TaxTMI 
TaxTMI 
2023 (1) TMI 1201
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.... 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 Appellant and by inappropriately conducting a fresh search for benchmarking t....
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....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 initiating penalty proceedings under Section 271(l)(c) of the Act. 2. Brief facts of the case are that the appellant assessee company filed its return of income on 29/11/2016 declaring total income of Rs.18,28,30,770/-. The Ass....
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....e 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 Software (India) Ltd. 171.76 20.58% Nihilent Ltd. 251.36 22.22% Inteq Software Pvt. Ltd. 17.38 24.73% Aspire Systems (India) Pvt. Ltd. 231.17 28.59% Infobeans Technologies Ltd. 61.61 30.00% Thirdware Solution Ltd-seg 192.85 36.05% Cybage Software Pvt. Ltd. 722.52 62.17% Dun & Bradstreet Technologies & Data Services Pvt. Ltd. 122.80 63.31% E-Infochips....
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.... 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 Private Limited (Exilant) The Appellant would like to mention that Exilant should be rejected as comparable on account of the following reasons: * Exilant is a private limited company incorporated and headquartered in India and has registered office in Banglore, Karnataka Apart from having offices in India, the company has offices in United States of America, United Kingdom and Singapore. The company also has wholly owned subsidiary in Switzerland and Singapore, (refer page 1372 of paperbook II) * Along with its subsidiaries, Exilant provides/ delivers business solutions through global s....
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....nce 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 1665 of paperbook III); and * Infor (India) Private Limited (ITA No. 198/HYD/2021) order dated 6 October 2021 for AY 2016-17 (Refer para 4.4 of the order on page no 1699 of paperbook III) Puresoftware Private Limited ('Puresoftware') The Appellant would like to mention that Puresoftware should be rejected as comparable on account of the following reasons: * Puresoftware is engaged in Software testing, testing training and testing outsourcing. (Refer page 1419 of paperbook II) * The principal business activity of the company states that it is into design and development services of software applications including customized and packaged software. (Refer page 1405 of paperbook II) * The website extracts show....
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....s 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 of paperbook I) * Further, the company's annual report shows that it carries inventories of raw materials and finished goods, (refer page no 1110 of paperbook I) * The company is also engaged in Product engineering services, (refer page 964 of paperbook I) * The company derives revenue from sale of products, (refer page 1,155 of paperbook I) * The company also owns significant intangibles, (refer page 1,064 of paperbook I) * The segmental information of the company states that it is primarily engaged in Software development and IT enabled services and products, (refer page no 1135 of paperbook I) * Additionally, the company has an extra ordinary event of Acquisition of Smart guard Systems Private Limited and nGin Technologies Private Limited as per order of Hon'ble Gujrat High Court dated 29 March 2016. The merger took effect from 1st April 2021. (refer page....
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....rables. 5. Findings : We have considered the submission of both the parties and perused the records. 5.1 At the outset, the ld.AR submitted that he is not pressing for Ground Numbers 1,2,5,6,7,8,9,10,11. Hence, these grounds are dismissed as not pressed. 5.2 Therefore, the only effective grounds are Ground Nos.3 & 4. 5.3 Before, we start discussing the comparables, we will like to discuss the FAR of the Assessee and AE as emanating from the orders of the Lower authorities and Transfer Pricing Study Report submitted by the assessee. The holding structure of the Assessee company is as under : Functions performed as per the assessee's submission are as under : Software development support services: The AE of SAS R&D i.e. SAS US is involved in core research and development of SAS Software products. It performs end to end development of majority software products and reviews and approves the development of all the Software products developed by the SAS Group. SAS R&D is engaged in rendering software development support services to its AEs. SAS R&D works under the direction and supervision of its AEs. SAS R&D supports the development center of its AE, SAS US which has ....
