TaxTMI 
TaxTMI 
2020 (11) TMI 1097
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....mpugned order of the learned AO, as per the postal records has been issue beyond the time limit specified under sub-section (13) of section 144C of the Incometax Act, 1961 ("the Act") and therefore bad in law. B. Transfer Pricing 3. That on facts and in the circumstances of the case, the learned AO/ learned TPO erred in making an upward adjustment to the transfer price of the Appellant's international transactions of INR 10,508,698 in respect of software development services and INR 7,23,881 on account of imputation of notional interest on outstanding receivables. The learned DRP erred in further enhancing the adjustment in respect of Appellant's software development services to INR 11,884,856 and confirming the adjustment of INR 723,881 in respect of notional interest on outstanding receivables. 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 services, the learned DRP/ AO/ TPO erred in: 4.1. Rejecting the Transfer Pricing (`TP') documentation maintained by the Appellant under Section 92D of the Act, in good faith and with....
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.... considering certain expenses such as provision for doubtful debts and write back of provision operating in nature on the premise that these are not the routine operating costs in determining the operating mark-up of the comparable companies. 4.11. Rejecting the segmental financial information as provided by the Appellant and reallocating the "other expenses" between the Software development services, Marketing and support services and Data center services segment on the basis of revenue by disregarding the documents/ information submitted by the Appellant before the learned Panel during the DRP proceedings, supporting the allocation methodology adopted by the Appellant for the segmentation. 4.12.Not providing adjustment for the differences in working capital of the Appellant and the comparable companies. 4.13.Not providing suitable adjustment to account for differences in the risk profile of the Appellant vis-a-vis the comparable companies. 4.14. Computing incorrect operating mark-up of certain comparable companies. (Tax Effect: INR 3,621,178) Grounds for imputat ion of not ional interest on outstanding receivables 5. On facts and in the circumstances of the c....
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....Disallowance of travelling expenses and legal and professional expenses 9. That on the facts and circumstances of the case, the learned AO and Hon'ble DRP erred in disallowing travelling expenses and legal & professional expenses together amounting to INR 4,000,000 on account of failure to furnish invoices. 10. That the proceedings before the learned AO/ Hon'ble DRP suffered from lack of natural justice as the learned AO/ Hon'ble DRP did not give an opportunity to rebut the estimate of arriving at the disallowance. (Tax effect: INR 1,297,800) D. Other miscellaneous grounds 11. The consequential relief is to be granted in computation of interest under section 234B and section 234C of the Act. (Tax effect: INR 3,414,676) 12. The learned AO has erred in initiating penalty proceedings under section 271(1)(c) of the Act despite the fact that the Appellant has acted in a bona fide manner and provided all necessary details called for by the Assessing Officer. 2. Facts of the case are that Blue Coat India is the subsidiary of Blue Coat Systems BV, Netherlands, which in turn is a subsidiary of Blue Coat US, Blue Coat India has been set up as a captive con....
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....lysis. During the year ended March 31, 2014 Blue Coat India had the following international transactions with its associated enterprises; a) Receipt for provision of software development services, b) Receipt for marketing support services, c) Receipt for provision of data center equipment and other support, and d) Recovery of restructuring costs. 2.2 As per the Transfer Pricing (TP) document furnished for the FY 2013-14, the Taxpayer company has entered into the following International Transactions with its Associated Enterprises (AEs): As per the 3CEB Particulars Amt (Recd) Method Software Development Services 4,69,09,496 TNMM Marketing and Sales Support Services 10,12,55,499 TNMM Date Centre Services 38,55,055 TNMM Recovery of restructuring costs 12,48,076 TNMM Total 15,32,68,126 As per the TP study Particulars Amount Receipt from Software development services 4,69,09,496 Particulars Amount Receipt from marketing support services 10,12,55,499 Receipt from data centre services 38,55,055 Recovery of restructuring costs 12,48,076 ....
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....e and Vscrum Methodology, Infosys command centre frame work, Infosys cloud and co-system hub, Infosys Big-data edge. (Ref. Executive Vice Chairman message in the annual report) As per the management report these accelerated and agile service delivery has enabled the company for better project execution, cost-reduction and enhanced business value. The company provides end to end solutions, to the clients through the various platforms / products or solutions. These platforms / products and solutions are not off the shell products as argued by the assessee. As a per the P& L account, the company has revenue from software services of Rs.42,531/- crores and from software products of Rs.18,101/- crores, and that the product revenue constitute meagre 4.08% of total operating revenue. Therefore, taking into consideration the various information available in the annual report, and the fact that the company in predominately having revenue from software services, this company can be considered as functionally comparable to the assessee. 6.1. It was pointed out that the merger of Infosys Consulting India Limited has been accounted for under pooling of interest method, and that the assets an....
