TaxTMI 
TaxTMI 
2023 (1) TMI 1201
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....),144C(13),143(3A) & 143(3B) of the Income-tax Act, 1961 ('the Act') dated 6 April 2021 pursuant to the directions issued by Hon'ble Dispute Resolution Panel - 3 ('Hon'ble DRP'), Mumbai, under section 144C(5) of the Act dated 19 February 2021, on the following grounds, which are independent of and without prejudice to each other: Grounds of appeal pertaining to transfer pricing adjustment: 1. Inappropriate transfer pricing adjustment of INR 8,25,09,762 even though the pricing of all international transactions of the Appellant was at arm's length Erred on the facts and in circumstances of the case and in law by making/ confirming transfer pricing adjustment by rejecting the analysis undertaken by the Appellant to determine arm's length price of its international transactions pertaining to rendering of software development support, consultancy and training services to the AEs. 2. Inappropriate rejection of the transfer pricing documentation appropriately maintained by the Appellant Erred on the facts and in circumstances of the case and in law by inappropriately rejecting the transfer pricing documentation appropriately maintained by the A....
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....le companies Erred on the facts and in circumstances of the case and in law by inappropriately applying a filter wherein companies with foreign exchange spending is more than 75 % of its operating costs are rejected while identifying comparable companies. 9. Inappropriately rejecting adjustment to account for differences in the risk profile of the Appellant vis-a-vis the comparable companies Erred on the facts and in circumstances of the case and in law by comparing full-fledged risk bearingentities with the Appellant's captive operations without making any risk adjustment for differencesbetween the risk profile of comparable companies vis-avis the risk profile of the Appellant. Other Grounds of appeal: 10. Deduction in respect of education cess Erred on the facts and circumstances of the case and in law in not considering the additional claim of deduction of the liability for education cess on income-tax paid for the year while computing the total income. 11. Inappropriate levy of interest and initiation of penalty proceedings Erred in levying interest under Section 234A, 234B, 243C and 243D of the Act and ini....
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.... 9.27% 5 InfoMile Technologies Limited 10.87% 6 CG-VAK Software & Exports Limited 12.35% 7 Mudunuru Limited 13.18% Data place Range 3 35th percentile 1.52% 5 65th percentile 10.87% 2.3 In the Transfer Pricing Study Report (TPSR) the assessee concluded that the Operating Profit margin on Operating Cost (OP/OC) of the assessee was 10.96% which was higher than the comparables hence the International transactions were at Arm's Length. 2.4 The TPO carried out fresh search for comparables. The TPO arrived at the following Comparables after giving opportunity to the assessee: Company Name WCA_OP/OC Comb Sagarsoft (India) Ltd. 14.24 -0.37% Evoke Technologies Pvt. Ltd., 75.83 3.00% Sasken Technologies Ltd-Seg 400.09 4.25% E-Zest Solutions Ltd. 56.62 6.03% Great Software Laboratory Pvt. Ltd. 86.99 9.97% Ingenuity Gaming Pvt. Ltd. 20.17 10.54% Exilant Technologies Pvt. Ltd. 375.95 14.13% Puresoftware Pvt. Ltd. 26.51 15.98% Bhilwara Infotechnology Ltd- Seg 29.69 19.05% Harbinger Systems Pvt. Ltd. 72.29 19.36% R S Softwar....
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....eria to reject the companies would not be objective and appropriate. • Hence, this company should be included in set of comparables. Maveric Systems Limited ('Maveric') The Appellant would like to mention that Maveric should be included as comparable on the following account: • The company earns revenue from software testing services which is a part of software development lifecycle (refer page no 432 & 434 of paperbookI) • Onsite Development is a part of software development activity. (refer page 340 of paperbook I) • As per website of Maveric, It offers Product Implementation, Integration and Quality Engineering services across Digital platforms, Banking Solutions and Regulatory systems which forms part of the software development life cycle, (refer page 343 and 344 of paperbook I) • The Assessee also undertakes testing activity as a part of software development process. The same is evident from the functions given in the TP Study, (refer page 75 of paperbook I) Ground No.4: Modified ground of appeal filed on 9 May 2022 Inappropriate considering additional companies as comparable Exilant Technologies ....
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.... Services Private Limited w.e.f 1 April 2015. Further the financials statements have been prepared by taking in to consideration the effect of the amalgamation (refer page 494 and 495 of paperbook I) • Aspire is an outsourced technology services company focused on helping software companies create innovative products through its onsite and offshore model (refer page 652 of paperbook I) • The business model of this company is different from the appellant company as it provides on-site software services. Accordingly, the companies having different business model cannot be called as comparable to the Appellant. The learned TPO/ Hon'ble DRP proposed to reject Maveric since its into onsite activity and hence the same principle should be applied for rejection of said company. Case laws relied upon: • M/s Veritas Software Technologies India Private Limited (ITA No 207/Pun/2021) order dated 31 December 2021 for AY 2016-17 (Refer para 14 of the order on page nos 1619 to 1622 of paperbook III); • M/s Red Hat India Private Limited (ITA No 1379/Mum/2021) order dated 25 February 2022 for AY 2016-17 (Refer para 40 of the order on page no....
