TaxTMI 
TaxTMI 
2023 (1) TMI 1200
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....16/- to the Software Development ('SWD') services segment and an adjustment of Rs. 6,63,44,460/- to the Information Technology enabled Services ('ITeS') segment] 2. The learned AO has made an error in mentioning adjustment on account of IT enabled services as interest on delayed receivables. 3. The learned AO/ learned TPO/ Hon'ble DRP erred on facts and law in rejecting the TP documentation maintained by the Appellant by invoking provisions of subsection (3) of 92C of the Act. 4. The learned AO/ learned TPO/ Hon'ble DRP erred on facts and law in rejecting comparability analysis carried in the TP documentation and in conducting a fresh comparability analysis by introducing various filters while determining the Arm's Length Price ('ALP'). 5. The learned AO/ learned TPO/ Hon'ble DRP erred on facts and law in not considering the financial data of the preceding two years in case of the comparable companies wherein the data for the current year is unavailable, while determining the ALP. 6. The learned AO/ learned TPO/ Hon'ble DRP erred in arbitrarily rejecting companies merely on the ground that they....
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.... • Ace Software Exports Limited ITeS Segment • Informed Technologies India Limited • Ace BPO Services Private Limited • Jindal Intellicom Limited • Crystal Voxx Limited • Microgenetic Systems Limited • R Systems International Limited 1\11 14. The learned AO/ learned TPO erred in not considering provision of bad and doubtful debts and operating in nature. 15. The learned AO/ learned TPO erred in computing the operating margins of the following comparable companies: SWD comparable companies • CG VAK Software and Exports Limited; • Kals Information Systems Limited; • Larsen & Toubro Infotech Limited; • Aspire Systems (India) Private Limited; and • Cybage Software Private Limited • Orion India Systems Private Limited 16. The learned AO/ learned TPO/ Hon'ble DRP has erred in not allowing appropriate adjustments towards working capital. 17. The learned AO/ learned TPO/ Hon'ble DRP erred in not allowing appropriate adjustment towards the risk difference between ....
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....led, the Ld.TPO observed that following the international transaction entered into by assessee. 2.4 The Ld.TPO observed that the following were the segmental break-up of incremental revenue and corresponding cost: 2.5 The Ld.TPO observed that, the assessee reported international transactions in respect of Software Development Service (SWD), IT Enabled Services (ITeS). The arm's length price of the international transactions in SWD/ITeS segments provided to the associated enterprises (AE) has been determined by applying Transactional Net Margin Method (TNMM), stating to be the most appropriate method in the facts and circumstances of the case. The operating profit to operating cost ratio has been taken as the profit level indicator (PLI) in TNMM analysis. 2.6 Assessee used following comparables under both segments that had an average margin of 11.55% and 6.64% for SWD & ITES segment as under: SWD S.no. Company Name 2013-14 2014-15 2015-16 Weighted Average 1. I2T2 India Limited 3.82% 5.52% -36.60% -0.09% 2. Minvesta Infotech Limited 2.33% 3.25% 6.78% 4.04% 3. Sasken Communication Technologies ....
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.... the draft assessment order on 27/11/2019 by proposing to make an addition of Rs.18,16,94,876/- in respect of the international transactions. The assessee filed objections before the DRP against the draft assessment order. The DRP vide directions issued dated 11/02/2021 upheld the proposed comparables by the Ld.TPO. On receipt of the directions, the Ld.AO passed the impugned order on 29/03/2021 making addition of Rs.18,16,94,876/- in the hands of the assessee. Against the final assessment order passed by the Ld.AO, the assessee is in appeal before this Tribunal. 2.10 It is submitted by the Ld.AR that the assessee wishes to press only following grounds wherein it seeks exclusion/inclusion of following comparables under SWD & ITes Segment. Ground No. 12 - The assessee seeks exclusion of following comparables SWD Segment 1. Larsen & Toubro Infotech Ltd. 2. Persistent Systems Ltd. 3. Infosys Ltd 4. Aspire Systems (India) Pvt. Ltd 5. Cybage Software Pvt. Ltd. 6. Nihilent Ltd 7. Thirdware Solution Ltd. 8. Exilant Technologies Pvt.Ltd. 9. Infobeans Technologies Ltd IT Segment 1. Infosys B....
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....oftware development activity at HP PPS Services is partly done in-house and partly outsourced depending on the complexity of the activities involved in each project. In case, some activity is found to be repetitive or routine (maintenance and testing) then such work is outsourced to third party vendors. The decision to outsource software development/ maintenance activity to third parties is primarily taken by HP US. The role of HP PPS services involvement in the work outsourced to third party would depend on the contract terms. Employees are hired from IT services industries and typically at senior level because the software development requires domain expertise. ITES HP PPS Services provides IT enabled services to its AEs through its Customer Delivery Centre in Bangalore. The services rendered are in the nature of voice, e-mail/ chat based support services. The services are presently rendered through LO, LI., Social Media (SoME), Process Engineering (PE), 2LS, Support Engineering Centres (SEC) and Remote Management Centres (RMCs), End to End Delivery 7 Transformation (E2E), HP Back Office Management (HBOM), Global customer experience (GCE) and Global Support Engineering (GSE....
