TaxTMI 
TaxTMI 
2020 (11) TMI 1082
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....D services) which has been referred to as IT Support Services in the order of the Transfer Pricing Officer (TPO). The assessee also provides Marketing and Sales Support Services (MSS) to its wholly owned holding company. In terms of the provisions of Section 92A of the Act, the assessee and its wholly owned company were Associated Enterprises ("AEs"). In terms of Sec. 92B(1) of the Act, the transaction of providing SWD Services and MSS were "international transactions" i.e., a transaction between two or more associated enterprises, either or both of whom are non-residents, 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, any income arising from ....
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....f the assessee by the AO. The DRP excluded 10 comparable companies out of the 13 comparable companies chosen by the TPO and retained only the following three companies as comparable companies viz., (i) Persistent Systems Ltd., (ii) Sasken Communication Technologies Ltd., and (iii) Persistent Systems & Solutions Ltd., on the application of various filters. To the extent the assessee did not get relief from the DRP, the assessee has preferred CO before the Tribunal. The specific grounds of CO preferred for adjudication in SWD Services are contained in ground No.6(b) in which the assessee has projected grievance with regard to nonexclusion of the three companies by the DRP viz., Persistent systems Ltd., Persistent Systems & Solutions Ltd., and Sasken Communication Technologies Ltd. The assessee has also challenged exclusion of Evoke Technologies Ltd., and RS Software (I) Ltd., by DRP in ground No.7. 8. The Revenue is aggrieved by the order of the DRP by which the DRP directed exclusion of the following 7 comparable companies viz., (i) Acropetal Technologies Ltd., (ii) L&T Infotech Ltd., (iii) RS Software (I) Ltd., (iv) E-Infochips Ltd., (v) ICRA Techno Analytics Ltd., (vi) e-Zest S....
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....e. 8. The DRP erred in directing to exclude M/s.E-Zest Solutions Ltd., from the list of comparables holding it to be functionally uncomparable, thereby seeking exact comparability by imposing condition beyond law whereas requirement of law is to acknowledge only those differences that are likely to materially affect the margin. The DRP ought to have appreciated that the comparable qualified all the qualitative and quantitative filters applied by the TPO and in a computer software services, if considered as a sector of business, the 15 different lines prevailing in the business cannot be considered functionally different from each other. 9. The DRP erred in directing exclusion of M/s. Infosys Technologies Ltd., from the list of comparables holding it to be functionally uncomparable, without appreciating that the primary source of income of the comparable is from provision of software development services. Also, the DRP erred in imposing a condition beyond law in seeking exact comparability, whereas requirement of law is to acknowledge only those differences that are likely to materially affect the margin. 10. The DRP erred in disregarding the position of l....
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....in ITA 137/Bang/2015; Ness Technologies (I) Pvt. Ltd. v. DCIT in ITA No.696/Mum/2016 which are also decisions rendered in relation to AY 2011-12 in the case of a companies providing SWD services such as the assessee in the present appeal. It is also relevant to point out that the very same comparable companies chosen by the TPO in the present appeal had been chosen by the TPO as comparable companies in the case of Electronic for Imaging (I) Pvt. Ltd. (supra). The Tribunal in its order dated 14.7.2017 in the aforesaid case dealt with the comparability of these companies. 11. As far as Acropetal Technologies Ltd. is concerned, vide para 8 of the order of Tribunal in Electronics for Imaging (I) Pvt. Ltd. (supra), exclusion of Acropetal was upheld on the ground that this company was into development of computer products. The Tribunal also held that L&T Infotech Ltd. had RPT at 18.66% and since the RPT was beyond the threshold limit of 15%, this company was directed to be excluded from the list of comparable companies. The Tribunal further excluded Tata Elxsi Ltd. from the list of comparables on the ground that this company was engaged in diversified activities and was not a pu....
