TaxTMI 
TaxTMI 
TaxTMI 
2019 (11) TMI 1744
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....gaged in the business of Software Development services files its return for the AY 2014-15 on 30/11/2014. From the Form-3CEB report, it was observed that the assessee has entered into international transaction with its Associated Enterprises for Rs. 42, 83,33,622/-. Therefore, the case was referred to the TPO. The TPO passed order U/s. 92CA (3) of the Act on 31/10/2017 recommending upward adjustment of profit by Rs. 5,74,14,856/-. Thereafter, draft assessment order was passed on 19/12/2017. Subsequently, the petition was filed in Form35A by the assessee raising objections regarding the draft assessment order passed on 04/09/2018 U/s. 143(3) r.w.s 92CA(3) r.w.s 144C of the Act however, the Ld. Members of the DRP upheld the entire upward adjustment of profit by Rs. 5,38,20,492/- and added to the income of the assessee based on which final assessment order was passed on 29/10/2018 aggrieved by which the assessee is in appeal before us. 4. The Ld. TPO observed in his proceedings that the assessee had declared profit margin on cost @ 18.08%. It was further observed that the TP document maintained by the assessee was based on multiple year data due to non-availability of contemporaneous....
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....0 days was reasonable and for the balance period the assessee ought to have charged interest on the receivable from its AE and since it was an international transaction susceptible to Arm's Length adjustment, proposed to make adjustment by enhancing the profit by Rs. 97,193/-. However, the Ld. DRP though held that the trade receivables is an international transaction requiring TP adjustment, and the short term deposit rates of interest of State Bank of India prevailing in the previous year applied by the TPO as the ALP interest rate is in order, finally concluded by directing the Ld. TPO to compute the ALP interest rate taking into consideration of the credit period of 90 days as stipulated in the inter-company agreements and thereby deleted the TP adjustment on interest receivables. Accordingly, the Ld. TPO reduced the enhancement of Rs. 5,74,14,856 to Rs. 5,38,20,492/-. 7. At the outset, Ld. AR submitted before us that the TNMM method adopted by the Revenue is acceptable. The Ld. AR also submitted that the DRP had excluded M/s. SQS India BFSI Limited, M/s. CIGNITI Technologies Limited and M/s. Tech Mahendra as the comparable however, included CG-VAK Software and Exports Ltd., as....
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....s. (iv) M/s. Infosys Limited: (a) The company underwent extraordinary events during the previous year such acquisition of M/s. Lodestone Holdings Space AG and merger of M/s. Infosys Consulting India P Ltd. These acquisitions had impact on the profitability of the company during the previous year. (b) The company's turnover of Rs. 42,531 Crs approximately during the previous year which cannot be compared with the appellant company's turnover as it is only Rs. 163 Crs approximately. (c) The company has also incurred expenditure of Rs. 59 crs towards development of Intellectual Property Rights. (d) The company spent huge amount on R & D Activities and had filed 79 patterns in its name. In the case of the appellant, it is only a captive service provider to its parent company rendering ITES services and do not undertake any R & D Activities. (e) The company has also incurred huge expenditure of Rs. 2,390 Crs towards selling and marketing and therefore, has a wide market but in the case of the assessee company no such expenses is incurred, and its scope is limited to the work assigned by the parent company. (v) M/s. Persistent Systems Ltd:- (a) The company is product bas....
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....nto any activity of producing physical goods. Page No. 119 of the PB-II (c) The company has also incurred expenses in R & D and therefore generated intangible assets as apparent from page no. 65 & 121 of PB-II, while as the assessee company is not involved in any R & D activity. In the case of the assessee company neither such expenses are incurred, or any intangibles are acquired during the relevant period. Extraction from page no. 65 of PB-II Extraction from page No.121, PB-II: (d) The company has also earned revenue from Information Technology consultancy of Rs. 29.07 Crs as apparent from page no.123 of PB-II. However, the assessee company have not earned any income from information technology consultancy activities. Extraction from page No.123 of PB-II: 10. Considering the nature of activities carried out by M/s. Einfochips Limited discussed hereinabove and since the assessee company is primarily engaged in custom-built mobile applications and software support and maintenance related services to M/s. Kony Group of Companies, we are of the view that M/s. E-infochips Limited cannot be considered as a comparable company because of the reasons stated hereinabove. ....
