TaxTMI 
TaxTMI 
TaxTMI 
2021 (9) TMI 1445
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....nd inclusion of three comparable companies, which were urged in the grounds of appeal. The learned AR also pressed ground No. 6.a. with regard to the grant of working capital adjustment. The assessee has also filed an additional ground contending that the transfer pricing adjustment should be restricted to the value of international transactions only. 3. Brief facts of the case are as follow: The assessee is a company engaged in the business of rendering software development services, software maintenance and technical call centre services primarily to its Associate Enterprises (AEs). The assessee had undertaken several international transactions with its AEs. As regards the software development segment, the final list of comparable considered by the TPO are as follows:- Sr.No. Name of the company 1. Kals Information Systems Limited 2. E-Zest Solutions Limited 3. CG-VAK Software & Exports Limited 4. Tata Elxsi Limited (Seg.) 5. Rheal Software Private Limited 6. Mindtree Limited 7. Larsen & Toubro Infotech Limited 8. R S Software (India) Limited 9. Infobeans Technologies Limited 10. Persistent Systems Limited 11. Nihilent....
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....s the Related Party Transaction to Sales filter applied by the learned TPO In the show-cause notice issued, the learned TPO has excluded companies for which the ratio of RPT to sales exceeds 25% during the current year i.e., during FY 2014-15. The relevant extract from the show-cause notice is reproduced below for ease of reference: e) Companies who have more than 25% related parry transactions of the sales were excluded. Companies having related party transactions of more than 25% are proposed to be excluded. A threshold of 25% is being applied following the provisions of Section 92A(2)(a) which provides a limit of 26% of the equity capital carrying voting rights for treating an enterprise as Associated Enterprise, if the limit is reduced further it would only result in eliminating more and more companies, on the other hand if the limit is relaxed then companies with predominantly related party transactions would get included which would not represent uncontrolled transactions. Therefore, on a balancing note, 25% is a proper threshold limit for related party transactions. The companies having more than 25% related party transactions should therefore be rejected as comparable....
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....d selected for determining ALP is the TNMM there is no reason as to why one should look at price difference in offshore software development and onsite software development. It is no doubt true that in TNMM it is only the margins in an uncontrolled transaction that is tested with reference to the controlled transaction but it is not possible to ignore the fact that pricing will have an effect on the margins obtained in a transaction. The argument that if pricing structure were to be considered as criteria, then it will have to be seen as to what is the pricing structure of all the comparable for various projects cannot be accepted because the TPO has not chosen any other onsite software service provider with a revenue composition of more than 75% from onsite software services as comparable. As rightly observed by the TPO, the pricing is different in onsite when compared to offshore operations. The further observations of the TPO that the reasons for the same lie in the fact that while in the case of OFFSHORE projects most of the costs are incurred in India; an ONSITE project has to be carried out abroad significantly increasing the employee cost and other costs. 65. The next obje....
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....parable companies identified by the Assessee was more than 75% of its export revenues viz., a) Visu International Ltd. b) Maars Software International Ltd. c) Akshay Software Technologies Ltd. d) VJIL Consulting Ltd. e) Synfosys Business Solutions Ltd. The above companies were therefore rightly not considered as comparable by the TPO. We hold accordingly." 36. It is seen that the TPO in coming to the conclusion that the onsite revenue filter is not applicable has placed reliance on the decision of the ITAT Mumbai Bench in the case of Capegemini as quoted in para 16 in para 14 of the TPO's order, but that decision does not deal with a case of onsite revenue filter and the decision was rendered on the facts of its own case. 37. On the issue of RPT filter, we notice that the TPO in para 16 has accepted that the RPT filter should be @ 25%. In the case of Persistent Systems Ltd., the RPT is at 31.32% as extracted in the earlier part of this order and therefore this company should be excluded by application of RPT filter. In view of the above, we do not wish to go into other grounds on which this company is sought to be excluded viz., that it is a product company and there is no ....
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.... to software services. - Owns intellectual property rights. - Incurs significant research and development costs. - Carries out significant activities based on onsite business. - Owns products such as Finacle, Edge Verve and other product based solutions. Extra-ordinary event of merger with Infosys Consulting India Ltd. Segmental profit & loss account not available. Commands substantial brand value. 40. The DRP, however, has not thought it fit to exclude this company by observing that this company has substantial pre-dominant revenue from software services and the growth was not attributable to any brand value. Presence of onsite activity and the expenses on R & D have all been brushed aside. In our view, the difference pointed out by the ld. counsel for the assessee before us show that this company cannot be compared with that of the assessee basically because of its business model, presence of onsite revenue generation and other reasons cited before us. Besides, the reason that turnover of this company is huge and more than 10 times that of the assessee." 8. We notice that M/s. Infobeans Technologies Ltd. have been directed to be excluded by the coordinate bench i....
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....dinate benches, we direct exclusion of Persistent Systems Ltd., Larsen & Toubro Infotech Ltd. and Infosys Ltd. & Infobeans Technologies Ltd. from the final list of comparables. 10. With regard to the prayer of the assessee to include 3 comparable companies, we notice that the coordinate bench in the case of Goldman Sachs Services Pvt. Ltd. (IT(TP)A No. 2355/Bang/2019 dated 15.6.2020) has restored all the 3 companies to the file of the A.O./TPO for examining the claim of assessee with the following directions. 10. The learned Authorized Representative argued for inclusion of three comparables (i) I2T2 India Limited, (ii) Evoke Technologies Limited and (iii) Melstar Information Technologies Limited and made submissions on comparables and substantiated with chart and Paper Book. (i) I2T2 India Limited - The Ld. AR submitted that the comparable company margin is 3.67%. The comparable has to be included as the RPT details are available in the Annual Report and referred to page No. 2385 of the Paper Book. We are of the opinion that the Assessing Officer could have called for the information under Section 133(6) of the Act to confirm the details in the proceedings. Accordingly, we re....