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.... The ITAT Bangalore Bench in the case of Applied Materials (I) Pvt. Ltd. Vs. ACIT in IT(TP)A No.17 & 39/Bang/16 (AY 2011- 12) order dated 21.09.16 vide para 14.1 took the view that both assessee and Revenue do not seek exclusion of this company, the DRP ought not to have suo motu applied onsite revenue filter to exclude this company. Facts being identical in this appeal, following the aforesaid decision, we hold that this company shall be retained as a comparable company. The relevant grounds of appeal of Revenue and assessee are accordingly allowed. 13. As far as the CO of the assessee is concerned, the ground of appeal in the CO relevant to SWD Software segment which was pressed for adjudication is ground No.6 (b) and 7 which reads as follows:- "TP GROUNDS (IT SUPPORT SEGMENT) 6(b) :- Adopting turnover filter of Rs.1 crore to infinity without appreciating that companies having large turnover are not comparable to the Respondent. ........ 7. The Hon'ble DRP has erred in rejecting Evoke Technologies Ltd. and R.S. Software India Ltd. as comparables on unjustified grounds and without appreciating that they pass all filters applied by the TPO." ....
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....refore the minor variation in the activity would not render these companies non-comparable when a comparable price is considered under TNMM. 9.2.4 We have considered the rival submissions as well as the relevant material on record. At the outset we note that the functional comparability of these two companies have examined by the co-ordinate bench of this Tribunal in the case of DCIT Vs. Electronics for Imaging India Pvt. Ltd. (supra) in para 60 and 61 & paras 24 to 26 as under : "Persistent Systems & Solutions Ltd. 60. The assessee has the grievance against rejection of this company by the DRP. The Id. AR has submitted that assessee did not raise any objection against this company, however, the DRP has rejected the said company. Therefore, the said company should be retained in the list of comparables. 61. Having considered the rival submissions as well as relevant material on record, at the outset, we note that the DRP has examined the functional comparability of this company by considering the relevant details as given in the annual report of this company. The DRP has given the finding that the entire revenue has been earned by this comp....
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....ncome from outsource product development. In the absence of any segmental data of this company, we do not find any error or illegality in the findings of the DRP that this company cannot be compared with the assessee and the same is directed to be excluded from the set of comparables." We further find from the Annual Report that there is no change in the activity and functions of these companies during the year under consideration in comparison to the Assessment Year 2010- 11. Accordingly, following the decisions of the co-ordinate benches of this Tribunal (supra), we direct the A.O./TPO to exclude these two companies from the set of comparables.' (iv) Sasken Communication Technologies Ltd. 9.3.1 The Id. AR of the assessee has submitted that this company is engaged in the development of software products as it has inventories, intangible assets as well as high expenditure on R&D. Therefore this company is functionally not comparable to the assessee. The Id. AR has referred to the Annual Report of this company and submitted that it derives income from software products specifically new products launched called 'Vyaparaseva' during F.Y. 2010-11.....
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....the relevant facts and compare with the facts recorded by the Tribunal in the case of DCIT Vs. Electronics for Imaging India Ltd. (supra) for the Assessment year 2010-11 and then decide the issue after giving an opportunity of hearing to the assessee." 15. Respectfully following the aforesaid decision rendered on identical facts, we direct exclusion of Persistent Systems & Solutions Ltd. and Persistent Systems Ltd. from list of comparable companies. We direct reexamination of comparability of M/s Sasken Communication Technologies Ltd. to TPO/AO for fresh consideration on the lines indicated in the aforesaid decision. 16. As far as inclusion of Evoke Technologies Ltd. as comparable company sought by assessee in ground No.7 of CO is concerned, the ld. counsel for assessee has drawn our attention to decision of ITAT, Bangalore Bench in the case of Applied Materials(I) Pvt. Ltd., (supra) wherein vide para 14.1 the Tribunal directed retaining Evoke Technology Pvt. Ltd. as comparable company for the reason that when both assessee and revenue wanted this company as comparable company, the DRP ought not to have excluded this company as comparable company. Following the said decision,....
