TaxTMI 
TaxTMI 
2023 (1) TMI 1066
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....erred as "lower income tax authorities" for brevity] to the extent prejudicial to the Appellant are bad in law and liable to be quashed. [Ground of appeal no. 1(a) - Grounds of appeal filed on 22 June 2021] 2. The Deputy Commissioner of Income Tax, Circle-6(1)(1) (the then Learned Assessing Officer) has erred in making a reference to Deputy Commissioner of Income-tax Transfer Pricing, Circle - 2(2)(1) (the then Learned Transfer Pricing Officer) for determining arm's length price without demonstrating as to why it was necessary and expedient to do so. The Hon'ble DRP has erred in confirming the action of the Deputy Commissioner of Income Tax, Circle-6(1)(2) ('Learned Assessing Officer' or 'Ld. AO'). [Ground of appeal no. 1(b) - Grounds of appeal filed on 22 June 2021] 3. The lower income tax authorities have erred in making an adjustment under section 92CA of the Income-tax Act, 1961 ('the Act') without appreciating that a) there is no amendment to the definition of "income" and charging or computation provision relating to income under the head "Profits & Gains of Business or Profession" do not refer to or include the amounts compute....
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....he directions of the Hon'ble DRP, erred in computation of NCP mark-up for the following companies identified as comparables by the Ld. TPO: (a) Microland Limited (FY 2013-14: 17.42%; FY 2014-15: 15.44% and FY 2015-16: 8.33%); (b) CG-VAK Software & Exports Limited (FY 2013-14: 9.38%; FY 2014-15: 13.42% and FY 2015-16: 13.06%); (c) Larsen & Toubro Infotech Limited (FY 2013-14: 24.07%; FY 2014-15: 24.21% and FY 2015-16: 23.46%); (d) Nihilent Analytics Limited (FY 2013-14: 33.12%; and FY 2015-16: 15.82%); (e) Persistent Systems Limited (FY 2015-16: 26.85%); and (f) Thirdware Solutions Limited (FY 2013-14: 42.24%). Further, the Ld. TPO did not provide any basis for computation of the NCP mark-up. The Appellant has provided above the rectified NCP mark-up from the annual reports available in the public domain. [Grounds of appeal no. 4(u) - Grounds of appeal filed on 22 June 2021; and Ground of appeal no. 2 - First additional grounds of appeal filed on 6 October 2021] 10. The lower income tax authorities erred in including the following companies, even though they are not functionally comparable to t....
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.... principal international transaction and could not be considered as a separate international transaction; (c) Benchmarking the outstanding receivables against the 6 Month LIBOR plus 450 basis points i.e, at the effective rate of 4.985%; (d) Adopting the State Bank of India ('SBI') short term deposit rate for benchmarking the outstanding receivables. However, the Hon'ble DRP had directed to apply the SBI short term deposit interest rate prevailing w.e.f. 8 June 2015 and the Ld. TPO adopted the weighted average rate; (e) Computing notional interest on receivables collected in 1 day from the due date of receipt of outstanding receivables; (f) Without prejudice, should interest be levied on the delayed receivables, LIBOR should be applied as the interest rate to compute the transfer pricing adjustment. Further, the interest rate should be restricted only to the LIBOR rate without adding any further basis points; and (g) Without prejudice, no separate adjustment for interest on delayed receivable is required where the NCP mark-up of the international transaction is held to be at arm's length price. [Grounds of appeal no. 7 and 8 - Gr....
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..../02/2018 the documents were called with regard to documents maintained by the assessee in terms of sec.92D along with the financial statements. The same were furnished by the assessee vide letter dated 26/02/2019. The TP document contained 5 comparables in respect of software development services (SWD) which was selected by the tax payer and by applying certain filters and TNMM is applied as the most appropriate method. On 27/05/2019, a detailed show cause notice was issued to the assessee in respect of Software Development Services segment (SWS). The assessee submitted details on 27/06/2019 and information were also received as per sec. 133(6) of the Act from the companies proposed as comparables. On the determination of ALP, certain defects were observed by the TPO in the Transfer Pricing Report , thereafter, the TP study report was rejected and the final list of comparables considered by the TPO was also furnished to the taxpayer. 3. The TPO adopted following filters for selection of companies which are as under:- 1) Companies whose income was more than Rs.1 crore were excluded 2) Companies who have more than 25% related party transaction were excluded ....
