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2022 (6) TMI 1299
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....making a reference to the Additional Commissioner of Income-tax, Transfer Pricing - 2(2) ['the Learned Transfer Pricing Officer' or 'the Ld. TPO']. 1.2. The Hon'ble Dispute Resolution Panel ('Hon'ble Panel') Hon'ble Panel erred in upholding the order of the NeAC , which is bad on facts and in law, and is in violation of the principles of natural justice. The NeAC has not recorded an opinion that any of the conditions in section 92C(3) of the Act, were satisfied in the instant case. Accordingly, the order passed by the Ld. TPO/NeAC is without jurisdiction. 2. Fresh comparability/ benchmarking analysis is liable to be quashed 2.1. The Hon'ble Panel erred in upholding the order of the Ld. TPO/NeAC , wherein the Ld. TPO erred in arbitrarily rejecting the Transfer Pricing Documentation maintained by the Appellant as per the provisions of Section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 (The Rules'), on account of mere difference of interpretation in selection of filters, is without any basis. 2.2. The Hon'ble Panel erred in upholding the order of the Ld. TPO/NeAC , wherein the Ld. ....
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.....1.3.Persistent Systems Limited; and 5.1.4. Infosys Limited. 6. Onsite filter 6.1. The Hon'ble DRP erred in upholding the action of the Ld. TPO/ NeAC in rejecting the Appellant's arguments on application of onsite filter to exclude the following companies in the software development services segment, that have significant onsite operations unlike the Appellant, which is an offshore service provider: 6.1.1. Larsen and Toubro Infotech Limited: 6.1.2. Nihilent Limited: 6.1.3. Thirdware Solution Limited; 6.1.4. Aspire Systems India Private Limited; and 6.1.5. Infosys Limited. 7. Data obtained under section 133(6) of the Act 7.1. The Hon'ble Panel erred in upholding the action of the Ld. TPO/ NeAC, where the data obtained under section 133(6) of the Act for Nihilent Limited, was not shared with the Appellant during the course of the transfer pricing proceedings and without appreciating the fact that no opportunity was provided to the Assessee for rebutting the said information. 7.2. NeAC The Hon'ble Panel erred in upholding the action of the Ld. TPO/ NeAC , wherein the Ld. ....
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....d. TPO/ NeAC in accepting Infosys Limited, Nihilent Limited and Larsen and Toubro Infotech Limited even though there are certain extra-ordinary events such as acquisition/ peculiar economic circumstances during the relevant FY 2015-16. 10.4. The Hon'ble DRP erred in upholding the approach of the Ld. TPO/ NeAC in computing the quantum of related party transactions and accepting Persistent Systems Limited and Aspire Systems (India) Private Limited as passing the related party transactions filter. 10.5. The Hon'ble DRP erred in upholding the action of the Ld. TPO/ NeAC in excluding Goldstone Technologies Limited, on the basis that it fails persistent loss filter; 10.6. The Hon'ble DRP erred in upholding the action of the Ld. TPO/ NeAC in excluding Akshay Software Technologies Limited, on the basis that it is not functionally comparable to the Appellant; 10.7. The Hon'ble DRP erred in upholding the action of the Ld. TPO/ NeAC in excluding R System International Limited, on the basis that it has different financial year ending, without considering its functional comparability; 10.8. The Hon'ble DRP erred in excluding E-Zes....
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....upholding the action of the Ld. TPO in selecting a combination of two methods, i.e., Resale Price Method and Other Method as the most appropriate method while undertaking the benchmarking analysis. 12.5. Without prejudice to the above grounds 11.1 to 11.3, the Hon'ble DRP erred in upholding the action of the Ld. TPO in applying incorrect quantitative filters while undertaking the fresh benchmarking analysis. 12.6. The Hon'ble DRP erred in upholding the action of the Learned TPO/ NeAC in accepting the following companies as functionally comparable to the Appellant. 12.6.1. NGRT Systems Private Limited; 12.6.2. Bhatia Communications & Retail (India) Limited; 12.6.3. Creative Peripherals & Distribution Limited; 12.6.4. Prime Retail India Limited 12.6.5. Cyrix Infotech Private Limited 12.6.6. Khosla Electronics Private Limited 12.6.7. Zicom Electronic Security Systems Limited 12.6.8. Ample Technologies Private Limited 12.6.9. Advanced Telemedia Private Limited 12.7. Without prejudice to the contentions of the Appellant on the recharacterization, the Ld. TPO erred in not p....
