AI Drafter 
TaxTMI 
TaxTMI 
2022 (12) TMI 998
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....om trading of goods 6. Two segments-Software services include Knowledge Process Outsourcing(KPO) (Medial& Entertainment) 7.Segmental details are incomplete and computation of correct margin is not possible 8. Excluded by Hon'ble ITAT in AY 2016-17 in case of ADP Private Ltd. b. Tata Elxsi Ltd. 1. Functionally different 2. It is a KPO and ITES company 3. Existence of inventory in profit and loss account 4. Internally developed intangibles 5. Income from sale of traded goods 6. Segmental details are incomplete and computation of correct margin is not possible 7. Excluded by Hon'ble ITAT in AY 2016-17, AY 2015-16 and AY 2014-15 in case of ADP Private Ltd. c. Persistent Systems Ltd. 1. Functionally different 2.No segmental information 3. Revenue from products 4. Significant related party transactions 5. Presence of brand 6. Research and development approval by CSIR 7. Excluded by Hon'ble ITAT in AY 2016-17, AY 2015-16 and AY 2014-15 in case of ADP Private Ltd. d. Infosys Ltd. ....
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....ound No. 5, the assessee has pressed for incorrect rejection of comparable companies selected by it while preparing transfer pricing study namely, Evoke Technologies Limited. However, no other comparable namely Akshay Software, Sasken communication Technologies Ltd. and Intense Technologies Ltd. have not been pressed by the assessee. Accordingly, the inclusion of these three comparables are rejected. III. As mentioned herein above in ground No.6 assessee has pressed for incorrect rejection of comparable company that is functionally comparable to the assessee namely, Sagarsoft (India) Limited. However, no other comparable namely Infomile Technologies Ltd, Nucleus Software Exports Ltd, E-Zest Solutions Ltd, Ace Software Exports Ltd, Sankhya Infotech Ltd. and Harbinger Systems Private Ltd. have not been pressed by the assessee. Accordingly, the inclusion of these three comparables are rejected. IV. On the other hand, ld.DR has raised no objection for not pressing the grounds mentioned in the letter dt.12.07.2022 of the assessee. V. Hence, the same are dismissed as not pressed. 2. The captioned appeal filed by the assessee is found to be barred by 26 days delay in filing. I....
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.... granted certain reliefs to the assessee. In view of the directions issued by Hon'ble DRP through order u/s 144C(5) of the Act and order giving effect by the TPO, the income of the assessee was recomputed u/s 143(3) r.w.s. 144C(13) of the Act. Finally, assessment was completed u/s 143(3) r.w.s. 144C(13) of the Act and total income was assessed at Rs.3,31,60,388/- for A.Y. 2016-17. 3. Aggrieved with the assessment order dt.30.03.2021, assessee is now in appeal before us. 4. Before us Ld.AR for the assessee submitted that the main dispute is with respect to T.P. adjustment under two heads namely, (i) Provision of software development services at Rs.73,30,140/- and (ii) Interest on delayed receivables at Rs.9,50,811/-, in total Rs.81,80,951/- and further submitted that they are not in dispute with the other international transactions. 5. First of all with respect to exclusion of five comparables companies mentioned in the letter of the assessee vide ground No.4, ld.AR has drawn our attention to the order passed by the co-ordinate Bench of the Tribunal in the case of ADP Ltd. Vs. DCIT in ITA 227 and 228/Hyd/2021 whereby the co-ordinate Bench of the Tribunal has decided the iss....
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....yd/2021 dt.03.02.2022 which is to the following effect : "4.3. We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. We find substance in the submissions of the ld. AR and on going through the financial statements of Larsen & Toubro Infotech Ltd., in particular at page Nos. 1249 of paper book - Volume - 3 disclosure under the Companies Act, 2013, we observe that the company information system resource centre Pvt. Ltd. (ISRC) was amalgamated with the company with effect from September, 21, 2015 and the appointed for the scheme was October, 17 2014, which reads as under: "Pursuant to the Scheme of Amalgamation sanctioned by the Hon'ble High Court of Bombay vide its order dated September 04, 2015, Information Systems Resource Centre Pvt. Ltd. (ISRC) was amalgamated with the Company with effect from September 21, 2015. The appointed date for the Scheme was October 17, 2014. Consequently, the entire business, assets, liabilities, duties and obligations of ISRC have been transferred to and vested in the Company with effect from October 17, 2014. ISRC was engaged in the business....
