TaxTMI 
TaxTMI 
2022 (8) TMI 892
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....comparable and accordingly erred in excluding the companies as comparables. 3. Whether the DRP is correct in excluding on the basis of Turnover filter, while the comparable is qualifying all the qualitative and quantitative filters applied by the TPO. 4. In the facts and circumstances of the case the Id.DRP erred in holding that foreign exchange loss or gain is a part of operating expense or operating income and exclusion of depreciation from cost as the case may be, when the TPO has excluded this data from that of the comparables. 5. Whether the DRP is correct in foreign exchange fluctuation as operating in nature and exclusion of depreciation from cost while treating foreign exchange fluctuation and deprecation non-operating in nature as applied by the TPO. 6. Whether the Ld.DRP was right in seeking exact comparability while searching for comparable companies of the assessee under TNMM method whereas requirement of law and international jurisprudence requires seeking similar comparable companies. 7. For these and other grounds that may be urged upon, direction of the Dispute Resolution Panel may be reversed and that assessment order be....
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....RP erred in upholding the actions of the AO/ TPO. b) That the TPO erred in law and on facts in not accepting the Appellant's economic analysis of its international transactions which was undertaken in accordance with the provisions of the Act read with the Income-tax Rules, 1962 (`the Rules' for short). c) That the AO/ TPO erred in facts and in law in conducting fresh benchmarking analyses by substituting the Appellant's analyses with fresh benchmarking analyses on his own conjectures and surmises and, in doing so, determining new arm's length prices. Thus the Appellant prays that the fresh benchmarking analyses conducted by the AO/ TPO are liable to be set aside. The DRP erred in upholding the actions of the AO/ TPO d) That the AO/TPO has erred in law and the DRP further erred in confirming the action of the TPO in using data which was not available in the public domain at the time of conducting the transfer pricing study by the Appellant. e) That the AO/ TPO erred in law and the DM' further erred in confirming the non-application of multipleyear data while computing the margins of alleged comparable companies. f) Th....
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....otal sales is unwarranted, the AO/ TPO erred on facts and in law in arbitrarily rejecting Goldstone Technologies Ltd. and Vama Industries Ltd. on the ground that their export revenues constituted less than 75% of their total sales despite the said companies having export turnovers in excess of 75% of their total turnovers. The DRP further erred in confirming the same. e) That the AO/ TPO erred on facts and in law in arbitrarily rejecting companies having employee costs less than 25% of their total revenues, and the DRP further erred in confirming the same. f) That, without prejudice to the Appellant's contention that the AO/TPO ought not to have arbitrarily rejected those companies having employee costs less than 25% of their total revenues, the AO/TPO erred in rejecting CG Vak Software & Export Ltd. and LGS Global Limited on that ground despite the said companies having employee costs in excess of 25% of their total revenues. The DRP further erred in confirming the same. g) That the AO/TPO also erred on facts and in law in arbitrarily rejecting R Systems International Ltd. for having a different financial year ending (i.e. other than 31' March 20....
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....and in law in arbitrarily rejecting Caliber Point Business Solutions Ltd. for having a different financial year ending (i.e. other than 31' March 2011), despite the said company being functionally comparable to the Appellant. The DRP further erred in confirming the same. e) That the AO/TPO erred in arbitrarily rejecting companies having ITeS revenue less than 75% of total operating revenue and inconsistently applying such a filter, without considering the specific segmental results. The DRP erred in confirming the same. f) That the AO/TPO grossly erred in rejecting Informed Technologies India Limited by applying the aforesaid filter despite the said company having ITeS revenue in excess of 75% of its total operating revenues. The DRP erred in confirming the same. g) That the AO/ TPO erred in including Accentia Technologies Ltd., Acropetal Technologies, ICRA Online Ltd., and Jeevan Scientific Technology Ltd. in the final list of comparables despite these companies being functionally dissimilar to the Appellant. The DRP also erred in confirming the same. h) The DRP has rejected Infosys BPO Ltd., Mindtree Ltd. and iGate Global Solutions Ltd. on ....
