TaxTMI 
TaxTMI 
TaxTMI 
2021 (6) TMI 1133
X X X X Extracts X X X X
X X X X Extracts X X X X
....r of Income-tax (Transfer Pricing) - 2(1)(1), Bangalore ('learned TPO') passed under Section 92CA of the Income-tax Act, 1961 ('the Act') is contrary to law and thus liable to be quashed. 3. That on facts and in the circumstances of the case, in the first round of assessment, the learned DRP/ AO/ TPO erred in making an upward adjustment to the transfer price of the Appellant's international transactions of INR 29,885,102 in respect of software development services and INR 6,354,054 on acount ofmarketing support services. Vide the order of the Income Tax Appellate Tribunal ('ITAT'), dated October 27, 2017, the entire TP matter was remanded back to the file of learned DRP and learned TPO with specific adjudication. In lieu of this order, the learned DRP/ AU! TPO erred in retaining an upward adjustment of INR 26,366,448 in respect of Appellant's software development services and confirming the adjustment of INR 6,354,054 on account of marketing support services. Grounds for software development services 4. On the fact and in the circumstances of the case and in law, with respect to adjustment to the transfer price of the software development se....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to account for differences in the working capital between the Assessee and the comparable companies. (Tax Effect: INR 8,961,956) Grounds for marketing support services 5. On facts and in the circumstances of the case, the learned DRP/AO/TPO erred in: 5.1. Stating in its directions that Appellant has not made any submissions against the adjustment made by the learned TPO for the marketing support services and accordingly not providing any specific adjudication on the comparable companies selected by the learned TPO; 5.2. Rejecting the Transfer Pricing ('TP') documentation maintained by the Appellant under Section 92D of the Act, in good faith and with due diligence. 5.3. Rejecting the comparability analysis carried out by the Assessee in the TP documentation and in conducting a fresh comparability analysis for the software development services based on the application of additional filters in determining the arm's length price. 5.4. Using data, which was not contemporaneous and which was not available in the public domain at the time of preparing the TP documentation. 5.5. Not considering the multiple year/prior year data of comparable companies whi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... case are as under: 2. The assessee is engaged in the business of manufacturing and marketing of semiconductor components. It filed its return of income on 13/10/2010 declaring total income of Rs.4,52,25,320/-. Subsequently, the case was selected for scrutiny as assessee's international transaction exceeded Rs. 15 crores. 3. From the Transfer Pricing order passed by Ld.TPO under 92CA of the Act, we note that, assessee had following international transactions: Particulars Amount inINR Outcome of the TP order Software development services 29,00,23,589/- Adjustment of INR2,98,85,102/- Marketing support services 5,45,23,003/- Adjustment ofINR 63,54,054/- Purchase of office equipments 98,822/- Accepted to be at arm's length. Reimbursement of expenses 4,29,47,534/- Accepted to be at arm's length. Software development service segment: 4. It is observed that, assessee used TNMM as the most appropriate method and computed its margin at 12% by using OP/TC as PLI. Is it is observed that, assessee used 11 comparables with average margin of 13.86%. The Ld.TPO dissatisfied with the comparables selected by assessee applied certain filters and shortlisted final set of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ents. Functions Software development service segment: 14.1 In the transfer pricing study placed at page 285 of paper book, it has been submitted that assessee provides chip designing/software development services to its AE. It is also been submitted that in rendering such services the AE undertakes analysis of feasibility study, software design, code generation, verification of software testing, acceptance, installation and deployment, maintenance for the developer. Assessee provides designing services in accordance with the specifications received from the AE and the designing and development services rendered by assessee comprises of designing development which includes logic/circuit/layout design, application support which includes application notes and CAD system support for designs. Marketing support service segment. 14.2 Under this segment assessee provides services to the AE in Ireland for different product lines from its office live identification of potential customers for microchip Ireland, suggesting the suitability of microchip Ireland's products based on the OEMs requirement, provision of application support to the users design engineers by microchip India tec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e ground that the turnover of the company is very high, INR 21,140 crores which is 1601 times the turnover of the assessee from ITES business . The assessee submitted that Infosys is an industrial giant with an extremely high turnover and has substantial intangible assets. The size, functions performed, stage of business cycle, and growth cycle of Infosys is not comparable with the assessee which is a low risk captive service provider and relied on * DCIT vs Ikanos Communications: ITA No. 137/Bang/2015 (AY 2010-11) * ACIT vs Broadcom India Research Private Limited: [2016] 49 ITR(T) 79 (Bangalore) [AY 2010-11] * Bearing Point Business Consulting Pvt. Ltd. - ITA No- 1124/Bang/2011 * DCIT vs Electronics for Imaging Pvt. Limited: ITA No. 212/Bang/2015 (AY 2010-11) * Insilica Semiconductors India Pvt. Ltd. vs ITO: [2012]53 SOT 157 (Bangalore) Logica Pvt. Ltd. vs ACIT: IT(TP)A No. 1621&1664 (Bang) of 2014 * Orange Business Services India Solutions (P.) Ltd. vs DCII: ITA No. 869 (Delhi) of 2016 * 24/7 Customer.com Pvt. Ltd : ITA No. 227/Bang/2010 * DCIT vs PMC - Sierra India Pvt. Ltd. : lT(TP)A No. 882/Bang/2013 * Lam Research vs DCIT: IT(TP)A No. 1437/Bang/2014....