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....so apparent that the company has acquired intangibles during the year. Relevant portion of page 210 of PB-II is extracted hereinbelow for reference:- "d) Intangible Assets and Amortization Acquired intangible assets relating to software purchased for company's internal use are capitalised at the cost of acquisition and is amortised on the straight line method over its estimated useful life of three years, as perceived by the management or useful life of asset as per contract whichever is earlier. Depreciation on intangible assets is calculated on pro-rata basis with reference to date of addition over its useful life of three years, as perceived by the management or useful life of asset as per contract, whichever is earlier. The intangible assets acquired b the respective units of Thirdware Solution Limited are used in relation to the operation / services by the respective units only. Intangible assets internally developed by the company are capitalised at the total cost attributable towards the development of the product and is amortised on the straight-line method over its estimated useful life of three years, as perceived by the management." 10.1. In the case of t....
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....n of up to Rs. 608 crore. During the year, we invested in our subsidiaries, for the purpose of operations and expansion, as follows: Subsidiary In foreign currency Crore Infosys Americas,Inc. USD O.1 million 1 Lodestone Holding AG CHF 20 million 136 Infosys Public Services,Inc. USD 12.5 million 75 Edgeverve Systems Limited 1 (1) On April 15,2014,the Board of Directors of Infosys authorized the Company to execute a Business Transfer Agreement and related documents with Edgeverve (Refer to Note 2.10.2 of the standalone financials). Refer to statement pursuant to Section 212 of the Companies Act,1956 for the summary financial performance of our subsidiaries. The audited financial statements and related information of subsidiaries will be available on our website,www.infosys.com." Extraction from page 349 of PB-II 2.10.1 Investment in Lodestone Holding AG On October 22, 2012, Infosys acquired 100% of the outstanding share capital of Lodestone Holding AG, a global management consultancy firm headquartered in Zurich, Switzerland. The acquisition was executed through a share purchase agreement for an upfront cash consideration of Rs. 1....
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....focus on the twin goals of improving productivity and quality of our services, alongside working towards technology driven innovation and differentiation that will deliver greater value to our clients. At Infosys Labs, Service innovation is being achieved through enhanced automation, optimization, prevention and effective collaboration among described teams. Infosys Labs has established a set of service innovation groups focused on enhancing quality and productivity of six dominant Infosys services-Business Process Outsourcing; Infrastructure Management Services; Independent Validation Services; Application Development and Maintenance including Large Deals; Consulting and Systems Integration; and Modernization. These groups work on service platforms with a focus on automation, optimization, consolidation, and on enhancing the effectiveness of contextual collaboration for distributed teams. Under its Client Innovation umbrella, Infosys Labs has established six Centres of Excellence (CoE), namely Modernization, Advanced Analytics, Security and Dependability, Advanced Mobility, Experience, and Innovation Co-Creation. The CoEs work towards establishing technologybased client i....
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....03 39.7 15,103 41.1 Selling and marketing expenses 2,390 5.4 1,870 5.1 General and administration expenses 2,686 6.0 2,218 6.0 5.076 11.4 4,088 11.1 Operating profit before depreciation 12,527 28.3 11,015 30.0 While as in the case of the assessee company no such expenses have been incurred as it is catering only to its parent company. 12. Considering the above-mentioned factors, we are of the considered view that M/s. Infosys Limited is not a comparable company with respect to the assessee company for TP Adjustments. (v) M/s. Persistent Systems Ltd:- (a) It is evident from Page No. 533 of PB-II that the company is mainly engaged in three areas such as products (IP Business), platforms (Solutions Integration) and services (Product Engineering) and is also selling its branded products. Extraction from Page 533 of PB-II "Business overview Your company specializes in building computer software products. Your company's business is organized with a focus on the following three areas: Products (IP Business), Platforms (Solutions Integration) AND Services (Product Engineering). Your company has decided to brand the product busi....