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....urther observed that the tax payer was not able to decide its operation of proof and substantiate its claim with adjustment was interest on overdue receivable is not justified. He also failed to demonstrate that the selected comparables had similar overdue receivable and no separate adjustment is required for interest on overdue receivable. The TPO relied on the following judgments: 1) Cotton Naturals, Delhi HC 2) CIT Vs. Tata Autocomp Systems Ltd., (2015-TH-04-HCMUM- TP) 3) Advanta India Ltd. Vs. ACIT (2015-TH-294-ITAT-Bang- TP) 4.2 After considering the above judgments, the TPO observed as under:- "23.26 Further. the Hon'ble Delhi High Court in Cotton Naturals have held that the interest rate used would depend on the currency of the transaction. Therefore, following the Hon'ble High Court decision. interest rate is being computed as under: if receivables are to be paid to the taxpayer in Indian Rupees, interest shall be computed taking the SBI base rate as on 30th June of the previous year plus ISO basis points if the receivables do not exceed Rs,50 Cr, and 300 basis points if the receivables exceed Rs,50 Cr, This is as per ....
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....en the receivables are going to be realized. In view of this being uncertain, the taxpayer could also not have factored in the price of this risk, in the price of goods/services sold to the AE. By not paying the receivables, the AE has burdened the taxpayer with not only the cost of funds blocked, but also the extended uncertainty arising from foreign exchange fluctuation risk. In view of these facts, tim arm's length price must include a mark-up for the currency risk arising from fluctuations in the foreign exchange rate, borne by the taxpayer. Considering the aforementioned facts, a mark-up of 100 basis points is appropriate towards the additional currency risk arising from fluctuations in the foreign exchange rate, borne by the taxpayer. This mark-up must he added to the interest rate discussed in para (i) above. (iv) Considering these facts and judicial decisions oil subject, 6 month LIBOR plus 450 basis points is the most appropriate CUP. As discussed in para (iii) above, a mark-up of IOU basis points is appropriate towards the currency risk arising from fluctuations in the foreign exchange rate, borne by the taxpayer. The LIBOR plus 450 basis points rate discusse....
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....case vehemetnly . He also filed a chart for recomputation of interest on receivables and the lower authorities had not granted adjustment for capacity utilization, therefore, the same documents which were filed before the authorities below, he filed before us. 6.1. However during the course of hearing the ld.AR was asked to file written synopsis only on the basis of arguments which has been filed on 21/07/2022 bearing acknowledgment No.1386. The relevant part of written synopsis is as under:- I. GROUNDS OF APPEAL BEFORE THIS HON'BLE BENCH The detailed grounds in the appeal which were argued by the authorised representative of the Appellant before your Hon'ble Bench, are as follows: (i) Ground of appeal with respect to turnover filter The lower income tax authorities erred in including the following companies, even though they fail the higher threshold limit of INR 200 crores for turnover filter: a) Infosys Ltd.; b) Larsen & Toubro Infotech Ltd.; c) Persistent Systems Ltd.; d) Aspire Systems (India) Pvt. Ltd. (for Financial Year ('FY') 2015-16); e) Thirdware Solution Ltd.; f) Cybage Software....
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....loss making are excluded from comparables, then the super profit-making companies should also be excluded. For the purpose of classification of companies on the basis of net sales or turnover, we find that a reasonable classification has to be made. Dun & Bradstreet and NASSCOM have given different ranges. Taking the Indian scenario into consideration, we feel that the classification made by Dun & Bradstreet is more suitable and reasonable. In view of the same, we hold that the turnover filter is very important and the companies having turnover of Rs 1 crore to 200 crores have to be taken as a particular range and the assessee being in that range of Rs 32 crores, the companies which also have turnover of Rs 1 crore to 200 crores only should be taken into consideration for the purpose of making TP Study." • Autodesk India (P.) Ltd. vs DCIT, Circle 11(1) [IT(TP) Appeal Nos. 540, 541, 616, & 617 (BANG) of 2013, AY 2005-06 and AY 2008-09] "17.8....We have already held that the decision rendered in the case of Chriscapital Investment (supra) is obiter dicta and that the ratio decidendi laid down by the Hon'ble Bombay High Court in the case of Pentair (supra) wh....