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....nt to the price of the above international transaction by not restricting the adjustment to the actual value of the international transaction, i.e., the purchase price paid by the Appellant to its Associated Enterprises. The DRP erred in confirming the same. 6. Non-allowance of appropriate adjustments to the comparable companies, by the TPO a) That the AO/TPO erred in law and on facts in not allowing appropriate adjustments under Rule 10B to account for, inter alia, the differences in (a) accounting practices; (b) marketing expenditures; (c) research and development expenditures; and (d) risk profiles to account for the differences between the Appellant and the comparable companies. b) That the AO/TPO grossly erred in law and on facts in arbitrarily applying upper caps to the working capital adjustments allowable to the Appellant while determining the arm's length prices of its international transactions without there being any legal basis or rationale for limiting the working capital adjustments to the said percentages, and thus erred in not granting the entire adjustments allowable under Rule 10B of the Rules to account for the differences in the wo....
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.... 2. Brief facts of the case are as under: 2.1 The Assessee is a wholly owned subsidiary of Novell Inv., USA engaged in providing software development and support services to Novell US. The Assessee also provides telephonic support services to its AE. It also purchases software products from Novell USA, for direct sale to its customers in India, as well as, duplicates and markets software products purchased from Novell USA, for year under consideration, the assessee filed its return of income on 30/11/2011 declaring total income of Rs.22,10,754/-. Return was processed under section 143(1) of the Act and case was selected for scrutiny. Ld.AO observed that, assessee entered into international transaction with associated enterprises for more than Rs.15 crores, and therefore reference was made to Ld.TPO for determining arms length price of the international transaction. 2.2 Upon receipt of reference, the Ld.TPO called for economic details of international transaction in Form 3CEB. The Ld.TPO observed that, the assessee entered into following international transaction with its associated enterprises: Particulars Amount in Rs. Provision of software development services ....
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....n comparables from assessee's list. The Ld.TPO thus selected following comparables for software development service segment and IT enabled service segment. Software development service segment: Sl. No. Name of the Company Mark-up on Total Costs (WC- unadj) (in %) Mark-up on Total Costs (WC - adj) (in %) 1 Acropetal Technologies Ltd. (seg) 31.98 27.53 2 e-Zest Solutions Ltd. 21.03 17.82 3 E-Infochips Ltd. 56.44 54.94 4 Evoke Technologies Pvt. Ltd. 8.11 6.84 5 ICRA Techno Analytics Ltd. 24.83 21.66 6 Infosys Ltd. 43.39 42.28 7 Larsen & Toubro Infotech Ltd. 19.83 18.68 8 Mindtree Ltd. (seg) 10.66 8.09 9 Persistent Systems & Solutions Ltd. 22.12 20.01 10 Persistent Systems Ltd. 22.84 20.46 11 R S Software (India) Ltd. 16.37 15.06 12 Sasken Communication Technologies Ltd. 24.13 23.33 13 Tata Elxsi Ltd. (seg) 20.91 17.78 AVERAGE MARGIN 24.82 22.25 IT enabled service segment Sl. No. Name of the Company Mark-up on Total Costs (WC-unadj) (in %) Mark-up on Total Costs (WC - adj) (in %) 1....
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.... Aggrieved by the draft assessment order, the assessee raised objections before the DRP. The DRP directed as under: For SWD segment i. Turnover filter: The DRP directed exclusion of companies having turnover in excess of Rs. 200 crores. ii. Foreign exchange fluctuation: The DRP directed that the foreign exchange fluctuation ought to be treated as operating in nature while computing operating margins of the assessee and the companies chosen as comparables. iii. Working capital adjustment: Despite the assessee's objections, the DRP upheld the working capital ('WC' for short) adjustment determined by the TPO in the TP order, wherein the working capital adjustment was restricted to 1.63% as against the actual adjustment of 1.98%. iv. Depreciation adjustment: The DRP, following its directions in the assessee's case for AY 2010-11 and CIT(A)'s order for AY 2009-10, directed that the margins of the assessee, as well as, the comparables be computed after excluding depreciation from the cost base. 5. On giving effect to the DRP directions, the final list of comparable to the SWD service segment are as follows: SI. No. Name of the Company Adjus....
