TaxTMI 
TaxTMI 
2022 (6) TMI 1334
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Act, the transaction of providing SWD Services and ITeS was an "international transaction" i.e., a transaction between two or more associated enterprises, either or both of whom are nonresidents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises. In terms of Sec.92(1) of the Act, the any income arising from an international transaction shall be computed having regard to the arm's length price. In this appeal by the assessee, the dispute is with regard to determination of Arms' Length Price (ALP) in respect of the international transaction of rendering SWD services and ITeS to the AE. 3. As far as the provision of Software Development services are concerned, the assessee filed a....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Inteq Software Pvt. Ltd. 7.53% 32.14% 45.00% - 28.20% 8. Persistent Systems Ltd. 26.92% 31.34% 35.64% 30.89% 9. Infobeans Technologies 34.98% 20.78% 41.95% 32.42% 10. Thirdware Solution Ltd. 23.89% 44.39% 44.68% 36.90% 11. Infosys Ltd. 38.22% 41.30% 36.28% 38.61% 12. Aspire Systems (India) 34.26% 47.56% 38.04% 39.28% 13. Cybage Software Pvt. 62.90% 68.68% 68.82% 66.45% 35th Percentile 24.83% Median 28.20% 65%th Percentile 32.42% 5. The TPO computed the Addition to total income on account of adjustment to ALP as follows: "22.4. Computation of Arm's Length Price: 22.4.1 The median of the weighted average Profit Level indicators is taken as the arm's length margin. Please see Annexure A for details of computation of PLI of the comparables. Based on this, the arm's length price. of the services rendered by the taxpayer to its AE(s) is computed as under: SWD SEGMENT Particulars Formula....
X X X X Extracts X X X X
X X X X Extracts X X X X
....;ble DRP erred in including the operating income and operating expense of FY 2014-15 and FY 2013- 14 in computing the weighted average margin for R S Software Ltd even though the same fails the upper turnover limit of Rs. 200 crores for the above-mentioned years. 8. The Learned TPO/Hon'ble DRP erred in excluding the following companies, even though they are functionally comparable to the appellant: (a)Akshay Software Ltd. (b) Sagarsoft (India) Limited. (C) Evoke Technologies Limited. (d) Sankya lnfotech Limited. 8. As far as Ground No. 4 is concerned, the learned Counsel for the assessee prayed for exclusion of 7 companies set out in Ground No.6. The relevant provisions of the Act in so far as comparability of international transaction with a transaction of similar nature entered into between unrelated parties, provides as follows: Determination of arm's length price under section 92C . 10B . (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction [or a specified domestic transaction] shall be determined by any of the following methods, being the m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....te, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail. (3) An uncontrolled transaction shall be comparable to an international transaction [or a specified domestic transaction] if- (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences. 9. A reading of Rule 10B(1)(e)(iii) of the Rules read with Sec.92CA of the Act, would clearly shows that the net profit margin arising in comparable uncontrolled transactions has to be adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, which could materially affect the amount of net profit margin in the open market. 10....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld that high turnover ipso facto does not lead to the conclusion that a company which is otherwise comparable on FAR analysis can be excluded and that the effect of such high turnover on the margin should be seen. The DRP therefore held that a company which is otherwise functionally comparable cannot be excluded only on the basis of high turnover. The Assessee has raised Grd.No.4 before the Tribunal challenging the aforesaid view of the DRP. 12. On the issue of application of turnover filter, we have heard the rival submissions. The parties relied on several decisions rendered on the above issue by the various decisions of the ITAT Bangalore Benches in favour of the assessee and in favour of the Revenue, respectively. The ITAT Bangalore Bench in the case of Dell International Services India (P) Ltd. Vs. DCIT (2018) 89 Taxmann.com 44 (Bang-Trib) order dated 13.10.2017, took note of the decision of the ITAT Bangalore Bench in the case of Sysarris Software Pvt. Ltd. Vs. DCIT (2016) 67 Taxmann.com 243 (Bangalore-Trib) wherein the Tribunal after noticing the decision of the Hon'ble Delhi High Court in the case of Chryscapital (supra) and the decision to the contrary in the case of CI....
