AI Drafter 
TaxTMI 
TaxTMI 
2022 (5) TMI 353
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....3,66,167 2. The Ld. AO and Ld. Transfer Pricing Officer ("TPO") erred in law and on facts, in making an upward adjustment of INR 3,73,66,167 to the total income of the Appellant in relation to the international transactions of provision of software development services ("IT Services"), and provision of Support services in relation to configuration of clinical trial study ("ITeS") by the Appellant to its Associated Enterprise ("AE"), by re-determining the Arm's Length Price ("ALP"). 3. IT service segment 3.1 The Ld. AO and Ld. TPO erred in law and on facts, in rejecting the scientific benchmarking analysis in relation to international transaction of IT services undertaken by the Appellant in accordance with the provisions of the Act read with the Income-tax Rules, 1962 ("the Rules"), and erroneously rejecting 10 (ten) out of 16 (sixteen) comparable companies selected by the Appellant. 3.1.1 The Appellant submits that following companies ought to be accepted as comparable companies to the IT Service segment of the Assessee: • Sasken Communication Technologies Limited (Segmental) • Accel Frontline Ltd (Segmental) ....
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....eged comparable company in relation to international transaction of ITeS by conducting fresh benchmarking analysis without taking cognizance of Rule 10B(2) and 10B(3) of the Rules and erroneously altering/modifying existing filters, and/or by applying additional filters. 4.2.1 The Appellant submits that 'SPI Technologies India Private Limited' cannot be considered as comparable companies to the ITeS segment of the Assessee. 5. The Ld. AO, Ld. TPO and Ld. DRP erred in law and on facts, in completely disregarding Appellant's submission of applying "upper turnover filter" as held by the Hon'ble Bangalore ITAT in Appellant's own case for Assessment Years 2011-12 and 2013-14. 6. The Ld. AO and Ld. TPO erred in law and on facts, in rejecting certain additional comparable companies proposed by the Appellant during the course of transfer pricing assessment which are ought to be considered in the final set of comparable companies in relation to international transaction of provision of IT services and ITeS, namely: IT Services: • Agilisys IT Services India Private Limited • Batchmaster Software Private Limited....
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.... the Act which is consequential to the grounds of appeal in above paras; The Appellant submits that each one of our above grounds is without prejudice to the other. The Appellant craves leave to add, modify, amend, alter or delete, any or all of the above grounds of appeal during the course of hearing and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing." 2. The assessee, Cenduit India is a subsidiary of Cenduit LLC. USA which is a specialized Interactive Response Technology (IRT) solutions provider. One of the IRT enable service offered by Cenduit LLC USA is preparation and management of clinical studies, based on the studyspecific requirements of its customers. The assessee undertakes two types of activities namely; (a) providing Support Services to Cenduit LLC in configuring the clinical trial study based on the clients requirement: and (b) providing Software Development Services to Cenduit LLC on a contract basis. Provision of Support Services in relation to configuration of clinical trial study: 3. The Project Managers of Cenduit LLC, meet the customers and c....
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....s team validates the content and accuracy of the data. Software Development Services: The Software Development of Cenduit India provides Software Development Services to Cenduit LLC in relation updation / development of IRT Software. 7. As per the Transfer Pricing (TP) document, the assessee has entered into the following International Transactions to its Associated Enterprises (AEs): Particulars Amt (Paid) Amt (Recd) Method Fixed Assets 19,65.937 TNMM Provision of Support Services in relation to configuration of clinical trial study 50,67,98,222 TNMM Provision of Software Development Services 8,79,51,560 TNMM Recovery of expenses 3,32,97,976 Other Reimbursement of expenses to AE 95,28,094 Other Outstanding Trade and Other receivables TNMM Outstanding Trade and Other payables 94,55,542 TNMM Total 2,09,49,573 69,57,26,588 71,66,76,161 8. The financials of the assessee in the TP study are as under:- Employee Benefit Expenses 23,63,19,200 4,83,78,757 28,46,97,9571 Particulars Suppo....
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....(India) Pvt Ltd 39.28% 16. Cybage Software Pvt Ltd 66.45% 35 Percentile 18.50% Median 25.60% 65 Percentile 30.89% ITeS Segment Sr. No. Name of company PLI (Weighted Average) 1. Suprawin Technologies Limited 10.26% 2. One Touch Solutions (India) Pvt Ltd 15.33% 3. Tech Mahindra Business Services Ltd. 20.44% 4. Infosys BPM Ltd 26.44% 5. SPI Technologies India Pvt Ltd 37.77% 6. Eclerx Services Ltd. 56.44% 35 Percentile 20.44% Median 23.44% 65 Percentile 26.44% 10. Pursuant to the directions of the DRP, while there was no variation in the ITeS segment, the TPO revised the margin computation of the comparable companies in the IT Services as follows:- Sr. No. Name of company PLI (Weighted Average) 1. Kals Information Systems Pvt Ltd 8.31% 2. E-Zest Solutions Limited 10.87% 3. Rheal Software Pvt Ltd 14.50% 4. Sybrant Technologies Private Limited 14.74% 5. Harbinger Systems Pvt. Limited 15.06% 6. CG-VAK Software & Exports Ltd 16.71% 7. R S Software (India) Ltd 20.87% 8. Nihilent Ltd 26.36% ....