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....ally comparable to the Appellant. [Grounds of appeal no. 4(j) - Grounds of appeal filed on 22 June 2021] The Appellant seeks exclusion of C G-V A K Software & Exports Ltd. ('C G-V A K') from the list of comparables as the same is functionally not comparable to the Appellant. The Appellant submits that C G-V A K is engaged in providing outsourced product development, which is dissimilar to the IT infrastructure support services provided by the Appellant. The Appellant would like to draw reference to Director's Report in the Annual Report, wherein it has been disclosed that the company focuses on the niche areas of outsourced product development space. The relevant extract from the annual report of relevant years are provided below, for your Hon'ble Bench's reference: In this regard, the Appellant places reliance on the principle laid down in the case of M/s. 3DPLM Software Solutions Ltd. Vs DCIT - [IT(TP)A No.1303/Bang/2012] - AY 2008-09 wherein it was held that Persistent Systems Ltd. is predominantly engaged in outsourced software product development and was accordingly excluded as a comparable. The relevant extract from the case law ha....
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....ations. Hence, the installed server units of the Appellant had remained significantly under-utilized in terms of the actual utilized capacity vis-à-vis the total installed capacity. Due to its initial year of operation, to offset the extra ordinary conditions, the Appellant humbly submits to resort to the capacity utilisation adjustment. The Appellant submits that the detailed working on capacity utilisation adjustment of the Appellant is filed before the lower income tax authorities during the assessment proceedings (Refer page 590 to 595, 1016 to 1020 and 1068 to 1073 of paper book) and is also captured in the briefing chart shared with the Hon'ble Bench during the course of hearing on 12 July 2022. The same is attached herewith this synopsis again. The Appellant further submits that the details with respect to capacity utilisation of the comparable companies are not available in the public domain. The Appellant further submits that while the Indian transfer pricing regulations refer to the adjustments on uncontrolled transactions, however the same has to be read with Rule 10B(3) of the Income-tax Rules, 1962 which clearly emphasizes the necessity of unde....
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....d by the Appellant and the comparable companies. (iv) Ground of appeal with respect to interest on delayed receivable The lower income tax authorities erred in considering outstanding receivables as international transactions without acknowledging that the outstanding receivables pertains to provision of services and are not in the nature of any loans/ advances. [Ground of appeal no. 7(a) - Grounds of appeal filed on 22 June 2021] The Appellant submits that during FY 2015-16, the Appellant undertook international transactions with its AE resulting in receivables for the same. The arm's length determination for the said consequential receivables is subsumed within the arm's length price determination of the principal international transaction itself. Also, the said outstanding receivables are a result of the international transaction undertaken by the Appellant with its AE and are not a separate international transaction as per provisions of Section 92B of the Income-tax Act, 1961 ('the Act'); and therefore, the same does not warrant determination of any separate arm's length price under Section 92C of the Act. In this regard, the Appella....
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....company would be much higher than that of a medium/large size organisation. The ld AR further submitted that medium/large size organisation operating in a particular industry also enjoys benefits of certain other market drivers and cost arbitrages. The ld AR drew our attention to the fact that the turnover of the assessee from rendering services is Rs. 62,24,84,118/- and therefore the TPO ought to have applied the upper turnover filter while selecting companies comparable to the assessee. The ld AR mainly relied on the decision of coordinate Bench of the Tribunal in the case of M/s Genisis Integrating Systems ( India) Pvt. Ltd. Vs DCIT in ITA NO. 1231/Bang/2010, Barracuda Networks India (P.) Ltd. v. Dy. CIT [2021] 131 taxmann.com 337 (Bang. - Trib.) and Autodesk India (P.) Ltd. v. Dy. CIT [2018] 96 taxmann.com 263 (Bang. - Trib.) in addition to several other decisions of the Hon'ble Tribunal. 7. On the other hand, the ld.DR relied on the order of the lower authorities and he submitted that as per Rule the FAR should be seen for considering suitable comparables, there is no any specific rule for fixing the upper limit of turnover for Rs. 200.00/- may not be considered as good....