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.... in considering an amount of INR 43,552,715 as against INR 65,661,684. 18. Short credit of advance tax 18.1. The NeAC erred in not granting full credit of the advance tax paid by the Appellant and in considering an amount of INR 107,170,000 as against INR 171,254,000. 19. Non-grant of credit of dividend distribution tax 19.1. The NeAC erred in not granting credit for the dividend distribution taxes and levying interest, while computing the taxes in the final assessment order. 20. Interest under section 234B of the Act 20.1. The NeAC has erred in law and on facts in levying interest under section 234B of the Act. 21. Initiation of Penalty Proceedings 21.1. The NeAC erred in initiating penalty proceedings under section 271 of the Act. 22. Relief 22.1. The Appellant prays that directions be given to grant all such relief arising from the preceding grounds as also all reliefs consequential thereto. 22.2. The Appellant craves leave to add to or alter, by deletion, substitution or otherwise, any or all of the above grounds of appeal, at any time before or during the hearing of the appeal." ....
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....as not merely providing support services to its foreign AEs for marketing in India. The Ld.TPO therefore characterised the assessee to be carrying out that sales promotion and marketing exercises. The Ld.TPO held assessee to be an agent of parent company in effecting sales. 2.7 Referring to the final assessment order passed in assessee's own case for A.Y. 2015-16, the Ld.TPO observed as under: " 2.8 The Ld.TPO thus proposed an adjustment of Rs.49,58,58,516/- by applying commission rate method in respect of the MSS segment. 2.9 Software Development segment: In SWD segment, the Ld.TPO rejected the comparables and the filters applied by assessee. He observed that assessee used 7 comparables, by using OP/PC as PLI, and computed average margin at 15%. Following were the comparables selected by assessee . 2.10 The Ld.TPO thereafter applying various filters finalised the following 17 comparables with an average margin of 25.64%. S.No. Company Name Financial Year wise OP/OC (%) 2015-16 2014-15 2013-14 Average 1 Kals Information Systems Pvt. Ltd. 3.97% 5.77% 16.94% 8.60% 2 E-Zest Solutions Limited 7.65%....
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....transfer pricing order, considered average value coupon rate as determined from comparable loan transaction to be at 3.74 for the comparables. The Ld.TPO thus computed or proposed adjustment at Rs.2,72,41,922/- in respect of the interest paid on ECB loan by the assessee. 2.14 Thus the total adjustment proposed by the Ld.TPO are as under: 2.15 On receipt of the Ld.TPO, the Ld.AO passed draft assessment order by making further addition which are as under. 1. Assets received free of cost or on loan from AE disallowed u/s. 28(iv) - Rs.57,89,38,923/- 2. Payment made to expats disallowed as FIS / FTS disallowed u/s. 40(a)(i) - Rs.10,22,81,802/- 3. Bonding and debonding charges disallowed u/s. 37 - Rs.19,51,209/-. 2.16 Against the draft assessment order, assessee filed objections before the DRP. 2.17 The DRP partly considered the objections of the assessee wherein certain comparables sought for exclusion by assessee were excluded however certain comparables were also excluded by the DRP suo moto. In respect of the other issues alleged on transfer pricing adjustments, the DRP upheld the observation of the Ld.TPO. On the issues of corporate tax additio....
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....gineering ('CE') in US. CE understands the needs of the existing customers and prospective customers through marketing channels and forecasts the revenue. The software development team designs and develops the product based on inputs received from the CE. Once the product is developed and approved by various teams, such product passes series of internal testing and the bugs identified, if any are fixed. Activities performed in India • The RPG team in India stitches the various components required for the final product as per blue prints provided by the Associated Enterprises. • After the proto type is developed, it is quality tested and a compatibility check is undertaken. The equipment used in the labs for quality check and compatibility check are normally various kinds of end products like cameras, mobile phones. The functions are performed by RPG team in India are based on specifications received from US. The team in India is supported by 709 (approx.) employees and approximately 500 contractors. Assets The following sections provide an overview of the significant capitalized and non-capitalized assets employed by the AEs in the transaction ....