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.... The co-ordinate Bench of this Tribunal in ITA Nos.227 & 228/Hyd/2021 (supra) directed the AO/TPO to exclude this company from the final list of comparables holding that this company is functionally different and engaged in diversified activities. Since the Revenue could not controvert the said decision nor brought any contrary decision. In the said decision, it was held as under : "5. Tata Elxsi Ltd. (Segmental): The ld. AR of the assessee submitted that this company renders high -end KPO services i.e. digital content creation, technology and product engineering, chip design, embedded production design, visual computing lab, AI design services. He further submitted that this company earns revenue from sale of trades goods of Rs. 33.74 crore and the same corroborated by existence of inventory in P&L statement about Rs. 2.89. He, therefore, submitted that this company may be excluded as comparable in the comparable list for determining ALP. He relied on various decisions of ITAT including the decision in ITA No. 2233/Hyd/2018 for the assessment year 2014-1515 wherein this company is excluded as comparable. 5.1 The ld. DR, on the other hand, besides relying on the o....
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...., we direct the AO/TPO to exclude this company from the final list of comparables." 9.4. Accordingly following the above noted decision, we direct the AO / TPO to exclude this company as comparable from the list of comparable. 10. PERSISTENT SYSTEMS LIMITED : 10.1. The ld.AR of the assessee submitted that this company is a product development company. It is mainly engaged in providing licensing and sale of products and also earns royalty income and that functionally it is different to compare with the assessee company and that it is specializing in software products, services and technology innovation. Ld.AR further submitted that as this company is engaged in diversified businesses, relevant information on segmental details are not available in the public domain and hence, the same cannot be considered as comparable company to the assessee. It has earned revenue from product at Rs.238.80 crore and that it has research and development approval by CSIR. He, therefore submitted that this company may be excluded as comparable to the assessee company for determining the ALP. He relied on various decisions of ITAT including the decision of this co-ordinate Bench in ITA Nos.227 ....
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....segmental details between software products and services. 28. In the case of Tata Elxsi, the assessee has taken the following objections: a) It is not functionally comparable to the assessee. In the financial statements of the company, the nature of business carried out by Tata Elxsi is given below: i) Corpoprate Information "Tata Elxsi Ltd was incorporated in 1989. The Company provides product design and engineering services to the consumer electronics, communications and transportation industries and systems integration and support services for enterprise customers. It also provides digital content creation for media and entertainment industry" 29. We find that in the case of Infor (India) (P) Ltd vs. ACIT in ITA No.2307/Hyd/2018, the Coordinate Bench of the Tribunal has considered similar objections of the assessee therein and has held that these two companies along with Thirdware Solutions Ltd is not comparable to the software development company like the assessee before us. The relevant portions has been reproduced by us in the above paras. Respectfully following the same, these two companies are also directed to be excluded from th....
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....er in ITA Nos.227 & 228/Hyd/2021 (supra) is reproduced below : "9. Infosys Ltd.: The ld. AR submitted referring to the rule 10B of the IT Rules, which expressly lay down the preconditions for comparability of uncontrolled transactions with international transactions as under: 1. The specific characteristics of the property transferred or services provided in either transaction 2. The functions performed taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions 3. The contractual terms of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions. 4. Conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets the laws and govt orders in force, cost of labour and capital in 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 ....
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....orded by the Tribunal. The Tribunal in the impugned order has also observed that the assessee had furnished details of workables in respect of 23 companies and the mean of the comparables worked out to 10%, as against the margin of 17% shown by the assessee. Details of these companies are mentioned in para 5 of the impugned order". 26. Respectfully following the same, we direct the exclusion of this company from the final list of comparables." 9.4 On perusal of the entire financial statements, we observe that the company is functionally not comparable and selling and marketing expenses are 5% of revenue and there were extraordinary events also noted i.e. transfer of product - financial & edge services as well as diversified activities like artificial intelligence, products services, platforms, consulting etc. Also onsite revenue was 52.7% and no segmental details like services, consulting products are available. In view of the above observations, the coordinate bench in assessee's own case for AY 2014-15 directed to exclude this company as comparable. Respectfully following the said decision, we direct the AO/TPO to exclude this company as comparable from the ....
