TaxTMI 
TaxTMI 
2021 (6) TMI 1133
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....iating that the order of the learned Assistant Commissioner 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, wit....
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....valuated on the Black Scholes method in terms of US generally accepted accounting principles d) Risk profit between the Appellant and the comparable companies 4.10 roviding negative working capital adjustment 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....
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....ffect: INR 67,95,077/-) 9. That the learned AO erred in levying interest under Section 234 B of the Act of INR 7,142,540. That the Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein below or produce further documents before or at the time of hearing of this Appeal." Brief facts of the 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 ....
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....ounsel also submitted that assessee wish to press ground No. 8 under the corporate tax issues. 12. It has been categorically submitted that all other grounds are not pressed and therefore these are not adjudicated herein below. 13. Before we undertake the comparability analysis, it is sine qua non to stand the functions performed, the assets owned and risks assumed by assessee under these segments. 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 ....
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....ving as under: 4. On the following comparables, the AR submitted that the appellant's turnover is just 13.23 crores, while the turn over of each of the comparable is multiple times higher (say from 28 times to 1601 times higher) than its turnover and hence the DRP correctly excluded them. The summary of AR 's contentions on each of the comparable is extracted as under : Infosys Ltd : The DRP rejected this comparable on the 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....
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....es: The DRP rejected this company on the ground that the turnover of the company is very high i.e INR 402 crores which is 30 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 -DCIT vs Kodiak Networks India Pvt Ltd: ITA No. 532/Bang/2013 -Lam Research vs DCIT: IT(TP)A No. 1437/Bang/2014 -DCIT vs Hellosoft India (P.) Ltd: (2013] 23 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 Resea....
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....sociates. Therefore, in our view requirement for adjustment of negative working capital does not arise. 32. We draw our support from decision of coordinate bench of this Tribunal in case reported in (2020) 120 com 122 and Lam Research India (P.) Ltd. v. Dy. CIT in [IT Appeal Nos. 1473 & 1385 (Beng.) of 2014, dated 30-4-2015], Tivo Tech (P.) Ltd. v. Dy. CIT [2020] 117 taxmann.com 259, and Dy. CIT v. Software AG Bangalore Technologies (P.) Ltd. [IT Appeal No. 1628 of 2014, dated 31-3-2016], where it is held that, negative working capital adjustment shall not be made. 16.3 We have 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 1....
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.... interfere with the finding of the DRP, when the functions and business activity of this company was found to be different from marketing and sales support services of the assessee. Accordingly, the objection of the Revenue is rejected. (2) Killick Agencies & Marketing Ltd. 44. The assessee objected against this company on the ground that commission/service charges income of this company is Rs. 2,19,00,000 out of the operating revenue of Rs. 3,39,00,000. Therefore, the commission/service charges income constitute about 65% of the operating revenue which is less than 75% of the operating revenue filter applied by the 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 TP....
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....in the light of the records placed before us. It is observed that annual report of this comparable is placed at page 1390-1408 of compendium of annual reports at page 1392 and loss account, it is observed that income has been earned by this company under two heads being, Service Fees and Other Incomes, for which no details have been provided in schedules to accounts. Respectfully following the view taken by this Tribunal in case of DCIT vs Electronics for Imaging India Pvt.Ltd (supra) and ITO vs Interwoven Software Services (India) Pvt.Ltd (supra) we are of considered opinion that this company cannot be compared with assessee for functional dissimilarities. We therefore direct Ld. TPO/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 engage....
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....n u/s. 37(1) of the Act. 18.5 Even the Direct Tax Notification No.323 dated 11.10.2011, was issued in exercise of powers conferred u/s. 17(2) of the Act. The Central Government in the aforesaid Notification specified guidelines, which need to be followed when shares are allotted under ESOP scheme. In clause (6) of the aforesaid guidelines, the Central Govt., has laid down that, where shares of a parent company are issued under an ESOP, the company issuing ESOP has to give the required particulars to the Chief Commissioner of Income-tax ("CCIT") with an English translation of the plan or scheme, if the same is in a language other than English. It was pointed out that the assessee duly complied with the aforesaid guidelines and filed the ESOP scheme with the CCIT as on 05.12.2005. 18.6 The Ld.Counsel drew our attention to the observations of the Ld.CIT(A) in para _____ of his order, and observed that, the arrangement by which the assessee issued the shares at a discount to its employees of the parent company under an ESOP and paid the difference between the issue price and the fair market value of the shares as reimbursement to the parent company was a mechanism to pass on the ....