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....overed in favour of the assessee. A similar issue has been decided by the co-ordinate bench of Tribunal in the case of . Enstage Software (P.) Ltd. v.Deputy Commissioner of Incometax (Exemptions) IT(TP) in Appeal No. 260 (BANG.) of 2021[Assessment Year 2016-17] , the relevant part is as under ;- "13. We heard the rival submissions and perused the materials on record. In so far as comparability of companies as per the list considered by the TPO is concerned, the admitted factual position is that the turnover of these companies (except R S software (India) Ltd) is more than Rs. 200 Crores and the Assessee's turnover is only Rs. 20,18,51,846/-. The TPO excluded from the list of comparable companies chosen by the Assessee in its TP study companies whose turnover was less than Rs. 1 Crore. The Assessee raised objections before the DRP that while the TPO excluded companies with low turnover, whereas he failed to apply the same yardstick to exclude companies with high turnover compared to the Assessee. The TPO excluded the companies with less than Rs. 1 crore turnover is that such companies do not reflect the industry trend as their low cost to sales ratio made their results ....
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.... be adopted. The following were the conclusions of the Tribunal in the case of Dell International (supra): '41. We have given a very careful consideration to the rival submissions. ITAT Bangalore Bench in the case of Genesis Integrating Systems (India) Pvt. Ltd. v. DCIT, ITA No. 1231/Bang/2010, relying on Dun and Bradstreet's analysis, held grouping of companies having turnover of Rs. 1 crore to Rs. 200 crores as comparable with each other was held to be proper. The following relevant observations were brought to our notice:- "9. Having heard both the parties and having considered the rival contentions and also the judicial precedents on the issue, we find that the TPO himself has rejected the companies which .ire (sic) making losses as comparables. This shows that there is a limit for the lower end for identifying the comparables. In such a situation, we are unable to understand as to why there should not be an upper limit also. What should be upper limit is another factor to be considered. We agree with the contention of the learned counsel for the assessee that the size matters in business. A big company would be in a position to bargain the pr....
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....(Question No. 1 to 3) which was framed by the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) Pvt. Ltd., (supra) was as to whether comparable can be rejected on the ground that they have exceptionally high profit margins or fluctuation profit margins, as compared to the Assessee in transfer pricing analysis. Therefore as rightly submitted by the learned counsel for the Assessee the observations of the Hon'ble High Court, in so far as it refers to turnover, were in the nature of obiter dictum. Judicial discipline requires that the Tribunal should follow the decision of a non-jurisdiction High Court, even though the said decision is of a non-jurisdictional High Court. We however find that the Hon'ble Bombay High Court in the case of CIT v. Pentair Water India Pvt. Ltd. Tax Appeal No. 18 of 2015 judgment dated 16-9-2015 has taken the view that turnover is a relevant criterion for choosing companies as comparable companies in determination of ALP in transfer pricing cases. There is no decision of the jurisdictional High Court on this issue. In the circumstances, following the principle that where two views are available on an issue, the view....
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....iding on comparability of companies in determination of ALP under the Transfer Pricing regulations under the Act. For the reasons given above, we uphold the order of the CIT(A) on the issue of application of turnover filter and his action in excluding companies by following the ratio laid down in the case of Genisys Integrating (supra). 14. In view of the aforesaid decision, we hold that companies listed in Sl. No.(a) to (g) of Grd.No.4 raised by the Assessee whose turnover in the current year is more than Rs. 200 Crores should be excluded from the list of comparable companies.' 8.3 Respectfully following the decision of the coordinate bench of the Tribunal in the case of Barracuda Networks India Private Limited (supra) we hold that the companies whose turnover in the current year is more than Rs. 200 crores needs to be excluded for the purpose of comparable companies. 9. The assessee is seeking exclusion of R S software (India) Ltd vide Ground No. 4.12.1. In this regard the ld AR submitted that the company, during the financial years 2013-14 and 2014-15 had realised turnover of Rs. 351.88 crores and 345.51 crores, and profit margin of 24.14% and 32.75%, respecti....
