TaxTMI 
TaxTMI 
2021 (9) TMI 1448
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....justice and are contrary to the facts and circumstances of 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 defi....
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.... 6.2. The Hon'ble DRP and the learned AO/TPO have failed to appreciate that disregarding companies that have a FY ending other than March, 2014 would lead to having 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....
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....aw by adopting the comparables which were rejected by the Appellant on account of non-availability of adequate information in public domain. 12. Not granting of working capital adjustment and risk adjustment 12.1. The Hon'ble DRP and the learned AO/TPO have denied the benefit of working capital adjustment without considering the law that appropriate adjustments are to be made to account for 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 stat....
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....me before or at the time of hearing of the appeal. Each of the above objections is independent and without prejudice to the other grounds preferred by the appellant. Brief facts of the case are as under: 2. The assessee is a company engaged in the business of software development, technical services and other related services. It filed its return of income for year under consideration on 27/11/2014 declaring income of Rs. 6,55,63,26,840/-. The case was selected for scrutiny and notice under section 143(2) 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 p....
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....itional comparables sought for inclusion by assessee. However the DRP directed the Ld. AO to compute the working capital adjustment. 2.8. On receipt of the DRP directions, the Ld. AO passed final assessment order making addition at Rs. 1,65,84,24,000/-. 2.9. Aggrieved by the final assessment order passed, assessee is in appeal before us now. 2.10. At the outset the Ld. AR submitted that amongst the grounds filed, assessee is seeking exclusion of 4 comparables alleged in Ground 9.1 and 1 comparable in ground 10.1 for inclusion. 2.11. It has been submitted by the Ld. AR that, assessee also seeks directions respect of considering the foreign exchange fluctuation 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 G....
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....d that this company is a market leader in software development segment and provides IP-based solutions. It has also been submitted that this company owns huge intellectual properties and revenues from licensing of software products which is not at all akin to the functions performed and assets owned by assessee. Ld. AR submitted that, this company is a huge brand value and expenses of brand building is high. Referring to page 1860 of paper book volume 3 Ld. AR submitted that this company owns prod and are also involved in research and development activities. Ld. CIT DR placed reliance upon orders of authorities below. We have perused submissions advanced by both sides in light of records placed before us. From the annual report of 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.....
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....ibunal order cannot be considered as a binding precedence because this Tribunal order is silent on these two important aspects as to this aspect that this company is having sizeable amount of bought out items for resale and have related party transactions in respect of sales of services and products. We also find that in the case of remaining three Tribunal orders i.e. Microsoft Research Lab India Pvt. Ltd.'s case (supra), WM Global Technology Services (India) (P.) Ltd. (supra) and in the case of Tecnotree Convergence Pvt. Ltd. (supra), the matter was remanded to the TPO for fresh decision. Hence, we feel it proper that in the present case also, this issue should go back to the file of TPO for fresh decision after providing adequate opportunity of being heard to the assessee and while deciding the issue 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 obs....
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....property products and generate revenue from licensing and support of such products. It is also observed that this company is involved in the entire life-cycle of software development which is not similar to what assessee caters to its associated enterprises. Assessee carries out only such functions which are required by associated enterprise under its supervision and guidance. Accordingly, we direct Ld. AO/TPO to exclude this comparable from the finalist. 5.1.4. Thirdware Solutions Ltd This comparable has been considered by Ld. TPO which has been objected by assessee. Ld. AR submits that this company is functionally different and earned revenues from export of services, subscription and training and sale of licensing. Ld. AR submitted that there are no segmental details in respect of this comparable. Ld. CIT DR however placed reliance upon decision of 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....
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....the reason that details regarding related party transaction in case of this company was not available. Further it has been observed by authorities below that this company is operating in ITES industry. Ld. AR however submitted that this company undertakes various IT services, but its Indian company is engaged in undertaking software development services in India in the nature of executing software projects in India. It is also submitted that this company undertakes software consultancy services which forms a wherein miniscule part of the revenue base and therefore it can be said that this company is predominantly engaged in the business of software development services. He placed reliance upon decision of coordinate bench of this Tribunal in case of LG Soft India Pvt. Ltd., in ITA(TP)A No. 3122/Bang/2018. On the contrary Ld. CIT DR placed reliance upon orders of authorities below. We have perused submissions advanced by both 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 t....