TaxTMI 
TaxTMI 
TaxTMI 
2018 (7) TMI 2294
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....g so have grossly erred in ignoring the fact that the Appellant is entitled to tax holiday under section 10A of the Act on its profits from international transactions and therefore, would not have any untoward motive of deriving a tax advantage by manipulating transfer prices of its international transactions; Contract Software Development Services 3. the Ld TPO/ Ld AO erred in enhancing the income of the Assessee by Rs1,10,39,773 holding that the international transactions pertaining to its contract software development business segment do not satisfy the arm's length principle envisaged under the Act and in doing so have grossly erred in: 3.1 committing factual errors/inconsistencies in computation of net operating profit margins of certain comparables; 3.2 rejecting comparability analysis in Assessee's fresh search and undertaking his own fresh search with following modifications in the choice of filters for screening of software companies: a) Rejection of assessee's turnover filter of sales greater than Rs 1 crores to sales greater than Rs 5 crores b) Application of export by sales filter of 75% for exclusion of companies; c) Rejection of assesse....
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....sessee's functional profile as a recruiting/ staffing services provider and erroneously benchmarking Assessee's return from recruiting/ staffing services with return earned by a payroll processing company; 4.2 including in the final set of comparables, companies which are not comparable to the Assessee in terms of functions performed, assets employed and risks assumed; 4.3 excluding in the final set of comparables, companies that are comparable to the Assessee in terms of functions performed, assets employed and risks assumed; 4.4 applying the different financial year end filter and excluding from the final set of comparables, companies merely on the basis of different financial year end even though their financial data 'relates' to the same time period as in which the international transaction took place and the company satisfies all other filters applied by the Ld TPO; 4.5 applying declining sales filter and excluding from the final set of comparables, companies merely on the basis of declining sales even though the company is a going concern and satisfies all other filters applied by the Ld TPO; 4.6 applying a turnover filter of sales greater than Rs 5 crores ....
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....d margin of software development and IT Staffing Service segment at 8.24%. with 4 comparables, which are as under: Sl. No. Name of the company Weighted Average OP/TC(%) 1. Akshay Software Technologies Ltd. - 1.04 2. Melstar - 15.65 3. E-Zest Solutions 17.00 4. Synetairos 18.02 Arithmetic mean 4.58% The margin computed for the comparables selected by assessee were at 4.58%. Therefore assessee held international transaction entered into with AE to be at arm's length price. 2.3. In respect of provision for staffing service segment, margin computed in case of assessee was at 2.46%. The comparable companies selected by assessee are as under: Sl. No. Name of the company OP/TC(%) 1. Ma Foi Management Consultants Ltd. - 2.33 2. Overseas Manpower Corp. Ltd. - 33.81 Average - 18.07 Assessee computed margin of comparables at (-)18.07%. It was observed by Ld.TPO that assessee had not computed any working capital or risk adjustment, while computing margins of comparables. Ld. TPO disregarded assessee submissions and determined margin of assessee at 27.17% in respect of software service segment and 20.86% in respect of staffing services. L....
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....t/assignment. Once specifications related to software are provided. assessee uses its resources as hardware, software and manpower to work on these projects. Assessee is responsible for development, coding and testing functions based on the functional specifications received from the AEs, on a sub contract basis. 7.2. Staffing services Functions In TP study, assessee classified itself to be performing identification, interview in selection of the right IT professionals for the right job as main function. Assessee offers range of human resource management services to make IT staffing process faster, easier and less costly. Assessee categorised itself to be experienced in permanent staffing, contract staffing and vendor management services. This segment also covers allied activities such as executive search and training to a limited extent. 7.3. Assets Assessee owns routine tangible assets like computers, office equipments etc. It does not own any intangibles and does not undertake any R&D, on its account that leads to development of non-routine intangibles. In relation to international transaction assessee uses trademark, process, know-how, technical data software operating/....
