TaxTMI 
TaxTMI 
2021 (9) TMI 1448
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....f the present case. 2. The Hon'ble DRP and the learned AO/TPO have erred in law and on facts in making Transfer Pricing ("TP") adjustment of INR 1,65,84,24,000 to the returned income of the Appellant and in holding that the international transactions between the Appellant and its Associated Enterprises ("AEs") were not at arm's length. 3. Rejection of TP Study of the Appellant 3.1. The Hon'ble DRP and the learned AO/TPO have erred in law and on facts by rejecting the Transfer Pricing Documentation ("TP Study") which has been prepare by the Appellant with respect to IT Services Segment, in the manner contemplate under the relevant provisions of Income-tax Act, 1961 ("The Act") and the Inconi tax Rules, 1962 ("the Rules"). 3.2. The Hon'ble DRIP and the learned AO/TPO have erred in law in stating that the data used in computation of the ALP is "not reliable or correct", under section 92C(3) of the Act. 3.3. The Hon'ble DRP and the learned AO/TPO have erred, in law and on facts in holding that the transactions between the Appellant and its AE were not at ALP as defined under section 92F(ii) of the Act and upholding the adjustment to the TP made by the lear....
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....ing a limited set of comparable companies and would have bearing on the comparability analysis. 6.3. The Hon'ble DRP and the learned AO/TPO have erred in rejecting certain comparable companies based on the aforementioned criteria. 1. R. Systems International Limited; and 2. Helios and Matheson Information Technology Limited. 7. Employee cost filter 7.1. The Hon'ble DRP and the learned AO/TPO have erred in rejecting the comparable companies having ratio of employee cost to sales less than 25 percent. 8. Export sales filter 8.1. The Hon'ble DRP and the learned AO/TPO have erred in law and facts in applying the threshold limit of 75 percent in respect of export sales made by the comparable companies. 9. Companies sought by the Appellant for exclusion 9.1. The Hon'ble DRP and the learned AO/TPO have erred in law and on facts, in determining the ALP based on following companies which are not comparable to the Appellant due to various factors such as functionally dissimilar, product/intangible led revenues, inadequate financial information, non-availability of segmental financials, engaged in R&D, etc, without considering the detailed submissions of the ....
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....r the differences in the controlled and uncontrolled transaction which could affect the prices of charged/profitability in open market conditions and thereby ignoring the provisions of Rule 108(3) of the Rules. Further, The Hon'ble DRP and the learned AO/TPO has erred in law and on facts in ignoring the Transfer Pricing guidance issued by Institute of Chartered Accountants of India ("ICAI"), 2017, principles of Transfer Pricing Guidelines for Multinational Enterprises and Tax Administration issued in July 2017 issued by OECD and United Nations ('UN") Practice Manual for Developing Countries Model Convention. 12.2. The Hon'ble DRP and the learned AO/TPU have erred in law and facts in not providing for working capital adjustment by erroneously stating that Appellant failed to demonstrate the working capital differences had impacted the Appellant's profits without considering the detailed submission of Appellant demonstrating with computation the impact of such differences on profits of comparable companies 12.3. The Hon'ble DRP and the learned AO/TPO have erred in not appreciating that the Appellant, being a captive service provider operates at lower risk le....
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.... of the Alp was issued along with 142(1) of the Act. On receipt of notices, representatives of assessee appeared before the Ld. AO and, filed requisite details as called for. On verification of the details, the Ld. AO observed that assessee had international transaction exceeding Rs. 15 crores. He thus referred the case to the Ld. TPO. 2.1. Upon receipt of the reference under section 92CA of the Act, the Ld. TPO called upon assessee to file requisite details in respect of international transaction in Form 3 CEB. The Ld. TPO observed that assessee had following international transactions with its associated enterprise. Received/ receivable As per Form No. 3CEB As per TP Provision of IT 24.802,117,443 24,802,117,443 Provision of !TES 5,410,376,393 5,410,376,393 Paid/ payable As per Form No. 3CEB As per TP Purchase of computer software, mables and Fixed assets 1,095,002,215 1,095,002,215 Reimbursement of expenses 450,882,406 450,882,406 2.2. The Ld. TPO observed that, the assessee used 6 comparables of software development service segment by using TNMM as most appropriate method and OP/OC as PLI having arithmetic mean of 11.02%. Assessee computed its own margin to ....
