TaxTMI 
TaxTMI 
2022 (12) TMI 1258
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....he merit of comparables irrespective of whether they figured in the TPO's search database. 3. The learned Authorities Below erred in their computation of the profit-level indicators of the comparables. (Additional Ground 2) 4. The learned Authorities Below erred in not following rule 10B(1)(e)(ii) of the Income-tax Rules 1962 in computing the Arm's Length Price. 5. The learned Authorities Below adopted the wrong turnover filter. 6. The learned Authorities Below adopted the wrong related party transactions filter. (Additional Ground 1) 7. The learned Authorities Below erred in rejecting the following comparables: 7.1. Akshay Software Technologies Ltd., 7.2. ASM Technologies Ltd., 7.3. Benchmark IT Solutions India Pvt. Ltd., 7.4. Evoke Technologies Pvt. Ltd., 7.5. E-Zest Solutions Ltd., 7.6. Globant India Pvt. Ltd., 7.7. Harbinger Systems Pvt. Ltd., 7.8. Infomile Technologies Ltd., 7.9. Inteq Software Pvt. Ltd., 7.10. ITC Infotech India Ltd., 7.11. Kals I nformation Systems Ltd., 7.12. KMG Infotech Ltd., 7.13. Rheal Software Pvt. Ltd., 7.14. Sasken Technologies Ltd., and 7.15. XPanxion International Pvt. Ltd. 8. The ....
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....gn currency transactions andtranslation (12,309,888) Less: Loss on sale of assets (1,724,020) Less: Prior period expenses (17,435) Less: Interest on TDS Delayed Payments (2,513) Total Expenses 2,567,801,646 Operating Profit 280,529,711 OP/OC 10.92% 6. The assessee chose the following comparables in the TP study. Determination of Arm's Length Range Sl.No. Company Database Operating Margin 1 Akshay Software Technologies Ltd. Prowess -3.29% 2 Rheal Software Pvt. Ltd. Prowess -1.81% 3 Evoke Technologies Pvt. Ltd. Prowess 4.92% 4 Sasken Technologies Ltd. ACE TP 6.18% 5 Harbinger Systems Pvt. Ltd. Prowess 7.86% 6 K M G Infotech Ltd. Prowess 7.93% 7 Inteq Software Pvt. Ltd. Prowes 8.31% 8 C G -V K Software & Exports Ltd. Prowess 8.49% 9 ITC Infotech India Ltd. ACE TP 9.22% 10 e-Zest Solutions Ltd. ACE TP 9.83% 11 A S M Technologies Ltd. Prowess 10.56% 12 Globant India Pvt. Ltd. ACE TP 11.43% 13 Benchmark IT Solutions India Pvt. Ltd. Prowess 11.48% 14 Xpanxion International Pvt. Ltd. Prowess 15.38% 15 R System International Ltd. Prowess 18.46% 16 Orion India Systems Pvt. Ltd. ....
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....ofit OP 28,77,20,936 Tax Payers PLI PLI=OP/OC 11.24% 35th Percentile Margin of comparable Set 21.24% Adjustment Required (if PLI < 35TH Percentile Yes Median Margin of comparable set M 26.18% Arm's Length Price ALP = 1+M)*OC 3,23,10,35,085 Price Received OR 2,84,83,76,417 Shortfall being adjustment ALP-OR 38,26,58,668 9. On further objections, the DRP upheld the comparables selected by the TPO and thereby confirmed the TP adjustment. 10. Before us, the ld. AR submitted that out of the 20 final set of comparables, 15 comparables should be excluded based on turnover filter. The ld. AR submitted that the assessee's turnover is Rs.284 crores and the TPO did not apply the upper turnover filter for Rs.200 crores to Rs.2000 crores while selecting the fresh set of comparables and therefore these companies need to be excluded based on the turnover filter. The ld. AR submitted that the list of 15 comparables and the turnover details of these comparables is extracted below:- Sl.No. Company Name Turnover - Rs. In crores 1 Aptus Software Labs Pvt. Ltd. 3.86 2 C G-V AK Software & Exports Ltd 11.62 3 Consilient Technologies Pvt. Ltd. 4.15 4 Cyg....