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....ng companies. It has been submitted that this view of Agnity India technologies Pvt.Ltd., has been upheld by Hon'ble Delhi High Court in ITA No. 3856/2010. 9.1. Ld. CIT DR placed reliance upon the order of Ld. TPO. 9.2. We have considered the various distinguishing features submitted by Ld.Counsel on the basis of records placed before us. Since all the distinguishing features exist even in the year under consideration, respectfullly following the orderof this Tribunal in assessee's own case, we direct this company to be excluded from the final list of comparables. 10. Persistent systems Ltd. Ld. Counsel submitted that this comparable has been included by Ld.TPO, however in assessee's own case for assessment year 2008-09 this Tribunal in ITA No.5401/Del/2012 directed exclusion of the same on the ground that it is functionally different with that of assessee. Ld.Counsel submitted that there is lack of segmental accounting in the financials of this company. He also submitted that there are no bifurcations between the services rendered by this company. This Tribunal while considering this comparable for assessment year 2008-09 (supra) has observed that during the relevant assessme....
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.... of Citigroup interest in the Company w.e.f. 21 January 2009. On 21 January 2009, Wipro signed master service agreement (MSA) with Citigroup Inc. for delivery of technology infrastructure services, application development and maintenance services After acquisition by Wipro, name of Company was changed to Wipro Technology Services Limited ('WTS' or 'the Company') on 16 March 2009." 10.3. It is observed from the above that, Wipro Technology Services Ltd., which was earlier Citi Technology Services Ltd., was held by Citi Corp. Banking Corporation, USA upto 20th January, 2009. Wipro Ltd., parent company of which executed agreement with Citi Group Inc., for acquiring Citi Technology Services Ltd., now called Wipro Technology Services Ltd. On 21.1.2009, Wipro Ltd. signed master agreement with Citi Group Inc., for the delivery of technology Infrastructure Services and application development and maintenance services for the period of six years, which also includes the year under consideration. This shows that income from software development support and maintenance services was earned by Wipro Technology Services Ltd., from Citi Group Inc., by means of master service agreement entered in....
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....n between two associated enterprises, it ceases to be an 'uncontrolled transaction' and, thereby, goes out of reckoning under Rule 10B(1)(e)(ii). Adverting to the facts of the instant case, we find that Wipro Technology Services Ltd. earned revenue from Master services agreement with Citigroup Inc. for the delivery of technology infrastructure services. This agreement was, in fact, executed between the assessee's AE, Wipro Ltd., and Citigroup Inc., a third person. This unfolds that the transaction of earning revenue from software development support and maintenance services by Wipro Technology Services Ltd., is an international transaction because of the application of section 92B(2) i.e., there exists a prior agreement in relation to such transaction between Citigroup Inc. (third person) and Wipro Ltd. (associated enterprise). In the light of this structure of transaction, it ceases to be uncontrolled transaction and, hence, Wipro Technology Services Ltd., disqualifies to become a comparable uncontrolled transaction for the purposes of inclusion in the final list of comparables under Rule 10B(1)(e)(ii). We, therefore, direct removal of this company from the list of comparab....
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....med by this company under software development services are basically on the basis of research and development. It is also observed that there is no segmental information regarding the same. On perusal of the audited reports of this company, we are of the considered opinion that this company is not performing services on the basis of contract as per the requirements of the clients but is into innovative development of its own. 12.3. We therefore disqualify this company to be a fit comparable in the present case. 13. Staffing services Assessee is challenging inclusion of the following comparable: HCCA Business Services Pvt. Ltd. This company has been included by Ld.TPO. Ld.Counsel submits that it does not provide recruitment or manpower services and are only into payroll processing services. It has been submitted that this company also owns intangibles. 13.1. On the contrary Ld.CIT,DR submitted that the company offers services including payroll processing, compensation structuring, human resource operations, human resource administration, management of labour and legal compliances, reimbursement processing and accounting services to corporations. 13.2. We have perused the s....