TaxTMI 
TaxTMI 
2022 (12) TMI 377
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.... Amount in Rs. Method used 1 eGain Communication Corp. Software Development Services 30,42,26,067 TNMM 2 eGain Communication Corp. Reimbursement of expenses Recd 22,04,073 CUP 3 eGain Communication Corp. Reimbursement of expenses Paid 1,37,539 CUP Total 30,65,67,679 3. The assessee company sought to justify the consideration received for the above international transactions entered with its AE to be at arm's length price (ALP). The assessee company also submitted Transfer Pricing (TP) study report adopting the Operating Profit/Operating Cost (OP/TC) as a Profit Level Indicator (PLI) for the transfer pricing study. The assessee company also applied Transactional Net Margin Method (TNMM) which is considered to be the most appropriate method for the purpose of benchmarking the international transactions. The assessee company's profit margin was computed at 17.49% and the assessee company claimed that the same was comparable with other companies rendering software development services. For the purpose of TP study, the assessee company chosen 12 comparable entities and arithmetic average of operating profit margins of said comparables was compu....
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....omparables and accepted 2 comparables chosen by the appellant company and introduced 11 new comparables and finally selected the following comparables :- Sr. No. Name of Company PLI % 2 CG-VAK Software & Exports Ltd. 18.40 2 Cignity Technologies Ltd. 8.59 3 Exilant Technologies Pvt. Ltd. 10.48 4 E Zest Solutions Ltd. 9.30 5 Harbinger Software Pvt. Ltd 21.98 6 Infobeans Systems India Ltd./Infobeans Technologies 33.73 7 R. S. Software (India) Ltd. 17.35 8 Priya Softweb Solutions Pvt. Ltd. 21.02 9 Sasken Communication Technologies Ltd. 12.15 16.16 10 Saven Technologies Ltd. 26.96 26.54 11 Thirdware Solutions Ltd. 36.98 40.42 12 Vama Industries Ltd. 36.27 36.27 Average 21.10 23.94 6. The TPO computed the average profit margin of the comparables finally selected by him at 23.94% as against the PLI of the assessee at 13.96%. On the above basis, the TPO computed the upward TP adjustments of Rs.2,45,13,781/- vide order dated 13.10.2016 passed u/s 92CA(3) of the Act. 7. Pursuant to receipt of the TPO's order, the Assessing Officer passed the draft asses....
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....software development company. Even on appeal before the ld. CIT(A), the inclusion of this company in the set of comparables was upheld placing reliance on the information provided in Profit & Loss Account which indicated that the income is mainly earned from software. 13. Being aggrieved the appellant is in appeal before us. 14. It is argued before us that this company is not functionally comparable with that of the assessee company, as it is engaged in sale of software product and earning income in the form of license fee. The ld. AR taking us through Profit & Loss Account at page no.1225 of the Paper Book submitted that this company had purchased stock-in-trade of Rs.24.82 crores which indicate that the sale of the products and there is no bifurcation of revenue from sale of software development and sale of products. 15. On the other hand, ld. CIT-DR submits that the findings given in the CIT(A)'s order rejecting the contentions of the appellant are well-reasoned and therefore, the submissions of the ld. AR that the company is into software development cannot be accepted. 16. We heard the rival submissions and perused the material on record. The issue in this ground of appea....
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.... by stating that in the event the comparable entity, 'Thirdware Solutions Ltd.' is excluded from the list of comparables chosen by the TPO consideration received by the assessee shall be at arm's length price. Therefore, we dismiss the other grounds of appeal seeking the exclusion/inclusion of the comparables as other grounds of appeal become academic in nature. However, we grant liberty to the appellant to press these grounds of appeal in the event on further appeal this comparable, 'Thirdware Solutions Ltd.' is held to be comparable. 20. Ground of appeal no.2 challenges the addition u/s 40(a)ia) on account of payment made for purchase of license on the ground that the tax was not deducted at source. Admitted facts of the case are that the appellant made a payment for purchase of software of Rs.41,70,849/- to the following parties :- Sr. No. Name of vendors Amount (in Rs.) 1 Sujata Computer Pvt. Ltd. 17,79,137 2 Digital Island 9,27,321 3 Dell India Pvt. Ltd. 14,55,686 4 Shree Infotech Systems 8,705 Total 41,70,849 21. The cost of the software purchase was capitalized in the books of account forming part of the depreciable assets, claimed the depreciatio....