TaxTMI 
TaxTMI 
2021 (8) TMI 1358
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.... on the following grounds: That on the facts 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 intern....
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....reasonable comparability criteria; 9. The learned CIT(A) has erred in law and in facts, by upholding AO/ TPO action of rejecting certain 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 pro....
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....ly from the Export turnover by way of specific definition of Export Turnover as envisaged by sub-clause(4) of explanation 2 below sub-section 8 of section bA. On the other hand, there is no specific provision in section bOA warranting exclusion 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....
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....tions Ltd - 0.29% 19 R Systems International Ltd (Segmental) 12.10% 20 Saven Technologies Ltd (Consolidated Segmental) 17.52% 21 Thinksoft Global Services Ltd 11.54% 22 Thirdware Solutions Ltd 21.75% 23 Zylog Systems Ltd 16.64% Arithmetic Mean 12.84% 2.3. In respect of Marketing Support Service Segment, assessee computed its margin at 8.74%. It used following 9 comparables 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 f....
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....al before the Ld.CIT(A). The Ld.AO thus passed the final assessment order u/s 143(3) r.w 144C of the Act thereby computing total income in the hands of assessee at Rs.34,37,38,662/-. 4. Aggrieved by the order of Ld.AO assessee preferred appeal before the Ld.CIT(A). 4.1. Before the Ld.CIT(A) assessee filed its objections in respect of certain comparables for exclusion. Assessees also sought for inclusion of certain comparables. The Ld.CIT(A) rejected the Tata Elxsi Ltd (Seg.) and Infosys Technologies Ltd., comparables stating these to be functionally different, by relying on various judicial precedents as submitted by the Appellant. 4.2. 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 resp....
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.... NVIDIA Singapore in India. The Marketing unit was compensated at cost plus 8% by NVIDIA Singapore. 5.4. The Ld.AR submitted that, separate set of accounts were maintained for STPI and Non-STPI unit and expenditure pertaining to each unit is clearly identifiable and is debited to respective unit. It was also submits that, there is a clear demarcation of expenses and income between STPI Unit and Non STPI units as disclosed in Form 56F. Advertisement expenses amounting to Rs.1,43,69,419/- have been shown under the Non STPI unit. 5.5. The Ld.AR thus submitted that the Ld.AO still made addition to the total income of the assessee as a result of re-allocation of expenses from the Non-STPI unit to the STPI units. 5.6. The Ld.AR submitted that the coordinate bench of 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 servi....
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....o.3 is in respect of reducing the expenditure incurred in travel, telecommunicaiton etc. from export turnover and toatl turnover for compulting deduciton u/s 10A of the Act. Admitedly this issue stands settled by Hon'ble Supreme Court in case of HCL Technologies Ltd. reported in (2018) 93 taxman.com 33. 6.1. Respectfully following the same, we do nto find any infirmtiy in the view taken by Ld.CIT(A). Accordingly this ground raised by revenue stands dismissed. Assessee's Appeal: 7. Though there were several grounds raised by the assessee in the modified grounds of appeal, at the time of hearing the Ld.AR pressed for adjudication of Ground no.8 only. Following issue, has been alledged in Ground 8. 8. The Ld.AR submitted that Ground nos.1-3 & 9 are general in nature. Therefore these grounds need not 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 ....
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.... containing the break-up of its export sales and employee costs, was not available and it was not possible to ascertain if it passed the export earnings and/or employee costs filters; and (ii) a substantial portion of its software development activities have been outsourced on subcontract and it could, therefore, not be retained as a comparable. The DRP in directing exclusion of this company followed decision of Hyderbad Bench of ITAT in the case of Capital IQ Information Systems (India) (P.) Ltd. v. Dy. CIT (International Taxation) [2013] 32 taxmann.com 21/57 SOT 14 (URO) (Hyd. - Trib.). The DRP also observed that this company was predominantly doing on-site development of software and therefore cannot be compared with a company which develops software off-shore. One of the filters applied by the TPO was that companies where employee costs 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....
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....ides in light of records placed before us. 10.10 It is observed that this Tribunal in case of Autodesk India Pvt Ltd. vs ACIT in ITA(TP)A No.156/Bang/2016 for assessment year 2011-12 vide order dated 21/12/18, excluded E- Infochips Ltd., by following view taken by this Tribunal in case of Comscop Network (India) Pvt.Ltd. Limited vs ITO in IT (TP) A/Bang/2016 dated 22/02/17 wherein, this company was excluded for reason that, there is no segmental information regarding diverse functions performed by this company and that there was major fluctuation in its profits, which influenced turnover of this company. We also note that this Tribunal in case of DCIT vs CGI Information Systems (supra) had encountered with an identical situation for year under consideration. This tribunal observed as under: "24. As far as ground No. 4 raised by revenue is concerned, 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....
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....terial India Pvt.Ltd (supra), is followed in plethora of other decisions of this Tribunal for exclusion of these comparables. He submitted that all these comparables have been excluded from DCIT vs. LSI India Research Pvt.Ltd reported in (2017) 83 taxmann.com 357 for assessment year 2011-12, being the Transferee Company as under: "9. Now we decide about the remaining six comparables excluded by the DRP and other four comparables retained by the DRP for which the assessee is seeking exclusion. We find that out of these six comparables excluded by the DRP, one comparable i.e. ICRA Techno Analytics Ltd. is having RPT in excess of 15% and therefore, for this reason alone this company has to be excluded although, the DRP has excluded it for a different reason that it is having various activities and the segmental data are not available. We hold this exclusion on account of 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 ....
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....DRP out of 9 comparables excluded by DRP and exclude 4 comparables retained by DRP and we have already held that out of 9 comparables excluded by DRP, 3 have to come back being 1.) Evoke Technologies Pvt, Ltd., 2) Mindtree Ltd. (Seg) and 3) R S Software (India) Ltd. Now, we decide about LGS Global Ltd. As per the tribunal order rendered in the case of Applied materials India Pvt. Ltd. v. ACIT (Supra), this is a good comparable and therefore, we direct the A.O. and TPO to include this comparable. So, there should be 4 comparables in the final list of comparable and on the basis of that, the AO/TPO should work out the ALP". 10. As per the above two paras, reproduced from the order of the Tribunal rendered in the case Commscope Networks (India) (P.) Ltd. (Supra), we find that in that case, the Tribunal held that out of 9 comparables excluded by DRP, 3 have to come back being 1) Evoke Technologies Pvt. Ltd., 2) Mindtree Ltd. (Seg) and 3) R S Software (India) Ltd. Out of remaining 10 comparable companies selected by TPO, the tribunal in that case excluded. 9 companies being 1) ICRA Techno Analytics Ltd., 2) Acropetal Technologies Ltd. (Seg), 3) e - Zest Solutions Ltd., 4) Infos....