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....y of Novell Inc.USA, and is engaged in providing software development support services to Novell Inc.USA. Functions: In TP study, assessee is submitted to be providing development services to AE which includes developing certain components of Novell products, like e-directory, developer tools for NetWare 6 and NetWare 5 ex-IP etc. In TP study, assessee has been classified into various product groups: * the application group; * networking and advanced services group; * network management services group; * operating Systems group; * quality management group and technology group; It has been submitted in TP study that workflow of software development services provided by assessee can be summarised as follows: * Novell US prepares a product requirement document(PRD) which is developed y the product management team of Nov ell based on the inputs from the customer, the marketing team of the product group and the core team management of Novell US, and the product engineering group of Novell India. * The product is initiated once the PRD is received. The product engineering team of Novell India makes an engineeri....
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....en Communication Technologies Ltd., Persistent Systems Ltd., L&T Infotech Ltd., and Infosys Ltd., by applying turnover filter; and For ITeS Segment, Infosys BPO Ltd., iGate Global Ltd., and Mindtree Ltd., by applying turnover filter. The Ld.CIT.DR submitted that, such filter is not prescribed under IT Rules, as one, which is to be applied while determining arms length price of international transaction. The Ld.CIT.DR placed reliance on orders passed by Ld.AO/TPO. He relied on following decisions of coordinate bench of this Tribunal in support of his contention: * NTT Data Global Delivery Services Ltd. vs ACIT reported in (2016) 59 Taxmann.com 7; * LSI Technologies India Pvt.Ltd vs ITO reported in (2016) 70 Taxmann.com 189; * Societe Generale Global Solutions Centre Pvt.Ltd vs DCIT reported in (2016) 69 Taxmann.com 336 * Capgemini India Pvt.Ltd vs ACIT reported in (2015) 58 Taxmann.com 175; * Wills Processing Services India Pvt.Ltd vs DCIT reported in (2013) 30 Taxmann.com 350. 9.2 Ld.AR submitted that, application of turnover filter is upheld by coordinate Bench of this Tribunal in several decisions, including Genesis Integratin....
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....to decide whether it would be in addition to existing software or is it new application, a new subsystem or a whole new system. This is what is generally referred to as 'Domain Analysis'. Assuming that the developers are not sufficiently knowledgeable in the subject area of the new software, the first task is to investigate the so called 'domain' of the software, because more knowledgeable they are about the domain already, the less the work that is required. Another objective of this work is to make the analysts who will later try to elicit and gather the requirements from the area experts or professionals, speak with them in the domain's own terminology and to better understand what is being said by these people because otherwise they will not be taken seriously. The next most important task in creating a software product is extracting the requirement of the customers and then precisely describing the software to be written possibly in a rigorous way. In practice, most successful specifications are written to understand and fine tune applications that were already well developed, although safety critical software systems are often carefully specified prior to ....
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....ftware development life cycle. It does not generate any intellectual property of its own. The intellectual property generated belongs to the customer and not to the service provider. A software customization company buys software products in the form of licenses from third party or uses its own software products for customization to suit the requirements of the customer and in this case, only the right to use the software is passed on to the customer and therefore, the same is also considered as software development service providers. A software trading company purchases software products in the form of licenses or on royalty basis as a right to use and sells these products as a reseller. 3.1 The assessee being a software development service provider, it cannot be compared to a software development company or a software trading company. Therefore, the companies that are functionally different from that of the tax payer are to be excluded. ....................... 9. Having heard both the parties and having considered the rival contentions and also the judicial precedents on the issue, we find that the TPO himself has rejected the companies which are making....
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....ice provider, working on business model of cost plus margin. 9.6 It is observed that comparables sought to be excluded are 100 % Software Development Companies, having high turnover and therefore respectfully following aforestated view in case of Genesis Integrating Systems India Pvt. Ltd., vs DCIT (supra) these comparables are to be excluded on both the counts of functionally not being similar with that of assessee and also because they have a high turnover of more than 200 crore. 9.7 Reliance is also placed on decision of this Tribunal in case of Autodesk India Pvt.Ltd. vs DCIT reported in (2018) 96 Taxmann.com 263, followed similar view to exclude identical comparables by applying turnover filter, wherein all the decisions relied upon by Ld.CIT.DR has been considered and dealt with. 9.8 In support, reliance was placed on decisions of this Tribunal in case of Triology E Business Software India Pvt.Ltd., vs DCIT reported in (2013) 29 Taxmann.com 310 and decision of Hon'ble Bombay High Court in case of CIT vs Pentair Water India Pvt. Ltd in ITA No. 18/2015 vide order dated 16/09/15. Hon'ble High Court in case of Paintair water India Pvt.Ltd (supra) held that, turno....