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....eighted average profit margin of this company, the earlier two years profit margins have to be ignored because they fail the test of comparability in those two earlier years by reason of the application of the Rs. 200 Crore turnover filter. 16. To answer the above question, we need to look at the amendment to the rules that allow for introduction of a "range concept" for determination of ALP and "use of multiple year data" for undertaking comparability analysis in transfer pricing cases. The provisions of the Income-tax Act were amended through the Finance (No.2) Act, 2014 to facilitate alignment of Indian transfer regime with international best practices. The manner of computation of ALP is laid down under the Incometax Rules. The Government has notified the amended Rules for determining ALP vide S.O. No. 2860 (E) dated 19/10/2015. The amended regime will be applicable for computation of ALP of international transactions and specified domestic transactions undertaken on or after 1/04/2014 i.e. on and after PY 2014-15. The amended rules allow for introduction of a "range concept" for determination of ALP and "use of multiple year data" for undertaking comparability analysi....
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....ar undertaken the same or similar comparable uncontrolled transaction then,- (i) the most appropriate method used to determine the price of the comparable uncontrolled transaction or transactions undertaken in the aforesaid period and the price in respect of such uncontrolled transactions shall be determined; and (ii) the weighted average of the prices, computed in accordance with the manner provided in sub-rule (3), of the comparable uncontrolled transactions undertaken in the current year and in the aforesaid period preceding it shall be included in the dataset instead of the price referred to in sub-rule (1): Provided further that in a case referred to in clause (ii) of subrule (5) of rule 10B, where the comparable uncontrolled transaction has been identified on the basis of the data relating to the financial year immediately preceding the current year and the enterprise undertaking the said uncontrolled transaction, [not being the enterprise undertaking the international transaction or the specified domestic transaction referred to in sub-rule (1)], has in the financial year immediately preceding the said financial year undertaken the same or similar ....
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....sing the method referred to in clause (e) of sub-rule (1) of rule 10B, the weighted average of the prices shall be computed with weights being assigned to the quantum of costs incurred or sales effected or assets employed or to be employed, or as the case may be, any other base which has been considered for arriving at the respective prices ** ** ** 17. Let us apply the above rules to the comparable company R.S. Software (India) Ltd. As per rule 10CA(2), the dataset of comparable companies chosen has to be arranged in ascending order. As per the 1st proviso to rule 10CA(2), R.S. Software (India) Ltd., was chosen as a comparable company based on the data relating to the current year and in the earlier two financial years immediately preceding the current financial year. In all the financial years the said company has undertaken similar comparable uncontrolled transaction. Clause (i) to 1st proviso to sec. 10CA(2) mandates that the same MAM has to be used to arrive at the price of the comparable uncontrolled transaction undertaken by R.S. Software (India) Ltd., in the financial years 2013-14 and 2014-15. As per clause (ii) of 1st proviso to sec.10CA(2), weighted average o....
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....us year and if this condition is satisfied then the profit margin of R.S.Software for the 2 financial years immediately prior to the current financial year has to be taken. A plain reading of the 1st proviso would show that the question of comparability is not to be seen while applying the 1st and 2nd proviso to rule 10CA(2) of the Rules. The provisions of rule 10CA(2) have to be read harmoniously with the other provisions of rule 10B Determination of arm's length price under section 92C . 10B. (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction [or a specified domestic transaction] shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely :- (a) to (d)** ** ** (e) transactional net margin method, by which,- (i) the net profit margin realised by the enterprise from an international transaction [or a specified domestic transaction] entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having reg....
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....he transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences. (4) The data to be used in analysing the comparability of an uncontrolled transaction with an international transaction [or a specified domestic transaction] shall be the data relating to the financial year [(hereafter in this rule and in rule 10CA referred to as the 'current year')] in which the international transaction [or the specified domestic transaction] has been entered into : Provided that data relating to a period not being more than two years prior to [the current year] may also be considered if such data reveals facts which could have an influence on the determination of transfer prices in relation to the transactions being compared: A reading of rule 10B(3) shows that comparison of an uncontrolled transaction to an international transaction can be done only if differences, if any, between the trans....