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....ubmitted by Ld.AR that these comparables do not satisfy the turnover filter that has been applied by the Ld.TPO and at the outset deserves to be eliminated. The Ld.AR referring to the annual reports, placed in the paper books filed before this Tribunal reveals that turnover is more than Rs.200 crores and does not match even 10 times the turnover of assessee. The Ld.AR thus submitted that applying either the turnover filter of Rs. 1 crore to Rs. 200 crores or 10 times the assessee's turnover to 1/10th , these comparables deserves to be excluded. 17.4 It is also submitted that these comparables are not functionally similar with that of the assessee as has been observed by Coordinate Bench of this Tribunal in following cases: 1. Decision of Hon'ble Mumbai Tribunal in case of Red Hat India Pvt. Ltd. vs. Addl. CIT in ITA No. 1379/M/2021 by order dated 25.02.2022 for A.Y. 2016-17. 2. Decision of Hon'ble Hyderabad Tribunal in case of Infor (India) Pvt. Ltd. vs. DCIT in ITA-TP.No. 198/Hyd/2021 by order dated 06.10.2021 for A.Y. 2016-17. 3. Decision of Coordinate Bench of this Tribunal in case of OLF (India) Software Pvt. Ltd. vs. ACIT in IT(TP)A No. 182/Bang/2....
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....owing the decision rendered in the assessee's own case in AY 2008-09, we direct exclusion of M/s Infosys Ltd. 7. In AY 2008-09, the co-ordinate bench has excluded M/s Persistent Systems Ltd also by following the decision rendered in the case of 3DPLM Software Solutions Ltd (supra), where in it was held that M/s Persistent Systems Ltd is engaged in product development and product design services while the assessee is a software development service provider. Further, the segmental details were not available. 7.1 It was stated that there is no change in facts. Accordingly, following the decision rendered in the assessee's own case in AY 2008-09, we direct exclusion of M/s Persistent Systems Ltd. We also notice that in AY 2008-09, the co-ordinate bench has excluded M/s Thirdware Solutions Ltd also by following the decision rendered in the case of 3DPLM Software Solutions Ltd. (supra), where in it was held that M/s Thirdware solutions Ltd is engaged in product development and earns revenue from sale of licenses and subscription. Further, the segmental details were not available. 8.1 It was stated that there is no change in facts. Accordingly, ....
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....by providing opportunity of being heard to the assessee. So this comparable is remitted back to the Ld. TPO to decide afresh." "Nihilent Analytics Ltd. (Nihilent) 44. The assessee sought exclusion of Nihilent on ground of its functional dissimilarity vis-à-vis assessee. We have examined the website information of Nihilent, made available by the assessee at page No.405 of the paper book, wherein it is mentioned that it is engaged in providing advanced analytics, artificial intelligence, blockchain, business intelligence, data science, cloud services etc. 45. Perusal of the disclosure of enterprise's reportable segment explanatory available at page No.A406 of the paper book shows that Nihilent is engaged in software development and consultancy, engineering services, web development and hosting and subsequently diversified itself into the domain of business analytics and business process outsourcing and financials of Nihilent available at page No.A304, A405-A406 of the paper book shows that Nihilent has only one business segment and in the absence of segmental financials, as it is into diversified business, this company cannot be a valid comparable vi....
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....financials are not available in respect of Nihilent and Infobeans and the RPT in respect of Aspire Systems India Pvt. Ltd. is more than 25% being the threshold limit considered by the Ld.TPO. Nothing has been placed before us by the Ld.DR in order to take a different view. Respectfully following the Hon'ble Mumbai Tribunal, we direct the Ld.TPO to exclude Nihilent, Infobeans and Aspire Systems from the final set. 17.11 One more comparable alleged by assessee in ground no. 7.2.4 being Cybage Software Pvt. Ltd. has not been argued and therefore the same is not considered herein. Accordingly, ground nos. 5-7.2.3 and ground nos. 10-10.4 raised by assessee stands allowed as indicated hereinabove. 18. Ground no. 8 The Ld.AR submitted that Working Capital Adjustment has not been granted to the assessee. After considering the submissions by both sides, we direct the Ld.AO/TPO to compute the Working Capital Adjustment on actuals in order to determine the arms length price of the transaction. Accordingly this ground raised by assessee stands allowed for statistical purposes. 19. Ground no. 10.5 19.1 The Ld.AR submitted that DRP suomoto excluded Goldstone Technologies Ltd....