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....Ltd. [6 ITR (Trib) 81] and Trilogy E Business Software India (Pvt.) Ltd. vs. DCIT [(2011) 12 taxmann.com 464], which decisions have subsequently been consistently followed by this Tribunal, lays down the proposition that foreign exchange gain or loss has to be regarded as operating revenue or loss. The learned DR however brought to our notice a decision of the ITAT Bangalore Bench in the case of Commonscope Networks (India) Pvt.Ltd. Vs. The ITO IT(TP) A.No.166 & 181/Bang/2016 order dated 22.2.2017 wherein it was the foreign exchange gain or loss that arises should relate to the concerned AY because what is compared is the profit margin of a particular AY. According to him therefore the TPO/AO should examine the nature of foreign exchange gain or loss in the case of the Assessee and the comparable companies and to the extent it relates to turnover of the relevant AY and the segment for which ALP is being determined, the same should alone be considered as part of the operating revenue or loss. The learned counsel for the Assessee pointed out that it is impossible to carry out such an exercise. The Assessee might be willing to carry out such an exercise but the same cannot be expected....
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....nce on following decisions: (i) Assessee's own case A.Y: 2009-10 in IT(TP)A No. 1491/Bang/2014 & C.O. No.69/Bang/2015 by order dated 04.09.2019; (ii) Decision of by coordinate bench of this in case of DCIT v. Novell Software Development (India) (P.) Ltd. by Order dated 04.09.2019 passed in IT(TP)A No. 1491/Bang/2014 and C.O. No. 69/Bang/2015 for the assessment year 2009-10 (iii) Decision of by coordinate bench of this in case of Honeywell Technology Solutions Lab (P.) Ltd.v. DCIT reported in (2013) 35 taxmann.com 144; (iv) Decision of Hon'ble Pune Tribunal of this in case of E-gain Communication (P.) Ltd. v. ITO reported in (2009) 118 ITD 243; and (v) Decision of by coordinate bench of this in case of 24/7 Customer.com (P.) Ltd. v. DCIT reported in (2012) 28 taxmann.com 258). 10.6 On the contrary, the Ld.CIT.DR relied on orders passed by authorities below. 10.7 We have perused the submission advanced by both sides in light of records placed before us. As far as issue of excluding depreciation cost alleged by the revenue is concerned, Coordinate Bench of this Tribunal in assessee's own case for A.Y: 2009-10 in IT(TP)A No. 1491/Ba....
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....ng the depreciation from the cost and also in the case of the appellant the depreciation to be excluded from the cost for computing the arm's length difference. The appeal on the above issue is disposed accordingly". 14.5.2 Similar claim has been made in this year and I see no reason to differ with my predecessor and hence, the TPO is directed to follow this direction in the current year. It is ordered accordingly. Considering above discussion and observations by Ld.CIT (A), we do not find any infirmity in adopting a consistent view and the same is upheld." 10.8 Ld.AR submitted that for year under consideration also the assessee charged higher rate of depreciation as compared to companies selected by Ld.TPO. Facts being the same with assessment year 2009-10, we do not find any infirmity in adopting the consistent view to in computing the margin in respect of the comparables after excluding the depreciation from the cost. In the result the appeal filed by revenue stands dismissed. 11. As far as the appeal filed by assessee is concerned, the grounds that are pressed and argued by the Ld.AR are adjudicated as follows. 12. Ground No.3(i): That the lowe....
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....ent of software in view of its expenses in foreign currency, but also on the following grounds - (i) that, in the absence of segmental information containing the break-up of its export sales, it was not possible to ascertain if it passed the export earnings filter; and (ii) that, in the absence of segmental information containing the break-up of its employee costs, it was not possible to ascertain if it passed the employee costs filter (Pages 18-20 of the DRP's directions). Revenue vide ground Nos. 2 to 4 is seeking the inclusion of the company in the final list of comparables. After hearing the rival submission on exclusion of Acropetal from the list of comparable companies, we find that exclusion of this company from the list of comparable companies should be upheld because this company fails the employee cost filter of employee cost being equal to at least 25% of the total operating revenue. From the annual report of the company it can be seen that the employee costs incurred by the company is 11.51% of the total operating revenue. Apart from the above, the Company also fails the TPO's filter of service revenue is excess of 75% as the income from software development act....