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....and therefore the price charged by the Assessee in the international transaction would have to be regarded as at ALP. Therefore there would be no necessity to decide the other grounds of IT(TP)A No.59/Bang/2016 CO No.57/Bang/2016 Page 11 of 25 appeal in the Revenue's appeal regarding transfer pricing as well as the other grounds raised in the Cross-Objection." 13. In view of the above order of the Tribunal and taking a consistent view, we direct the AO/TPO to consider the comparables in both ITS and ITeS segments having turnover of 1-200 crores and decide the issue accordingly. 14. Ground No.11 is regarding non-grant of deduction for education cess and secondary & higher education cess. 15. After hearing both the parties, we are of the opinion that this issue came for consideration before the Bangalore Bench in the case of Wipro Ltd., 122 taxmann.com 268 (Bangalore - Trib.) wherein it was held as under:- "25.3 We heard the parties on this issue and perused the records. Besides the decision of Rajasthan High Court, referred supra, we notice that the Hon'ble Bombay High Court has also held in the case of Sesa Goa Ltd. v. Jt. CIT [2020] 117 taxmann.com 96 (Bom.) ....
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....e expression "any rate or tax levied" and consequently, the amounts paid towards the "cess" are not liable for deduction in computing the income chargeable under the head "profits and gains of business or profession". 18. In relation to taxing statute, certain principles of interpretation are quite well settled. In New Shorrock Spinning and Manufacturing Co. Ltd. v. Raval, 37 ITR 41 (Bom.), it is held that one safe and infallible principle, which is of guidance in these matters, is to read the words through and see if the rule is clearly stated. If the language employed gives the rule in words of sufficient clarity and precision, nothing more requires to be done. Indeed, in such a case the task of interpretation can hardly be said to arise : Absoluta sententia expositore non indiget. The language used by the Legislature best declares its intention and must be accepted as decisive of it. 19. Besides, when it comes to interpretation of the IT Act, it is well established that no tax can be imposed on the subject without words in the Act clearly showing an intention to lay a burden on him. The subject cannot be taxed unless he comes within the letter of the law and th....
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....come chargeable under the head "profits and gains of business or profession". 24. The legislative history bears out that the Income-tax Bill, 1961, as introduced in the Parliament, had Section 40(a)(ii) which read as follows : "(ii) any sum paid on account of any cess, rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains" 25. However, when the matter came up before the Select Committee of the Parliament, it was decided to omit the word "cess" from the aforesaid clause from the Incometax Bill, 1961. The effect of the omission of the word "cess" is that only any rate or tax levied on the profits or gains of any business or profession are to be deducted in computing the income chargeable under the head "profits and gains of business or profession". Since the deletion of expression "cess" from the Income-tax Bill, 1961, was deliberate, there is no question of reintroducing this expression in Section 40(a)(ii) of IT Act and that too, under the guise of interpretation of taxing statute. 26. In fact, in the aforesaid precise regard, reference can ....
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....is expression finds no place in the final text of the provision in Section 40(a)(ii) of the IT Act, 1961. The effect of such omission is that the provision in Section 40(a)(ii) does not include, "cess" and consequently, "cess" whenever paid in relation to business, is allowable as deductable expenditure. 29. In Kanga and Palkhivala's "The Law and Practice of Income Tax" (Tenth Edition), several decisions have been analyzed in the context of provisions of Section 40(a)(ii) of the IT Act, 1961. There is reference to the decision of Privy Council in CIT v. Gurupada Dutta 14 ITR 100, where a union rate was imposed under a Village Self Government Act upon the assessee as the owner or occupier of business premises, and the quantum of the rate was fixed after consideration of the 'circumstances' of the assessee, including his business income. The Privy Council held that the rate was not 'assessed on the basis of profits' and was allowable as a business expense. Following this decision, the Supreme Court held in Jaipuria Samla Amalgamated Collieries Ltd. v. CIT [82 ITR 580] that the expression 'profits or gains of any business or profession' has referen....
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....ituted the appeals in the aforesaid matters. Mr. Ramani, learned Senior Advocate for the Appellant submitted that to the best of his research, no appeals were instituted by the Revenue against the aforesaid decisions of the ITAT. 33. The ITAT, in the impugned judgment and order, has reasoned that since "cess" is collected as a part of the income tax and fringe benefit tax, therefore, such "cess" is to be construed as "tax". According to us, there is no scope for such implications, when construing a taxing statute. Even, though, "cess" may be collected as a part of income tax, that does not render such "cess", either rate or tax, which cannot be deducted in terms of the provisions in Section 40(a)(ii) of the IT Act. The mode of collection, is really not determinative in such matters. 34. Ms. Linhares, has relied upon M/s Unicorn Industries v. Union of India and others, 2019 SCC Online SC 1567 in support of her contention that "cess" is nothing but "tax" and therefore, there is no question of deduction of amounts paid towards "cess" when it comes to computation of income chargeable under the head profits or gains of any business or profession. 35. The issue....
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....rference. 38. Although, it is true that the Appellant - Assessee did not claim any deduction in respect of amounts paid by it towards "cess" in their original return of income nor did the Appellant - Assessee file any revised return of income, according to us, this was no bar to the Commissioner (Appeals) or the ITAT to consider and allow such deductions to the Appellant - Assessee in the facts and circumstances of the present case. The record bears out that such deduction was clearly claimed by the Appellant - Assessee, both before the Commissioner (Appeals) as well as the ITAT. 39. In CIT v. Pruthvi Brokers & Shareholders (P.) Ltd. 349 ITR 336, one of the questions of law which came to be framed was whether on the facts and circumstances of the case, the ITAT, in law, was right in holding that the claim of deduction not made in the original returns and not supported by revised return, was admissible. The Revenue had relied upon Goetze (supra) and urged that the ITAT had no power to allow the claim for deduction. However, the Division Bench, whilst proceeding on the assumption that the Assessing Officer in terms of law laid down in Goetze (supra) had no power, pr....