AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2021 (8) TMI 1358
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....and circumstances of the case and in law, The order of the learned AO/ TPO is based on incorrect interpretation of law and therefore is bad in law. The learned AO/TPO has erred, in law and in facts, by assessing/ computing the total income at INR 343,738,662 and the total net tax payable as INR 91,851,777; Transfer Pricing grounds 2. The learned AO! TPO have erred in making an addition of INR 267,671,356 to the total income of the Appellant on account of adjustment in the arm's length price of the provision of software development services and marketing support services transactions entered by the Appellant with its Associated Enterprises; The learned CIT(A) has erred, in law and in facts, by not accepting the Appellant's plea in entirely and confirming with the learned AO/ TPO on not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Income Tax Rules, 1962 ("Rules"), for the determination of the arm's length price in connection with the impugned international transaction and holding that the Appellant's international transaction is not at arm's length; 4. The learned CIT(A) has e....
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....n companies based on unreasonable comparability criteria; Marketing Support Services Transaction 10. The learned CIT(A) has erred, in law and in facts, by not providing any specific adjudication against any of the grounds regarding marketing support services transaction which the Assessee wishes to raise as follows: 10.1 The learned TPOI AD have erred, in law and in facts, by not providing the search strategy, filters and basis on which the comparable companies were selected by TPO; 10.2 The learned TPO/ AD have erred, in law and in facts, by suo moto rejecting certain comparable companies selected by the TPO in the show cause notice, against which the Appellant did not raise any objections for exclusion; 10.3 The learned TPO/ AD have erred, in law and in facts, by rejecting companies selected by Appellant in TP documentation based on unreasonable comparability criteria and without providing any rationale justification; 10.4 The learned TPO/ AD have erred, in law and in facts, by not providing the margin computation of the final set of comparable companies selected by the TPO in the TIP order; 10 5 The learned TPO/ AO have erred, in law and in facts, by not mak....
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....sion of above expenses from total turnover also. 4. Whether in the facts and circumstances of the case and in law, the Hon'ble CIT(A) was justified in seeking exact comparability while searching for comparable companies of the assessee under TNMM method whereas requirement of law and international jurisprudence require seeking similar comparable companies. 5. Whether the Hon'ble CIT(A) was right in not accepting the quantitative filters and qualitative filters of the TPO and applied functional matrix which is narrower than the functionality matrix originally used by TPO. 6. For these and other grounds that may be urged upon, the order of the CIT(A) may be reversed and that assessment order be restored. 7. The appellant craves leave to add, alter, amend or delete any other grounds on or before hearing of the appeal. Brief Facts of the case are as under: 2. Nvidia Graphics Pvt Ltd is a subsidiary of NVIDIA International Inc., US. The assessee provides software development services and marketing support services to its Associated Enterprises ('AEs'). The assessee filed its return of income on 25/10/2011 declaring total income of Rs.4,53,97,517/- under n....
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....bles with average margin of 6.68%. Assessee thus held its transaction to be at arms length. SI No. Comparable Weighted Average OP/OC 1 I D C (India) Ltd 11.27% 2 Access India Advisors Ltd 6.62% 3 E D C I L (India) Ltd (Segmental) 3.80% 4 HT Music & Entertainment Co. Ltd 3.98% 5 I C R A Management Consulting Services Limited 4.72% 6 India Tourism Development Corporation Ltd (Segmental) -1.28% 7 Indus Technical & Financial Consultants Ltd 9.53% 8 Inhouse Productions Limited (Segmental) 4.25% 9 Inmacs Management Services Ltd 17.22% Arithmetic Mean 6.68% 2.4 Ld.TPO dissatisfied with economic analysis, filed by assessee for both segments, conducted fresh search and by applying various filters rejected comparables selected by assessee. 2.4.1. For Software Development segment, the Ld.TPO arrived at following set of following 13 comparables with average margin of 24.82% . SI.No. Comparable OP/OC (Unadjust 1 Larsen & Toubro Infotech Ltd 19.83% 2 Mindtree Ltd (Segmental) 10.66% 3 Persistent Systems Ltd 22.84% 4 R S (Software) India Ltd 16.37% 5 Sasken Communication Technologies Ltd 24.13% 6 Evoke Technologies Private Ltd 8.11% 7....
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....The Ld.CIT(A) directed the Ld.AO/TPO to treat foreign exchange fluctuation as operating in nature, while computing the operating margin of Appellant as well as the comparable companies, as it had direct nexus with the business of the assessee's. 4.3. The Assessee had objected for the action of the Ld.TPO/AO in not providing the search strategy, filter, basis for selection of comparables and suo moto rejection of certain comparables without providing any rationale/justification. The Ld.CIT(A) did not adjudicate on any of matters with respect to the marketing support services segment. On corporate tax issues: 4.4. The Ld.CIT(A) directed the Ld.AO to reduce the expenditure incurred on travel and communication both from the export turnover and total turnover for the purpose of computation of deduction u/s 10A of the IT Act by following the decision of the Hon'ble Karnataka High Court in the case of CIT vs.Tata Elxsi Ltd. (349 ITR 98) 4.5. The Ld.CIT(A) deleated the addition made on account of reallocation of advertisement expenses by considering the order of the coordinate bench of this Tribunal in favour of the Assessee in its own case for the AY 2009-10. 4.6. Comparables that w....