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....mpanies. Case laws relied upon: • Assessee's own case (ITA No 632/PUN/2017) order dated 10 May 2021 for AY 2012-13 (Refer para 25 and 26 of the order on page nos 1759 to 1761 of paperbook III); • Assessee's own case (ITA No 2315/PUN/2017) order dated 8 December 2021 for AY 2013-14 (Refer para 10 of the order on page nos 1774 to 1775 of paperbook III); • M/s Red Hat India Private Limited (ITA No 1379/Mum/2021) order dated 25 February 2022 for AY 2016-17 (Refer para 49 and 50 of the order on page nos 1669 to 1670 of paperbook III); and • ADP Pvt Ltd (ITA No. 227 & 228/HYD/2021) order dated 3 February 2022 for AY 2016-17 (Refer para 7 of the order on page nos 1800 to 1802 of paperbook III. E-Infochips Limited ('E-Infochips') The Appellant would like to mention that E-Infochips should be rejected as comparable on account of the following reasons:- • The website extracts of E-Infochips shows that it is engaged in sale of product, product engineering and semi conductor design services. It has significant competencies in Hardware design, Coud, Data Analytics, and Design verification, (refer page no 302....
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....renders services to its parent company as well to its affiliate companies. • Dun & Bradstreet website extracts shows that the companyprovides various services which include risk management solutions, sales and marketing solutions, corporate datanbases, etc. (refer page 379 of paperbook I) • Further, the company's margin is abnormally high i.e. 63.31%. • In view of the above Dun &Bradsteet cannot be held as comparable with the Assessee who is a routine software development service provider. Case laws relied upon: • M/s Veritas Software Technologies India Private Limited (ITA No 207/Pun/2021) order dated 31 December 2021 for AY 2016- 17 (Refer para 17 of the order on page nos 1625 to 1626 of paperbook III); and • M/s Red Hat India Private Limited (ITA No 1379/Mum/2021) order dated 25 February 2022 for AY 2016-17 (Refer para 48 of the order on page no 1669 of paperbook III) 4. Submission of Ld.DR: The Ld.DR relied on the orders of the Lower authorities. We have discussed the submission of the Ld.DR at the discussions of comparables. 5. Findings : We have considered the submission of both the parties an....
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....relation to the Software products on which they were involved. Software development support services (product development) Conceptualization and design of the product The AEs which outsource software development support services are primarily responsible for the conceptualization and design of the product. Normally, the AEs provide the basic design software product to be developed. SAS R&D, in discussion with the AEs, confirms its understanding of the design, on the basis of which the development work is carried out. In case of manufacturing and certain other solutions, SAS R&D, under the guidance, review and sign off from AE, undertakes the design and other services in the entire software development life cycle Also, the employees engaged in upgrading/ enhancing and maintaining/ supporting the products /solutions suggest new and innovative ways of improving the products/ solutions of SAS, if any, based on their experience in the development process. SAS R&D undertakes the software coding according to the functional specifications provided by the AEs. SAS R&D receives technical assistance, if required, from the overseas AEs during the co....
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....nue earned is as under (page 440 of PB) : Segment Reporting for India Region FY 2015-16 APAC 31,06,12,246/- Europe 14,13,04,995/- India 5,81,91,362/- Middle east 62,16,49,163/- UK 3,35,51,210/- USA 1,74,41,228/- Total 1,18,27,50,204/- 6.5 This, as submitted by the Ld.CIT(DR) that the 90% revenue of the Maveric Systems Ltd is from Off-Shore onsite services, whereas the Assessee is only providing services from India. Ld.CIT(DR) also submitted that the testing services are not comparable with the Complete process of research and Development. Ld.CIT(DR) read out "Note 1" of the Annual report of maverick which is as under : "Maveric Systems Limited was incorporated in India on 19.06.2000 to carry on the business of Software Testing Services for Onshore and Off shore clients." 6.6 Thus, on perusal of the Annual Report of the Maveric Systems Ltd, it is clearly observed that Maverick is only providing testing Services. Testing Services is merely one small component of the Research And development. Therefore, the Testing Services provided by Maveric are not functionally comparable to the Software Development services, C....
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....s providing technical personnel to various clients. 7.2 The Ld.AR mainly stated that the company is engaged in rendering software development services and the same is evident from Note 18 'Revenue from operations' as it derives revenue from services. 7.3 We have heard both the parties and perused the records. In the Annual report of Akshay it is mentioned as under : "Akshay Software Technologies Limited ('the Company') is engaged in providing professional services and procurement, implementation and support of ERPproducts and services in India and Dubai" 7.4 on the Web Site of Akshay it is mentioned as under : " We have over three decades of presence in the UAE market of sourcing contract staffing for clients. With deep consideration of UAE rules & laws we manage outsourced staff in a professional manner .We have immense experience to source candidate of all nationalities in all verticals............ Start-ups to unicorn companies require skilled candidates. Our professional staffing solution provides staffing in IT, Sales, Marketing etc. Our solution adheres to matching employer's requirements with top candidates. Akshay's professional st....
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....ilant Technologies Private Limited (Exilant) 8. The DRP has not discussed anything about FAR of this comparable. The TPO has also not discussed anything about the submission of the assessee that the comparable have Intangible assets. Therefore, we set aside the issue of comparability of this comparable to the file of the DRP. The DRP shall provide opportunity to the assessee and pass a speaking order. 8.1 Accordingly, this additional ground of the assessee is allowed for statistical purpose. Aspire Systems India Pvt Ltd : 9. The Ld.AR brought to our notice that there was amalgamation with effect from 1/4/2015. We have observed that in the Explanatory statement of Annual report (page 494-495 of PB) it is mentioned as under : "The audited profit and loss account for the year ended March 31, 2016 incorporating the effect of the Scheme of Amalgamation with effect from April 1, 2015 and the Balance sheet as at that date ......" 9.1 Thus, the Profit and loss account for the year under consideration was affected by the onetime event of amalgamation. Neither the TPO nor the DRP has discussed this fact in the order. 9.2 Since, there was amalgamation w.e.f 01/04/20....