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....f clause (i) of sub-rule (3) of Rule 10B, which provides that an uncontrolled transaction shall be comparable to an international transaction if none of the differences, if any, between enterprises entering into business transactions or likely to materially affect the profit arising from such transactions in the open market. Hence, Ld. D.R. contended that these pleas may be rejected. 6.4 Being so, Ld. D.R. contended that it has to be considered as comparable to assessee's case and order of the lower authorities to be confirmed. 7. We have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below. The Tribunal in the case of LG Soft India Limited in IT(TP)A No.3122/Bang/2018 vide order dated 28.5.2019 considered the Infosys Limited as not comparable to the assessee's case by observing as follows: "6. We notice that the co-ordinate bench has excluded M/s. Infosys Ltd in AY 2008-09 by following the decision rendered by another co-ordinate bench in the case of 3DPLM Software Solutions Ltd. (IT(TP)A No.1303/Bang/2012 dated 28.11.2013, wherein the decision rendered in the case of Triology E Business Software....
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.... health care, infrastructure and systems. On the contrary, Ld.CIT DR submitted that, this company should be remanded by following the view taken by coordinate bench of this Ttribunal in case of CGI Information Systems and management consultants (P) Ltd. vs DCIT reported in (2019) 101 Taxmann.com 294. We have perused submissions advanced by both sides in light of records placed before us. The decision relied upon by Ld.CIT DR in case of CGI Information Systems 86 Management Consultants (P) Ltd. vs DCIT has not considered details that has been obtained under 133 (6) in respect of this company for year under consideration. Therefore, in our opinion this decision cannot be of any help to revenue. Coming to information received under section 133 (6) of the Act, it is observed that this company has acquired certain intellectual property products and generate revenue from licensing and support of such products. It is also observed that this company is involved in the entire life-cycle of software development which is not similar to what assessee caters to its associated enterprises. Assessee carries out only such functions which are required by associat....
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....h provides that an uncontrolled transaction shall be comparable to an international transaction if none of the differences, if any, between enterprises entering into business transactions or likely to materially affect the profit arising from such transactions in the open market. Hence, he requested to reject these pleas of assessee and to uphold this company as comparable. 15. We have heard the rival submissions and perused the record. This issue was considered by the Tribunal in the case of Microsoft Research Lab India Pvt. Ltd. cited (supra) and observed as under: "This comparable has been included by Ld.TPO the f inal l ist . Ld. counsel submi t ted that i t is funct ional ly not simi lar wi th that of assessee. It is submit ted that assessee engaged in providing services such as Agi le, analyt ics and informat ion management , appl icat ion development and maintenance, business process management , business technology consul t ing, Cloud, Digital business, independent testing, infrastructure management services, mobi l i ty, product engineering and SAP services. Ld.AR referred to page 1088 in support . It is further been submit ted that this company does not have s....
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....of Hon'ble Delhi High Court in case of Steria India Ltd vs DCIT reported in (2018) 92 Taxmann.com 120. She submitted that Hon'able Delhi High Court held this comparable to be a good company. We have perused submissions advanced by both sides in light of records placed before. From the annual report of this company placed at page 2334-2444, it is observed that at page 2413, segment reporting of this company is set to be comprised of software development, implementation and support services. Further- it has been submitted therein that primary segment reporting is based on geographical areas, viz Domestic = India (products and services) and International = rest of the world (exports-software services). It is also been submitted therein that this company maintains separate books of account for the reported segments. In profit and loss account at page 2431, it is observed that during the year under consideration, this company earned revenue from sale of products whereas, revenue from sale of services is shown to be at 'nil'. Ld.TPO while considering this comparable only considered footnote at page 2433, wherein bifurcations of revenue from sale of products has b....
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.... and have products and are engaged in trading activity. This company also has R&D services and presence of huge intangibles and brands. On the contrary, Ld.CIT DR submitted that, this company should be remanded by following the view taken by coordinate bench of this Tribunal in case of CGI Information Systems and management consultants (P) Ltd. vs DCIT reported in (2019) 101 Taxmann.com 294. We have perused submissions advanced by both sides in light of records placed before us. Ld.CIT DR placed reliance on decision of CGI Information Systems and management consultants (P) Ltd. vs DCIT (supra), wherein this Tribunal observed and decided as under: 9. In respect of the applicability of this Tribunal order for exclusion of Larsen & Toubro Infotech Ltd, this has been submitted by ld. AR of assessee in the chart submitted before us that on page no. 698 of Annual Report paper book, this company has debited an amount of Rs. 27,10,89,274/- as cost of bought-out items for resale. But this fact was not brought to the notice of the Tribunal in the case of Advice America Software Development Center (P.) Ltd. (supra). It has also been submitted that on page no. 706 of....