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....n the circumstances, following the principle that where two views are available on an issue, the view favourable to the Assessee has to be adopted, we respectfully follow the view of the Hon'ble Bombay High Court on the issue. Respectfully following the aforesaid decision, we uphold the order of the DRP excluding 5 companies from the list of comparable companies chosen by the TPO on the basis that the 5 companies turnover was much higher compared to that the Assessee. 17.8. In view of the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating (supra) by the ITAT Bangalore Bench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decisio....
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....9.10.2020) has held that Cybage Software P.Ltd. is to be excluded on the basis it has abnormally high margin. The ld. AR relied on other decisions to submit that comparables with abnormal profits should be excluded. 17. The ld. DR relied on the orders of the lower authorities. 18. We have considered the rival submissions and perused the material on record. We notice that the Hyderabad Bench of ITAT in Infor India Pvt. Ltd. (supra) has considered the issue of exclusion of Cybage Software P. Ltd. as a comparable and held that - "6.4. Ld.AR requested for exclusion of Cybage Software Pvt. Ltd. from the final list of comparables and argued that though Cybage Software Pvt. Ltd. is comparable functionally, the profit margin is very high as much as 60.81 to 68.17% which is not possible in normal conditions. Ld.AR submitted that the assessee company's margin is 15.32% against the average margin of comparables selected by the assessee at 10.70%. Therefore, requested to exclude the Cybage Software Pvt. Ltd. from the final list of comparables. The Ld.AR argued that the average margin of other companies is ranging from 11.88% - 41.12% as evidenced from the final list of comparables sele....
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....tems Ltd., is 39.15%. The DRP in its order proceeded on the basis that the threshold limit for application of the Related Party Transaction filter (RPT filter) would be 25% of the total transaction. The Hon'ble Karnataka High Court in its Judgment 28-6-2018 in Pr. CIT v. Yodlee Infotech (P.) Ltd. [IT Appeal Nos. 684 and 685 of 2017, dated 28-6- 2018] had to consider among other questions of law the following questions of law with regard to application of RPT filter, viz., Whether on the facts and in the circumstances of the case, and in law, the Tribunal was justified by not acknowledging its own orders where the Tribunal has held in stretching RPT% from 15-20% in case of Katera Software India Pvt Ltd? and Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that RPT filters should be 15% and not 25%, taken by the TPO?. The Hon'ble Court held as follows: '3. The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and the Respondent-assessee, has given the following findings against Revenue with regard to various issues raised before it with regard to 'Transfer Pricing' and 'Transfe....
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....ed and related prices. This Tribunal in the series of decisions has taken a view that when good number of comparables are available, then the threshold limit of RPT shall not be more than 15% of total revenue. In view of the facts and circumstances of the case when good number of comparables available, then we are of the considered opinion that the RPT filter of 15% is proper in the case of the assessee. By applying this filter of 15% RPT, we modify the impugned order of the CIT (Appeals) and therefore only one company namely Four Soft Limited will be excluded from the said comparable having more than 15% RPT. Accordingly, we direct the A.O./TPO to exclude the Four Soft Ltd. Having 19.89% of RPT."........ 4. This Court in ITA No. 536/2015 C/w ITA No. 537/2015 delivered on 25-6-2018 (Prl. Commissioner of Income Tax & Anr. v. M/s. Softbrands India Pvt. Ltd.,) has held that in these type of cases, unless an ex-facie perversity in the findings of the learned Income Tax Appellate Tribunal is established by the appellant, the appeal at the instance of an assessee or the Revenue under Section 260-A of the Act is not maintainable. ... ... ... ... ... ... ... 5. The relevant portion o....
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....s filed by the Appellants-Revenue are liable to be dismissed and are dismissed accordingly.' 22. We are of the view that the facts of the Assessee's case is similar to the case decided by the Hon'ble High Court and in the light of the aforesaid decision of the Tribunal which has been upheld by the Hon'ble Karnataka High Court, the RPT filter has to be applied adopting the threshold limit of 15%. We hold and direct accordingly. Nihilent Ltd. 23. The ld. AR submitted that Nihilent Ltd. is not functionally comparable to the assessee as it is engaged in rendering software services, business consulting in the area of enterprise transformation, change and performance management and providing related IT services and is deriving majority of its revenue from South Africa having plans to expand operations to other geographies (pg. 1302 & 1307 PB Vol.III]. Considering the wide scope of services none of which are relevant to assessee's services, the ld.AR submitted that Nihilent Ltd. is not a comparable functionally to the assessee. In this regard, the ld. AR relied on the decision of Mumbai ITAT in the case of Red Hat Pvt.Ltd. v. NFAC (2022) 139 taxmann.com 62 (Mum. Trib.....