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.... 2. It is engaged in diversified activities, i.e. professional, technical and business and services and IT consulting services. 3. The segmental details between software services and consultancy services are not available. 4. It has revenue from subscripting and training R s. 32.59 lakhs and also income from licensing amounting to Rs. 8.77 lakhs and, therefore, functionally not comparable. He relied various decisions of ITAT including the decision in ITA No. 2233/Hyd/2018 for AY 2014-15 wherein this company was excluded from the final set of comparables. He, therefore, requested to exclude this company for determining ALP. 10.1 The ld. DR, on the other hand, submitted that this company is engaged in rendering of software services and hence, functionally comparable to assessee. In this regard, he has drawn inference to note 37 pertaining to earnings in foreign exchange earnings, which is placed at page 2268 of the paper book of assessee vide volume 3. 10.2 We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. The coordinate bench of this :- Tribunal....
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....aising new grounds. He submitted, since the issue of development of product by this company and unavailability of segmental details, were not raised before the Transfer Pricing Officer, it requires verification. 38. We have considered rival submissions and perused materials on record. Though, it may be a fact that the assessee may not have objected to selection of this company before the Transfer Pricing Officer, however, the assessee raised objections against selection of Infor Global Solutions India Pvt. Ltd. this company before the DRP as well as before us. The grievance of the assessee is, the company being involved in development of products and since no segmental details are available in the annual report, it cannot be treated as comparable. The Co- ordinate Bench in Tech Mahindra Ltd. (supra) having found this company to be involved in development of software product and trading in software licenses has held that it cannot be a comparable to a software development service provider. Similar view has been expressed in the other decisions cited before us by the learned Authorised Representative. Since, many of these decisions relate to very same assessment yea....
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....ht to our notice that in the case of Infor (India) (P) Ltd, the Coordinate Bench of this Tribunal in ITA No.2307/Hyd/2018 has held as under: "73. As regards Evoke Technologies is concerned, the contentions of the assessee are that this company is functionally similar to the assessee, whereas the TPO & DRP have held that the financials of this company include the revenue of one branch outside India which are unaudited and hence are not reliable. The learned Counsel for the assessee however, drew our attention to page 963 of the Paper Book, which is part of the Annual Report of Evoke Technologies Ltd wherein the revenue :- of Indian Branch of assessee is separately shown. Taking the same into consideration, we direct the AO/TPO to reconsider the comparability of this company by taking the revenue from Indian Branch only. Thus, the ground for Maveric Systems Ltd is rejected and for Evoke Technologies Ltd is allowed for statistical purposes. 32. Since the issue is similar, we direct the AO/TPO to reconsider the comparability of this company to the assessee by taking the revenue from Indian Branch only." 13.5 it is noticed from the order passed by the TPO ,....
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....ITA 227 & 227/Hyd/2021 for AY 2016-17, directed the AO to include this company as comparable to the assessee for determining ALP. 14.4 It is noticed from the order passed by the TPO, that this company was excluded by the TPO on account of the nonavailability of the data at the time of preparation of the TP study by the assessee in prowess data base. DRP has rejected the inclusion of this company, on account of the fact that various companies were excluded only on account of nonavailability of the information at the relevant time. Though, it is correct that the tribunal in the above cited order had directed to include SAGARSOFT (INDIA) LIMITED, as comparable however in the present case there is no examination of the profile of the SAGARSOFT (INDIA) LIMITED on the parameters laid down by Rule 10 B of Income Tax Rules 1962, with the assessee. In the light of the above we deem it appropriate to remand back the inclusion of SAGARSOFT (INDIA) LIMITED to the file of the transfer pricing Officer with the direction to consider whether this company is functionally similar on the touchstone of the parameters laid down in the rule 10 B of the Rule or not. However, in case the assessing offi....