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....ear that export revenue from software services amounts to Rs.44,14,84,25,372/- out of gross income of Rs.46,43,94,03,178/-. In view of the aforestated observations for year under consideration, the issue of comparability of this company should be examined by Ld.AO/TPO afresh. Accordingly, we set aside this comparable back to Ld. AO/TPO." 24. Accordingly, we remit this issue to the file of the AO/TPO on similar directions. 25. The assessee wants herein to include the following 5 comparables: 1. I2T2 India Limited 2. Daffodil Software Limited 3. Exilant Technologies Pvt. Ltd. 4. Maveric Systems Limited 5. Evoke Technologies Pvt. Ltd. 26. Further, assessee has not considered other comparables raised in its ground to be included. The other comparables assessee not pressed. I2T2 India Limited: 27. First we will consider I2T2 India Limited. The Ld. A.R. submitted that I2T2 Limited is engaged in the Software development services and passes all filters followed by the TPO. 28. Ld. D.R. submitted that the company is in the IT enabled Services industry and has not done transaction processing work which is not functionall....
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....e Ld. A.R. submitted that this Exilant Technologies Pvt. Ltd. is engaged in software development services and passes all filters adopted by TPO and it is functionally comparable to assessee's case. 35. Ld. D.R. submitted that financials for the relevant assessment year not available before the lower authorities. Hence, it was not considered. 36. We have heard the rival submissions and perused the materials available on record. Admittedly, assessee filed the financials for the assessment years 2015-16 which includes the financials relating to assessment year 2014-15 also. However, this was not considered by the TPO. Hence, in the interest of justice, we remit this issue to the file of AO/TPO for fresh consideration. Maveric Systems Ltd.:- 37. Ld. A.R. submitted that this is functionally compared to assessee's case as this assessee is engaged in rendering software development services and incurring substantial amount on R&D won't effect is revenue. He relied on the order of the Tribunal Pune bench in the case of Xpanxion International Pvt. Ltd. in ITA No.666/Pune/2016 dated 14.5.2019 in support. 38. On the other hand, Ld. D.R. submitted that the company incurred substa....
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....." 40. Being so, taking a consistent view, we direct the AO/TPO to include Maveric Systems Ltd. as a comparable. Evoke Technologies Ltd. 41. Ld. A.R. submitted that revenue is identified geographical separate India and USA, hence financials related to India should be considered in the entirety and there after it should be included as a comparable. 42. On the other hand, Ld. D.R. submitted that one unaudited financial statement was made available to the lower authorities. Further, as per the geographical segmentation information, the revenue from India was given to be Rs.3621.72 lakhs and that the revenue from USA was given to be Rs.924.87 lakhs. Thus, it can be seen that the export revenue constitute only 20.34% of the total revenue. Therefore, this company cannot be considered as comparable. 43. He relied on the order of the Tribunal in the case of Goldman Sachs Research Pvt. Ltd. in IT(TP)A No.3244/Bang/2018 dated 29.1.2020 for this proposition. 44. We have heard the rival submissions and perused the materials available on record. Admittedly, this comparable was considered by this Tribunal and observed in para 6.1 in the case of Goldman Sachs Research Pvt. Ltd. ....
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....ove, ignoring the fact that the Appellant does not pay interest to the AEs in relation to outstanding payable to AEs. 5.3. Without prejudice to ground nos. 3 & 5.2 above, charging interest in respect of all invoices raised during the year and outstanding at the beginning of the year, after allowing a credit period of only 30 days. 5.4. Without prejudice to ground nos. 3 & 5.2 above, charging interest for the full year instead of restricting it till March 31, 2014, i.e. while computing the notional interest on overdue receivable the interest should be computed only from the date of raising invoices, after allowing credit period of 180 days, up till the date of realization of such invoices or March 31, 2014, whichever is earlier. 5.5. Without prejudice to ground nos. 3 & 5.2 above, imputing the notional interest invoice-wise and disregarding the weighted average method of computing the credit period for the outstanding receivables from the AEs. 51. Ld. D.R. submitted that notional interest to be considered as operating income while computing the margin. 52. We have heard the rival submissions, perused the materials available on record and relied on th....
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....um Health Care (supra), the Hon'ble High Court directed the TPO to study the impact of the receivables appearing in the accounts of the assessee; looking into the various factors as to the reasons why the same are shown as receivables and also as to whether the said transactions can be characterized as international. transactions." 3.5.8. In view of the above, we deem it appropriate to set aside the impugned order on this issue and remit the matter to the file of the Assessing Officer/TPO for deciding it in, conformity with the above referred judgment. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in such fresh proceedings. Accordingly, this ground raised by assessee stands allowed for statistical purpose." 53. In view of the above order of the Tribunal, taking a consistent view, we remit the issue to the file of the AO/TPO for deciding the same in conformity with the order of the Tribunal in the case of CGI Information Systems & Management Consultants (P) Ltd. cited (supra). 54. Next ground C.6, C.7 & C.8 relates to disallowance of depreciation claimed in respect of additions made during the previous year. Ld. A.R. submitt....