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....ata Elxsi Ltd.:- As far as this company is concerned, it is not in dispute before us that in assessee's own case for the A.Y. 2007-08, this company was not regarded as a comparable in its software development services segment in ITA No.1076/Bang/2011, order dated 29.3.2013. Following were the relevant observations of the Tribunal:- II. UNREASONABLE COMPARABILITY CRITERIA : 19. The learned Chartered Accountant pleaded that out of the six comparables shortlisted above as comparables based on the turnover filter, the following two companies, namely (i) Tata Elxsi Ltd; and (ii) M/s. Flextronics Software Systems Ltd., deserve to be eliminated for the following reasons : (i) Tata Elxsi Ltd., : The company operates in the segments of software development services which comprises of embedded product design services, industrial design and engineering services and visual computing labs and system integration services segment. There is no sub-services break up/information provided in the annual report or the databases based on which the margin from software services activity only could be computed. The company has also in its response to the notice u/s.133(6) stated that it cannot be....
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....to IT enabled services, the 87.45% (›75%) of the segment's revenues is from software development services. 4. This segment qualifies all the filters applied by the TPO." Regarding Flextronics Software Systems, the following extract from page 143 of TPO's order was read out by him as his submissions : "It is very pertinent to mention here that the company was considered by the taxpayer as a comparable for the preceding assessment year i.e., AY 2006-07. When the same was accepted by the TPO as a comparable, the same was not objected to it by the taxpayer. As the facts mentioned by the taxpayer are the same and these were there in the earlier FY 2005-06, there is no reason why the taxpayer is objecting to it. How the company is functionally similar in the earlier FY 2005-06 but the same is not functionally similar for the subsequent FY 2006-07 even when no facts have been changed from the preceding year. Thus the taxpayer is arguing against this comparable as the company was not considered as a comparable by the taxpayer for the present FY 2006-07." 21.We have heard the rival submissions and considered the facts and materials on record. After considering the su....
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....tional Ltd., only for the reason that it adopts different accounting year. The Ld A.R submitted that the Hon'ble Punjab & Haryana High Court has held in the case of CIT v. Mercer Consulting (India) (P.) Ltd. [2016] 76 taxmann.com 153/[2017] 390 TTR 615 has held that so long as the data relating to the relevant financial year is available, companies ought not to be rejected merely because they follow a different financial year. The Ld A.R submitted that the data relating to this company for each quarter is available in public domain and it can be collated to arrive at the financials relating to the financial year adopted by the assessee company. She submitted that the assessee has already collated the details. Accordingly she prayed for inclusion of this company. 14. We heard Ld D.R, who submitted that this company may be restored to the file of AO/TPO for examining it afresh. In the written submissions, the Ld A.R has collated the financial details of this company for the four quarters ending 31-3-2013 in accordance with the submissions made by her. The said financial details relate to the financial year adopted by the assessee. In view of the decision of Hon'ble Punjab ....
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....s, with 99.12% of its revenue for the year being generated from rendering the said services. The income from software products constitutes a meagre 0.88% of total revenue, which would not have any impact on the profitability of the company's SWD services segment. Detailed submissions in this regard are placed at pages 169 and 429 of the paperbook. Further, the services rendered by the company predominantly fall within the ambit of SWD services as per the Safe Harbour rules prescribed by the CBDT and therefore the company is comparable to the assessee. Further, it was submitted that the DRP erred in taking into account only the revenues earned from services rendered to customers in North America, Europe and Asia Pacific region while determining whether the company passes the export revenue filter applied by the TPO. It was submitted that if the entire foreign exchange earned by the company during the year is taken into consideration, it would pass the export revenue filter applied by the TPO. Therefore, it was submitted that the company ought to be included in the final list of comparables. 24. In any event, it was submitted that the DRP upheld the rejection of this company a....