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....to AEs at cost plus mark-up. AEs bear service liability risk as they enter into contracts with customers and are responsible for any liability arising from defective services as a result of the software development undertaken by HP PPS Services. Market risk HP PPS Services does not bear the market risk directly because it only acts as a captive service provider, providing software development services to its AEs. Since the AEs of HP PPS Services directly liaise with the customers, such risk is borne by AEs. Foreign exchange risk As HP PPS Services invoices its AEs in foreign currency, any adverse movement in the exchange rate would directly impact the profitability of HP PPS Services. Accordingly, HP PPS Services bears foreign exchange which is mitigated as the same is included in the cost base of HP PPS Services. Credit risk HP PPS Services invoices its AEs for the provision of software development services on a regular basis and realizes the same in line with industry standards. The risk of nonpayment by AEs is mitigated for HP PPS Services since they are related enterprises. In respect to the software development services rendered by HP PPS Services, the AEs do....
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....ed that this company is engaged in providing custom developed services to offshore clients. It was submitted that Infobeans is engaged in providing software engineering services primarily in Custom application development ('CAD'), Content Management Systems ('CMS'), Enterprise Mobility ('EM'), Big data analytics ('BDA'), and has incurred expenses towards the software licenses and subscription fees worth INR 46.44 lakhs. The Ld.AR referred to Pg 47 of the paper book in support. 5. The Ld.AR also submitted that the segmental information is not available for the company and the company is into diversified activities such as providing business IT services (comprising application development and maintenance, Big Data, UX & UI, Automation engineering services, including product engineering and lifecycle solutions, and business process management); in the Verticals of Storage & Virtualization, Media & Publishing, HR & Payroll and e commerce The Ld.AR referred to page 854 of the paper book in support of the submission. The Ld.DR on the contrary relied on orders passed by the authorities below and decision of Coordinate Bench of this Tribunal in case of BORQS Software Solutions Pvt. L....
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....are Solutions and Infosys Ltd. by observing as under: "3.2 This Tribunal in LSI India research development (P.) Ltd. v. DCIT (supra) observed in respect of persistent systems, L & T Infotech, Thirdware Solutions, Infosys Ltd. as under: 16. As far as the challenge by the assessee on exclusion of aforesaid 5 companies in ground No. 2(f), the ld. counsel for the assessee has brought to our notice a decision of Bangalore Bench of ITAT for the very same Assessment Year 2014-15 in the case of LG Soft India (P.) Ltd. v. DCIT [IT(TP) Appeal No. 3122 (Bang.) of 2018, dated 28-5-2019]. In this order rendered in a case of assessee rendering SWD services such as the assessee, the Tribunal excluded 3 out of 5 companies referred to in the earlier paragraph and remanded 1 company for fresh consideration with the following observations:- "5. The Ld A.R submitted that M/s Infosys Ltd, M/s Persistent Systems Ltd and M/s Thirdware Solutions Ltd have been excluded by the co-ordinate bench in the assessee's own case in AY 2008-09 in IT(TP)A No. 1673/Bang/2012. 6. We notice that the co-ordinate bench has excluded M/s Infosys Ltd in AY 2008-09 by following the deci....
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....y because there were extraordinary events that occurred in the relevant previous year and that it possessed brand and intangibles and there was no segmental information of sub-contracting expenses". 3.3 There is nothing on record brought by the Ld.CIT.DR in order to establish that these are comparable with assessee that is a captive service provider which functions at the strict supervision and instructions by the AE's. Further we note that turnover criteria has to be applied with an upper limit which is not been considered by the Ld. TPO. The TPO has applied less than 1 crore turnover limit to eliminate the comparables however it failed to apply upper limit considering the functions performed assets owned and risk assumed by assessee under this segment for the year under consideration." 17.8 Before us, the Ld.AR has not been able to place anything on record contrary to the above observation. We therefore respectfully following the above view, direct the Ld.AO/TPO to exclude Persistent Systems Ltd., L& T Infotech Ltd., Thirdware Solutions and Infosys Ltd. from the final list. 17.9 In respect of Nihilent Ltd., Infobeans Technologies Ltd. and Aspire Systems....
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....e, blockchain, business intelligence, data signs, cloud services etc. The annual financials of this company available at page A412 & A413 of the paper book shows that it is rendering Enterprise transformation and change management, Digital transformation services and Enterprise IT services but segmental financials are not available as is apparent from its financials available at page A305, A412 & A413 of the paper book. When this company is into various segments but segmental financials are not available it cannot be a valid comparable vis-à-vis assessee which is a routine software development service provider working on cost + markup model, hence ordered to be excluded." "Infobeans Technologies Ltd. (Infobeans) 49. The assessee sought exclusion of Infobeans on the ground that it is also functionally dissimilar being into providing business IT services (CAD) (application development and maintenance, Big Data, UX and UI, Automation engineering services, including product engineering and lifestyle solutions and business process management) in verticals of storage and virtualization, media and publishing, HR and Payroll and e-commerce. It is also providing sof....