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....16. B.4 On the contrary, the Ld.DR relied on orders passed by the authorities below. B.5 We have perused the submission advanced by both sides in light of records placed before us. B.6 We note that in similar circumstance of a captive service provider, this Tribunal in case of Aspect Technology Center (I.) Pvt. Ltd. v. ITO(supra) observed and held as under: 33. As far as e-Zest Solutions Ltd., and Persistent Systems & Solutions Ltd., is concerned, these were Comparable companies chosen by the TPO. The Assessee did not object to inclusion of these two companies before the TPO nor were objections filed against inclusion of these two companies before the DRP. The Assessee now wants to content that these two companies are functionally different and based on judicial decisions in which these two companies were excluded as functionally not comparable with a company rendering SWD services such as the Assessee. The Assessee seeks to rely on the decision of the Special Bench ITAT Chandigarh in the case of DCIT Vs. Quarks Systems Pvt. Ltd., 42 DTR 414 (Chandigarh-SB) wherein it was held that there cannot be estoppel against law and that non-comparable companies even if sele....
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....ps Ltd. on the ground that it failed the software service income filter at 75%. At the outset, the Assessee submits that E-Infochips Ltd. was excluded by the DRP on the ground that: (i) no segmental information regarding its diverse functions is available; (ii) there is presence of significant inventory and (iii) it failed the software service income filter at 75% (Pages 17-18 of the DRP's directions). The Revenue, in its appeal, has challenged its exclusion only the first and the third grounds. In other words, the Revenue has not challenged its exclusion on the ground of presence of significant inventory and thus its exclusion on this ground has attained finality and cannot be disturbed by this Hon'ble Tribunal. Apart from the above, we find that the company's software development service revenue for FY 2010-11 was less than 75% of its total operating revenue for that year. Thus, the above action of the DRP in rejecting the above company is correct. The DRP has also rightly appreciated that the above company is engaged in diverse activities such as product development and the provision of IT enabled services for which no separate segmental information is available in i....
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.... services akin to IT enabled services/KPO services. Submissions in this regard are placed at pages 13431349 and 2013-2021 of the paperbook. D.2 The Ld.AR placed reliance on the decisions of coordinate bench of this Tribunal in Applied Materials India Pvt. Ltd. v. ACIT (supra) at paras 17.1 to 17.2 pages 32-34, Finastra Software Solutions (India) (P.) Ltd. v ACIT (supra) at para 17 and Aspect Technology Center (India) Pvt. Ltd. v. ITO (supra) at para 22, where in the case of assessees similar to the assessee herein, the exclusion of the said company from the final list of comparables was upheld. D.3 On the contrary, the Ld.DR relied on orders passed by the authorities below. D.4 We have perused the submission advanced by both sides in light of records placed before us. D.5 We note that in similar circumstance of a captive service provider, this Tribunal in case of Aspect Technology Center (I.) Pvt. Ltd. vs. ITO(supra) observed and held as under: As far as Gr.No.7 raised by the revenue is concerned, the revenue in this ground has challenged the action of the DRP in excluding ICRA Techno Analytics Ltd. This company was rejected by the DRP for the reason that the e....
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....cessively high increase in its operations is the increased funding received by it from its holding company viz. Persistent Systems Limited. The Assessee submits that in view of its peculiar economic circumstance the company ought to be rejected as a comparable. Submissions in this regard are placed at pages 1366-1369 and 2039-2041 of the paperbook. E.4 The Ld.AR placed reliance on the decisions of coordinate bench of this Tribunal in Applied Materials India Pvt. Ltd. v. ACIT (supra) at paras 9,2.1 to 9.2.4 pages 18-22, where in the case of assessees similar to the assessee herein, the exclusion of the said company from the final list of comparables was upheld. E.5 On the contrary, the Ld.DR relied on orders passed by the authorities below. E.6 We have perused the submission advanced by both sides in light of records placed before us. E.7 We note that in similar circumstance of a captive service provider, this Tribunal in case of Applied Materials India Pvt. Ltd. v. ACIT (supra) observed and held as under: "9.2.4 We have considered the rival submissions as well as the relevant material on record. At the outset we note that the functional comparability of these t....
