TaxTMI 
TaxTMI 
2016 (8) TMI 1582
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....f INR 1, 11,27,160 declared in the return of income. Reference to Transfer Pricing Officer 2. The transfer pricing proceedings initiated by the AO under Section 92CA(I) of the Act, are without any jurisdiction and ought to be quashed. Addition on account of Transfer Pricing Adjustments 3. The AO/ DRP erred in making transfer pricing adjustment amounting to INR 95,25,556 in respect of the international transaction pertaining to provision of software development services undertaken by the assessee with its associated enterprise ('AE') viz. V2 Solutions Inc. ('V2 Solutions'). 4. The AO/ DRP/ TPO erred in rejecting the external CPM analysis conducted by the assessee for benchmarking the international transaction pertaining to provision of software development services to AE on an arbitrary basis, without giving cogent reasons, as required by the provisions of Section 92C(3) of the Act. 5. The AO/ DRP/ TPO erred in arbitrarily rejecting the external TNMM analysis conducted by the assessee for benchmarking the international transaction of provision of software development services to AE. 6. The AO/ DRP / TPO e....
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.... the assets (UPS / batteries) as Plant & Machinery eligible for 15% rate of depreciation, as against computer eligible for 60% rate of depreciation 15 The learned AO erred in levying interest under Section 234B of the Act. 16 The AO erred in initiating penalty proceedings u/s 271(1)(c) of the Act". 2. The functional profile of M/s V 2 Tech Ventures Pvt. Ltd. as stated in records before us are that, it operates in customized software development industry and provides offshore software development services in various areas as per the needs of V2 solutions, which in turn depends on the end users needs. The end users are those entities who are involved in providing application support and technical consulting services as well as off-the shelf software products and products using software as a service model. V2 Tech specializes in providing Net, J2EE software solutions and offshore software development services in various areas, viz., custom application, tool development services in various areas, viz., custom application, tool development, application integration, etc. V2 Tech offers its AE the skills to use web development tools to develop internet dependent cost ....
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.... Ltd 4 Carave Info Systems Pvt Ltd 5 Cherrytec Intelisolve Ltd 6 Laser Soft Infosystems td. 7 Nextbrick Solutions Ltd 8 Polaris Enterprise Solutions Ltd 9 Sagarsoft (India) Ltd 10 Spry Resources India Pvt Ltd 11 Trident Infotech Ltd 12 Ace Software Exports Ltd 13 Ajel Ltd 14 Igate Infrastructure Management Services Ltd 4. The TPO, first of all analysed the filters applied by the assessee for identifying the comparables in its search process and after detailed discussion, he accepted 5 comparables chosen by the assessee out of 14 comparables, which were:- Avani Cimcon Technologies Ltd Bodhtree Consulting Ltd Nextbrick Solutions Ltd Spry Resources India Pvt Ltd Ajel Ltd (Formerly Choksh Infotech Ltd) Thereafter, TPO initiated his own independent search process for the comparables in the software industry after applying following filters: (i) Functional similarity filter; (ii) Availability of audited annual reports for the relevant year, i.e. FY 2009-10; (iii) The rejection of comparables having RPT more than 25% of total revenue; (iv) The rejection of....
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....,49,93,378/- was made. The list of comparables along with their PLI and ALP adjustment made by the TPO is reproduced hereunder: S.No . Name of the Company PLI(OP/OC)% 1 M/s Elnet Technologies Ltd 138.70 2 M/s Infosys Technologies Ltd. 45.01 3 M/s Nucleus Software Exports Ltd. 17.01 4 M/s Persistent Systems Ltd 40.54 5 M/s Sonata Software Ltd 35.20 6 M/s Tata Consultancy Ltd 36.52 7 M/s Digicomp Complete Solutions Ltd. 12.22 8 M/s Indus Networks Ltd. 2.44 9 M/s Powersoft Global Solutions Ltd 11.86 10 M/s Teledata Marine Solutions Ltd. (2.72) 11 M/s Vishwa Vikas Services Ltd. 65.87 12 M/s Winfoware Technologies Ltd 17.06 13 M/s Compucom Software Ltd. (Segmental) 94.21 14 M/s Kals Information Systems Ltd 34.41 15 Kerala Ayuverda Ltd. (Segmental) 13.77 16 SQL Star International Ltd (Segmental) 0.84 17 Mukta Arts Ltd. (Segmental) (13.15) 18 Avani Clmcon Technologies Ltd. 4.09 19 Bodh Tree Consulting Ltd. 34.27 20 Nextbrick Solutions Ltd. 19.01 21 Spry Resources Ltd. 33.25 22 Ajet Infote....
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....nd exclude the said comparable from the comparability list. Further, before us Ld. Counsel has also pointed out to the appropriate working of the operating profit margin of Kals Information Systems (Segmental) and Kerala Ayurveda Limited, the revised operating profit of whom has been arrived at 20.43% and 2.04% respectively, which are evident from at pages 86 and 87 of the paper-book. The workings of the correct margin as given by assessee are as under:- Particulars Margin as per TPO's order Margin as per AO's order u/s 143(3) r.w.s. 144C(13) Current margin As per Assessee's Application u/s 154 Elnet Technologies Ltd 138.70 67.42 67.42 Infosys Technologies Ltd. 45.01 45.01 Rejected as per DRP Nucleus Software Exports Ltd. 17.01 17.82 17.82 Persistent Systems Ltd 40.54 28.87 28.87 Sonata Software Ltd 35.20 35.20 35.20 Tata Consultancy Ltd 36.52 Rejected as per DRP Rejected as per DRP Digicomp Complete Solutions Ltd. 12.22 12.22 12.22 Indus Networks Ltd. 2.44 2.44 2.44 Powersoft Global Solutions Ltd 11.86 11.86 11.86 Teledata Mari....
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....uct development, etc. and also it has different scale of employees, large number etc. The company has very high turnover i.e. more than INR 500 crores and hence different scale of operation. The company change in financial position due to ITP, that is, exceptional financial circumstances. Persistent Systems Limited related having party transaction of 15.23%. ii) Sonata Software Limited : This Company is in different line of business, like software product, it spends on R&D, in travel vertical etc. The company has a very high turnover, that is, more than INR 240 crores and hence it has to adopt different scale of operation; iii) Vishwa Vikas Services Limited : This Company is in a different line of business, e.g., it is engaged in ITES and BPO, it spent on R&D etc. It is significantly high related party transaction i.e. 20.22%; and iv) Elnet Technologies Limited : This Company has substantial investment in land and building and marginal investment in computers, its repairs and maintenance expenses constitute more than 50% of total cost. Its employee cost to sales ratio is only 9.63%. Thus it is established that the companies is into different activities ot....
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....al analysis itself. Apart from that, it is borne out from the Annual report that this company has made substantial investment in land and building instead of in the equipments for providing software development services. The employee cost of the sale ratio is also quite marginal which also indicates the fact that the function of this company is entirely different then the company providing software development services where highly technical human resources are required. Thus on FAR analysis, this comparable cannot be held to be a comparable company to benchmark the assessee's operating profit margin. Accordingly, we direct the AO/ TPO to exclude this comparable from the comparability list. As submitted by the Ld. Counsel, if Elnet Technologies Ltd is removed then assessee's profit margin will fall within the range of +/- 5%, Hence, we are not adjudicating the other comparables and are being treated as academic and direct the TPO/AO to examine the final average profit mean and give the benefit of +/- 5% from arms length price. 14. In Ground No. 14, the assessee has challenged the disallowance of Rs.48,584/- on UPS by treating it as 'Plant and Machinery' eligible for 15% rate of ....