X X X X Extracts X X X X
X X X X Extracts X X X X
....panies having a turnover of Rs.1.00 crore to 200 crores have to be taken as a particular range and the assessee being in that range having turnover of 8.15 crores, the companies which also have turnover of 1.00 to 200.00 crores only should be taken into consideration for the purpose of making TP study." 42. The Assessee's turnover was around Rs.110 Crores. Therefore the action of the CIT(A) in directing TPO to exclude companies having turnover of more than Rs.200 crores as not comparable with the Assessee was justified. As rightly pointed out by the learned counsel for the Assessee, there are two views expressed by two Hon'ble High Courts of Bombay and Delhi and both are non-jurisdictional High Courts. The view expressed by the Bombay High Court is in favour of the Assessee and therefore following the said view, the action of the CIT(A) excluding companies with turnover of above Rs.200 crores from the list of comparable companies is held to correct and such action does not call for any interference." 13. The Tribunal in the case of Autodesk India Pvt.Ltd. Vs. DCIT (2018) 96 Taxmann.com 263 (Banglore-Tribunal), took note of all the conflicting decision on the issue and r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ice is that the decision rendered in the case of Genisys Integrating (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5.8.2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India Pvt.Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding co-ordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of M/S.NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in Willis Processing Services (supra) and have to be regarded as per incurium. These three decisions also place reliance on the decision of the Hon'ble Delhi High Court in the case of Chriscapital Investment (supra). We have already held that the decision rendered in the case of Chriscapital Investment (supra) is obiter ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ransaction similar to an international transaction is regarded as not being comparable in the earlier two years immediately preceding the current year and thereby attracting the provisions of Rule 10B(2) or 10B(3) then the data for those years will not have any influence on the determination of transfer prices in relation to the transactions being compared for the current year and hence have to be ignored. On a harmonious reading of the provisions of Rule 10CA, 10B(3) (4) of the Rules, we agree with the stand taken by the learned counsel for the Assessee. Therefore, if at all R.S.Software Ltd., is to be regarded as a comparable company, then the margins for AY 2014-15 and 2015-16 of the company have to be ignored because in those years they are to be regarded as not comparable. We hold accordingly. 21. As far as exclusion of this company R.S.Software (India) Ltd., on the ground that the related party transaction is more than 15% as projected in Ground No.7(b) of the concise grounds of appeal is concerned, we find that the admitted position with regard to related party transaction in this case is 17.52% as evident from page-100 of Form No.35A being the grounds of objection ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ot be a single criteria/parameter to be applied as a general rule in all the cases. The tolerance range varies from case to case and depending upon the availability of comparables for a particular case. Thus if the comparables of an international transactions are easily available in sufficient number then this tolerance range of RPT should be restricted to minimum. Though there is no specified range in the provisions of Act or Rules, however, in due course of discussion and adjudication of this issue in a series of decisions of this Tribunal, tolerance range of 5% to 25% of total revenue from RPT has been considered as reasonable depending upon the facts and circumstances of each case. In the case of the assessee before us, the TPO/A.O. selected 17 comparables. Therefore, the availability of the comparables of the international transactions of the assessee is not a difficult task. Thus, when a good number of comparables are available then the RPT cannot be allowed to the extreme limit of 25% of revenue. Accordingly, in order to determine the ALP considering by considering the uncontrolled comparable transactions, it should be kept in mind that the uncontrolled transactions should b....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 56. We are therefore of the considered opinion that the present appeals filed by the Revenue do not give rise to any substantial question of law and the suggested substantial questions of law do not meet the requirements of Section 260-A of the Act and thus the appeals filed by the Revenue are found to be devoid of merit and the same are liable to be dismissed. 57. We make it clear that the same yardsticks and parameters will have to be applied, even if such appeals are filed by the Assessees, because, there may be cases where the Tribunal giving its own reasons and findings has found certain comparables to be good comparables to arrive at an 'Arm's Length Price' in the case of the assessees with which the assessees may not be satisfied and have filed such appeals before this Court. Therefore we clarify that mere dissatisfaction with the findings of facts arrived at by the learned Tribunal is not at all a sufficient reason to invoke Section 260-A of the Act before this Court. 58. The appeals filed by the Revenue are therefore dismissed with no order as to costs." 6. Having heard the learned counsels for the parties, we are therefore....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nctions within an organization. The ERP implementation requires professionals who have expertise in: - 1) Functional domain (i.e. domain knowledge of the business, its operations & management). 2) Software domain (i.e. technology expertise in software development) 2.5.1.3 Thus, ERP implementation & support involves personnel from professional domain and technology or software domain. Therefore, such services cannot be strictly said to be software services as non-software personnel may play a dominant role in the implementation. The very fact that this company has described that it had rendered professional services in Dubai, indicate that it pertained to the non-software services; or it is also possible it may be a mix of software services and professional services. As segmental information is not available for the same, we consider it appropriate to hold that this company is not functionally comparable to the assessee. Accordingly. fire exclusion of this company is upheld." 