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.... which is less than the margin computed by the assessee under the segment. 21.1 On the contrary, the Ld.DR placed reliance on orders passed by authorities below. 21.2 We have perused the submissions advanced by both sides in the light of records placed before us. 21.3 We note that the Ld.TPO carried out recharacterisation of assessee without understanding the functions performed by the assessee under the marking support service segment. We are therefore of the opinion that this issue needs to be verified by the Ld.AO/TPO denovo. Assessee is directed to file all relevant information in support of its contention which shall be verified and considered by the Ld.AO/TPO in accordance with law. Needless to say that proper opportunity of being heard must be granted to assessee. Accordingly this ground raised by assessee stands allowed for statistical purposes. 22. Ground no. 13.2 22.1 The Ld.AR submitted that assessee is seeking depreciation on the capital asset that was received from the AE. We therefore direct the Ld.AO to grant depreciation to the assets that stand capitalised by the Ld.AO in accordance with law. Accordingly ground no. 13 raised by assessee stands ....
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.... perused the submissions advanced by both sides in the light of records placed before us. 24.3 We note that the bonding and debonding expenses have been incurred by assessee in respect of capital asset. Assessee is seeking depreciation on such charges as the same were disallowed u/s. 37 of the Act. The assessee has not filed any evidences in support of its claim however the Ld.AR has submitted that assessee may be provided an opportunity to substantiate the claim. We accordingly remand this issue to the Ld.AO to verify the evidences if any filed by the assessee and to consider the alternate claim of deprecation in accordance with law. 24.4 Needless to say that proper opportunity of being heard must be granted to assessee. Accordingly this ground raised by assessee stands allowed for statistical purposes. 25. Ground nos. 16-19 are in respect of certain deductions claimed under chapter VIA, short credit of self assessment and advance tax granted by the Ld.AO and non granting of dividend distribution tax credit to assessee. 25.1 We direct the Ld.AO to consider the claim in accordance with law having regard to the evidences filed by the assessee. Accordingly these gro....
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....pplying the commission rate is as under: Income of MSS segment of assessee 9.76% of Gross products in India. sales of Sandisk =9.76 % of 99813106 USD == 9.76% x 99813106 x 66/100 Million INR = Rs. 64,29,56,103 Income of MSS segment as decided Rs. 64,29,56,103 above Less: Operating Cost of assessee in MSS Rs 13,37,25,078 segment Less: Profits already declared by Rs 1,33,72,509 assessee in MSS segment Income avoided by shifting profits to 49,58,58,516 Rs/- Ireland Document 4 Sr. Data No. Company Name OP/TC OP/TC OP/TC OP/TC Source 2014 2015 2016 Weighted (%) (%) (%) Average (%) 1 P Goldstone 3.52% -0.48% -16.29% -4.61% Technologies Ltd. 2 C Akshay Software 1.89% 0.38% N.A. 1.15% Technologies Ltd 3 C Evoke Technologies 6.56% 5.42% N.A. 5.93% Pvt. Ltd 4 P Sasken 26.29% 11.00% 7.81% 14.67% Communication Technologies Ltd. 5 P Mindtree Ltd. 21.64% 21.15% 19.49% 20.61% 6 P RS Software (India) 24.33% 33.43% -1.95% 21.23% Ltd. 7 P-Seg R Systems 23.41% 22.31% 2....
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.... of its product- solutions AEs of SanDisk India are exposed to the contract risk as they contract with the clients in their own name. Further, AEs of SanDisk India deal with, and cater to the needs of third party clients. Accordingly, they bear the contract risk with respect to the contracts entered into with third parties. SanDisk India does not bear risk on account of under- utilization of capacity as it is compensated on cost plus a mark-up for the IT, ITeS and MSS rendered to its AEs. Document 7 Risk Category and Description or Credit Risk: A counter party risk occurs when a customer is not able to settle an invoice for delivered goods rendered services. The payment default could be caused either by illiquidity or insolvency of a customer as well as a limited willingness to pay. The risk could, for example, materialize by means of allowances for bad debt or costs in connection with legal actions. Foreign Exchange Risk: The foreign exchange risk becomes relevant if the sourcing of, e.g., materials, resources and services or if sales is performed in a curre....