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....f this Tribunal, in assessee's own case for AY 2009-10, deleted identical addition made on account of re-allocation of expenses from the Non-STPI to the STPI unit as they wew made without any basis. This Tribunal in assessee's own case held as under :- "43. We have heard the rival submissions. Perusal of the order u/s. 92CA of the Act shows that the issue with regard to provision of marketing support services by the Bangalore Non-STP unit to NVIDIA Singapore was subject matter of TP analysis made by the assessee. 44. The TPO considered the analysis done by assessee and held as follows:- "2.4 In respect of marketing support services, the taxpayer has earned an operating profit margin of 10.18%. In this segment, the taxpayer considered 15 comparables under TNMIM. The average operating profit margin of these 15 comparables is arrived at 10.7 1% on cost by considering the weighted average based on the three years data i.e. FY 2006-07, FY 2007-08, and FY 2008-09 wherever available. The operating profit to total cost ratio is taken as the profit level indicator (PL) in TNMM analysis. The TPO has made an independent analysis of the international transactions of the Marketin....
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....be adjudicated. 9. Ground no.4-7 are not pressed by the Ld.AR. Accordingly these grounds are dismissed as not pressed. 10. Ground No.8 The assessee seeks exclusion of following comparables: Acropetal Technologies Ltd., e-Zest Solutions Ltd., E-Infochips Ltd. and ICRA Techno Analytics Ltd. 10.1 Before we undertake the comparability analysis, it is sine qua non to understand the functions performed, assets owned and the risks assumed by this assessee. Functions: 10.2 As per the master service agreement it has been observed by the Ld.TPO that assessee provides research and development services to its AE from its Bangalore Pune and Hydrabad facilities. It is also been observed that it provides marketing support services to Nvida Singapore Pte Ltd. The Ld.TPO observed that assessee is compensated on cost plus markup basis for the provision of research and development services to Nvida international and marketing support services provided to Nvida Singapore. 10.3 The Ld.TPO noted that assessee under software development assessee carries out research and development for its associated enterprises. From the trans-apprising study at page 871 of paper book we note that assessee perfo....
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....are less than 25% of turnover cannot be regarded as comparable. In the absence of segmental information, it was not possible to ascertain as to whether this company passes the test adopted by the TPO himself for comparison. The learned DR submitted that the required data can be culled out from the information available in the public domain or by resorting to a process of calling for information from this company u/s.133(6) of the Act. The learned counsel for the Assessee in this regard pointed out that the Hon'ble Delhi High Court rejected a similar argument by the Revenue in the case of Pr. CIT v. Saxo India (P.) Ltd. [2016] 74 taxmann.com 88/243 Taxman 411/397 ITR 160. In the circumstances, this company was rightly held by the DRP to be not comparable. We are of the view that once a company becomes not comparable for the reason that segmental information to apply filters, we need not consider any other aspect of comparability. The learned counsel for the Assessee made submissions before us that this company was rightly directed to be excluded by the DRP on the above basis and further contended that even otherwise, this company is not functionally comparable to the Assessee. A....
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....ed, the said ground of appeal is weak and any event comparability of companies that were excluded by the DRP were on valid grounds contemplated by the relevant statutory provisions of the act and rules. As far as ground No. 5 in revenue's appeal is concerned, the revenue seeks to challenge the exclusion of E Infotech Ltd. On the ground that it failed direct software service income filter at 75%. At the outset, the assessee submits that E Infotech Ltd was excluded by the DRP on the ground that: (i) no segmental information is regarding its diverse functions is available; (ii) it failed the software service income filter and 75%; (iii) there were major fluctuations in profit and turnover every years which seems to be influenced by extraordinary/peculiar circumstances; and (iv) there is a presence of inventory (page 10 and 11 of the DRP's directions). The revenue, in its appeal has challenged its exclusion only on the 2nd ground. In other words, the revenue has not challenged its exclusion on the other grounds stated hereinabove and thus its exclusion on these grounds have attained finality and cannot be disturbed by this Hon'ble Tribunal. Even otherwise, we are of the view that the D....
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....f RPT filter. In fact, we find that para-8 & 9 of the Tribunal order rendered in the case Commscope Networks (India) (P.) Ltd. (Supra) is relevant in respect of inclusion/exclusion of nine companies directed to be excluded by DRP and also in respect of exclusion of four companies which were retained by DRP but it was the contention of the assessee for exclusion thereof. We therefore, re-produce para-8 & 9 of the Tribunal order for the sake of ready reference; "8. We decide the issue of various exclusions and inclusions in these cross appeals. Regarding inclusion of 3 comparables out of 9 comparables excluded by DRP, we find that when both sides are seeking inclusion of these 3 comparables being 1 (Evoke Technologies Pvt Ltd., 2) Mindtree Ltd. (Seg) and 3) R S Software (India) Ltd. and their inclusion is proper as per the tribunal order rendered in the case of Applied Materials India Pvt. Ltd. v. ACIT as reported in TS-815- ITAT - 2016, we reverse the order; of DRP; about exclusion of these 3 '' comparables and 'direct the AO/TPO to include these three in final list of comparables. 9. Now we decide about the remaining 6 comparables excluded by DRP and 4 comparables....