para 22 and 23 of the order, it is held as under:- 41. The DRP has directed the AO to exclude this company from the list of comparables by taking note of the fact that there were inventories in the books of accounts of this company which shows that this company is in the software product business. Further, by following the decision of this Tribunal in the case of Trilogy E-Business Software India (P.) Ltd. v. Dy. CIT [2013] 140 lTD 540/29 taxmann.com 310 (Bang. - Trib.), this company was found to be not comparable with that of the assessee. 42. We have heard the ld.DR as well as ld.AR and considered the relevant material on record....