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.... stands allowed. 13. Ground No.3(h): That the lower authorities erred in rejecting LGS Global Ltd. while performing the comparability analysis for the SWD services segment of the Assessee. . 13.1. LGS Global Ltd. The Ld.AR submitted that the assessee seeks inclusion of LGS Global Ltd., which was proposed by the assessee during the proceedings before the Ld.TPO as the company is functionally comparable to the assessee. The Ld.TPO rejected the company on the ground that, the financial data of the company is not available in the public domain, whereas, the assessee had furnished the annual report before the Ld.TPO. It is submitted that the Ld.TPO failed to take the same into consideration. In this regard, it is submitted that the company is functionally comparable and passes all the filters applied by the TPO. Submissions in this regard are placed at pages 1497-1500 and 1977-1981 of the paperbook. 13.2. As regard employee cost, the assessee submits that under Schedule VI to the Companies Act, 1956, all categories of expenditure incurred on account of salary and wages are not required to be disclosed under the head 'personnel expenditure'. Further, it is submitted that, the....
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....ventured into healthcare receivables cycle management and high end consultancy to startups requiring field experts. Refering to the the annual report, the Ld.AR submitted that coding income is contributing 15% of the total income which activities are akin to software development activity while the assessee is a mere provider of IT enabled services. She submitted that this company has invested huge sums in the development of EMR software and Saas, and that segmental details of its various activities are unavailable. The company further owns significant intangibles. Submissions in this regard are placed at pages 1448-1455 and 2104-2111 of the paperbook. B. Acropetal Technologies Ltd. - The assessee seeks rejection of Acropetal Technologies Ltd. because the EDS segment of Acropetal fails the 75% service revenue filter applied by the Ld.TPO. Acropetal is engaged in software development, web development and engineering design services. The engineering design service has been considered as comparable to the Assesse by the Ld.TPO. However, the Assessee wishes to highlight that the functions under taken by Acropetal under the engineering design segment are different from the ITES provid....
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.... the assessee as is evident from the website extracts produced before the DRP. Submissions in this regard are placed at pages 1424-1431 and 2079-2086 of the paperbook. The company, therefore, cannot be considered as a comparable to the assessee's ITE service segment. D.3. Reliance is placed on the decisions of Coordinate Bench of this Tribunal in case of Swiss Re Shared services (India) Pvt. Ltd. v. ACIT (order dated 08.07.2016 in IT(TP)A No. 380/Bang/2016), Finastra Software Solutions (India) (P.) Ltd. v ACIT (supra) at para 25 and Aspect Technology Center (India) Pvt. Ltd. v. ITO (supra) at para 41, where, in the case of assessees similar to the assessee herein, for the same Assessment Year, the company was directed to be excluded from the list of comparables/exclusion was upheld. The company is, therefore, not comparable to the assessee and it ought to be rejected from the list of comparables. D.4. On the contrary, the Ld.DR relied on orders passed by the authorities below. D.5. We have perused the submission advanced by both sides in light of records placed before us. We note that in similar circumstance of a captive service provider, this Tribunal in case of Aspect....
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.... the nature of IT enabled services which were notified by CBDT vide Notification No. SO 890(E) dated 26.09.2000. If the BPO segment is considered, the company fails to satisfy the TPO's own filter of service revenue from the relevant segment having to be in excess of Rs. 1 crore as the revenue from the BPO segment of the said company is Rs. 79 lakhs only. The company is therefore not comparable to the Assessee. This Tribunal in the case of Swiss Re Shared services (India) Pvt. Ltd. v. ACIT (order dated 08.07.2016 in IT(TP)A No. 380/Bang/2016) directed the TPO to verify as to whether the TPO's filter of Sales > 1 Crore is satisfied by this company. In the present case, as can be seen from the annual report of the company the sale of the company in respect of the BPO segment amounts to only 79 lakhs, and therefore it fails the TPO's filter. As far as exclusion of Accentia Technologies Ltd., is concerned, we find that this company was excluded by the DRP for the reason that the details regarding its diverse functions were reported under one segment, without segmental details regarding the same being made available. In the absence of segmental details being made available, ....
