TaxTMI 
TaxTMI 
2019 (9) TMI 1686
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....said notices, the AR of the assessee furnished the information called for. 2.1 After verification of the information, the AO referred the matter to TPO u/s 92CA of the Act, for determination of arm's length price in respect of international transaction reported by the assessee for the AY 2011-12. 3. International transactions: AE Nature of transaction Amount (Rs.) GE Healthcare Receipt for provision of software development services 49,007,274 GE Healthcare Receipt for provision of IT enabled services 8,418,000 3.1 Examination of TP study conducted by assessee: The assessee has carried out the economic analysis and has summarized it as under: Nature of international transaction Amount (Rs.) MAM PLI Margin of taxpayer (%) Margin of comparables (%) Contract software development services 49,007,274 TNMM OP/TC 10.19% 13.08% IT enabled services 8,418,000 TNMM OP/TC 10.19% 13.42% 3.2 Financial analysis of the assessee: As per the audited statement of accounts, the financials of the assessee for the AY 2011-12 are as under: For Software development segment: Operating revenue Rs. 4900....
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.... Rs. 33,34,083/- Accordingly, for SDS segments, the arm's length margin was arrived at 16.93% and the arm's length price of international transactions was determined at Rs. 5,23,41,357/- and the shortfall is computed at Rs. 33,34,083. 3.6 IT Enables Services: The TPO rejected the comparables selected by the assessee and he selected the following comparables, which included 5 common companies identified by the assessee in the TP study: S.No. Name of company OP/TC (Pre WC Adj) % 1 Accentia Technologies Ltd. 29.29 2 Acropetal Technologies Ltd. (Seg.) 15.57 3 Cosmic Global Ltd. 9.81 4 Crossdomain Solutions P. Ltd. 25.04 5 e4e Healthcare 16.60 6 eClerx Service Ltd. 69.78 7 Informed Technologies Ltd. 9.24 8 Infosys BPO Ltd. 18.85 9 Jeevan Scientific Technologies Ltd. 28.93 10 Jindal Intellicom Ltd. 13.54 11 Mastiff Tech P. Ltd. 21.78 12 Microgenetic Systems Ltd. -0.22 13 TCS E-serve Ltd. 76.28 Arithmetic Mean 25.73 Particulars Amount (Rs.) Total operating income (OR) 84,18,000 Total operating cost (OC) 76,88,957 ....
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....gainst which, the assessee is in appeal before us raising the following grounds of appeal: "Transfer Pricing Matters 1. That the order passed by the learned Assistant Commissioner of Income-tax, Circle-16(2), Hyderabad Assessing Officer ("AO") pursuant to the directions of the learned Dispute Resolution Panel ("learned DRP" or "learned Panel") under section 143(3) read with Section 144C of the Income-tax Act, 1961 ("the Act"), also read with the order passed by the learned Joint Commissioner of Income-tax (Transfer Pricing, Hyderabad) ("learned Transfer Pricing Officer" or "learned TPO") under section 92CA of the Act, is erroneous on facts and bad in law and is liable to be quashed. 2. That the learned AO/ DRP erred both in facts and in law in making an adjustment of INR 29,58,074/- to transfer price (TP') in the international transaction relating to software development services ('SWD') segment and an adjustment of INR 5,55,782/- to transfer price in the international transaction relating to Information Technology enabled services ("ITES") segment of the Appellant. Consequently, the learned AO/learned DRP has erred in considering the total TP adj....
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.... set of comparables in the TP order with respect to the Appellant's SWD and ITES segments. f) Upholding the action of the learned TPO in rejecting companies which pass the test of comparability and are functionally comparable to the Appellant in relation to the SWD and ITES segments. g) Rejecting certain companies which otherwise pass the test of comparability and are functionally comparable to the Appellant in respect of the SWD and ITES segments and were also not particularly disputed by the Appellant. h) Upholding the learned TPO's approach of disregarding certain filters as applied by the Appellant in selection of the comparable at the time of transfer pricing documentation and for the determination of comparables while conducting the search for the SWD and ITES segments without providing an opportunity of hearing to the Appellant. i) Arbitrary adoption of certain filters for the determination of com parables while conducting the search for the SWD and ITES segments. j) Considering certain expenses/income as non-operating in nature while computing the mark-up on cost ('Operating Profit/Total cost' or ('OP/TC')....
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....ializes in software product development services and provides end to end software development services to IT product companies. The company is predominantly engaged in Outsourced Product Software Development Services and offers complete product life cycle services. The company is building. IP portfolio which includes Cloud computing, BI & Analytics, Collaboration and Mobility. Revenue of Co. is both from software services as well as products and no bifurcation of income is given. The company has derived revenues from provision of software services as well as products; However, no segmental details are available in the annual report for the year under consideration. Company acquired OPD Business of Infospectrum India Pvt. Ltd. during year. The turnover of Persistent Systems for FY 2010-11 is Rs. 610.12 crores which is 13 times the turnover of Appellant Revenue Recognition: Revenue from licencing of products is recognised on delivery of products Revenue from royalty is recognised on sale of products in accordance with the terms of the relevant agreements. Revenue from maintenance contracts are r....
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....(P) Ltd. [(2017) 79 taxmann.com 208 (Chennai)] (AY 2011-12) - Para 11 & 12 Page 9 & 10 * Saxo India (P) Ltd. vs. ACIT - AY 2011-12 - [(2016) 176 TTJ 540 (Del] - Para 15 Page 16 6.5 As regards exclusion of comparable company i.e., Crossdomain Solutions Pvt. Ltd., in IT Enabled Services, it was stated as under: "Functionally different * Co. is engaged in rendering Business Process Management Service's and focuses on knowledge intense processes. * Co. thrives on Business Excellence and leverages models such as Six Sigma and Kaizen along with IT which are high end services. * The service offering of cross domain include Knowledge Service Outsourcing in Insurance, Healthcare, HR and Accounting domains. The company also offers business Excellence, Market Research and Data Analytics and IT services. Decisions where Cross Domain was excluded based on functionality: 6.6 Ld. AR relied on the following decisions where Crossdomain Solutions Pvt. Ltd. was excluded based on functionality: * S & P Capital IQ (India) (P) Ltd. [(2016) 72 taxmann.com 326 (Hyd)] (AY 201112) - Para 14 Page 14 & 15 * Hyundai Motors India ....
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....l on record, we find from Profit & Loss Account of this company, a copy of which is placed at page 1534 of the paper book, that its income from 'Sale of software services and Products' is amounting to Rs.6101.27 millions. The TPO has himself observed that this company does have some products, but, product revenue is only 7.2% and, hence, this company is predominantly a software service provider. This discussion is contained in para 21.67 of the TPO's order. Even Schedule-11 to the Profit & Loss Account also shows 'Sale of software services and Products.' This shows that this company is engaged in both rendering software development services as well as sale of software products. Albeit the percentage of software products in the total revenue is less, as has been noted by the TPO, yet, we are inclined to take it as non-comparable because there is no precise information about the contribution made by such small sale of software products to the total profit of the company. As no segmental information is available in respect of this company and the figures have been adopted by the TPO at entity level, we, therefore, order for the exclusion of this company from the li....