AI Drafter 
TaxTMI 
TaxTMI 
2019 (11) TMI 1744
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.... brief facts of the case are that the assessee is a private limited company engaged 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 ass....
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....executed between the assessee-company and its AE since the realization period in the agreement was 90 days. The Ld. TPO was of the view that the realization period of 30 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 h....
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....y is not functionally similar. (b) It is apparent from the Annual Report that the company has MODVAT deposit amounting to Rs. 25,000 and sales tax deposit amounting to Rs. 10,000 which establishes the fact that the company is engaged in sale of goods. (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 ....
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....plicable in terms of General Circular 15/2013 dated September 13, 2013 of the Ministry of Corporate afairs in respect of Section 133 of the companies Act, 1961." (b) The company also manufactures products such as electronic boards and printer circuits by importing raw materials and holding inventory, as apparent from Page No. 119 of the PB-II. The assessee company is not engaged into 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.....
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....enses have already been conside3red for allocation and relevant entries in the books of account have been passed. Hence there are no un-allocable expenses. Further, cash, investment (net of provision) and bank balances are reported at the enterprise level. Current assets and current liabilities relating to the specific business segments are identified and reported. Those, which are not identifiable, are reported as common assets / liabilities." (d) As disclosed in the annual account it is also 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....
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.... (a) From the profitability reported in the P & L Account (Page No. 324, 349 and 357 of PB-II) it is evident that the company had undergone extraordinary events as stated by the Ld. AR and this acquisition had substantial impact on the profitability of the company during the previous year. Extraction from Page 324 "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 1,187 crore and a deferred consideration 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 r....
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.... assessee company there are no such events leading to super profits. (b) The company has a bumper turnover of Rs. 42,531 Crs which cannot be compared with the turnover of the assessee company which is only Rs. 41 Crs. (c) The company has recognised Intellectual property rights (IPRs) for Rs. 59 Crs as evident from Page 348 of PB-II. Extraction from Page 348 of PB-II In the case of assessee company there is no accretion of such kind of assets. (d) The company has spent huge amount on R & D Activities amounting to Rs. 261 Crs during the previous year and also have filed 79 patterns in its name as pointed by the Ld. AR and apparent from the PB-II, page No.304 and 311. Extraction from Page 304 of PB-II "Our research and development efforts 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....
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....ne basis, the total R&D expenditure, including eligible R&D expenditure discussed above for fiscal years 2014 and 2013 is as follows: in ` crore 2014 2013 Revenue expenditure 873 907 Capital expenditure - 6 Total 873 913 R&D expenditure / total revenue 2.0% 2.5% (%) (e) It is also apparent from page No.326 of PB-II that the company has incurred huge selling and marketing expenses of Rs. 2,390 Crs. Extraction from Page 326 of PB-II III Results of operations The function‑wise classification of the Standalone Statement of Profit and Loss is as follows: in ` crore Year ended March 31 2014 % 2013 % Income from software services and products 44,341 100.0 36,765 100.0 Software development expenses 26,738 60.3 21,662 58.9 Gross profit 17,603 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,....
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....rch 31, 2013 Capital 2.43 - Revenue 37.18 27.87 39.61 27.87 (c) Though the company's revenue flows from the three streams viz., products (IP Business), platforms (Solutions Integration) and services (Product Engineering), the main segments disclosed in the Annual Report are Telecom & Wireless, Lifesciences & Health care, and Infrastructure & systems. Thus, the segmental details in the annual report is absent. Extraction from Page 675 of PB-II "(m) Segment reporting (i) Identification of Segment The Company's operations predominantly relate to providing software products, services and technology innovation covering full life cycle of product to its customers. (ii) Allocation of income and direct expenses Income and direct expenses allocable to segments are classified based on items that we individually identifiable to that segment such as salaries and project related travel expenses. The remainder is considered as un-allocable expense and is charged against the total income. (i) Un allocated item Un allocated items include general corporate income and expense items whic....
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.... 5.12.40.116 9.41.39,571 200.48.72.321 138.69.58.352 200,48,72,321 138.69.58 352 Document 2 Disclosure of intangible assets [Table] Classes of intangible assets (Axis Sub classes of intangible assets (Axis Carrying amount accumulated amortization and impairment and gross carrying amount (Axis] Unless otherwise specified, all monetary values are in INR Company total intangible assets Member Internally generated and other than internally generated intangible assets (Member) Carrying amount [Member] Gross carrying amount [Member] -(1) Accumulated amortization and impairment Disclosure of intangible assets [Abstract] Disclosure of intangible assets (Lineltems) Reconciliation of changes in intangible assets [Abstract] Changes in intangible assets [Abstract] 31/03/2014 01/04/2013 01/04/2012 to 31/03/2013 31/03/2012 Member] 01/04/2013 to 01/04/2013 01/04/2012 to to 31/03/2014 31/03/2013 31/03/2014 Additions to intangible assets [Abstract] Additions other than through business combinations 57,65,627 72,01,901 57,65,627 72,01.901 intangible ass....
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.... profit and loss [Abstract] Disclosure of revenue from operations (Abstract] Disclosure of revenue from operations for other than finance company [Abstract] Revenue from sale of products Revenue from sale of services Total revenue from operations other than finance company Total revenue from operations Other income Total revenue Expenses [Abstract] Cost of materials consumed Purchases of stock-in-trade Changes in inventories of finished goods, work-in-progress and stock-in-trade Employee benefit expense Finance costs Depreciation, depletion and amortisation expense [Abstract] Depreciation expense Total depreciation, depletion and amortisation expense Other expenses Total expenses 20,675.74 20,675.74 ì´ 20,675.74 225.24 14.225.84 14,225.84 14,225.84 322.44 14,548 28) 20,900.98 ì´ 4,021.19 2,482 34 0 8,549.31 14.64 6,905.07 0.17 268.65 236.91 268.65 236,91 903.42 1,100.44 13,757.21 10,724.93 Document 6 Footnotes (A) Export of Software Services: 20194.37 Software Services from local unit: 414.07 Revenue from Subscription & Trainin....