TaxTMI 
TaxTMI 
2023 (2) TMI 555
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....rred in making an addition of INR 6,04,95,225/- u/s 92C on the basis of the order of the TPO u/s 92CA(3) dated 30.10.2019 in the case of the appellant company. 2. The learned A.O. / DRP erred in computing the Arm's Length Price (ALP) of the software development services rendered by the assessee company to its AE by holding that the assessee should have earned operating margin of 21.74% as against 8.86% earned by the assessee company. 3. The learned A.O. / DRP erred in not appreciating that the transactions of software development services entered into by the assessee company with its AE were at Arm's Length Price (ALP) and thus, there was no reason to make any ad on in respect of the said transaction. 4. learned A.O. erred in considering Cybercom Datamatics Information Solutions Ltd and Fixstream India Pvt Ltd as comparable companies in the final set of companies by ignoring the directions of Hon'ble DRP to exclude such companies on account of having related party transactions of more than 25% of the Sales. 5. The learned A.O. / DRP erred in confirming Thirdware Solutions Ltd, Infobeans Systems India Ltd, E-Infochips Ltd, Dun and Bran....
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....been given effect to by the ld. A.O/T.P.O while passing his order. The other grounds pertains to either exclusion or inclusion of various comparables as sought for by the assessee. With this background, the ld. Counsel referred to the T.P study report of the assessee and the functional analysis at page 15 of the said report, at para 3.3.1, which is as follows: "A functional analysis facilitates understanding of the transactions between group companies after taking into account their functions, assets and risks and assists in establishing a degree of comparability with similar transactions in uncontrolled conditions for the purpose of transfer pricing study. Velocity India is a captive service provider for Velocity Inc. which is its parent company. Veloc outsources the work of software development to Velocit India. Velocity India acts a service to Velocity Inc. and velocity Inc. deals with the cu8stomers. Velocity India is engaged in provision of captive software development services to its parent company i.e. Velocity Inc. Velocity Inc. ultimately provides services to end customers in USA. During the, financial year 2015-16, Velocity Inc. is handling a wo....
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....ion Solutions Ltd.. These have been excluded by the ld. D.R.P therefore, there is no dispute. There are certain other comparables for which the assessee wants exclusion from the final list of comparable companies. 5. Nihilent Ltd. The ld. T.P.O has discussed this company at page 19 of his order. The D.R.P has dealt with this issue at page 9 para 3.2.1 onwards of their finding and had upheld the findings of the ld. A.O/T.P.O., as follows: "3.2.1 The assessee had applied a Turnover Filter of Rs. 1 Cr. To Rs. 209 Cr. However, the TPO modified this filter to Rs. 5.11 Cr. To Rs. 5.11.14 Cr. The minimum and upper turnover filters applied by the TPO works out to 1/10th and 0 times of the turnover of the assessee, respectively. 3.2.2 We have considered the facts of the case and the submissions of the assessee In this regard, we are of the view that although there may not be a linear relationship between the profitability and turnover in the case of a service company, the size of a company reflected in terms of its turnover is one of the relevant criteria for comparability. This is because a company's ability to bear risk increases with the size of the company. I....
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....#39;ble ITAT, Mumbai, in the case mentioned above, we hold that the upper turnover filter should be fixed approximately at 1 O times the turnover of the tested party (assessee) and the lower turnover filter should be fixed approximately at 1/10th of the turnover of the tested party. Accordingly, we uphold the action of the TPO in applying the minimum and maximum turnover filters at Rs. 5.11 cr. and Rs. 511.14 cr. Respectively. 3.2.5 The assessee has also raised the issue of change of stand by the TPO with regard to application of this filter. The assessee contends that the TPO had earlier proposed to apply a turnover filter of Rs. 1 Cr. to Rs.75 Cr., but later modified the same to Rs. 511 Cr. To Rs. 511.14 Cr., and assessee has objected to the said change in stand by the TPO. It is seen that in para 4.8 and para 7.3 of his order, the TPO has clearly stated that earlier (in the show cause notice), the turnover filter was inadvertently mentioned as Rs. 1 Cr. To Rs.75.6 cr and that the same was being revised to Rs. 5.11 cr. To Rs. 5.11 cr. We find that the turnover filter is invariably applied by the TPO at 1/10th and 10 times of the turnover of the tested party. In the prese....
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....etail and consumer products. We have also been engaged by the government and public sector companies in several countries. The company derived a majority of revenues from South Africa where we have long standing relations with corporate clients. As a part of our global strategy, we are expanding our operations in other geographies such as United States, United Kingdom, Australia, Ireland, India, Nigeria and Tanzania. Towards this, we acquired GNet Group LLC a business intelligence and analytics company in USA and also acquired 51 percent shareholding of Intellect Bizware Services Private Limited (Mumbai, India) specializing in ERP and enterprise innovations based on SAP and HANA to develop and strengthen our presence in the ERP space. Our customer engagements comprise holistic analysis of problems which span across people, process, technology, as well as learning and innovation. Our service offerings include (a) Process and technology; (b) Digital transformation through which we help our clients formulate and execute their digital business stgrategy by providing services on digital channels using analytics, statistical modeling, machine learning.....