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.... regular feedback. SAS R&D undertakes the initial testing during the development process and also on completion of the development ensures that the code generated meets the specifications/ requirements provided by the AEs. The AEs are responsible for final testing (user acceptance testing) of the software product before releasing the same in the market. Certain product documentation may be maintained/ developed by SAS R&D. However, the ultimate responsibility for all work in relation to software products including maintaining appropriate product documentation is with the AE. Quality control Quality control is driven and supervised by the quality engineering team of AE for all products. SAS R&D undertakes quality control as defined by the AE. 5.4 Here onwards we will discuss the various comparable challenged by the Assessee, either to be excluded or included MAVERIC SYSTEMS LTD : 6. In the Ground No.3 the appellant assessee has challenged the rejection of the comparable Maveric Systems Ltd which according to the assessee is functionally comparable. 6.1 The TPO and DRP has held that the said comparable is in the business of Software testing services where as the ass....
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.... on consulting projects, i.e. Installation, writing of routine, writing of codes, ETL, Data Management, Data warehousing, etc. (page 76 PB). Assessee is also engaged in providing training to the Customers of SAS Software Products and employee of SAS Group in relation to the functionalities of the SAS Software Products. Also, the Off-shore component of the Mavric services are substantial. Therefore, the wide range of Functions performed by the assessee cannot be compared with the "Testing" services provided by Maveric. Also the Risk, Asset of Onshore model of Maveric cannot be compared with Assessee. Therefore, we are of the opinion that the Maveric Systems Ltd is not a comparable to the assessee taking into consideration FAR of both the companies. 6.7 Ld.AR has relied on the order of ITAT Pune in the case of Xpanxion International Pvt Ltd., in ITA No.666/PUN/2016 for A.Y. 2011-12. In the said order in para 8 the ITAT has cryptically mentioned that Maveric Systems Ltd was engaged in Software Development Services. However, the Ld.CIT(DR) has relied on the Order of ITAT Pune in the case of PTC Software India Ltd where in the ITAT held that Maverick is not comparable to companies prov....
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.... the organization's productivity by outsourcing payroll management to Akshay's payroll management services. We follow strict payroll and compliance practices & make sure that each and every employee gets paid on time. Outsourcing payroll management to Akshay's team would streamline your entire payroll management process." 7.5 On the website of Akshay testimonial of HDFC is mentioned which says that Akshay Software Technologies Ltd has been their preferred IT manpower vendor since 2010. Aksahy is also trading in SAP. 7.6 All these things explains that Akshay Software technologies Ltd is mainly in the business of supplying skilled manpower to clients, along with payroll services. It is also in SAP business. These activities are not Software Development. Therefore, Akshay Software Technologies Ltd is not functionally comparable to the Assessee company. 7.7 In addition to this in FY 2015-16, there has been a special event in Akshay which is mentioned in the Annual report. Quote, "Revenue from operations for FY 2015-16 at Rs. 2484.67 lacs was higher by 14.04% over last year(FY 2014-15 Rs. 2178.73 lacs).Earnings before interest, tax, depreciation and amortisation (EBITDA)decreased....
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....rgan India (P) Ltd (2019) 261 Taxman 404/ 180 DTR 179 (Bom) (HC). 9.3 Accordingly, this modified ground of appeal is allowed. Pure software Private Limited ('Puresoftware') 10. The TPO observed that the company is in the business of Software Testing, Services, Software development. Therefore, the TPO held that it is comparable to the assessee. 10.1 The Ld.AR submitted that the company is in the business of Software Testing, Test Consultancy, software development. 10.2 We have perused the Annual Report filed by the LD.AR in the paper book On page 1433 of Paper Book note 26 shows the Revenue from "Software Development, Testing, Consultancy services, ARTHA, Mobile Top up of Rs. 22,05,88,150/-. However, on the assessee's web site description of "Artha" is as under: "Arttha' is PureSoftware's award winning Unified Fintech Platform that enables financial institutions to accomplish their journey of digital transformation to promote financial inclusion. It uniquely offers propositions of Virtual Banking, Mobile Wallets, Digital Customer On-boarding, Agent Banking and Micro-Lending through a single converged platform based on a completely modular and microservices architecture." 1....