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....uctuation to be an operating income for computing working capital adjustment. 2.12. Except for these grounds, assessee do not wish to argue any other grounds. Accordingly all other grounds stands dismissed as not pressed. 2.13. Before we undertake the comparability analysis, it is sine qua non to understand the functions performed, assets owned and risks assumed by assessee under this segment. Functions performed: 2.14. In the TP study it has been submitted that assessee was formerly known as Hewlett Packard Global Soft Pvt. Ltd., and is a part of Hewlett Packard group. It has been submitted that assessee renders application development services, maintenance support services and network management services to its AE's and is involved in only performing coding quality assurance/testing and documentation and localisation on behalf of its AE's. Assessee also provides post implementation support and maintenance. Assets owned: 2.15. The assessee do not own intangible assets except for tangible assets like computers office equipments furniture fixtures etc. Risk assumed: 2.16. Except for foreign exchange risk, assessee do not undertake any other risk in performing its ac....
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.... this company placed in the paper book relied upon by Ld. AR, it is observed that this company is not comparable to the profile of assessee. Further it is an accepted position that this company is a giant risk-taking company and is engaged in development and sale of software products and own intangible assets. Under such circumstances we deem it fit and proper to exclude this comparable from the finalist. Accordingly Ld. AO/TPO is directed to exclude this company. 5.1.2. Larsen and Toubro Infotech Ltd This comparable was upheld by authorities below and has been objected by assessee for its inclusion. Ld. AR submitted that this company is functionally not comparable with that of assessee and is engaged in providing consultancy and testing services. Further it has been submitted that there is no segmental information available in the annual reports of this company. Ld. AR submitted that this company owns its own brand and have products and are engaged in trading activity. This company also has R&D services and presence of huge intangibles and brands. On the contrary, Ld. CIT DR submitted that, this company should be remanded by following the view taken by coordinate bench of ....
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....ue afresh, all the available Tribunal orders on this issue should be considered by the TPO in proper perspective." It is observed that the decision in case of CGI Information Systems Management Consultants Pvt. Ltd. vs. DCIT(supra) was in respect of assessment year 2013-14. On perusal of annual report of this comparable placed at page 2012 of paper book volume 5, it is observed that during the year this company has not derived any revenue from sale of products. The only revenue earned by this comparable during the relevant year under consideration is from sale of services. It is observed at page 2022 that this company incurred overseas staff costs at Rs. 15,46,46,82,017/-, reveals that revenue earned from software services is mainly from offshore services. In the present case of assessee, there is no such expenses incurred for overseas staff costs. At page 2022 of paper book Volume 5, it is clear that export revenue from software services amounts to Rs. 44,14,84,25,372/- out of gross income of Rs. 46,43,94,03,178/-. In view of the aforestated observations for year under consideration, the issue of comparability of this company should be examined by Ld. AO/TPO afresh. Accordingl....
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....Hon'ble Delhi High Court in case of Steria India Ltd. vs. DCIT reported in (2018) 92 Taxmann.com 120. She submitted that Hon'ble Delhi High Court held this comparable to be a good company. We have perused submissions advanced by both sides in light of records placed before. From the annual report of this company placed at page 2334-2444, it is observed that at page 2413, segment reporting of this company is set to be comprised of software development, implementation and support services. Further it has been submitted therein that primary segment reporting is based on geographical areas, viz Domestic = India (products and services) and International = rest of the world (exports-software services). It is also been submitted therein that this company maintains separate books of account for the reported segments. In profit and loss account at page 2431, it is observed that during the year under consideration, this company earned revenue from sale of products whereas, revenue from sale of services is shown to be at 'nil'. Ld. TPO while considering this comparable only considered footnote at page 2433, wherein bifurcations of revenue from sale of products has been given....
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....h sides in the light of the records placed before us. The only reason for excluding this comparable by the authorities below is for the reason that RPT transactions have not been reported in the annual report. We have perused the decision of this Tribunal in case of LG soft India private limited (supra) wherein on similar reasoning Ld. TPO had excluded this comparable therein and this Tribunal observed as under: "12. We find force in the contentions of Ld. ar. If the annual report of this company does not mention about related party transactions, then the assessee cannot be held responsible to prove a fact relating to a 3rd party, which may or may not exist. We notice from auditors report of M/s. I2T2 India Ltd., that the auditor in paragraph 5(b) of Annexure to the auditors report has mentioned as under:- "There are no transactions that are made enterprises exceeding Rs. 5 Lacs in respect of any part who is covered under section 301 of the Act during the financial year." Hence, in the absence of any specific information, there is merit in the contentions of the assessee that the above said company might not have had related party transactions during the year under consider....