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....this company is not a good comparable for following reasons: (i) Significant Intangible assets: During the FYs 2013-2015 to 2015-2016, the company owned intangible assets representing around 7% of the total fixed assets held by the company. (ii) Export of goods: The annual report of the company at Note 33 under the head earnings in foreign currency shows export of goods calculated on F.O.B. basis. In the absence of segmental details, the company cannot be selected as a comparable. (iii) Expenses in foreign currency: It also incurred significant expenditure in foreign currency, in the nature of onsite activities representing around 1.5% of the total sales. (iv) Abnormal increase in revenue and fluctuation in margin: The revenue increased from Rs.35 crore (F.Y.2014- 2015) to Rs.62 crore (FY 2015-2016) in a period of 1 year (76%). Also, the company's profitability increased by 147%. Also, the company's margin fluctuates widely (34.98% - F.Y.2015-016, 20.78% - F.Y. 2014-2015, 41.95% - F.Y.2013-2014) which demonstrates that there exists some factor having an impact on the margin, and therefore the company ca....
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.... AY 2014-15)- at para (iii) on page 15 (on account of functional dissimilarity as it has earning from export of goods and has deposited MODVAT and sales tax). (viii) Avaya India Pvt. Ltd. v. ACIT (Order dated 24.09.2019 passed by the Delhi Bench of this Hon'ble Tribunal in ITA No. 7290/0el/2018 for the A Y 2014-15)- at para 7.4 (on account of functional dissimilarity as the company has earnings from export of goods). (ix) Pubmatic India Pvt. Ltd. v. ACIT (Order dated 09.03.2018 passed by the Pune Bench of this Hon'ble Tribunal in ITA No. 655/Pun/2017 for the AY2012-13)- at para 18 (on account of functional dissimilarity as the company has earnings from export of goods). 10. In the case law relied on by the Ld.DR, namely, BORQS Software Solutions Private Limited v. ACIT (supra), this Tribunal merely affirmed the findings of the DRP, which in turn relied on the reply filed by the company in response to notice u/s 133(6) of the I.T.Act. Further, this Tribunal held the finding of DRP has not been countered by the assessee in the said case. However, the company's response to the notice u/s 133(6) of the I.T.Act is contrary to the functions set out in the....
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....TES segment for failing in TO criteria as well as functionality tests. Accordingly Ground 12 raised by the assessee stands partly allowed as above. 13. Ground no.13: The assessee seeks exclusions of following Comparables: SED Segment: 1. Sagarsoft (India) Ltd. 2. Evoke Technologies Ltd. 3. Isummation Technologies Pvt.Ltd. 4. Batchmaster Software Pvt.Ltd. 5. DCIS DOT COM Solutions Pvt.Ltd. 6. Ace Software Exports Ltd. ITeS Segment 1. Informed Technologies India Ltd. 2. Ace BPO Services Pvt.Ltd. 3. Crystal Voxx All comparable companies sought for inclusion by the assessee in SWD and ITES segment are remanded to the Ld.AO/TPO for reconsideration based on the details filed by the assessee. The Ld.AO is directed to verify the same in accordance with Law, by granting proper opportunity of being heard to the assessee. Accordingly Ground 13 raised by the assessee stands allowed for statistical purposes. 14. The Ld.AR also prayed for a direction to the Ld.AO/TPO to adopt correct margin in respect of the comparables that would be finally retained. We direct the Ld.AO/TPO to compute the ma....
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....TAX DEP currency transaction (net) Less: Provisions no longer required written -31,99,646 -23.32,387 ì´ -55.32,033 back -10,58,022 -7.71,247 -2.07,301 -20.36,570 Operating Expenses 1,10,62,22,964 80,63,83,194 21,73,72,072 2,12,99,78,228 Other non-operating expenses Interest on incorporate loan Interest expenses Total expenses as per P&L Operating Profit Operating Margin 8,91.65,493 1,37,00,000 OPS S 1,10,62,22,964 80,63,83,194 21,73,72,070 2,23,28,43,721 16,82,85,151 12,26,71,761 15.21% 3,23,45,635 24,78,56,000 15.21% Document 3 SWD S.No. Company Name Financial Year wise OPIOC (%) 2015-16 2014-15 2013-14 Weighted Average 1 Synfosys Business Solution Ltd. 0.52% -1.42% 6.74% 1.74% 2 Kals Information Systems Pvt. 3.97% 5.77% 16.94% 8.60% Ltd. 3 Rheal Software Pvt. Ltd. 4 Sybrant Technologies Private Limited 3.20% 2.76% 36.64% 14.50% 16.10% 13.88% 15.26% 14.74% Harbinger Systems Pvt. Limited 12.69% 17.18% No Data in Public Duma 15.06% 6 CG-VAK Software & Exports Ltd. 19.60% 19.87% 13.81% 18.50%....