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....The relevant ground of appeal of assessee in CO is Ground No. 4 which reads as follows:- "2. The DRP-1, Bangalore has erred in confirming the selection of Asian Business Exhibitions and Conferences Ltd as a comparable, even though it is functionally different from the Respondent." 21. The relevant ground of Revenue is Ground No.2 which is reproduced below:- "2. The DRP erred in directing to exclude M/s. ICC International Agencies Ltd., holding it to be functionally dissimilar on the ground of non-availability of information regarding nature of services, when the primary activity of the comparable involves processing orders including for its principal concern also the DRP erred in imposing conditions beyond the scope of law and business reality by rejecting all close comparables on one or the other ground, without appreciating that no two companies can ever be the same." 22. As far as exclusion of ICC International Agencies Ltd. by the DRP is concerned, it was brought to our notice by the learned counsel for the assessee that in the case of AMD India Pvt. Ltd., Vs. ACIT in IT(TP)A No.1487 & 1496/Bang/2015 order dated 06.04.2017 ITAT Bangalore Bench for the ve....
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.... Agencies Ltd., from the list of comparable companies. The ld. DR submitted that ICC International Agencies Ltd., was accepted by assessee himself as comparable before the TPO. We find that before the DRP in the objections, the assessee has objected to inclusion of ICC International Agencies Ltd., as comparable company on several counts at page 05 of the written submission filed before the DRP on 04.12.2015. The Special Bench of the Hon'ble Tribunal in the case of DCIT v. Quark Systems (P) Ltd. ([2010] 38 SOT 307 (CHD.) (SB) has held that an assessee cannot be precluded from seeking exclusion of a company selected by it in its TP study, when the company is otherwise not comparable to the assessee. We therefore reject that argument of the learned DR in this regard. 24. As far as the plea of the assessee to exclude Asian Business Exhibition and Conference Ltd., is concerned, the ld. counsel for assessee has brought to our notice a decision of ITAT in the case of AMB (I) Pvt. Ltd. (supra) wherein this Tribunal directed exclusion of this company with the following observation:- "12. In respect of marketing support segment, the gist of the AR's submissions are extracted ....
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....as a comparable has admitted that the nature of function performed by this company is event management. It is further relevant to observe, on perusal of annual report of this company it is seen that as per directors report, the main operation is organizing exhibition and events. Further, schedule 12 of the profit and loss account as well as notes to the accounts reveals, revenue earned by the company is from sponsorship, delegates attending conferences, events and entry fees charged from visitors for visiting exhibition, sale of stall place etc. 12. Thus, on overall analysis of facts and materials placed on record it is very much clear that the business model of the assessee and Asian Business Exhibition and Conferences Limited are totally different. While assessee undoubtedly is providing support services to its overseas AE's, Asian Business Exhibition and Conferences Limited is primarily and fundamentally engaged in event management. Thus, under no circumstances it can be considered as a comparable to the assessee. Therefore, for the aforestated reasons the DRP, in our view, was justified in excluding this company as a comparable. As far as the contention of learned ....
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.... the Act. The relevant ground of appeal reads as follows: "Corporate Issue 13. The DRP erred in directing the AO to delete the addition made u/s 40(7) by relying on its own direction in assessee's own case for A.Y. 2010-11, without appreciating the fact that the assessee company had failed to communicate the changes/ alterations made to the fund, as required under Rule 4(2) of the Fourth Schedule of IT Act and the contribution to fund is only a provision and not an actual expense under the purview of section 37(1) of the Act". 28. At the time of hearing, it was agreed by the parties that identical issue arose in assessee's own case for AY 2010-11 in IT(TP)A No. 391/B/15 and this Tribunal by its order dated 21.11.2017 upheld the action of the DRP in deleting the addition made by AO with the following observations:- "13. Regarding the corporate tax issue as per ground no. 5 of the appeal of revenue, Learned DR of the revenue supported the draft assessment order passed by the AO. Learned AR of the assessee supported the order of DRP. He also submitted that after passing of the order by DRP, on 17.05.2016, CBDT has passed an order u/s 119, copy on pages 43....