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....1. For the reasons above, the company is not comparable to the Assessee and the DRP's findings on exclusion of iGate is right in law. As far as the company ICRA Online IT(TP)A Nos.187 & 175/Bang/2016 Ltd., is concerned, the DRP excluded this company for the reason that the details regarding its diverse functions are reported under one segment without segmental details regarding the same being made available. Therefore, the comparability of the company cannot be determined. In any event, this company is functionally dissimilar for the reason that the outsourced services segment of the company is engaged in the provision of high end consultancy services which cannot be compared to the assessee who is into provision of low end IT enabled services which are routine in nature. Further, the company fails the TPO's own filter of export turnover in excess of 75% of total sales as the export turnover of the company amount to only 61.88% of its sales. Therefore, the company cannot be held as a comparable to the assessee." D.6. Respectfully following the above view, we direct the Ld.AO/TPO to exclude Accentia Technologies Ltd, Acropetal Technologies, ICRA Online Ltd. (seg) and Jeev....
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.... jurisdiction under the said section could be exercised only to rectify mistakes apparent on record. In the present case, the TPO on application of mind, has passed the original order accepting the above international transaction as being at arm's length. Thus, no further adjustment could be determined, much less vide an order under Section 154 of the Act. Reliance in this regard is placed on the decision of the Hon'ble Kerala High Court in the case of K. Parameswaran Pillai v. AITO reported in (1955) 28 ITR 885 and the decision of the Hon'ble Supreme Court in the case of ITO v. Volkart Brothers reported in (1971) 82 ITR 50 . Therefore, the TP adjustment determined vide order passed under Section 154 of the Act is unsustainable. 15.5. Secondly, the action of the Ld.TPO in determining the adjustment as is done, is erroneous. The TPO failed to furnish the search process adopted, the filters applied and the final list of comparables arrived at. In effect, the order passed under Section 154 of the Act is a non-speaking order and is therefore erroneous and unsustainable. 15.6. Lastly, it is submitted that the Appellant is a routine distributor and does not perform any value added ....
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....purchase of software ought to be held as being at arm's length. 15.9. Without prejudice, she submitted that, in the event that method applied by the Ld.TPO is upheld, the assessee submits that, it ought to be furnished with the search process and the final list of comparables selected by the Ld.TPO, to enable it to examine the functions, assets and risks of the companies selected by the Ld.TPO and seek exclusion or inclusions of such companies as may be warranted. The Ld.AR prayed for appropriate directions in this regard be issued to the Ld.TPO. 15.10. Both sides submitted that the issue may be remanded to the Ld.TPO for de novo consideration. Based on the above discussions and submissions, we direct the Ld.TPO to consider the claim of the assessee as submitted in the TP study. Admittedly, in the assessee's own case for the assessment years 2012-13 to 2014-15, the transaction in the SDR segment, benchmarked by the assessee by applying RPM was accepted by the revenue. In the event the comparables captured under the search process is akin to RPM as MAM, then the same must be resorted to, for computing the margin. Only under the circumstances as considered by Hon'ble Mumbai Tri....
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....ned counsel for the Assessee that the TPO, while granting working capital adjustment in respect of the Assessee's SWD and ITES segment, has arbitrarily and unreasonable restricted the same at 1.63% and 1.47% respectively, without providing any legal basis or rationale for limiting the working capital adjustment to the said percentage (page No. 22 of the TPO's order). The DRP also, vide its directions upheld this act of the TPO (page No. 10 of the DRP's directions). It was submitted that this direction of the DRP is erroneous and merits the interference of this Hon'ble Tribunal. It is submitted that working capital adjustment must be granted in full without there being any arbitrary and ad hoc upper cap or restriction to the same, as has been done by the TPO. The working capital adjustment has been arrived at by the TPO on the basis of a scientific calculation and by adopting the methodology prescribed by the OECD Guidelines. Thus, once a working capital adjustment is arrived at in the manner prescribed by law, the consequences of such an adjustment on a comparable's profit margin cannot be the reason for applying a cap on such adjustment. Rule 10B(3) of....