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....ftware Services Ltd., and Sasken Technologies Ltd., In the TP study report the assessee had chosen for the comparables to Akshay Software Technologies Ltd., but by the TPO after verifying the annual report, it was observed that the companies providing professional services, procurement, installation, implementation, support and maintenance of ERP products and services in India and overseas thus the functional profile of the company is different from the assessee hence, it was rejected. The ld.AR submitted that it passes all the filters applied by the TPO, therefore, it should be taken as a comparable, whereas the DRP has also not accepted and he also refer to page no,995 to 999 of the paper book and he relied on the decision of coordinate bench of this Tribunal in the case of of ARM Embeded Technologies Pvt. Ltd., in IT(TA)A No.1824/Bang/2017 for assessment year 2013-14 and in IT(TA)A No.3374/Bang/2018 for assessment year 2014-15. Further in respect of remaining two companies 8A Miles Software Services Ltd., and Sasken Technologies Ltd., he submitted that this issue has been decided by the ld.DRP at para No.30 and 31 of his order in which he has rejected the additional comparables ....
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....ng professional services and procurement, implementation and support of ERP products and services in India and Dubai. It is seen from its P&L account, that it has reported revenue from operations of Rs 2484 lakhs which comprised revenue from services of Rs 2399 lakhs and sales of software licence of Rs 85 lakhs As per Note 26 of annual report the revenue from export of software service was Rs2082 lakhs and as per Note 25. the foreign branch expenditure was Rs.2036 lakhs. As per information in the notes forming financial information of the annual report revenue mainly represent income front professional services from Dubai. 32.3 In this regard, it is relevant to note that ERP is a multilayered software that integrates all the different functions within an organization. The ERP implementation requires professionals who have expertise in - 1) Functional domain (i.e. domain knowledge of the business, its operations & management). 2) Software domain (i.e. technology expertise in software development) 32.4 Thus, ERP implementation & support involves personnel from professional domain and technology or software domain Therefore, such services cannot be ....
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....n and the TPO will deicide the issue as per law. 10.5 This ground of the appeal of the assessee is allowed for statistical purposes. 11. The ld.AR sought to exclusion of CG Vak Software and Exports Ltd., by holding that the company is not functionally comparable and it is engaged in diversified activities and engaged in providing outsourced product development which is dissimilar to the IT infrastructure support services as engaged by the assessee and significant research and development activities has also been carried out by this company. He also relied on the Director's report as quoted supra in his return synopsis. The markup is also wrongly calculated by te lower authorities. HE also objected that the ld.TPO has not provided the basis for preparation of markup and he relied on the decisions of ITAT Benches in the cae of M/s Aptean India Pvt. Ltd., in IT(TP)A No.2638/Bang/2017 for assessment year 2013-14, ARM Embeded Technologies Pvt. Ltd., in IT(TP)A No.1824/Bang/2017 and M/s Hewlett Packard India Software Operations Pvt. Ltd., in IT(TP)A No.2866/Bang/2017. In this regard he also reiterated the submissions made before the lower authorites as well as on the written synops....
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....as reported as under:- The company's main business is providing of software services. There are no separate reportable segments as per Accounting Standard 17. Secondary segmental reporting is based on geographical location of customer and assets. 11.5 Further as per revenue recognition reported by the auditor at page no.1358 & 1456 for the financial year 31.03.2015 & 31.03.2016 is as under:- "Revenue from contract period on time are recognized when services are rendered and related costs are incurred" 11.6 Further we observe that as per page no.1365 & 1462 note no.4.02 which is a note annexed to forming part of accounts, which is as under:- "Quantitative details are not furnished as the company is engaged in the development of computer software, providing services in IT and ITES." 11.7 From the financial data it has also been observed that the CG Vak is incurring employee cost expenses which is 69.85%, 66.62% and 68.53% for three financial year - 31-03-2014, 31-03-2015 and 31-03- 2016 respectively. It clearly shows that the company is not incurring expenses on outsource product services. After considering the entire arguments from both the sides,....