X X X X Extracts X X X X
X X X X Extracts X X X X
....3 ITR(T) 1 (Hyderabad) 6. Tata Elxsi Ltd (seg): The DRP rejected this company on the ground that the turnover of the company is very high i.e. INR 376.37 crores which is 28 times the turnover of the Assessee from ITES business and therefore it was correctly excluded from the list of comparables. Reliance is placed on the following cases: -Bearing Point Business Consulting Pvt. Ltd.: ITA No.1124/Bang/2011 -Lam Research vs DCIT : IT(TP)A No-:1437/Bang/2014 However, against the application of the turnover filter, the DR relied on the decision of this Tribunal in LSI Technologies India Private Ltd & LSI Research & Development P Ltd in IT (TP) A No 1380 & 1381 /Bang/ 2010 for ay 2006-07 dt 13.5.2016. We heard the rival submissions. It is seen that the DRP rejected the above comparables based on the turnover filter, size etc relying on various Tribunal decisions Viz Bangalore, Delhi, Hyderabad, Mumbai and Pune. This Tribunal in the case of Obopay Mobile Technolgy India P Ltd in IT(TP) A Nos 388 & 469/ Bang/ 2015 dt 08.01.2016, after considering the Delhi and Bombay High Court decisions in Chryscapital Investment Advisors India P Ltd 376 ITR 183(Del), CIT vs Pentair Water Indi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... considered the rival submissions. We find that in the case of Lam Research India (P.) Ltd. (supra) and Software AG Bangalore Technologies (P.) Ltd. (supra) passed by this Tribunal, it has been held that negative working capital adjustment shall not be made in case of a captive service provider as there is no risk and it is compensated on a total cost plus basis. We therefore direct Ld.TPO to compute the ALP in accordance with the directions contained in this order after affording assessee opportunity of being heard. Accordingly this ground raised by assessee stands allowed. Ground No. 5.6 17. This ground has been raised by assessee for exclusion of Asian Business Exhibition and Conferences Ltd., HCCA Business Services Pvt.Ltd, Hindustan Housing Company Ltd., Killick Agencies and Marketing Ltd., on the ground that, they are functionally not similar with that of assessee under marketing support service segment. The Ld.Counsel has placed reliance on the decision of DCIT vs Electronics for Imaging India Pvt Ltd (supra) and ARM Embedded Technologies Pvt.Ltd vs ITO in IT(TP)A No.1225/B/2016 by order dated 19/07/2019 for assessment year 2010-11. She submitted that these comparables ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....TPO. In the absence of segmental results, this company was sought to be excluded from the set of comparables. 45. The DRP found that this company conducts business as an agent of the foreign principal and deal in maritime equipments. Further, the receipts are mainly in the nature of commission income and service charges. Therefore, this company was functionally dissimilar to that of assessee. 46. We have heard the ld. DR as well as ld. AR and considered the relevant material on record. 47. The ld. DR has submitted that the TPO has considered the relevant information as reported in the annual report of the company and it was found that this company is acting as an agent for various foreign principals for sale of dredgers, dredging equipment and also offers after sales service. Therefore, this company was found to be in the business of marketing support services which is similar to the assessee. 48. On the other hand, the ld. AR has submitted that this company is engaged in the business of construction equipments and earth moving machinery and is not into marketing support services. 49. Having considered the rival submissions as well as relevant material on record, we ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....PO/AO to exclude this company from the final list of comparables." 17.4 There is nothing on record brought by the Ld. CIT DR in order to distinguish the above observation/findings by this Tribunal. Accordingly respectfully following the aforestated view we direct Ld.AO to exclude these comparables from the finalist. Ground No. 5.7 18. This ground has been raised by assessee seeking inclusion of ICRA Management Consulting Services Ltd. 18.1 The Ld.Counsel submitted that, this company is engaged in providing support services and is functionally comparable with that of assessee. She placed reliance on Hon'ble Mumbai Tribunal in case of IIMLH Advisors Ltd. vs DCIT in ITA No. 4060/M/2016 by order dated 20/06/2018 for assessment year 2010-11. In our view this comparable needs to be remanded to the Ld. AO/TPO for reconsideration in accordance with the observations of Hon'ble Mumbai Tribunal in IIMLH Advisors Ltd. vs DCIT (supra). Accordingly this ground raised by assessee stands allowed for statistical purposes. 18. Ground No.8 is in respect of the disallowance of deduction of ESOP expenses. 18.1 The Ld.Counsel submitted that during the year under consideration assessee had remi....