18. The learned Counsel for the assessee relied on the following decisions in support of his plea for inclusion of this company as a comparable company:  Global Lo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 3 previous Financial Years and even if in one Financial Year it makes a profit, then that company has to be regarded as a comparable company if it is otherwise a comparable company. In the light of the aforesaid decision and in the light of the facts brought to our notice, we are of the view that the comparability of this company has to be considered afersh by the AO/TPO in the light of the facts brought to our knowledge as above. The TPO will verify if this company suffered financial loss in all the earlier Financial Years and even if in one Financial Year, the company has made a profit, it has to be regarded as a comparable company. 21. As far as the plea of the assessee for inclusion of Evoke Technologies Pvt. Ltd., is concerned, this company was rejected by the TPO on the ground that the financials of this company included figures from outside branches which are unconnected. The DRP agreed with the view of the TPO. The learned Counsel for the assessee placed reliance on the decision of the ITAT, Hyderabad Bench in the case of Infor India Pvt. Ltd., Vs. DCIT (2019) 109 taxmann.com 435 (Hyderabad - Tribunal) wherein it was held that availability unaudited accounts cannot be t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....entile 26.44% **These two comparables were pari of the search matrix enclosed With the Show cause notice and were rejected as functionally not comparable. However based on other taxpayer's submissions and on perusal of annual reports and functional profile of the companies they are found to be functionally comparable and included in the final list of comparables. ITeS SEGMENT Particulars Formula Amount (in Rs.) Taxpayers operating revenue OR 4,11,99,837 Taxpayers operating cost OC 3,66,17,122 Taxpayers operating profit OP 45,82,715 Taxpayers PLI PLI-OP/OC 12.52% 35th Percentile Margin of comparable set 20.44% Adjustment Required (if PLI< 35th Percentile) Yes Median Margin of comparable set M 23.44% Arm's Length Price ALP =(1+M)*OC 4,52,00,175 Price Received OR 4,11,99,837 Shortfall being adjustment ALP-OR 40,00,338 24. The DRP confirmed the order of the AO. In so far as the determination of ALP in the ITeS segment is concerned, the concise ground which was pressed for adjudication is ground No.10 with rega....
X X X X Extracts X X X X
X X X X Extracts X X X X
....port turnover of the company was less than 75% of its total turnover and therefore this company should not be regarded as a comparable company. The DRP it is directions in paragraph 2.9.2 gave the following directions: "2.9.2 The assessee has without prejudice has asked for the exclusion of Bhilwara Info Technology Ltd as a comparable, stating that it fails the export filter. It has contented that as per note 39 segmental information to financial statements, the total income from software and IT related services is of Rs. 31, I 6,69,226/- is from domestic customers and * total income 110m medical transcription from foreign customers is Rs. 10,79,54,632/-. The AO/TPO is directed to verify the same and should exclude this comparable if he finds that it fails the export filter of > 75%." 27. In the order passed by the TPO dated 20.04.2021, pursuant to the directions of the DRP, this direction of the DRP has not been considered. We deem it fit and proper to remand the question of comparability of this company to the TPO/AO for consideration afresh in the light of the directions given by the DRP. 28. The next ground to be considered is ground No.12 raised by the assessee ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t after giving opportunity of being heard to the assessee and as per the directions contained in this order. 31. The next issue that requires consideration in the concise grounds of appeal is the issue with regard to determination of ALP in respect of an international transaction of delayed realization of outstanding from the AE. The grounds raised by the assessee in this regard are contained in ground No.17 of the grounds of appeal. The limited prayer of the learned Counsel for the assessee and ground No.17 was that in respect of receivables from non-AE, the period allowed for realization was much greater and therefore this international transaction needs to be bench marked against the period of realization vis-à-vis the non-AE. In other words, the learned Counsel prayed that the ALP of this international transaction should be determined adopting the internal CUP method. In this regard, we find that no such statement was made by the assessee before the lower authorities and therefore we deem it fit and proper to remand this issue to the TPO/AO for fresh consideration. The assessee will furnish the required details before the AO/TPO adopting the internal CUP method and th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....alue of this asset as a benefit or perquisite by the assessee in the course of its business brought to tax the aforesaid sum under section 28(iv) of the Act. Before the DRP, assessee submitted that it had no right whatsoever over the machineries supplied and therefore the very basic presumption of the AO in considering that the assessee received the benefit or perquisite is itself erroneous and therefore the addition should be deleted. The DRP however rejected the claim of the assessee on the ground that no evidence was placed on record to show that the assessee returned back the equipment. We are of the view that this approach of the DRP is incorrect because the question of return of the equipment will arise only when there is evidence to show that the assessee received the benefit in the form of benefit or perquisite from the RDT. The Revenue cannot place negative onus on assessee and seek to make impugned addition. The impugned addition is therefore directed to be deleted. 34. As far as ground No.16 is concerned, the facts are that the AO made an addition of Rs.3,76,735/- for non production of import invoices to the above extent. During the previous year, the assessee importe....