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....te that there is no information in the annual report to suggest that the fluctuation arose out of abnormal events. The assessee also could opt point to any such abnormal event in the annual report. Further, the fluctuations gets evened out as weighted average margin of all tile comparables for 3 years and the median of all the weighted average margins is reckoned for ALP determination. Thus, we note that fluctuation in profit margins s such cannot be a valid reason for rejecting a comparable when measures to ensure averaging out of fluctuations are already in-built in the overall process. 16.4 It satisfies all the filters applied by the TPO. Accordingly, we confirm the inclusion of this comparable. 11.7.1 We also from the TP study report in regard to the arguments of the ld.AR that the CG Vak is incurring significant R&D expenditures and having sufficient intangibles is rejected because the assessee company is a subsidiary of IBM and the IBM is worldwide organization and the business of the IBM is spread in more than 175 countries and the significant R&D expenditures are incurred by the IBM. The extract from the TP study report which is at paper book page no.94 is as un....
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....sessee has not described why the payments has been made for import of services. As it is clear from the above paragraphs extracted from the TP study report that the R&D activities are taken by the IBM and 6% of the total revenue is spent and the intangibles created are lying with the IBM which are used by the AEs, therefore, objections raised by the ld.AR is not tanable. 11.8 The assessee submitted that there is error in the margin computation of this company. The TPO has calculated OP/OC is as under Year 31.03.2015 31.03.2016 31.03.2017 AVERAGE 13.81% 19.87% 20.16% 18.05% As per Assessee 9.38% 13.42% 13.06% 11.9 We consider it appropriate to direct the TPO to verify and adopt the figures as per the annual report of these companies and accordingly their PLI margin shall be recomputed. We, therefore, remand to TPO/AO, the question whether CG Vak is a comparable company functionally and also compute correct margin in the light of the above observations. Accordingly this ground is allowed for statistical purpose. 12. The assessee has raised the issue in regard to interest on delayed receivables in ground No.15 & 16. C....
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....quested that the matter may be sent back to the file of AO/TPO for the fresh consideration. As per Ld.DRP, the assessee had not included this issue in his T.P.Study report. We observe from the records that the assessee filed details for capacity utilization before the TPO on 22/10/2019 and the same were also filed before the DRP as annexure 35 in which it has contested that the total number of servers were available of 1232out of which 303 were utilized and 68% of the capacity was not utilized by the assessee, The ld.AR of the assessee also relied on the decision of the Tribunal in the case of M/s Atmecs Technologies Pvt. Ltd. VS. ITO in IT(TP)A No.187/Bang/2021 for the assessment ear 2016-17. therefore he is eligible for under utilization capacity and submitted details and relying on some case law. We observe from the order of the DRP that he claimed first time before the ld. DRP. Since this is the first year of operation and if the assessee has underutilized his capacity and if he satisfied the provisions of the income tax act on this issue then the assessee is eligible for capacity utilization. On perusal of the documents/Financial Statements/ Copy of Income Tax Return filed bef....
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....Pvt. Ltd. 7.64 32.95 45.36 20.47 5 Tata Elxsi Ltd. 26.69 20.55 13.16 20.60 9 RS Software (India) Ltd. -1.96 32.66 24.14 20.87 7 Larsen & Toubro Infotech Ltd. 21.12 24.24 23.07 22.69 8 Nihilent Ltd. 15.94 29.19 33.12 25.64 9 Cigniti Technologies Ltd. 27.27 4.99 27.59 27.34 10 Persistent Systems Ltd. 23.95 30.40 35.10 29.25 11 Infobeans Technologies Ltd. 35.19 20.92 42.60 32.71 12 Aspire Systems (India) Pvt. Ltd. 33.63 30.45 37.21 33.55 13 Infosys Ltd. 38.62 41.38 36.16 38.74 14 Thirdware Solution Ltd. 30.18 42.46 48.17 39.86 15 Cybage Software Pvt. Ltd. 62.06 68.30 68.97 66.03 35th Percentile Median 65th Percentile 20.87 25.64 33.55 Document 3 Financial Year wise OP/OC (%) S.No Company Name 2015- 2014- 16 15 Weighted 2013-14 Average Kals Information Systems Pvt. 3.97% 5.77% 16.94% 8.60% Ltd. 2 Rheal Software Pvt. Ltd. 3.20% 2.76% 36.64% 14.50% CG-V A K Software & Exports 19.60 19.87 3 13.81% 18.....