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....s company in the final set of comparables. The ld. Counsel for the assessee at the time of hearing demonstrated from the Annual Report of this company at page 445 in the paper book that there has been extra ordinary event in form of amalgamation taking place in case of this company. We have gone through the said Annual Report and it is evident that there is an amalgamation which has taken place and in view of this extra ordinary event of amalgamation this particular company has to be held as not comparable with that of the assessee. Accordingly, the ld. A.O/T.P.O is directed to exclude the same from the final list of compaables. 7. E-Infochips Ltd. 7.1 In respect of this company, the ld. Counsel for the assessee demonstrated from the Annual Report of this company that there has been an extra ordinary event of merger where two of the wholly owned subsidiary companies of E-Infochips Ltd. were merged with the company in terms of order of Hon'ble Gujarat High Court dated 29-03-2016. The merger took effect from the appointed date i.e. 01-04-2016. The ld. D.R. conceded to these facts on record. 7.2 We have already held in respect of the earlier comparables where there has been a....
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....ncluding product engineering and business process management. As against the same, the assessee is engaged in only one type of activity of providing software services to its AE, and therefore, the company should not be included in the final set of comparables. The D.R.P on analysing this contention have held that this company is engaged in activities of providing IT Software Development Services of various types and earns entire revenue from such activity. Therefore, the contention of the assessee that this company is doing varied activities is not relevant and acceptable and therefore, the first contention of the assessee was rejected. The second contention of the assessee was that this company had earned abnormally high profits from its business operations during the year. However, this contention was rejected by the ld. D.RP. based on various judicial decisions as placed in their findings vide para 13.2.4 where it is held that the Indian Law does not permit exclusion of super profit-making companies from the list of comparable companies. The ld. D.R.P further opined that the assessee has not brought on record any evidence to demonstrate that this earning of super profits was due....
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....A). 50. Perusal of financials available at page A303, A418 to A421, Infobeans shows that it is into diversified services but its segmental financials are not available without which it is difficult to compute the correct profit margin of the relevant segment. So Infobeans is also ordered to be excluded as a comparable being not a comparable to the assessee." 15.4 We find that this decision pertains to the same assessment year viz. 2016-17 and respectfully following the aforesaid decision on the same parity of reasoning, we direct the A.O/T.P.O to exclude this company from the list of comparables." 9.3 The aforesaid decision pertains to A.Y. 2016-17 and it has been held that Infobeans Technologies Ltd. has to be excluded as comparable as it is performing varied types of services and that also as per the financials of the company, its segmental financials are not available without which it is difficult to compute the correct profit margin of the relevant segment. Following the same parity of reasoning, we direct the ld. A.O/T.P.O to exclude this company from the final list of comparables. 10. Dun and Bradstreet Technologies & Data Services Pvt. Ltd. 10.1 Regarding t....
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.... 1379/Mum/2021 for A.Y. 2016-17 dated 25-02-2022 on this issue observed and held as follows: 47. The assessee sought to exclude Dun & Bradstreet as a comparable on the ground that it is functionally dissimilar being into providing predictive analysis, software development and related technology services and solution and on the ground that this company earns abnormally high margin of 58.19% during the relevant year. This objection was raised by the assessee both before the Ld. TPO as well as Ld. DRP but they have rejected the contention of the assessee by simply recording that "the company is engaged in technology based solution and analytic sales, hence it is functionally similar and as such assessee‟s contention is rejected." 48. We have perused a transfer pricing study of the assessee available at page A305, A412 & A413 of the paper book supported with relevant financials. Dun & Bradstreet is into providing vide area of sources such as D&B analytic services, risk management solutions, sales and marketing solution services, supply management solution etc. It has also come on record that the assessee has earned abnormally high margin of 58.19% as is evident ....
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....re the D.R.P objection raised by the assessee was as under: "Objection Nos. 1.6 to 1.10: Incorrectly considering operating margins of Evoke Technologies Pvt. Ltd (as 6.01% instead of 4.29%), CG Vak Software and Exports (as 12.59% instead of 9.43%. Sasken Technologies Pvt. Ltd. (as 7.24% instead of 5.48%), Rheal software Pvt. Ltd. (as 15.58% instead of 15.29% and Exilant Technologies Pvt. Ltd. (as 17.10% instread of 17.01%). 12.1 The D.R.P thereafter at para 7.2.2 gave their finding as follows: "7.2.2. Since this is a factual issue regarding the correct computation of margins of the comparable companies, the TPO is directed to verify the quantum of margin computations submitted by the assessee and adopt the correct Operating margins of the comparable companies mentioned in the above grounds and rework the adjustment accordingly." 12.2 It is the contention of the ld. Counsel that this direction has not been followed. The ld. D.R fairly conceded to the submissions. Having heard the parties in the interest of justice, we direct the A.O/T.P.O to follow the directions of the ld. D.R.P complying with the principles of natural justice. 13. In ground No. 7, the as....